Orders of the Day — Budget Proposals and Economic Situation

– in the House of Commons at 12:00 am on 9th April 1959.

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3.37 p.m.

Photo of Mr David Eccles Mr David Eccles , Chippenham

Somebody once described politics as an equal mixture of skill and luck, and yesterday the whole Committee sympathized with the right hon. Member for Huyton (Mr. H. Wilson), because, obviously, his luck was not in.

Photo of Mr David Eccles Mr David Eccles , Chippenham

It is extremely difficult to criticize a Budget which gives £400 million relief but, as the hon. Member for Bilston (Mr. R. Edwards) said, the skill of his right hon. Friend had not deserted him. He, at any rate, almost made himself believe both that this Budget is an assignment with an election and also that the relief's will be thoroughly unpopular.

I remember a very different scene in this Committee on another Budget day, the last time when we on this side of the Committee were in opposition—the Budget of 1951, when the present Leader of the Opposition was Chancellor of the Exchequer. He made a number of tax changes. He raised the standard rate of Income Tax by 6d.; he suspended initial allowances and took an extra £68 million in Profits Tax; he put up Purchase Tax and added to the petrol duty the same sum which my right hon. Friend has taken away from beer.

Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South

Would the right hon. Gentleman also add that we were in the middle of the Korean War at that time? Would he also tell us about the increases in taxation that took place at the beginning of the last Great War?

Photo of Mr David Eccles Mr David Eccles , Chippenham

I took the trouble to read the right hon. Gentleman's speech. I may say that I read it all the way through and thought it was most interesting. He made those tax increases for two purposes; first, to pay for the defense programme; and, secondly, to safeguard our exports. We know what happened. [HON. MEMBERS: "What happened?"] What happened was the run on the £in the following summer and in the autumn a runaway General Election. Exports showed no increase at all, as the result of the right hon. Gentleman's Budget. if the right hon. Member for Huyton had had the good fortune to be called to speak against his Leader's Budget we should have had not only sparkle, but a very great deal of substance.

As it is, in the field of broad economic policy which concerns the Board of Trade, the Opposition have had to concentrate their attack on the timing of the expansion by the Chancellor of the Exchequer. They say that he waited too long and that he ought to have put much more money into the market earlier. There always will be an argument, a very respectable argument into which politics must enter, about the correct balance between the three objectives of a high level of activity at home, steady prices and a strong balance of payments.

As it happens, a fortnight ago, in Cape Town, I heard the South African Minister of Finance open his Budget. The basic argument was exactly the same, only Dr. Donges found it necessary to raise some fresh taxation and to rely upon overseas borrowing to bridge investment needs below the line. The opposition party, the United Party, said just what one would have expected, that taxation was hitting the wrong people, and it deplored that he had to borrow so much for the nationalized railways.

The fact is that every Budget in every democratic country is a judgment upon what my hon. Friend the Member for Lewisham, West (Mr. H. A. Price) called the " see-saw between inflation and deflation ". Some countries have much more room for man oeuvre than we have. Our friend the Sheikh of Kuwait does not have to bother about the balance of payments at all. Other countries, with vast internal resources, like the United States, have far more freedom to expand than we have.

Indeed, a good case could be made out for saying that the British economy is the most difficult in all the world to manage with consistent success. We have not only to meet an annual import bill of about £4,000 million; we have many other commitments overseas. The Committee knows what they are. They are the sterling balances, the payment for our troops abroad, the cost of looking after the Colonies, the need to repay old debts and to make new investments and, above all, to keep the £a convertible and desirable currency. All these add up to a continuing obligation to put the export trade higher in our policy than perhaps any other country needs to do.

I do not think that the Opposition deny those facts, but they say on this occasion that the Government have overdone caution and waited too long to expand. The Opposition have dramatised that view by saying that we have lost the country £1,700 million of production. The aspect of that very serious charge which gives the Board of Trade most to think about is the effect an expansion of that size would have had upon exports. One has to remember the circumstances in which such unprecedented increase in domestic activity would have had to be primed and generated by Government action. At that time the £was under pressure. At that time it was very easy to see that world trade was contracting, that competition would be keener and that delivery dates would have to be shortened.

With that warning, the one thing that we could not afford to risk was a rise in export prices. It would have been wholly wrong to gamble on the windfall of lower import prices for going into an expansion. We needed that windfall for rebuilding the reserves. It might not have lasted. We did not know how soon import prices would turn up.

What would have happened in those circumstances if a Labour Government had put enough purchasing power into the market to stimulate such a colossal increase in production? There are three questions here. Under what manufacturing conditions could that increase have been secured? What effect would it have had upon exports? If that effect were bad, could the balance of payments all the same, by one way or another, have been protected?

First, the huge increase in production could have been achieved only by forcing into use a very large proportion of all our marginal resources. The demand for labour would have been intense, overtime and other extraordinary payments would have been made with little care because it would have been easy to pass on the costs, and more or less all our marginal plant —some of it is very high cost —would have been put into service flat out at maximum capacity. Even then, no Government could have put into use all the plant which has been underemployed. Nothing could have brought back into production the old tinplate mills. No Government could have found ships to repair to replace the ships which the foreigners have laid up. In short, some industries would have been underemployed in any case and others would have been heavily overloaded.

One result must have been that many of the goods which we did, in fact, sell abroad last year would have been taken by the home market. As I understand it, the way the Socialists say they would have met this challenge is by greater production, which they claim would have meant lower prices, and lower prices would have meant more exports.

That is exactly what the right hon. Member for Huyton said in a recent interview. I would like to quote his words. He said: Every director knows that to run a factory below capacity means not lower prices but higher costs. As a general statement, when a plant has been running at and not above its most efficient level, that is obviously true; but when inflation was still at work most of British industry was running above the optimum capacity with all the pressure of high marginal costs. In those conditions, which always happen at the end of inflation, some reduction in output results in lower unit costs.

I am not just talking theory. All our evidence shows that, when the credit squeeze began, most engineering firms in this country were under too great a pressure to take care of efficiency. Once inflation was checked, they were able to look at their costs, and to absorb part of the rises in transport and fuel costs which were by no means wholly offset by 'he falls in import prices. Many industrialists have told me that they are now in a position to get more out of their plant than ever they thought was possible when rising prices put a premium on sheer output rather than efficiency.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The right hon. Gentleman's argument, as I understand it, is that last year, which is the situation we are talking about, when there should have been an increase and we were going full out, it would not have lowered costs to increase production. Is it not true that last year we already had in the economy £1,000 million of additional investment capacity put in in the previous two years, but which had not been used because production was not increased in those two previous years?

Photo of Mr David Eccles Mr David Eccles , Chippenham

The point from which I was starting was the point at which we saw that it was necessary to check inflation. [Hon. MEMBERS: "When? "] It was round about September, 1957. I am talking about the very good measures taken by my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft). He was quite right to take strong measures against inflation in September, 1957.

Indeed, it is known, and if right hon. Gentlemen opposite will consult their friends in the engineering industry they will know, that what I have said is a correct account of the facts. One reason for the rather exceptional fall in orders for plant and machinery last year is precisely because industry has discovered how to get more out of the plant which it has, and is, therefore, ready now, as it was not then, to expand without raising unit costs. That is an immensely important gain to the economy, and it had to be secured before we could go ahead with safety.

Then, I think that the Opposition say that, even if an earlier expansion had raised prices, and had made it harder to earn an adequate surplus on overseas account, they would have been able to correct this by the use of controls. They would have imposed restrictions on the conversion of sterling into other currencies, and would have curtailed the imports, production and consumption of goods which Labour Ministers chose to call inessentials. A policy of stopping people exchanging their pounds and buying what they wanted to buy would not have worked.

The right hon. Member for Huyton did well to remind us yesterday that it is fourteen years since the war ended, and a return to physical and financial controls now would, I believe, have been deeply resented by our own people. That is a matter of judgment, but I am certain that it would be taken as a red light for sterling by the outside world. There are more eyes on our gold reserves than on the gold reserves of any country in the world. If we so manage our affairs that our export prices look likely to become uncompetitive, we cannot stop the rest of the world drawing the conclusion that Britain is heading for an exchange crisis.

After all, they saw it happen in 1948 and in 1951. [An HON. MEMBER: "What about 1956?"] Measures were is ken then, and nothing happened. If any British Government now introduced stern measures of exchange control in a world where there is so much more freedom than there was in the immediate post-war period, that in itself would damage confidence in the £. Overseas holders of our money would say to themselves, " It is better to get out as soon as; we can."

On these benches, we have had these considerations in mind when timing the expansion of the economy. We thought that it was right to wait for two conditions to be fulfilled. First, we had to ask ourselves whether export prices would remain competitive while output began to rise again; and, secondly, given steady export prices, whether the prospects were good enough for selling abroad that much more to pay for the additional imports that would come in. A year ago, these two conditions were not present, but they are now, and that leads me to say a word about the second one, which is the prospect for selling more abroad.

As my right hon. Friend the Chancellor said yesterday, we have had a very difficult year in the export field, and in spite of the ability of our exporters to quote steady prices and to offer much shorter delivery dates, exports have gone down last year, and we have only just, or hardly just, held our own. I may say from our experience in the Board of Trade that, because home demand was restrained last year, British exporters put more time and more skill into selling abroad than they have ever done before, and Board of Trade Ministers have seen for themselves in the many countries which we have visited the growing effort that industry is making to expand its old markets and find new ones.

We have received many favorable comments on the work of our commercial officers and trade commissioners. When the Minister of State or I have visited these officers in their posts, we have been astonished at the amount of their knowledge of conditions in the area in which they work. Everywhere they told us the same story — that in 1958 the number of inquiries they have had to deal with in connection with exporters trying to sell goods in these markets has gone up more than they have ever known before. All the same, it is true that our business men make very uneven use of our commercial services, and I am confident that it would pay all of them every time they go abroad to go and see the commercial officer or trade commissioner concerned.

But we also want the business man's help. He can give our officers information about local conditions which, whether it concerns his own business or not, helps to make the service which the mission concerned can render to our people in general more valuable. I should like to say a word for the local market officer, who is a man or woman engaged locally, who very often serves for many years on the staff of the mission, and accumulates a knowledge about local conditions that is quite invaluable to the professional officers who come and go on their tours of duty. These people are very valuable indeed, and I am concerned —and the Chancellor of the Exchequer knows it —about whether we give them as much in pay and conditions as they ought to have for this work.

Going back to last year —

Photo of Mr John Cronin Mr John Cronin , Loughborough

Will the right hon. Gentleman clear up one important point? He has given us to understand that exports are more satisfactory for us when home demand is restrained and that industry works more efficiently when there is surplus capacity and old plant is used. Does that mean that he is opposed to his right hon. Friend's Budget? If not, what is the difference in circumstances between now and a year ago?

Photo of Mr David Eccles Mr David Eccles , Chippenham

I am very grateful for that intervention, because I hoped I had made it clear that because of the consolidation, and looking at costs during last year, we are now in a position to expand with safety, which we would not have been twelve or eighteen months ago.

Photo of Mr John Cronin Mr John Cronin , Loughborough

What is the difference between them?

Photo of Mr David Eccles Mr David Eccles , Chippenham

I should like to return to the subject of export markets. These were difficult for two reasons. First, there were obstacles placed in the way of our goods, and, secondly, there was a general slackening in world trade. Against that background of difficulty, it is very good to record the outstanding success of our exports to the United States. The latest news from the New York Motor Show is further proof of the popularity of British cars. Our salesmen are confident that they can beat the record figures of last year's sales of cars in North America. If they can do that, it will be something very remarkable indeed.

Unfortunately, the pressure of certain interests in the United States to keep out foreign competition has done damage to a number of important British export trades. When one considers the immense purchasing power of the United States and its unrivalled record as manufacturers, surely it is reasonable to expect that generous and enlightened people to turn their backs on protectionism. What Americans do this year and in the years that follow in the field of tariff policies will influence very much the commercial policies of the rest of the world.

For our part, we should like to see a fresh and combined effort by the whole of the countries of the free world to open their markets more generously to each other. I ought perhaps to tell the Leader of the Liberal Party that we on this side of the Committee are not Free Traders, if that means the unilateral removal of tariffs and quotas. On the other hand, there are very great advantages to the United Kingdom in the reciprocal reduction of tariffs and quotas and in the coming year we must work very hard to this and through the G.A.T.T.

Photo of Mr Alfred Robens Mr Alfred Robens , Blyth

As the right hon. Gentleman is dealing with our relations with the Americans, will he say anything about the negotiations that were taking place, when the Prime Minister went to Washington, about the rejection of tenders by reputable electrical firms in this country based on strategic requirements? I could never understand —perhaps the right hon. Gentleman can enlighten me —why they asked for tenders if, when they got the tenders and the British were the cheapest, they decided, on strategic grounds, that they could not accept tenders for big electrical equipment. What has been done of a useful character by the Government with the Americans in that matter?

Photo of Mr David Eccles Mr David Eccles , Chippenham

The Government find themselves exactly in agreement with the right hon. Member. We could not understand it, either. We have made the strongest representations to the American Government on that point. We have not yet heard the result of what is a sort of general review of principles in relation to tenders of that kind, but I understand that we shall hear the result fairly soon. The Committee can rest assured that the very strongest representations were made in the highest quarters against this disturbing decision.

Photo of Mr William Williams Mr William Williams , Manchester Openshaw

Ought we to gather from the statement of the Prime Minister the other day that, despite all those representations, we have had no change out the situation?

Photo of Mr David Eccles Mr David Eccles , Chippenham

We have not yet had the result of the review of this question in principle. Therefore, I am not able to add to what I have just said, but the Americans are under no doubt that we consider we should be given a fair chance to tender for these civil contracts.

Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne

Would not the President of the Board of Trade agree that the difficulties we are running into in the wool trade vis-à-vis the new regulations in America come outside the ordinary negotiating field for tariffs, that they are purely a matter of Japan being a bastion against Communism and the supply of orders to Japan being entirely dependent on their attitude towards America?

Photo of Mr David Eccles Mr David Eccles , Chippenham

I do not believe that the particular arrangements under the tariff quota for woolen goods which the United States Government have thought fit to bring in were deliberately designed to favor Japan against the United Kingdom.

Photo of Mr David Eccles Mr David Eccles , Chippenham

The effect has undoubtedly been to favor Japan against the United Kingdom.

Photo of Mr David Eccles Mr David Eccles , Chippenham

I cannot agree with the hon. Member, but we have pointed that out to the American authorities in no uncertain manner. Again, their decision on the quota is held up and we are waiting for it.

There is something else in the field of commercial policy which I think the United Kingdom should undertake. We ought to lead an attack on excessive subsidies to primary production which results in subsidized exports which injure efficient producers in many younger countries. It would have been very easy, for example, to satisfy our New Zealand friends if subsidized butter had not been exported and if some big consumers had admitted unsubsidized butter without quotas. There is a very great possibility of advance in this field.

Reciprocal reductions in tariffs and quotas is the principle behind the European Free Trade Area, which we still hope to negotiate in some form. I am glad to report that we have just come to an agreement with the French under which some of our industries will get better opportunities to sell in the French market. One sometimes hears Frenchmen talk as if Britain wanted France to be economically weak. The reverse is true. It is in our interests 'that French industry should be strong enough to face competition. One can foresee a growing specialization in the export of manufactured goods which will increase the wealth of the whole free world and out of this specialization the French and ourselves ought to do very well.

The right hon. Member for Huyton surprised us yesterday when he deplored the increase in manufactures as a proportion of our imports. I thought that that was an astonishing thing to worry about, because all industrialized countries are importing more manufactures in proportion to their domestic output. That is why world trade is growing faster than world production. I give an example. Our trade with West Germany—it is a very good trade which is expanding and which both the Germans and we believe is capable of much further expansion—is based on a growing exchange of manufactures. If the right hon. Member will allow me to say so, I thought that his view was very old-fashioned, because he wants to stop a trend that favors an expansion in international trade and because he wants us to try to manufacture at home goods we can get on better terms by taking advantage of specialization in manufacture throughout the free world.

Turning for a moment to our trade with Russia, we are waiting for certain information about the scope of the trade mission which the Prime Minister and Mr. Khrushchev agreed we should send to Moscow. On that subject, I am seeing the Russian Ambassador again tomorrow. We have known for a long time that the essential difficulty in the way of doing more business with the Russians would be their shortage of sterling, and so it has proved to be. They probably would like to sell us oil, but the fact is that at the moment there is a surplus of oil in the world. Therefore, in present conditions that is not a very likely line of advance.

However, there is a development on the Russian front which might interest hon. Members. In recent months, the Russians have greatly increased their inquiries in this country for capital goods, indeed for whole factories, and the manufacturers of these plants are asking the Export Credits Guarantee Department if the sums involved can be insured. How far we can go in that direction is obviously a matter we now have to consider very carefully. But the fact about Anglo-Russian trade today is that the orders are there. The problem is finance.

I should like to say a word about the Export Credits Guarantee Department.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Before the right hon. Gentleman leaves the Russian capital orders, is it not a fact, as I have mentioned more than once in the House, that some of these large capital orders—I am told that the amount will possibly be £150 to £200 million—are being held up and vetoed because they involved patents or " know-how " which are the property of American companies who are being told by the State Department that they should not allow the shipments to he made? I should like to ask the President of the Board of Trade what representations the Prime Minister or he himself has made to the State Department to ensure that this very important export trade is not held up by vetoes of this kind?

Photo of Mr David Eccles Mr David Eccles , Chippenham

We have no information of the State Department holding up anything. That there are certain agreements about techniques and patents between American companies and British companies is very well known, but those are civil contracts. If the contract contains a clause providing that the British company shall not export the "know-how" without the consent of the parent company in America, we can do nothing about it. It is a commercial matter.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The right hon. Gentleman seems to be a long way behind the facts. Many of the American companies concerned would like to facilitate the trade and to release these patents or " know-how " for perhaps only a small ancillary part of the equipment required for a large factory. As the right hon. Gentleman knows, American manufacturers are very touchy about East-West trade and they always go for guidance to the State Department. They have been given the guidance that they should not allow the " know-how " to proceed. Therefore, there is a strong case for representations to be made by the Government to the State Department.

Photo of Mr David Eccles Mr David Eccles , Chippenham

I believe that that is what some Russians say, but we have no confirmation of it. If it were a serious question, one would have thought that at least some of these firms would have come to the Board of Trade.

I should like to say something about the Export Credits Guarantee Department. The Department is growing steadily in size, in its business and in its reputation. Last year the sums insured totaled £524 million, or 15 per cent. more than the previous year. The most notable advance was for insurance on three to five year credit for capital goods, which increased by no less than £46 million from £67 to £113 million. Year by year we are lending a larger proportion of our exports. This is sound so long as we do it mostly on short-term credit and take care about the credit-worthiness of the borrowers.

But as the Committee is very well aware, we are, as always, under pressure to lend more on long-term. That kind of finance is crucial to some of the underdeveloped countries. We are this year lending more on long-term credit through Section 3 loans of the E.C.G.D., to which my right hon. Friend the Chancellor of the Exchequer referred in his speech yesterday. If we could, we should like to lend still more. In any case, the United Kingdom alone cannot be expected to meet all these vast requirements. The more international lenders there are the better for us and the better for the Commonwealth.

In no decade in history have creditor nations been so generous as they have been in the last ten years, and the marvel is that so much has been lent in so short a time. None the less, there are still obvious improvements to be made in the technique of international lending, and my hon. Friend the Member for Eastleigh (Mr. D. Price) called our attention to this yesterday evening in what I thought was a most excellent speech. I suppose that a critic of what we are doing now would say: first, that the lending has sometimes been too irregular, that the tap has been turned on and off too frequently. One hears that complaint in South America.

Secondly, he would say that the provision of loans and aid have not been effectively coordinated by those who have made them. It must be unwise, however generous the intention is, to export with a subsidy or to give away raw materials or foodstuffs if the result is to disrupt the trade of a traditional supplier and then that unfortunate fellow has to come and be baled out with a loan. It is very much better to provide cash with which the country whom one wants to help in the first instance can buy goods through the market. I am sure that it is right that we should try to insist that aid is given in the form of cash.

Thirdly, the amounts of the loans and aid have fallen short of what is needed to hold where it is, let alone to narrow, the gap in the living standards between the rich and the poor nations. India is here an outstanding example of a gigantic problem we dare not leave unsolved. Good progress is being made here and the technique of lending through a consortium, which was used to help both Turkey and India, is proving a success. Further, we can, as the Chancellor of the Exchequer said, look to the fresh funds going to the International Monetary Fund and the International Bank to give those institutions the resources to maintain a very high level of advances.

What seems to be lacking today is adequate co-ordination of help to countries whose needs are very great, but who are not first-class credit risks. This gap will have to be filled if the very low standards in the poorer countries are to be raised faster than could be done on purely commercial principles. There are very strong political reasons for doing this, but I am bound to say that I think that we ought to do it on grounds of common humanity. At the same time, we could do our whole system irreparable harm if honest relationships between borrowers and lenders were undermined by forms of semi-charity which could never be either adequate or permanent. It is the duty of the strong to help the weak, but this help must be given in ways which will lead the receiving country itself to become a strong and solvent member of the free world.

How can we keep the economies of the whole free world expanding? What policies ought we to pursue? I think that there are four policies: more liberal trade policies; less protection for primary producers where that protection results in heavily subsidized surpluses that have to be sold abroad; better coordinated loans and aid; and guarding against inflation. It is in the interests of the United Kingdom to support all those policies in every way that we can. Opportunities for doing so are always occurring in international meetings and particularly through the policies which the Commonwealth decided at Montreal that we should pursue together with the rest of the free world.

In conclusion, in striving for world expansion there is no persuasion equal to a good example of action taken in one's own country. This Budget is such an example, and the Chancellor of the Exchequer, by his patience and skill, has raised our reputation throughout the world, and in the coming year it will be our duty to build on the foundations that he has laid so well and truly.

4.19 p.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

The President of the Board of Trade uttered a number of platitudes, but he made the one rather surprising statement that the present Government did not notice until September, 1957, that inflation was going on. I do not know what they thought was happening in October, 1955, and November, 1956. Perhaps the right hon. Gentleman did not notice the exchange crises that occurred in those two years. He also said that he considered the measures and policies of his right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) to be excellent. That leaves us even more puzzled to know why that right hon. Gentleman disappeared from the Government.

The Paymaster-General challenged us yesterday to direct our attention to the Budget, and I am very glad now to do so. I believe that hon. Members and the public outside, who have now had 48 hours in which to look at the Budget—and to look at it, not in the rather frothy mood of Tuesday evening but in the cold light of the second morning after—find the distribution of reliefs rather extraordinary. When one examines them in the light of the redistribution of income and wealth that has been going on under this increasingly reactionary Government in the previous few years, and particularly in the last year, one wonders whether the Chancellor could have found a much more socially unfair method of distributing nearly £400 million.

Let us now look at the facts set out in the Economic Survey. It tells us very frankly that in 1958 the total wage and salary payments, in money terms, was 3 per cent. higher than in 1957, but that the total of rent, interest and dividend receipts was 9 per cent. higher. Since, towards the end of the year—again, according to the Survey—earnings of manual workers in manufacturing industry were less than 2 per cent. higher than a year before it is fairly clear that salaries rose rather more than 2 per cent. and wages rather less.

As, however, we are told that the cost of living was just on 2 per cent. higher during the year, it emerges from the Survey that wage earners as a whole gained practically nothing in gross real incomes during that year, but that, in terms of real income, the recipients of rents, interest and dividends, must have been better off—heavily better off.

Gross incomes are not the whole story. In 1958, the Chancellor took by way of National Insurance contributions another £200 million from the public—and very largely, and with disproportionate weight from the wage earners. It therefore seems to me to be beyond doubt that in terms of actual standard of living—that is to say, real income after tax—most wage earners, and certainly the less well paid, must, on the evidence of the Survey, have been worse off last year.

That, again, is not the whole story. The Survey does not mention, though the Chairman of the Stock Exchange has told us, that during 1958 the total capital appreciation of shares quoted on the Stock Exchange was £4,300 million. Since Tuesday it must have grown further, because although the Chancellor said piously that he did not wish to start a spending spree, he certainly started one in Throgmorton Street.

In this situation, and after this redistribution of income, what does the Chancellor do? When deciding to raise the overall Budget deficit from £182 million to £721 million—which, I gather, shocks the hon. Member for Wolverhampton, South-West (Mr. Powell) but to which, in the present deflated state of our economy I do not object— one would have thought that the Chancellor would have shared out this £366 million of reliefs with—I accept the right hon. Gentleman's word—scrupulous care both for social justice and fiscal wisdom.

If, in that spirit this spring, one asks oneself what are the strongest claims today from the community, on grounds of human need and social justice, there is no doubt about the answer. They are three—the old people, the unemployed, and the still badly housed. About the failure to help the old people I will only say—partly having in mind the leader in The Times of today—that I believe that the old-age pensioners ought now to have a far higher real standard than the country could possibly afford in the first few months after the war. I would not have expected the present Chancellor to do nothing about that at all in a Budget in which he is disbursing over £360 million. It shows, once again, the persistent cynicism with which the party opposite regards these issues of social justice.

The failure to do anything to re-expand council house building is equally indefensible. From their statements Ministers appear to be completely out of touch with the facts of life over housing. Do they not realize, even now, that in industrial areas such as my constituency—and certainly in other congested districts of central London—the housing problem of the ill-housed minority is now worse than it has ever been since the war? That is the result of stopping the housing subsidy, and stepping up the interest rate for housing from 3 per cent. to 5¾ per cent. —and it is still 5¾ per cent., although the country is supposed to be so well off.

Those of us who represent such areas, particularly in London, are writing letters every week saying to our worst-housed constituents—for the first time in the post-war years—that there is really no hope for them at all. If the Chancellor does not believe me, I can send him much correspondence, or even take him to these people's so-called homes.

The local authorities concerned can now do virtually nothing, because slum clearance is filling all the new flats and houses that are being built; and it is just the lower-paid wage earner with several children, now living in a disgracefully overcrowded home, who cannot possibly borrow the £250 or £300 necessary to buy a house. In those circumstances, to refuse either to restore the housing subsidy or to lower the P.W.L.B. rate of interest from 5¾ per cent. is unforgivable. If the country is really so wonderfully well off, if, in the Chancellor's words this is a "springtime of opportunity", and if the £is standing so "firmly on its feet", why does the rate of interest for housing have to stay at 5¾ per cent.? I hope that the Chancellor will answer that question before the debate ends.

Having thus, using the Chancellor's words again, stood back and tried to see …longer perspective, where we have been and where we are going." — [OFFICIAL REPORT, 7th April, 1958; Vol. 603, c. 27.] let us look at the actual fiscal reliefs. Having, of course, already quietly levied another £200 million in National Insurance contributions— mainly from the worst off— the Chancellor proceeds to hand back almost exactly the same amount in the form of 9d. off Income Tax.

Does the Committee realize that the annual yield of National Insurance contributions is now greater than the total Income Tax revenue from all wages and salaries? During the last five years, this Government—I suppose, deliberately—have gone far to substitute for the personal Income Tax this highly-regressive poll tax called a contribution, and this year's Budget carries this vicious process, as I regard it, a long step further.

Where does this £200 million, that the Chancellor has raised on the insurance contribution now go, as a result of the much-heralded 9d. off the standard rate, unaccompanied by any change in Income Tax personal allowances? I gather that the Paymaster General wanted us to look at this narrowly. First, much the larger part—more than £100 million goes to business profits and not directly to personal earned incomes at all. Large firms like I.C.I. and the Imperial Tobacco Company each get more than £1 million at once in Income Tax relief.

The Paymaster-General kept asking us yesterday where, if we were to urge other reliefs, we would have raised less revenue in this Budget. I will tell him. We do not think it necessary to have granted this huge further relief to business profits after last year's reduction in Profits Tax

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I also asked whether the party opposite intended to oppose relief in Income Tax.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

And I am telling the right hon. Gentleman that at present we do not think that that part of it was necessary. Even of the minor portion something under£100 million which goes to personal earned incomes—the distribution of reliefs is really fantastic. According to The Times yesterday, the Economic Secretary said that the main benefit went to the middle classes. That is candid. But it is not correct. The main benefit actually goes to the "top people" as they are called nowadays.

If one looks at the figures, the higher one's income the more relief one gets—just the opposite of the rising insurance contributions. For instance, the £10 a week man with a wife and one child on earned income gets the magnificent sum of 24s. 6d. a year. The £100 a week man with the same family gets £132 a year. That is by no means all. It is even more extraordinary that in every case the Chancellor gives more relief to the man, or woman for that matter, with no family than to the one with a family. This does not apply only to the wage earner, but hits the middle income family with startling inequity.

If a single man earns £1,000 a year he gets £20 a year from this Budget. If he has a wife and three children, he gets £6 a year. How does the Chancellor justify that on the grounds of equity, need, incentive, or anything else? In the case of a man earning £1,500 a year, if single the Chancellor gives him £34 a year. If he is married with three children, he gets only £19 a year. I do not know who will regard that as being fair.

Even more extraordinary, does the Committee realize that, in this year of expansion and competitive efficiency in this opportunity State, those with unearned incomes at any level get more from the Chancellor than those with earned incomes? Look at the figures again. A married couple without children and an income of £14 a week get £8 a year relief if their income is all earned, and £13 a year if it is all unearned. At £20 a week, such a family gets £16 a year if it is earned and £24 a year if it is unearned.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

The right hon. Gentleman said that he was not going to follow his right hon. Friend in talking about giving away, but he is slipping back now and talking about getting back from the Chancellor. I think he ought to keep to his good resolution and talk about being relieved and getting his own money back.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

The hon. Gentleman has forgotten that the Lord Privy Seal, in 1955, always used the phrase "giving away". I am being impartial as between the Lord Privy Seal and the Paymaster-General.

On the question of the difference between earned and unearned incomes, a family with £50 a week gets £60 a year relief—that is the wording the hon. Gentleman wants—if the income is earned; and £80 a year if it is unearned. What is the justice of this? What incentive does it give to anyone except to have an unearned income? [Laughter.] If that is what hon. Members opposite want, they might say so.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

I am only asking this question for the benefit of the right hon. Gentleman. Is he saying that it is official Socialist policy that no man should save during his working life and derive an income from those savings when he retires?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

If the hon. Gentleman wants to know what I am saying, he had better listen to it.

Because the Income Tax reliefs are so unfair, one would have expected the Chancellor to redress the balance when he turned to Purchase Tax. Instead, he does the reverse. He discriminates against the real household necessities, clothes, boots and shoes, and furniture by leaving everything on the 5 per cent. rate completely out of his cuts. Not only does he thus discriminate against the less fortunate families, including the old people, who must buy these things. He also discriminates against the unfortunate industries—at the present time, textiles and furniture particularly. Will the Chancellor confirm that even made-up cotton goods still bear tax at the 5 per cent. rate?

The Chancellor should have abolished Purchase Tax on goods in the 5 per cent. range altogether, and given all the additional relief he could at the other rates according to what he could afford. He would then have given help where it was most needed socially and simplified the Purchase Tax into three rates instead of four. There were three rates as long ago as 1948, but there are still four rates today. By leaving it at four rates nothing has been done in this Budget to smooth out the tangles in which the hon. Member for Kidderminster (Mr. Nabarro) got tied up every Tuesday and Thursday throughout the winter.

In all these changes, including the rise in the contribution, it is the wage earner with a family of two or more children with an income of £12 a week or less—and there are millions of them—who has to bear the extra burden and get none of these reliefs. I am not accusing the Chancellor of a personal bias against families with children, but in this Budget he has acted almost exactly as if he had one.

For all these reasons I believe that the share-out of reliefs in this Budget is quite outrageously unfair; and is, in terms of social justice, the most reactionary of any Budget since the war except for the Surtax spree budget of the right hon. Gentleman the Member for Monmouth, which he introduced, saying that the theme was expansion, but which resulted in two years of stagnation.

This year the present Chancellor, sadder and wiser, or at least a less cocky man than the right hon. Gentleman the Member for Monmouth, also says that his theme is expansion. We are delighted if his conversion is genuine. The Paymaster-General and President of the Board of Trade today felt very concerned to answer the question why, if all this is right now, it was not right and necessary twelve months ago. That question was not answered very convincingly. The Paymaster-General's only point of substance was that the gold reserve was higher today. As between March and March, taking the latest figure, it is only £32 million higher on a total of £1,100 million; and that is not a very substantial difference.

Against this, the balance of payments prospect, which is what really matters, was much better a year ago than it is now. Import prices were then falling, and the Chancellor said so himself. They are no longer falling, and may well rise. A year ago we were hoping for a Free Trade Area and now there is no hope. The President of the Board of Trade appeared to rest his whole argument on saying that the prospect for keeping export prices steady was better today than it was a year ago. I do not find that convincing, because a year ago raw material prices were falling. Now they are no longer falling. So one cannot prophesy with much confidence that export prices will keep down more over the next twelve months than they have in the last year.

Having listened to the Paymaster-General and the President of the Board of Trade, I again ask, "If expansion was wrong a year ago in a much better balance of payments situation, why is it right now?" I have a less suspicious mind than some hon. Members have, and I do not connect this with all this talk about a General Election. But if it has nothing to do with it, I should like to know why we have a totally different policy today. At any rate, there can be no doubt about the huge losses which this country has suffered as a result of this year's delay and the Chancellor's belated conversion to our views.

Here is a very brief summary of the year 1958, taken entirely from the Chancellor's own Economic Survey. Production, down. Employment, down. Exports, down. Investment, down. That is all in volume. Cost of living, up. Incomes from rent, interest and profit, up. Share prices, up. Unemployment, doubled. That is the picture of last year which, slightly sub-edited in our great Tory Press, has been presented as one of absolutely booming prosperity.

After listening to the three speeches from the Front Bench opposite, I still do not understand why the Economic Survey says, at the end, that production is rising. We should like an explanation of that. The last figure we have for industrial production, that is to say, 106–7 seasonally adjusted, for February this year, is lower than for any of the three previous months. It is lower than the average for 1958. It is lower than it was in February, 1958, or February, 1957, and it is lower than the point reached in the autumn of 1955. What, then, does it really mean to say that production is now rising—unless Ministers have some of the secret figures which the Minister of Labour sometimes produces but which, on this occasion, they will not reveal even to the Committee, perhaps, until the end of the debate? We should like to know the answer.

On the latest published figures which we are allowed to know, industrial production has virtually stood still since the autumn of 1955, and has risen very little since 1954, when the Lord Privy Seal promised to double the standard of living in twenty-five years. I notice that the Lord Privy Seal, in his television appearance a few weeks ago, which made such a notable contribution to the result of the Norfolk, South-West by-election, appeared to argue that, although production was not rising, the upward move- ment in the standard of living was, nevertheless, going on according to plan.

Not merely is this a striking new economic doctrine even for the Lord Privy Seal-I might almost call it a deviation-but I think that the Lord Privy Seal must have forgotten that interesting 1955 election manifesto, "United for Peace and Progress", which my right hon. Friend the Member for Huyton quoted yesterday and which provided a sort of preamble to the policies of Suez abroad and stagnation at home. The Paymaster-General is so keen on these party manifestos that I will just quote one sentence from the document which my right hon. Friend omitted yesterday. I do it really for the benefit of the Lord Privy Seal, who is, no doubt, busy arguing with the Prime Minister about when the next General Election should he held.

The manifesto said: As long as we conduct our affairs wisely and get on with the job of raising the nation's product year by year, this country can be twice as well off in 25 years' time as it is now. It will be noted that a wise conduct of our affairs was equated with raising the nation's product year by year.

I will say only one thing more about the last three years of stagnation. It is not merely that this stagnation has meant a colossal waste of national resources, and the raising rather than the lowering of labour costs owing to higher overheads. If the President of the Board of Trade reads the Surveys for the last two years, I do not think that he can possibly sustain his argument today that costs have been lowered by the low production of last year. On top of all that, the serious thing is that our record, compared with the record of other industrial countries, is absolutely disastrous.

Since the Minister of Labour is so keen on league tables, I will give the correct figure in this case. Incidentally, he gave us incorrect figures of unemployment and tried to compare absolute unemployment percentages in one country with those in another, which, I am sure, he must know has hardly any meaning at all. I will give the accurate comparison in this case, taking it from the O.E.E.C. Report, of changes in industrial output between 1953 and the last quarter of 1958. These are the changes over five years, in percentages: Germany, +55; France and Italy, +45; Holland, +28, Norway, +27; Sweden, +20; Denmark, +19; Belgium, +16; United Kingdom, +15. To be fair to the Government, I believe, though I have not the figure, that the percentage for the Republic of Eire is rather lower than that for the United Kingdom.

It really seems, all party argument apart; [Laughter.] I know that the Minister of Labour enjoys party argument, but, if he will come off it for a moment, he will see that these figures are thoroughly alarming. What is even more disturbing, from the national point of view, is that during these three or four years when production has stood still here it has gone ahead in Russia by 6 or 10 per cent. a year. This means that since 1955, while we have had no rise at all, Russian industrial production has risen by at least 25 per cent., or possibly 30 per cent. This, of course, is basically why Russia is now irrepressibly overflowing into Iraq and other parts of the Middle East. If this economic ratio continues, Iraq will not be the end.

If hon. Members think that this fear is an invention of mine, I will refer them to a comment by Sir Roy Harrod. Sir Roy Harrod is not a Socialist. Indeed, but for the grace of God and the Tories of East Bournemouth and Christchurch, who are said to be bad pickers, he would have been the Tory Member for East Bournemouth and Christchurch for the last five years and history might have been rather different. In the Financial Times of 23rd March, Sir Roy, speaking of our stagnation," to use his own words, said: Using mild language, one might call this state of affairs unsatisfactory. But if one thinks of the uncommitted world comparing our achievement with that of Communism, it is more fitting to characterize it as disgraceful. I imagine that Sir Roy will not be reapplying to the Tories of East Bournemouth and Christchurch.

It is quite true that the Survey says, at the end, that there is " room for expansion." This is rather like hitting a man on the head with a 7 per cent. Bank Rate and, after he has lain prostrate for two hours, coming along and telling him patronisingly that there is much room in his condition for recovery. That seems to be the attitude of the Government towards our economy.

Why have the Government landed the country in these three years of stagna- tion? The reason is simply that they prefer to risk a relative national decline rather than keep on the few extra controls necessary. The Paymaster-General yesterday, putting on his mock reactionary manner, tried to pretend that he is as doctrinaire as the President of the Board of Trade. He really is not. He knows quite well that the Government themselves maintain a number of economic controls now and have done so for some years. The only difference between the two sides of the Committee on this is that we on this side are prepared to maintain enough controls to secure expansion and full employment without inflation, but right hon. and hon. Gentlemen opposite are not.

The Paymaster-General argued, also, and so, almost, did the President of the Board of Trade, that controls would not help at all to make expansion without inflation easier. If he really thinks this, I will put two points to him. First, I will quote not from the words of any British Socialist but from the words of an American liberal, Professor Galbraith, who, he will agree, is a distinguished expert on these matters. In his new book, Professor Galbraith says quite simply: If a maximum employment policy is pursued "— that is what we would call a full employment policy— and if inflation is to be avoided, the only possible course is to have more controls. That is the view of a distinguished American Liberal.

Secondly, if the Paymaster-General and the President of the Board of Trade think it impossible to achieve expansion with the aid of controls, how do they think it possible without them? Nobody outside a mental home can think that it is easier to achieve it without controls than with them. We would like an answer to that, too.

The fact is that for the past four years the Government have been trying to drive the nation's economy without proper brakes. So we either run into the hedge, as in 1955, 1956 and 1957, or we dither along at 5 m.p.h., as we have done in 1958 and 1959. This dilemma of inflation or stagnation has been created by Tory freedom. That is really the story of the last four years. The Chancellor's new and sudden conversion to go right ahead, but still without brakes, does not fill me with all that confidence in the future.

Hon. Members opposite may say—if the hon. Member for Louth (Mr Osborne) were here, I am sure he would have said it already— "What controls would you use now?" I will give one example. Expansion has already been made more difficult because, as the National Institute report shows, we now import more goods, including consumer goods, for a given level of production than we did ten years ago. Last autumn, however, the President of the Board of Trade removed a number of quotas on dollar manufactured goods without any concessions from the United States in return. Since then, the Chancellor has. Incidentally, removed a restriction on legacy payments, again without any counter-concession, although this had saved many millions of dollars for ten years.

Yet before we made these unilateral concessions in the autumn, the United Stales had recently tightened its barriers, as the President of the Board of Trade has admitted today, against British wool imports. Since our unilateral concessions, America has put a formal quota on oil imports; she has interfered with electricity contracts and is now holding up B.O.A.C. flight plans. Here. as elsewhere, wishful unilateral disarmament does not pay.

The President should consider withdrawing our concessions on machinery and on legacies unless the United States will make reasonable reciprocal concessions also on wool, oil and on the electricity contracts.

Photo of Mr David Eccles Mr David Eccles , Chippenham

In fairness to the United States, one should point out that our exports to the United States rose by 15 per cent. last year compared with the year before. It is far and away our best market. Therefore, it is reasonable to say that we are getting that exchange which is the expansion we all want.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Certainly; I realize that, and the United States has done many liberal things in this respect which it might not have done. But that still does not alter the fact that there is no need for us in our present position to make more unilateral concessions without getting liberalisaion on the other side in exchange. I hope that at least the President of the Board of Trade will not remove the quotas, as he has threatened to do, on dollar consumer goods until these other points have been satisfactorily cleared up.

It is time that an epitaph was written on this moribund Government. As we all believe in the principle of de mortuis nil nisi bonum, I will make it a brief and charitable epitaph. Since the last full year of the Labour Government, the total raised in taxation in this country, after this Budget, has risen by £1,380 million. Since the present Minister of Labour took up his job, unemployment has more than doubled. Since the Prime Minister promised us a price plateau, the cost of living has risen by 8 per cent. Since the Lord Privy Seal promised to double the standard of living in twenty-five years, production has hardly risen at all in five years. And since the Prime Minister promised to cut Government expenditure by £100 million, it has actually increased by £757 million. For all these reasons, I will only add that, in my opinion. it is time for a change.

4.55 p.m.

Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth

I intervene for a few moments in this debate. It is some months since 1 spoke in the House of Commons, and my first words should be to congratulate my right hon. Friend the Chancellor of the Exchequer in part upon his Budget and in part upon the background to the Budget. He will know that it could give no one greater pleasure than myself to see the favourable turn in our affairs or to see the notable part that he himself has played in achieving it.

Despite the epitaph which has just been written by the right hon. Member for Battersea, North (Mr. Jay), a few more favourable words could appear upon the tombstone: the £sterling, the balance of payments, the rising reserves and the record savings. This is a notable economic achievement. Even in the role of unemployment, the record of this country in a recession is something far better than many men would have conceived possible to achieve in a recession of these dimensions upon a world scale.

To the extent that we have kept the situation more under control than might have been feared, we must give credit to the fact that we entered this recession in a position of strength. If we went into a recession with the economy wobbling, teetering on the brink of an exchange or balance of payments crisis, it would be quite impossible to take the reflationary measures which have been open to my right hon. Friend.

My right hon. Friend knows that he has my support. If I utter a few words of warning or make any criticisms, they are not designed to detract from the solid achievements that he has made. He has introduced the Budget against a background of strength, and the decision that he has had to make is the decision which all Chancellors have to make—how much he should borrow and how much he should tax. It is nice to assume that one can borrow as much as one likes, or even as much as one can, but it is a dangerous assumption, because even Governments have one day to repay what they borrow and no Government can borrow more than their public confidence will command.

It seems to me that the central problem of the Budget and of the question of confidence is, as I think the right hon. Member for Battersea, North said, how we should expand without inflation. It is, perhaps, worth while pausing to contemplate who is expanding without inflation. The Russians are expanding without inflation. Let us take the world as it really is. The Russians have been able to put up their production, to increase their money wages and to reduce their prices at the same time—and, of course, they have had substantial advantages. The picture in Russia is a little less rosy than that painted by the right hon. Member for Battersea, North. In truth, the standard of living there is very low. They have the easier task of building it up from a very low level and with all the advantage of an enormous enclosed market of their own. Perhaps the key to their success—and I think that the right hon. Gentleman stumbled on a part of the truth—is the control of wages. While the right hon. Gentleman praises Professor Galbraith, he should study the proposals carefully. I think he will find that the control of wages is probably the main control that Professor Galbraith has in mind. In any event, the key to the Russian experiment has been to keep the increase in money wages well within the increase in production.

Photo of Mr Alfred Robens Mr Alfred Robens , Blyth

Will the right hon. Gentleman quote Professor Galbraith on that point? He knows perfectly well that what he is saying is not true.

Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth

The key to the Russian experiment is that they have kept their money wages well within an increase in production.

What of ourselves? Like the Chancellor, may I take the longer perspective. I shall mention some figures. There is no reason why one should not do so in a Budget debate. Let me take first the figures of Government spending. In 1948, the Socialist Government were spending about £4,000 million, above and below. By 1951, the total had risen to £5,000 million. By 1958, it had risen to about £6,000 million. In other words, on Government account over ten years there has been an increase of £2,000 million, or £200 million a year.

What about wages? In 1948, the wage bill was about £4,000 million. By 1958, it had risen to £7,700 million, an increase of not far short of £400 million a year. If we include salaries, the increase is nearer £500 million a year. Taking the increase of Government spending plus the increase in wages, the total increase in money spending each year on those accounts alone is between £600 million and £700 million a year. Last year, there was a record increase in the Estimates—a record for the Conservative Government. I recall that there was some slight local difficulty at the time, into which we need not enter now. This year there is an even higher figure.

I can think of many criticisms that can be made of Chancellors of the Exchequer of all parties over the years, but I cannot conceive that anyone could sustain the criticism that they deliberately stagnated the economy by pumping out too little money. Indeed, the opposite case could fairly easily be made. Against that background, have we over the years matched this pumping out of money by the goods that we produce? I want to consider the production figures, and for this purpose I take the same base of 1948. The net domestic product in 1948 was £9,520 million. By 1958, it had risen to £12,000 million, an increase of £270 million a year. In other words, the Government alone, without the wage increase, had been absorbing rather more than two-thirds of the net increase in production.

The result of these activities has been plain to see. Taking the retail price index of the London and Cambridge Economic Survey, in 1938, the figure was 100, in 1948, 175, and in 1958, 275. In other words, since 1948 there has been an increase in the retail price index of no less than 100 points, 25 points more in ten years of peace time than the whole inc-ease of the previous ten years, which included a world war.

However one regards these events, they have had a dramatic effect upon the people of this country. They feel it when it happens to hit them. It does not concern only the rents of private houses, but the rents of council houses and of houses in the new towns. It is all part of a pattern, which in part at least the people of this country—I have taken a period which covers all parties—have constructed for themselves, which has brought down the purchasing power of the £from 20s. to 12s. 8d. That is the background.

What of the situation now? A situation in which there was a moderate world recession not altogether unhelpful to the United Kingdom in some respects. For example, witness the aid, which all acknowledge, that it gives to our balance of payments situation.

What is the situation today compared with what it was in 1954, a year a little away from the Korean crisis? Today, the import price index is one point below what it was in 1954. The retail price index on the same basis is18 points higher. We must contemplate what the situation might be if import prices begin to rise again, which in the ordinary course of events will happen. I admit that there are favourable factors which can operate in our favour, such as the increased productive capacity which we have. but it seems to me unlikely that in the years ahead we shall go on increasing, taking one year with another, at anything like the rate that we have been increasing the supply of money incomes. Even in 1958, when everyone said how moderate were the wage demands, the increases in wages were greater not merely than the increase in production in 1958, which admittedly was very low, but greater than the average increase in production in the whole post-war period.

This background and history have had their effect on the building up of reserves and industrial capacity. It is part of the problem and dilemma which my right hon. Friend must meet. I think that The Times put it rather well on 25th March, when it stated: The dilemma is not surprising. It has been urged many times in these columns that the lack of encouragement for modernisation, the high level of public expenditure, and the scantiness of the gold reserves would deprive Britain of its real freedom of action when positive stimulation of the economy became necessary. I believe that my right hon. Friend is right in saying, subject to certain warnings and conditions which I shall give, that there is room to expand and that the measures which he has taken are wise and prudent.

So much for the problem. I should now like to say a word or two about the various answers proposed. I first deal with the answers of right hon. Gentlemen opposite. I heard the speech of the right hon. Member for Huyton (Mr. H. Wilson), which I enjoyed. I always enjoy his speeches. I remember, when at the Treasury, inviting my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) to draft for me in advance the speech which the right hon. Member for Huyton would make. He drafted an almost better speech than the one made by the right hon. Gentleman. He made a few points which escaped the right hon. Gentleman, and closed a few flanks which he opened, but, in fairness to the right hon. Gentleman, he knew the chinks in our armour before he started. The main theme of the speech was quite obvious—the first half an assignment with inflation, the second half some really thumping good suggestions for increasing expenditure. Yesterday's speech was the same.

The first half of the right hon. Gentleman's speech was about an Election Budget, and the second half higher old-age pensions and do not let us worry about the contributions. It is the same theme, and what we all admire is the subtlety of the transition between the first half and the second. Part of the theme of the right hon. Gentleman's speech, as it was part of the speech by the right hon. Member for Battersea, North, was the need to concentrate upon expansion. That is a very wise and very proper thing to say, but it is useful to ponder what we mean by expansion. Expansion is not just producing things. Production is not complete until the manufactured article is in the hands of the ultimate consumer. It is well worth all of us remembering that basic truth. Many of our ultimate consumers, because we live in a small island and trade overseas, do not even live here, and any attempt to substitute for our external consumers a whole lot of internal ones might rapidly lead to substantial difficulties.

I fully share the views of my right hon. Friend the Chancellor of the Exchequer about the goal, but let us remember the limitations and the difficulties of expansion. As far as I can understand it, the policy of the party opposite in this situation is to say, first, that it would spend much more than the Tory Party. I have forgotten how much. Is it £1,000 million which has been suggested as one figure. or is it £500 million or £700 million? That is the first part. The second is to issue Government paper in exchange for rented houses and equities in industries. I doubt whether even right hon. Members opposite would announce that their paper was unsaleable before it was actually issued. That itself must have quite a considerable impact upon the market operations in the City. Finally, the policy of the party opposite is to run every industry at full capacity.

Right hon. Gentlemen opposite say that in those circumstances the revenue would rise and would solve their problems. The revenue would rise. It always does in a very substantial inflation. I see the right hon. Member for Bishop Auckland (Mr. Dalton), who has had some experience, as we all have had, in these matters, appears to be nodding his head in agreement. But who would lend right hon. Gentlemen opposite the money in those circumstances? Who would finance the capital of the nationalized industries in those circumstances? What would happen to prices as they " watched " them? To be fair to right hon. Gentlemen opposite, they never did more than watch them at any stage in their history. But what would happen to them with this policy as they watched them? The right hon. Member for Bishop Auckland knows perfectly well that no controls devised by man would ever hold the crisis that would develop if a policy of that kind were followed. I leave right hon. Gentlemen opposite to contemplate, and, I trust, to change it.

What of my right hon. Friend's Budget? It seems to me that it is well designed, both as to its general amount and as to its pattern. If there are risks in it, it is fair to say that they are risks inherent in the background which I described in the earlier part of my speech. I would just make one comment on one part of it—the beer. I do not grudge any one having the tax off anything, but the arguments in favour of a reduction of the tax on beer seem to me a little strange. There is the argument that it will reduce the index of retail prices by four-fifths of a point. It is important to hold the index, and I suppose that the arbitrators pay a great deal of attention to it, but really if this is one of the arguments there is something to be said for looking either at the index or at the arbitrators before one concentrates quite a large amount of sacrifice in Revenue on one particular case of that kind.

Photo of Mr Alfred Robens Mr Alfred Robens , Blyth

The right hon. Gentleman should be the last man to talk about arbitration.

Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth

In general, I approve the Budget. A reduction in the standard rate of Income Tax is the best relief that can be given to taxpayers in general and is best designed to achieve the purposes which the Chancellor has in mind. Certainly, what I think my right hon. Friend described fairly as the comprehensive attack upon the problem of post-war credits must be universally welcome.

It is right, however, to issue a warning. The key to the Budget is, in many respects, the Chancellor's ability to borrow, and the underlying dangers that I have described are not very far away from us. if tax reliefs of £300 million and the spending of £370 million more were followed by another round of wage increases of £300 or £400 million unmatched by any quick increase in production, I say in all seriousness that the country might find itself in some very severe difficulties, partly in its economy and partly in its overseas markets.

Last year the claim for wages started in the railway industry. We were told that it was a special case and it was to be met by economies in the industry. I doubt whether many men would lay their hands on their hearts and say that the increases in wages in the railway industry had been met by economies in the industry. Instead, a thumping increase in overdraft facilities followed shortly after the wage claim had been conceded.

Now a new demand is made, and if that is granted it will be reflected once more throughout the whole cost structure of industry, partly in other wages which will go up pari passu with railway wages ant partly in the added cost of transport which undoubtedly will follow. It seems to me that the real peril to my right hon. Friend's Budget lies at this point. I know something of the problems of a Chancellor.

Photo of Mr Alfred Robens Mr Alfred Robens , Blyth

The right hon. Gentleman ran away from them.

Hon. Members:

Cheap.

Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth

I know this problem, at any rate. If unemployment in the country rises about 3 per cent. there is uproar. If it sinks very much below 1·5 per cent. there is a major crisis. It is one of the biggest tributes that I can pay to my right hon. Friend that he is holding it between those two figures, with unemployment at 2·5 per cent. and quietly sinking. But I warn him that I believe that he could imperil this and much else besides if he ignored the background which I have described or failed to stand against another run of wage increases.

In my time I have thought much about the economic problems of the country. I have, certainly thought enough to recognize that I do not know the answer to all of them, but I know some of the basic truths. I know that one of those truths is that the economy depends upon our confidence and our faith in ourselves. We have confidence, but no one today would say that that confidence in us as a nation is complete. Anyone who doubts that has only to look at the market for long-dated Government securities and equities as it stands at the moment. This confidence is in its first beginning. If it were swept away we should lose everything we have as yet achieved. It is the duty of all of us, in all parts of the House, to guard that confidence with jealousy, for it is the greatest asset we have.

5.20 p.m.

Photo of Mr Michael Maitland Stewart Mr Michael Maitland Stewart , Fulham

I am happy to have the opportunity of following immediately the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft), because there were one or two points he made on which I should like to comment at once. The right hon. Gentleman said if I heard him aright, that our party when in power watched prices but was unable to exercise any controlling action over them. I think he knows rather better than that, and the record is indeed fairly well known, but since it is so often disputed it might be as well if I reminded him of the following points.

During the period of the Labour Government world prices were rising all the time. The policy of the Labour Government succeeded in checking the rising prices in this country with greater success than in almost any other country in the world, and this was commented upon by the Organisation for European Economic Co-operation, which drew attention not only to the fact, but further underlined that this result followed directly from the kind of policies followed by the Labour Government. It has been the peculiar distinction of this Government to combine rising prices in this country with falling prices in the world, and to combine a continued rise in prices with industrial stagnation.

The next thing I will comment on in the remarks of the right hon. Gentleman at the beginning of his speech is that the things which worried him most were an increase in public expenditure and claims for higher wages. That appeared to be the burden of the earlier part of his speech. He will remember that at one stage in it he was implying how undesirable it would be to have such a thing as control of wages, whereas at the end of his speech he was emphasising the point that the one thing we must avoid was claims for higher wages. I suppose that giving a broad hint to the arbitrators that they are to produce a verdict favourable to a Conservative Government is not what the right hon. Gentleman would call control of wages.

Now, if the right hon. Gentleman regards the increase of public expenditure and the increase of wages as undesirable, what is his recipe for the economic ills from which we are suffering? Does he really imagine, even on the policies to which his own party is committed, that he can seriously talk about a policy of reducing Government expenditure? Certain hon. Members of his party tried that line in the past. The present President of the Board of Trade did. The right hon. Gentleman himself did. The right hon. Gentleman himself was more concerned about keeping down public expenditure than was the President of the Board of Trade. He believed in it more firmly. Perhaps that is why he is sitting where he is and the President of the Board of Trade is still in the Government.

I do not believe that we can take the view that an increase in public expenditure is necessarily undesirable or damaging to the national economy. We must ask not only whether money is spent through a private or public channel but also on what it is spent. Whether this country can afford greater public expenditure or whether it can afford higher wages, or higher incomes of any kind, must depend in the last resort on how much it will produce. When we are looking at public expenditure, therefore, we ought to consider the relation between public expenditure and the power of this country to produce wealth.

I will give an example which will bring out the point. Let us suppose that a group of private individuals has succeeded by financial transactions in adding to their incomes by capital gains and they spend that addition to their incomes on private luxuries. That is one way of contributing to the national economy. If, however, it was Government policy to make capital gains liable to taxation, and some part of that money had flowed through public channels and resulted in, say, a better transport system, in speedier modernisation of the railways, in a new technical college, in the development of atomic research, could one seriously say that it had not resulted in an addition to the productive power of the country?

It is an old-fashioned idea to suppose that invariably, if money is handed out to private persons rather than spent through a public channel that must be beneficial. One has to ask in each case what use the State could make of the money. On the other hand, when taxes are reduced, one must ask for whose benefit are taxes reduced and what becomes of the national resources as a result? I believe we must keep our minds on the fact that in the end all money transactions are only a mirror in which the production and distribution of real wealth is reflected, and that we cannot get our budgetary arrange- ments right while we still have difficulty with production.

It is common ground now that the reason why we have a Budget with considerable reductions of taxations in it is that we are suffering from industrial stagnation and it is hoped to remedy that situation. That stagnation has meant that any increase in the standard of life which our people have been able to enjoy in recent years has been either at the expense of investment or has been due to a movement of the terms of trade in our favour, and the danger of this situation is that it cannot be permanent.

The terms of trade have been in our favour; that is to say, for a given amount of wealth produced in this country we have been able to get more of the kind of things we import. For the moment, that benefits our standard of life, but we know very well that we cannot base a rising standard of life in this country permanently on that foundation, because what are to us favourable terms of trade are inevitably to certain primary producing countries unfavourable terms. It must react in the end on their prosperity, on their capacity to buy in the world markets. When we add to this the fact that some of the countries adversely affected by the movement of the terms of trade contain some of the poorest sections of mankind, we are obliged to notice that these favourable terms of trade for us contain a serious, politically explosive element if they continue in the long run. Nothing could be more dangerous ultimately to the welfare of mankind than the situation of an advanced industrial country enjoying each year a slightly higher standard of life, not as a result of more production on its own part, but because a bigger proportion of the total production of mankind was moving into its hands at the expense of less fortunate nations.

For a great many reasons, then, we have to judge this Budget by its effect on the power of this nation to produce more wealth. The hon. Gentleman the Member for Eastleigh (Mr. D. Price) spoke yesterday, and he, like the right hon. Gentleman the Member for Monmouth, stressed the danger of what he regarded as excessive wage claims. The hon. Gentleman quoted the Cohen Committee as saying that our economy could not possibly bear a 3½ per cent. increase in wages in each year. Yet if the Lord Privy Seal was anything like right when he spoke of doubling our standard of life in twenty-five years that must involve an increased rate of production of something not far short of 3 per cent. over that quarter-century to which the Lord Privy Seal referred.

It appears to be assumed, therefore—at any rate by the Lord Privy Seal, and the Government have not repudiated him on this point—that it would be possible for this country to increase its production over. a long period by a rate of something not far short of 3 per cent. a year. We have to ask ourselves how far the Budget contributes to that end.

If we want a Budget to be helpful to production, it ought to do several things. First, it should give some help to any part of our economy which might be in particular difficulty, and the textile industry springs to mind. As my right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out, there is a missed opportunity in the Budget to give much needed help to the textile industry. Secondly, any tax reliefs ought to be so arranged that the maximum reward is given to people who will work with their hands or brains; and to combine that maximum reward with the minimum sacrifice of revenue.

Whenever a Chancellor is considering reduction in taxation, he has to weigh the revenue which he will lose and which has to be made good by cutting some public service or by increased taxation in other directions against what the tax reduction will do to stimulate people to work harder, more effectively and more productively. He ought to avoid tax reliefs which deprive him of money and which will not be reflected in direct rewards to people who will contribute usefully to the economy. As I hope to show, the form of Income Tax reliefs in this Budget does not pass that test and not sufficient attention is given to seeing that the money with which the Chancellor parts is so distributed as to provide the maximum incentive to work.

Thirdly, we have to consider the relation of the Budget to those things on which in the long term the country's productive power depends, our investment and our knowledge. Fourthly, in so far as the Budget affects the total distribution of wealth in the community, it should be aimed at leaving it somewhat more just and somewhat more acceptable to the general public conscience than it was before the Chancellor touched it.

A very much underestimated consideration is the relationship between the extent to which our people will put forward their productive energies and the extent to which they feel that the set-up in which they are working is broadly fair. I do not think I am misrepresenting the right hon. Gentleman for Monmouth if I say that he was very anxious that wage demands should not be made beyond what the economy could bear. If we want people to exercise any kind of self-discipline of that sort, it has to be made clear to them that they are not the only people required to exercise that self-discipline and restraint. The idea, "My income ought to be related to the economic capacity of society as a whole ", ought not to be a rule applied only to wage earners. The only way in which wage earners can be made to accept that rule is by making it universal for society as a whole.

Against those principles, what do we find has happened with the Budget? I need not develop the argument about Income Tax reliefs at length, because it has already been pointed out that an average family needs about £14 a week before it gets anything from the Income Tax proposals. If a man has more than £14 a week he begins to get some benefit, and if he has a very large four- or five-figure income he will get an amount of tax relief equal to the whole income of about a dozen less fortunate fellow citizens.

We must remember that some of the largest incomes in this country do not come from work but from the ownership of property, by no means always the property which the person who owns it has acquired from personal saving. It is very difficult to relate a pattern of Income Tax reliefs on that basis to any concept of social justice or of persuading people that those to be rewarded, those to be praised, those to be encouraged are those who work. To use the phrase of the President of the Board of Trade, this is rewarding the lucky rather than rewarding the skilful or industrious.

We have to set what has been done about Income Tax in this Budget side by side with what has been done in previous Budgets and the general pattern of Government Measures over the last half a dozen years. People of small and moderate incomes have found that in successive Budgets they have got very small reliefs compared with the great reliefs given to richer people, and that between each Budget comes a string of minor Measures which help to increase their cost of living.

Let us take the operation of the Rent Act, for example. I take an example from my constituency. The other night I was visited by about 100 constituents who live in what is called the Peterborough Estate in Fulham. Their houses have recently been bought by a company called the London, City and Midlands Properties Limited. Many of them now find that they are to be required to pay about £120 to £150 more rent a year for living in the same houses which they occupied before.

They are very unlikely to get any tax reliefs from the Budget which will in the smallest degree offset that rent increase. Why is this happening? When the House passed the Rent Act, two reasons were advanced in pretended justification for it. One was that it would help landlords to keep property in better repair. However, this property has been kept in good repair by the efforts of the tenants themselves for many years. That is why it is such a desirable property. The second reason was that more rented accommodation would be brought on the market. But every hon. Member knows that the Rent Act is not producing any effects of that kind.

What has been the general effect of Government housing policy, joining together the Rent Act with the cutting down of council housing? The Government have been telling people, in effect, that they should not expect to be housed by councils and that the Government will make it as difficult as possible for councils to build them a house. The Government are saying, "Get a room from a private landlord and when you get it will be an uncontrolled tenancy and the sky will be the limit for rent; or go and find somebody who will sell you a house." If people have taken that latter advice, they will have since found that as a result of other aspects of Government policy the process of buying a house will take longer and cost more than they bargained for when they started the transaction.

I take another example across the river from my constituency, in Putney, where some tenants at Kenilworth Court have been required to pay as much as £175 more rent. I emphasise that these things show that this is part of a policy which simply transfers wealth from one person to another without regard to the needs of the economy as a whole or to social justice. It is against that background that we must study the pattern of Income Tax reliefs in the Budget.

Let us consider how the Purchase Tax reliefs have been arranged. The effect of Purchase Tax is very mixed, because it covers such a wide range of articles. By and large, it is true that the proposed reliefs help those who are better off more than those who are not so well off. That is not an accident. It has been deliberately arranged by the Chancellor who has retained the 5 per cent. group in order to produce that result. Could he not have considered, as has often been suggested, the removal of Purchase Tax from articles needed for educational purposes?

Then again the total amount available in this Budget for reduction in taxation is what it is because of the Government's decisions as to how much they will spend on the public services generally and on the social services in particular. There are two comments which I should like to make about the social services.

It has been the policy of the Government over a number of years to see that an increasing part of the cost of the social services should be put on to the shoulders of the poorer people. That has been done by increased rates of contribution, by prescription charges and other Health Service charges, and by increased fees for further education. There has not been a single year while the Government have been in power that there has not been some measure of that kind. The accumulated effect of that is that a greater proportion of the cost of the social services is borne by the poorer people.

The second fact that we have to note about the social services is the neglect of them by the Government. Whenever we raise this topic we are told that we are spending a lot more than was being spent in 1951. That is not surprising. There are both more old-age pensioners and more children than there were in 1951. Some improvement in the country's economy has been possible during those years, as the war has receded into the past, but the plain fact is that in many of the important social services we are doing only enough to make a few debating points for a Conservative Central Office pamphlet. We are not doing anything adequate to the needs or dignity of this country.

It is against that background that I want to consider the abandonment of £40 million pounds of revenue by the reduction in the beer duty. Indeed, even the right hon. Member for Monmouth was doubtful about the wisdom of reducing the beer duty. I could have agreed with him if he had combined that criticism with criticism of certain other parts of the Budget, but I think that it was typical of the right hon. Member that he should regard it as entirely happy and suitable that very large reliefs should be given to people with unearned income of over £5,000 but, in the stern need of public economy, he thought that perhaps the Chancellor ought not to take 2d. a pint off beer.

If we go with him thus far and ask: is it altogether desirable to take 2d. a pint off beer; cannot we do something better with the £40 million? — then 1 think that we can. Everyone knows that the provision for hospitals and mental hospitals and for schools in this country is very gravely inadequate. If one were allowed to make only one alteration in the Budget, it might be that that money could be better spent on one of those public services. In saying that, I believe that I would have the great bulk of public opinion behind me.

I do not believe the people of this country are now in such a state of mind that they would say that if the Budget takes 2d. off beer that washes out any defects it may possess. I believe that people now have a more generous view of things and a better understanding of what the country needs.

I would make this further point— I think every hon. Member on this side of the Committee who has spoken has made it so far, but it is of such importance that it should be made by everyone who speaks— that the most glaringly missed opportunity in this Budget was the failure to do something to help old-age pensioners. I am more disquieted about it for this reason. One may suppose, particularly if we are to have an election later in the year, that the Government are waiting until just before the election. One of the arguments for having an election earlier might be that the old people would he helped a hit earlier. One thing worries me. It appears, to judge from some of the more sober financial critics of the Budget, on the vexed question of whether the Chancellor's total amount of reduction is right or not, that the soberest verdict is that this amount is about right, and that, if anything, it is a bit too large rather than too small. That seems to be the verdict of sober organs of financial opinion. It will not be very easy, therefore, for the Government to bring out from somewhere during the year the amount of money which will be needed to do anything worth doing to help the old people. Perhaps before the end of this debate we shall hear whether it is proposed on some subsequent occasion during the year to do anything to help them and how that will affect the financial calculations inside the Budget. In any case, it ought to be done now.

One of the evils of the situation in which we have been living is that our economy is so constructed that if there is an increase in the total wealth of the country those who get their incomes from profits will come in first and then will come the wage and salary workers, according to the strength of their organizations, clawing away a bit of it for themselves, and lastly come the people with fixed incomes. That is why in our party we are proposing a pensions policy with a built-in scheme for securing that, with any rise in the national income, a proportion of that rise goes automatically to the old-age pensioner. We have not that arrangement yet. We have to wait until the conscience of Parliament will no longer tolerate the plight of the pensioner, and I should have thought that that time had now arrived.

5.47 p.m.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Early in his speech the hon. Gentleman the Member for Fulham (Mr. M. Stewart) made what seemed to me to be an important comment. He said that we in this highly industrialised country should not improve our own standards of living by taking more than a proper share from the under-developed countries of the world. I entirely agree with him. It is for that reason that I agree that an increase in production is what we most urgently need at the present time. As a corollary to what the hon. Gentleman said earlier, that it is very important to look at the way in which the people who are in receipt of tax remissions use the extra money, I shall have something to say a little later on in particular about the probable use to which the remissions in Income Tax will be put by the people who receive them.

I listened with interest yesterday afternoon to the right hon. Gentleman the Member for Huyton (Mr. H. Wilson), who I am sorry to see has just left his place, and I think that my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) dealt pretty thoroughly with the financial implications of what the right hon. Gentleman said. A thought that occurred to me as I listened to him, was that he has two kinds of speech. The one that he makes when in office, which is a catalogue of excuses for Socialist failure, and the other that he makes when in Opposition, which is a catalogue of reasons for Conservative successes. There is not much doubt about the type of speech which he made yesterday afternoon. That seems typical of the two voices with which Labour speaks from time to time.

Reference was made in the debate yesterday to the glossy Daily Mirror- produced booklet, "The Future Labour Offers You." In the course of a very important Budget debate it is important to look as something else—the past which Labour gave us. A helpful way of doing so is to turn to the Economic Survey for 1951, which was presented to Parliament in April, 1951, by the then Chancellor, who is now the Leader of the Opposition.

In paragraph 128 we find the conclusions of that Survey, made and written not a year or two years after the end of a world war but almost at the conclusion of six triumphant years of the operation of Socialist economic policy. This is what we find at the end of that period: The account given in this Survey of the United Kingdom's economic prospects in 1951 is in many ways harsh and unpleasant…if events abroad should turn out less favourably than has here been assumed, we may find ourselves in serious difficulties. At best "— I ask the Committee to note those two words we face in the immediate future a decline in the rate of increase in the national output, a worsening of the balance of payments, a fall in the supplies of some consumer goods, and a continuing rise in prices. That is the past that Labour gave us. It is very different from the future which Labour promises.

In the course of one of the witty passages in the speech of the right hon. Member for Huyton, he said that my right hon. Friend the Chancellor, in respect of tax reductions, had given away the wrong shot in the wrong arm. If we look back to 1951 we find that the right hon. Member for Leeds, South-East (Mr. Gaitskell, then Chancellor of the Exchequer, fired such a salvo of shots, unfortunately in the wrong direction, that he blew the Socialists into opposition, where they have remained ever since, and may remain for a good long time. As for "The Future Labour Offers You ", the passage on taxes has not been quoted verbatim. It says: With the backing of the British people, Labour's programme for controlled expansion will make it possible to complete our full welfare programme without raising the general level of taxation. That is the future that Labour offers us. What was the past that Labour gave us in 1951? As my right hon. Friend the President of the Board of Trade pointed out, up went Purchase Tax, Entertainments Duty, petrol tax and Income Tax.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Because there had been a Socialist Government for six years. That was the past that Labour gave us. Labour may offer us a future, but many people will remember her shady past.

The question of old-age pensions has been raised by several hon. Members opposite, quite rightly, and I want to say four things about it. First, this Ways and Means Committee of the House of Commons is usually a generous place, and it is accepted that we are all anxious to see old people share in growing prosperity. Secondly, I express a little surprise that there should be so much clamour of budgetary action in this matter. I think that I am right in saying that if my right hon. Friend had increased the retirement pensions in the Budget it would have been for the first time in the history of the House of Commons. Increases in retirement pensions or old-age pensions as they used to be called, are always made by means of a special Bill, and not by budgetary action. The timing of the clamour is a little wrong.

Photo of Mr Albert Oram Mr Albert Oram , East Ham South

Is not the hon. Member aware that there is now going through the House a National insurance Bill, which provides a suitable opportunity for raising the old-age pension, that we spent two whole mornings in Committee urging the Minister to take this action, and that he brusquely refused to do justice to the old people?

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

That is a good point, but I am merely pointing out that the present clamour is for budgetary action. I hope that the hon. Member for East Ham, South (Mr. Oram) and other hon. Members opposite have read the helpful leading article in The Times this morning, which says: But pension rates are up by 92 per cent. Prices would have to rise by another 7 per cent. before pensions were reduced to the purchasing power which Labour gave them for a few months from the autumn of 1946—and never succeeded in re-establishing. In view of a record of that kind it ill becomes hon. Members opposite to challenge the Conservative Party on its record in regard to old-age pensions.

It is not a question of pound notes, or the money paid out to retirement pensioners; what matters is the amount of goods and services, limited in quantity though they may be, which the old people can buy with the pound notes given to them. Incidentally, these goods and services are produced not by those who have retired from work but by those who are still at work. The best service that the House of Commons can perform is to encourage measures to stimulate production, maintain the purchasing power of the £and stop the continual eating away of retirement pensions, whatever the amount may be. In that way we shall be doing much more for retirement pensioners than by passing continual measures increasing pensions, or by linking the retirement pension in some way with the cost-of-living index.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The hon. Member made the point that it would not be appropriate to increase pensions by budgetary action, and we would agree with him in that, but within the comprehensive economic statement could the Chancellor find another £200 million without upsetting his plans? The hon. Member said that pensioners should benefit from any rise in the standard of living. Is he saying that these increases should be permanently pegged to their percentage of the standard of living in 1946? Should not pensioners also receive the benefit of an expanding economy?

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

I am not saying anything of the kind. If the hon. Member will read the leading article in The Times he will see that the commentator suggests that the whole question of pensions requires review, and that it would be a long-term review of a very complicated and difficult subject. As I said, what matters is not the number of pound notes, but their value, and the amount of goods and services which we can produce. If the Budget does something to stimulate production and to stabilise the purchasing power of the £our old people will be substantially helped.

On that point, too, the right hon. Member for Huyton had some things to say, when he contrasted wages with dividends. He said that since 1951 wages had increased by 20 per cent. and dividends by 26 per cent. Those figures were selective, and I make no complaint about that. We obviously have to be selective if we are not to read out all the figures, but I want to give the Committee some other figures concerning wages and dividends, taken from the 1959 Economic Survey. Over the last two years wages increased by 6 per cent. in 1957 and 3 per cent. in 1958—a total increase of 9 per cent. for the two years. Dividends in the same two years increased by 5·4 per cent. and 3·7 per cent. respectively, making a total increase of 9.1 per cent. for the two years. Comparing that increase with the increase of 9 per cent. for wages, we can see that there was no dividend spree there.

Taking the longer-term view, comparing the present post-war position of those in receipt of dividends with their position in the last complete pre-war year—1938—we find a very remarkable state of affairs. I have taken these figures from the National Income and Expenditure Account Blue Book for 1958. The figures are for 1957, because the 1958 figures are not available. Compared with 1938, wages have increased by 402 per cent. and dividends by 170 per cent. In other words, wages have increased two and a half times as much as dividends; so do not let us have any more loose and idle talk about dividend sprees under the Tories. That kind of charge does not stand up, any more than do most of the charges made from the benches opposite.

I wish to join with my hon. Friend the Member for Eastleigh (Mr. D. Price) in expressing anxiety about our exports. The people who will solve that problem are the businessmen who get the customers and organise the factories, and the wage earners who make the right goods. It seems to me that this Budget plays its part, so far as possible, in giving Government assistance to the export trade. It should encourage efficient and reasonably priced production which is as much as one can hope for.

It should do that, as I see it, in three ways. First, by a reduced Purchase Tax and reduced standard rate of Income Tax, this Budget will stimulate consumer buying. Secondly, by the reduction in the standard rate of Income Tax it will facilitate saving. Thirdly, by the restoration of the investment allowances—I shall have another word to say about that—it will stimulate capital investment. It was exceedingly wise to take all 'these three measures together in the one Budget. In the one Budget their effect will be much more than three times the single effect of each measure in different Budgets.

I said I thought that a reduction in the standard rate of Income Tax would facilitate savings. I know that there is room for argument about that, but it is the fact that in the Budgets of April, 1953, and April, 1955, my right hon. Friend the Lord Privy Seal, who was then Chancellor of the Exchequer, took 6d. off the standard rate of Income Tax; and in the first full following year bearing the new reduced rate of Income Tax the volume of savings increased by more than the cost of that reduction. I have every hope that the same thing will happen again.

There are some omissions from the Budget. There is one in particular to which I wish to refer. My right hon. Friend the Chancellor emphasised the importance to this country of shipping. It is the fact that that industry was singled out as one for which the investment allowance was retained when such allowances were withdrawn from other industries. But ship-repairing also is a vital industry to this country and little benefit will be derived by that industry from the restoration of the investment allowance.

In the construction of a dry clock the only part of the expenditure involved to which the investment allowance will apply is the plant and machinery and the dock gates. Of course, a very substantial part of the cost of the construction of a dry dock goes in the excavation and the concreting of the dry dock itself, but that will get no benefit from these investment allowances. Ship-repairing is becoming more and more internationally competitive as the design and shape of ships change, so that it becomes more important than ever that we should have new and up-to-date clocks in this country. I think I am right in saying that the taxation treatment of the ship-repairers in this country compares unfavourably with the tax treatment of the same industry in other countries.

Regarding investment allowances generally, I side with my hon. Friend the Member for Eastleigh and my hon. Friend the Member for Shipley (Mr. Hirst). I supported my right hon. Friend the Lord Privy Seal when he introduced investment allowances, but since then I have given a good deal of thought to the difference between investment allowances and initial allowances. The more I think about it the more convinced I become that the investment allowance is wrong in principle because, whereas Conservative Governments over the last seven years have progressively eliminated subsidies from our economy, the reintroduction of the investment allowance marks the reintroduction of a subsidy element into the economy. In principle, therefore, I think it is wrong.

Again, it is wrong for the reason given by my hon. Friends that it is on this year and off the next. That is a very bad feature of the investment allowance. On Tuesday during his Budget statement the Chancellor made it plain that he would bear that fact in mind in other circumstances, in future years, and that it is a handy thing which can be taken off as easily as it is put on. It is true that the stimulation of capital investment was necessary this year—indeed it is always necessary—but there are alternative ways of doing it. I hope that in the years ahead my right hon. Friend will study this problem carefully and perhaps consider whether the same objective may be achieved in a more efficient manner.

I have no hesitation in saying that this is a good Budget. It is the result not only of the wise policies followed this year by the present Chancellor but of the tough policies followed previously by my right hon. Friend the Member for Monmouth to whom I think this country owes a very considerable debt. This Budget should increase production; it should help to maintain price stability and exports; it should give us a much brighter hope for the future, and I believe that it will commend itself in due course to this Committee, as unquestionably it has to the country as a whole.

6.6 p.m.

Photo of Mr John Cronin Mr John Cronin , Loughborough

The hon. Member for Portsmouth, Langstone (Mr. Stevens) made his usual interesting speech. I think that the Committee took his point, from his reference to The Times, that there is a real increase in the standard of living of the old-age pensioners compared with the days between 1946 and 1951. But I think that the hon. Gentleman ought to bear in mind that in those days it was necessary to show some restraint after the economic dislocation of the war.

We all feel, also, as indicated by my hon. Friend the Member for Sheffield, Park (Mr. Mulley), that old-age pensioners should share in the big increase in the standard of living since the war. The standard of living of everyone has increased and surely old-age pensioners should also enjoy that increase. If the hon. Member for Langstone looks at the figures, he will find that the old-age pensioners' total real standard of living has not increased with that of the general population.

The hon. Gentleman brought up one of the favourite bogies of the demonology of the Conservative Party, the question of wages. In his excellent speech, the right hon. Member for Monmouth (Mr. P. Thorneycroft) also paid some tribute to the same bogy. Both the right hon. Gentleman and the hon. Member for Langstone should appreciate that wages in this country may have gone up, but they have not gone up so much in the last year as in Germany; and Germany has gone ahead with increased production. In fact, wages in this country have not gone up as much as in most of the advanced industrial countries of Europe.

The President of the Board of Trade often misses golden opportunities for being silent, but I thought that this afternoon he made a remarkably good speech. One of the principal features of it was that so little was devoted to the Budget. The right hon. Gentleman kept to the safe and familiar ground of the Export Credits Guarantee Department, East-West trade and other matters concerning overseas trade. My impression, and I think that of most hon. Members, was that the right hon. Gentleman was opposed to the Budget. He said that when demand was restrained, more trouble was taken to export goods. He said that when there was a good deal of slack production and excess productive capacity, factories worked more efficiently. He even spoke rather nostalgically about how much better it was when out-dated or old plant was used. All these arguments seemed to be in favour of retaining the status quo, hut, presumably, the whole purpose of the Budget is to expand production and the economy. That was the general impression.

The Chancellor of the Exchequer deserves to receive congratulations on the suppleness of his mind and his ability to change it. Previous Tory Chancellors have tended to be rather rigid in their views. The Lord Privy Seal lived in a continuous happy state of fiscal intoxication. The right hon. Member for Monmouth and the present Prime Minister were both severe deflationists. The Chancellor of the Exchequer was last year a restrictionist and now has become a complete expansionist. It is a most dramatic change of front between two Budgets. I do not think that there has been a greater change since Jupiter transformed himself into a bull.

It is desirable to consider the effect of injecting purchasing power into the economy, as is proposed in the Budget. We are to have £366 million of extra purchasing power. It is common ground on both sides of the Committee that there is idle productive capacity of between 10 per cent. and 15 per cent. That means that if production were pushed up to full capacity there would be an increase in the gross national product of between £1.500 million and £2,000 million. The figure most generally accepted is £1,700 million. I would like to consider the effect of the injection of this purchasing power of £366 million into the economy.

First, some of it will go into the pockets of people who will be taxed. I am talking about the indirect taxes. Then it will be put into the pockets of people who save. Between 8 per cent. and 9 per cent. of all their income after taxation is saved. A large proportion of the money will be spent on imports and, therefore, will go to countries overseas. The generally accepted figure here is that about 20 per cent. of expenditure goes on imports. If one adds up those figures one comes to the conclusion that about half the £366 million will be lost, either in savings, taxation or imports, and will not go towards increasing either production or consumption.

The Chancellor rightly pointed out that there is a multiplier effect, and the Paymaster-General pointed out the same thing yesterday. That is true. There will be a second round of injection of purchasing power into the economy as the result of the first round. The second round will be liable to Income Tax and Surtax as well as to other forms of taxation which will take up about 30 per cent. Again, there will be an import content of about 20 per cent., and a certain portion of it will be saved.

In the second round one can expect that only about half of what actually entered the economy in the first round will go into the economy again. One can carry that on ad infinitum into third and fourth rounds. It is easy to see that the total amount injected into the economy will not be £366 million, in spite of the multiplier effect.

We have surplus productive capacity of £1,700 million. Is the £366 million likely to make much difference? It is only about one-quarter of the extent to which the economy could be expanded merely to take up the slack, the surplus capacity, and it will, therefore, have very little effect in producing expansion. It is unlikely that investments will rise substantially as a result of this added purchasing power. There is much idle capacity to take up, and it could be done without further investment.

Hon. Members may recollect that there was substantial expansion of the economy before 1955. It was the effect of several expansionist Budgets, and not of one. There was pent-up demand, due to the necessary restrictions of the post-war years, and also a demand for capital investment goods, because we had had controls on investment in the post-war years. One has to face the probability that the Budget, which is considered by Government supporters as bold and daring, will not have very much effect upon the economic situation.

I will not labour the point that such a Budget could more appropriately have been introduced last year. It has already been made by several speakers. We certainly warned the Government last year that there should have been an expansionist Budget. We have to face the fact that Governments do not learn these things easily. The great quality of the present Government is that they always know a good thing when everybody else has already seen it.

It may be that the recent comparatively sharp increase in consumption over the last few months appears to lighten the darkness of the economic situation. It is due to the release of hire-purchase controls and to increases of credit. It does not require any deep financial knowledge to appreciate that anyone who spends money on hire purchase or on credit will be able to spend less money later. The effect of relaxing hire-purchase control must, therefore, be transient and must be followed by restriction of consumption.

We have heard from the Chancellor and from several Government supporters about the strength of the economy. The gold reserves have been paraded in a most triumphant manner. These gold reserves of ours are at their present height very largely because of massive subventions, hundreds of millions of pounds having been borrowed or raised from sales of assets abroad. I recollect that a year or so ago the right hon. Member for Monmouth, when Chancellor, absolutely and flatly declined to state to what extent the gold reserves had been increased by those subventions. One understands his reticence. Even in recent months about £100 million has been added to the gold reserves from take-over bids and another £350 million entered into our gold reserves over the last year simply as the result of foreign investment. In other words, "hot" money is taking advantage of our excessively high interest rates.

If one turns to the balance of payments one sees that the situation is hardly encouraging. There was an improvement last year during the first few months, but in the latter part there was a tendency for import and export prices to increase, while there was a tendency for exports to fall. Nobody expects that exports will improve over the next year, in spite of the very satisfactory results in the American market.

There has been the most absolute stagnation of production since 1955. That, of course, has had its usual baneful effect on prices. When production is stagnating and output is low there is always necessarily a tendency for prices to increase, because the overheads have to be spread over a smaller ratio of productive effort. Another disagreeable circumstance is the decline which we have had in our share of world markets. There is no doubt that every year during the last few years there has been this steady decline of our share of world exports, and we also see—I think that the President of the Board of Trade will agree here—that both Germany and Japan, in the last year or two, have proved themselves more competitive than ourselves in export prices. They are exporting the same kind of goods and of the same quality, but substantially more cheaply.

The real menace to the economy, however, is clearly that of Russia and the Communist countries. The right hon. Member for Monmouth very properly pointed that out. One feels that when a time comes when the Russians actually start to compete with manufactured articles in the export markets, we shall be in serious trouble. At present they are largely exporting commodities, but when manufactured goods of Soviet origin reach the world's markets, they will put us in great difficulty with their extraordinary competitive advantages.

Against this rather gloomy background, is the general effect of the Budget really satisfactory? This injection of purchasing power is not likely to be as nearly effective as it could be. It could be much more effective if this increased purchasing power were put in the hands of those who do not tend to save money or spend it on taxed luxuries, and, of course, the obvious people are those living on retire- ment pensions and those in the lower income groups.

In fairness to the Government, one should point out that this economic difficulty which we are going through is to a large extent an international one, and that it will be of little use if we alone produce expansionist measures if, at the same time, other Governments, particularly Germany, are producing restrictionist measures. It seems that the time is ripe for some international co-ordination of expansion, because, obviously, this will be one of the keys to the solution.

It is clearly desirable that we should have some increase in the competitive power of British industry. One has to face the fact that our export prices have gone up considerably, and have put us at a considerable competitive disadvantage in world markets. At the same time, there has been a substantial increase in imports. I think that my right hon. Friend the Member for Huyton pointed out that since 1954 there has been an increase in imports out of all proportion to the actual increase in the national product. If one looks at a graph of this situation, we find that the lines of imports and gross national product ran parallel until 1954 and that after that there was a big divergent rise in that of imports. That simply means that people in this country are buying imported goods in preference to our own products; there could not be any other explanation. The reason seems to be that British industry is not being sufficiently competitive.

One cannot escape the fact that an increase of productivity in British industry is important. To increase that productivity, it would also be helpful if there were some encouragement given to research, and in the present Budget there has been no suggestion at all that research should be encouraged, although there has been some attempt to encourage increased investment.

I have dealt with the general situation, and I should now like to mention some specific matters. Many right hon. and hon. Gentlemen on this side of the Committee have already referred to the plight of the retirement pensioners and I make no apology for referring to it again. This is obviously a crying social need, and, clearly, on economic grounds, it would have been very desirable to have put purchasing power into their hands. It was absolutely extraordinary that there was no indication whatever in the Budget of any help for the old-age pensioners. The Chancellor maintained an ear-splitting silence on that very important subject.

The right hon. Gentleman could also have increased unemployment benefit. I think that most hon. Members will agree that at present, with the massive amount of unemployment we have, severe hardship is caused to many workers and their families who find their standard of living suddenly reduced to half, one-third, or even less. This is surely a strong reason for increasing unemployment benefit, and the same considerations apply to family allowances. There is a lot to be said, both economically and socially, for an increase of transfer incomes of all kinds. This money would not be saved, and hardly taxed, but would be spent on necessities. It would, therefore, add to the purchasing power of the country, and would have some real economic value.

One of the most extraordinary features of the Budget, to which several hon. Members have referred, is the fact that the Chancellor has listened so carefully to the hoarse voices of the brewers and the heavy beer drinkers. The Chancellor himself has said that the only reason for the reduction of the beer duty was that it would decrease the cost of living by four-fifths of a point and that the consumption of beer would not decrease. Is it an undesirable thing that the consumption of beer should decrease? It indicates a change in the social habits of the people, who prefer family life round the television set at home to going to a public house. It may be bad for the brewers, but is it undesirable?

There are also considerable moral grounds for not reducing the beer duty. This relief of duty has a quite specific and extraordinary action, because the more a man abuses the article the more benefit he gets from the Treasury. No one objects to a man who has his pint or two of beer and receives 2d. or 4d., but here we have a situation in which the more a man consumes this particular product the more the Treasury looks after him. The man who drinks one pint gets 2d., but the man who drinks 24 pints, and is unconscious on the floor, has the sympathetic figure of the Chancellor beside him offering him 4s. This cannot have any helpful moral or social purpose.

Returning to the Income Tax side of the Budget, we on this side of the Committee are entirely in favour of the action taken to deal with "bond washing" and "dividend stripping", though one feels that the people who are guilty of these practices will still find other avenues for their activities. It is high time that the Treasury took steps to obtain general powers to deal, if necessarily retrospectively, with this form of tax avoidance.

We regard the changes in taxation of directors' remuneration with considerable suspicion and will deal with that subject in Committee on the Finance Bill. The Chancellor, after giving these colossal reliefs to Surtax payers, apparently felt that he should give directors something more as well. Probably he felt he should not spoil the ship for £3 million worth of tar. Many hon. Members have spoken of the absurdly large reliefs given to people with large incomes and very small reliefs given to those with small incomes. One could quote numerous figures to illustrate the process.

Why did the Chancellor not give greater relief to those who pay less than the standard rate of Income Tax? That has been recommended by the Royal Commission on the Taxation of Profits and Income. As the years have passed, with inflation, a heavier burden has been placed on people who pay the lower rates of Income Tax. Why have they not had some relief? Relief to them would have had obvious administrative convenience in removing some of them from taxation completely, while it would have served a very useful purpose from a social point of view.

There is no doubt that public opinion is in favour of progressive taxation. Already, we have far too high a proportion of indirect taxation, which chiefly affects people in the lower income groups. No one would regard the United States as an extremely progressive country socially, but even there indirect taxation is a smaller proportion of total taxation than it is in this country. In taking this line on Income Tax in the Budget, the Chancellor has increased the proportion of indirect taxation, which is obviously a regressive and undesirable fiscal policy.

This relief of taxation is extremely favourable to companies. Why should companies have particularly favourable treatment? We all know that the shares of companies have gone up 33 per cent. and dividends have increased by 6 per cent.; why do they require this consideration? It is true that equity earnings of companies, on gross calculations, are not affected, but there is no doubt that, with a given dividend under present reductions of taxation, companies will be able to make bigger retentions of profits. As a consequence, then, shareholders will be so much richer. Alternatively, with a given retention of profits, they will he able to give bigger dividends. This is a massive intervention in favour of companies and shareholders.

Hon. Members probably on both sides of the Committee will agree that an opportunity was missed in the Budget to widen the tax base. At present, there is not merely a great difference between those taxed under Schedule E and Schedule D, but there is substantial tax evasion. All hon. Members are familiar with accounts in which large cash transactions take place, particularly between the owners of small businesses. As a striking instance of this, I recollect that a professional colleague wished to have a drive constructed to his house. The contractor said that he would construct it on condition that he was paid £200 in notes. That is a typical example of evasion which goes on in a widespread manner and which could he corrected by some form of Treasury inspection of sample small businesses' accounts.

Photo of Mr Arthur Moyle Mr Arthur Moyle , Oldbury and Halesowen

Why not big businesses, too?

Photo of Mr John Cronin Mr John Cronin , Loughborough

I appreciate the point made by my hon. Friend and I shall conic to the question of big businesses later.

Small businesses are a somewhat different problem. There is a tendency in the Inland Revenue Department to accept the figures given by accountants as gospel. In the majority of cases accountants are very honourable people and their figures can be relied on —

Photo of Mr John Cronin Mr John Cronin , Loughborough

— as my hon. Friend will agree. Nevertheless, there is no escaping the fact that the accountant is employed by the person concerned and there must be subconscious pressures at work which put the accountant in an awkward situation. The accountant would be in a much happier situation if there were a more efficient system of Treasury inspection of accounts. The accountant would be relieved of some responsibility if a department of the Treasury could send someone round to inspect sample accounts. That would help considerably in matters which approached tax evasion and would certainly greatly increase the yield to the Inland Revenue Department.

My hon. Friend the Member for Oldbury and Halesowen (Mr. Moyle) referred to big businesses. There is tremendous scope there for increased revenue by putting a stop to some of the quite unjustifiable expense accounts. We all know that expense accounts have to be maintained, sometimes on a generous scale, because this country has to compete with other countries. If other countries allow large business expense accounts, we have to do the same, or suffer competitive disadvantage, but there is no doubt that expense accounts are abused, particularly by executives of large firms who are provided with living accommodation, cars, servants, and a host of special facilities which go down as expenses. All hon. Members are familiar with numerous examples. I shall not weary the Committee by referring to them. There is clearly a big possibility of increasing the revenue by taking some really effective action against this form of tax avoidance.

I apologies to hon. Members opposite for referring to another very helpful source of revenue, a capital gains tax. I know that the mere conception of such a tax has much the same effect on the average Conservative as a gorse bush on a nudist. Having apologized, I wish to emphasise that a capital gains tax would obviously be the most sensible way of increasing revenue and also producing a great deal more equality. I must congratulate the Chancellor on increasing by £70 million the investment in nationalised industries. I am sorry that there has been an increase of only £18 million in the coal industry. The Budget would have been a helpful opportunity to do something to deal with the rather difficult situation arising over the whole of our fuel policy. The coal industry is going through a period of extraordinary difficulty and needs a great deal more help than the brewing industry needs. The Paymaster-General said yesterday that it would be unsatisfactory to reduce the tax on petrol and diesel oil because of the large import content, but surely the Chancellor could have reduced that tax and, at the same time, put some form of tax on oil used entirely for heating purposes. That would be a practical proposition and would go a very long way to solve our difficult fuel problem.

It seems that the Chancellor has made a helpful contribution on investment allowances, but it is very unfortunate that in announcing it he should emphasise so much that these allowances are of a temporary nature. He said: it would be equally appropriate to reverse the action I am taking now." — [OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 60.] I feel some sympathy for all forms of industry which are faced with constant changes in allowances for investment. There were investment allowances, and then they were cancelled. There were initial allowances, and initial allowances have changed.

Now we have investment allowances and initial allowances simultaneously, with the threat of them being removed again. How does any company know where it stands about investment allowances with all these past constant changes and the threat of other changes? Investments of large companies are sometimes spread over several years. If there is a yearly change, what help will investment allowances be if they are meant to be a serious factor in encouraging investment?

There is no doubt that much more could have been done about Purchase Tax relief. The Purchase Tax reliefs equal only one-sixth of all the tax reliefs in this Budget. There is a tendency for indirect taxation to form an increasingly greater part of our total national revenue, which is a most regressive policy fiscally. One had hoped that there could have been some relief on necessities. There is surely a strong case for abolishing completely the 5 per cent. Purchase Tax, but, unfortunately, that was not done.

There is no escaping the fact that the Budget has not made a powerful or really helpful contribution towards the country's economic difficulties. The amount injected into the circulation is not to be used to best advantage. The Budget will be socially undesirable in numerous ways. The Chancellor personally commands the respect of both parties. He is a figure of such respectability that one feels that, if he had not existed, he would have had to be invented for the sake of the Government's electoral prospects. The Chancellor, however, has shown his capacity to fall below the level of events. This Budget has been a rather unfortunate one.

The principal responsibility must, of course, rest with the Government. No mistake puts the Government to shame. No folly deters them. They never feel diffident, no matter what errors they commit. Relief for Surtax payers, brewers and directors is not the answer. The best relief would be for the country as a whole. An early dissolution of Parliament.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

Before I finally lost the thread, if there was one, of the argument of the hon. Member for Loughborough (Mr. Cronin) — I must confess that I lost it very early on — I chanced to notice, as they flashed past me, two points which he made in which I should like to follow him for a moment.

As I see the hon. Member for Gloucester (Mr. Diamond) laughing, I might say that if he happens to catch your eye, Mr. Macpherson, after I sit down, I have no doubt that he will have some interesting observations to make on the ethics of the medical profession. As he seemed to be under the scrutiny of the hon. Member for Loughborough in respect of the ethics of the accountancy profession, we shall be very interested to hear what come-back he has.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

May I say that I shall be very glad, Mr. Hynd, to catch your eye?

Photo of Mr John Cronin Mr John Cronin , Loughborough

I should make it perfectly clear that I have the highest possible respect for the accountancy profession and that I made no suggestion whatever against accountants.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

I hope that we are all happy now. I must apologies to you, Mr. Hynd. I am getting rather shortsighted.

The hon. Member for Loughborough said. as was said by several hon. Members

opposite, that there was a rapid change in Government policy, in that last year it was necessary to restrict the economy and this year it is necessary to some extent to inflate it; it was a deflationary policy last year and it is an inflationary one this year.

That argument would apply equally well if it came from the mouth of a back seat driver who said to a driver who had first turned a corner to the right in a road and was then turning a corner to the left in a road, "You turned the wheel to the right a moment ago and you are now turning it to the left". Circumstances alter cases and I am bound to say that in a situation of inflation and a run on reserves, even Governments are bound to take slightly different action from that one conceives to have been correct in a situation of unemployment, caused by world recession, high reserves and the high standing of sterling in the world in general. I do not think that that criticism was justified.

It should be made clear from this side of the Committee that there is a complete misconception in the mind of the hon. Member for Loughborough about the attitude which we on these benches have to wages and their increase. The hon. Member was saying — he was quite right — that there is very serious concern on these benches about rises in wages which are not matched — I think that they should he more than matched — by production. He said that in West Germany wages had risen very considerably and the German economy is strong. That is true.

What we are concerned about is not the absolute rise in wages. It is the rise in wages in comparison with the rise in production aver the economy as a whole. That is what we regard as serious. If production rose by 30 per cent., we should think that it was entirely satisfactory if wages rose by, say, 20 per cent. I put the figure at slightly less, because wages are not the only purchasing power which is put into the economy and one has to have regard to the creation of purchasing power by the Government as well as by the payment of wages. I hope that the hon. Member for Loughborough will recognise that there is a different attitude to wages on these benches from that which might have been inferred from his remarks.

I want to refer to one or two other remarks made from the other side of the Committee. The right hon. Member for Battersea, North (Mr. Jay), who, I see, is in his place again, referred to my right hon. Friend the President of the Board of Trade's speech as having consisted of a number of platitudes and one surprising statement. The right hon. Member for Battersea, North made a speech which consisted of a number of platitudes and contained no surprising statement. It was no more surprising than a gramophone record which one has heard far too often.

I think that the right hon. Member for Battersea, North might have paid more tribute to the Chancellor for taking the Purchase Tax off gramophone records, because having sat through four speeches by the right hon. Member and four speeches by the right hon. Member for Huyton (Mr. H. Wilson) I ant getting a little tired —

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

The hon. Member does not seem to have noticed that the Chancellor has not taken the Purchase Tax off gramophone records.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

In that case, the right hon. Member ought to have reproved the Chancellor for not having done so.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

My right hon. Friend reduced Purchase Tax on gramophone records.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

I am changing my mind. My hon. and learned Friend the Member for Middlesbrough, West (Mr. Simon) has put me right. The Chancellor reduced Purchase Tax on gramophone records. Therefore, if right hon. and hon. Members opposite cannot be all that grateful to the Chancellor they might be a little grateful to him for having reduced the Purchase Tax on gramophone records.

The hon. Member for Loughborough followed very closely the arguments of the right hon. Member for Huyton, except that he was not so amusing. The right hon. Member for Huyton seems to have sacrificed being "shadow" Chancellor for the substance of being official clown.

The hon. Member for Loughborough made several points which his right hon. Friend made, and I should like to comment upon three. First, I hope that it will not escape notice that the Opposition have been using the legitimate, but essentially unfair, trick of debate in that where it concerns the stabilizing tendency in the cost of living no credit whatever is given to the Government and all emphasis is laid upon the fall in commodity prices and imports. Where it is a matter of recession and unemployment, all the blame is placed upon the Government and no account whatsoever is taken of the recession in the United States and the fall in commodity prices. They cannot have it both ways. In any case, it does not do justice to their powers of debate.

My right hon. Friend the Paymaster-General was over-generous to the right hon. Member for Huyton in thinking that that right hon. Gentleman really meant it when he said that the strength of sterling would come before any other consideration, no matter what political party was in power. I do not believe that. Socialist policy is a policy of inflation, involving a financial crisis every two years and a devaluation every three — except that in the second three-year period they usually give up office and leave a Conservative Government to take over.

That is what Socialist policy means, and when the Socialists start their General Election campaign they should, if they were honest, hold out to the rest of the world that they are offering a Socialist £which they will devalue in three years' time. That is the most important indictment to be made against them. The strength of sterling is the most important political and moral asset that my party can claim.

I want to add my comment to that already made on the remarks from the benches opposite about the so-called "old-age pensions." They are not old-age pensions, but retirement pensions. I deprecate the use of the term "old-age pensions" because it has an emotional overtone, and heightens the undesirable tendency to make retirement pensions a party political issue. My right hon. Friend the Minister of Labour was absolutely right in saying that, sooner or later, this pension must be regarded as an element in the economy upon which agreement must be reached between the two sides.

This point has been raised by one hon. Member opposite after another. They must have decided that, as this is a good Budget, they might as well bring in one of their main election cries. But it does not stand up at all. The different interests in the economy have to be looked at—and after—in turn as well as may be, and I do not think that any fair assessment of the Government's record in relation to retirement pensioners can possibly justify what has been said by the other side. We all know that the retirement pensioners now have a higher real rate of pension than they have ever had since these pensions were introduced.

The suggestion that retirement benefits should be tied to the cost of living is not only a confession of failure and despair but is, in itself, highly undesirable. As a matter of fact, if the benefits were so tied they would be lower, in real and in money terms, than they are today. It is a pity that that note has been introduced. It is not only unsuited to our Parliamentary procedure, but is rather undignified and unbecoming to Parliament in general.

I congratulate my right hon. Friend the Chancellor of the Exchequer on what I consider to be a fundamentally well-conceived Budget. I should like to try to assist him in two respects—and if I do so only briefly now it is because it will be more suitable to develop my arguments during our consideration of the Finance Bill. First, I am sorry that he has not abolished Schedule A tax. I hope that he will be pressed from this side to do so, and I shall join in any such pressure.

Secondly, I join with my hon. and gallant Friend the Member for Worthing (Brigadier Prior-Palmer), who said that it is time to remove the injustice of married couples, both earning and attracting Income Tax, being assessed together. The case for it is not strong enough. This would be a good occasion to do away with it, and I hope that at a later stage we shall be able to press my right hon. Friend on that as well.

I also want to assist my right hon. Friend by emphasising the central theme of the Budget. My right hon. Friend said: Every Budget should have a main aim or theme running through it, related to the current needs of the economy. I have no doubt whatever what the first requirement is today. It is an improvement in the competitiveness of our economy." — [OFFICIAL REPORT, 7th April. 1959: Vol. 603, c. 47.] That has been rather overlooked and neglected. Indeed, it is remarkable that so few references have been made to that central theme, although it has been said that if one wants anybody to understand anything one has to repeat it three times and my right hon. Friend said it only once.

It was right that he should take that as his then-re this year, and to lay his main emphasis, in effect, upon exports. He, and every other Chancellor, has to face a very difficult choice, and a balance of advantage and disadvantage. This year, my right hon. Friend has made the right choice and the right balance. He has decided to stimulate the economy. At the same time, I hope that he will remember that he always has with him two unsolved and extremely difficult problems, and that one of them may well catch up with him and overwhelm him.

We have not even approached a solution of the central difficulty of finance and economics in a free democracy—reconciling expansion with a stable cost of living. The bogy of inflation should continue to frighten my right hon. Friend. No free economy—and, I venture to say, no controlled economy—has succeeded in expanding without inflation. My right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) said that the Russians had succeeded in doing so. Whether or not they have succeeded is an extremely interesting argument. I noticed in The Times a few weeks ago a most interesting leading article which argued that even the Soviet Socialists had not succeeded in reconciling expansion with a stable economy.

Nevertheless, my right hon. Friend made the prime point. The Soviet Socialists have the one control that Socialists in this country are not prepared to assume—control of wages. If we are not to control wages, there is little point in controlling the rest of the economy—unless, of course, one is prepared for the ultimate solution to inflation, the solution of the party opposite, and one that is always at hand—a devaluation.

One can always solve inflation by devaluing the currency. That is the Socialists' answer, and that is what they did. If the Socialists have a coherent economic philosophy it is that they get office, inflate the economy, solve balance of-payments difficulties by a devaluation. and then get out and leave it to the other party to build up the economy once more. That is the British Socialist economic philosophy.

My right hon. Friend must try to solve the problem in another way. If I knew the solution I would tell him. Right hon. Gentlemen opposite may laugh, but perhaps they will ponder this. It is a great comfort to them, but presents us with great difficulties. No degree of economic control or direction will make an economy " go ", any more than a rudder will make a ship go [Interruption.] It is, of course, worth having a rudder, and that is what my right hon. Friend is using. At least, he did not capsize, as the party opposite did.

Just as no amount of Government control will make an economy "go", so no amount of legislative or Parliamentary control will affect the object of wage control. It cannot be done by any form of legislative action. Just as the economy depends for initiative and impetus on the creative genius of the people, so the control of wages depends on the innate discipline of the community. Whether that discipline exists or not we shall see. It is a problem which will continue to beset this Front Bench and the opposite Front Bench if they come over to this side.

Members opposite are ill-advised to pretend that they can avoid the ultimate evil of devaluation and the ultimate harm that will do to the expansion of world trade simply by controlling less important parts of the economy.

The second great difficulty that my right hon. Friend must have in mind is the difficulty of the fluctuation in commodity prices in the world as a whole. 1 have no doubt that he is considering what can be done about that. That is not such a difficult problem as the control of wages. If the Financial Secretary replies to the debate tonight, perhaps he will say whether the Government are as aware as they should be of the problem of the fluctuation in commodity prices, and whether, in fact, there is not something that can be devised in the form of an equalisation account or something like that. The worse these fluctuations are in the long run, paradoxically the better they are for us in the short run.

With these two reservations, I believe that my right hon. Friend the Chancellor of the Exchequer has made an honest and sensible effort to keep the economy on the right lines, and it will be propelled on those lines not by anything that any Government can do, but because of the resource, inventiveness and skill of our people.

7.3 p.m.

Photo of Mrs Mary McAlister Mrs Mary McAlister , Glasgow Kelvingrove

I wish 'to make one or 'two very short points. First, I want to congratulate the Chancellor on the relaxation of the regulations governing the payment of post-war credits. This will prove a financial boon to many people, not only in my own constituency, but all over the country.

I should have liked to have seen the 5 per cent. tax on household necessities like bedding, furniture, and so forth, disappear rather than a reduction in tax on refrigerators and washing machines. Not that I am against refrigerators and washing machines; far from it, despite the fact that the result of the invention of the washing machine has led to the perpetration of the use of the washing board as a musical instrument. I think that the Chancellor's priorities are wrong. If he could take off only 5 per cent., it should have been taken off the necessities.

I am also disappointed that the Chancellor has done nothing for the cinema industry. I have a great many cinemas in my constituency, and I am told by those who ought to know that one of them is the largest in Europe. However. it is not those cinemas that I am concerned about. I am concerned about the small cinemas which will have to close down as a result of the Government's omission, with the resultant unemployment in a country where unemployment, in all conscience, is already far too high despite the reassuring figures given by the Minister of Labour a couple of weeks ago.

Another point on this—and it is a sentimental one—is that these local cinemas are used, and I use the word without apology, by old-age pensioners who can manage to scrape together perhaps the reduced price for a seat but cannot afford the price of a television set, its maintenance, or the price of a licence. I am very very sorry that the Chancellor has done nothing about the cinema in- dustry. I hope that he will consider this again.

That brings me back to my main theme. I want to speak for only a few minutes, because I think that the case is so clear that it does not need to be reiterated. I was utterly shocked to hear the hon. Member for Ilford, North (Mr. Iremonger) say that it was derogatory to the dignity of Parliament to mention the plight of old people. It is utterly shocking to hear a Member say such a thing.

Photo of Mr Tom Iremonger Mr Tom Iremonger , Ilford North

I am most grateful to the hon. Lady for giving way. I think that she was possibly not quite correctly remembering what I said. I said I thought that it was derogatory to the dignity of Parliament to make a political issue out of something which ought to be agreed between the parties as to old-age pensioners. My point is that they are retirement pensions, not old-age pensions.

Photo of Mrs Mary McAlister Mrs Mary McAlister , Glasgow Kelvingrove

I am not concerned with what adjective the hon. Member uses in relation to these unfortunate people, and I make no apology for my statement.

We heard a lot yesterday from right hon. and hon. Members on the other side as to what the Tory Government had done for old-age pensioners compared with what the Labour Government had done. Might I respectfully remind the Committee that the Labour Government raised this pension 160 per cent. at the time when the late Sir Stafford Cripps was attempting to stabilise the tottering economy of this country? There is no analogy whatsoever between conditions obtaining then and now. If old-age pensioners are, in fact, better off now than they were in 1946, or ever since 1951, or any date you like — and, mind you, many of them are Tory voters — that is not their opinion and the Government will know it before very long. It is utterly disgraceful the way these old people are being treated.

The Rent Act has accelerated their misery 100 per cent. Some of them are now paying double rents on old houses. Unfortunately, many Scottish landlords are of the opinion that Scottish houses, like Scotch whisky, improve with age. There is no doubt that a great number of these people are in a worse state than they 'have ever been in their lives.

I remind hon. Members opposite that these people came up in a day and age that was very hard indeed. Many of them were skilled craftsmen. We heard a lot yesterday about good management and good workmanship being the real basis of production. Nobody denies that. Certainly, we on this side have never denied it. Good management and good workmanship are certainly responsible for the basis of production, but many of these people were skilled craftsmen and in their day and generation helped to build up the economy, security and prosperity of the nation and put it in the forefront as an industrial leader.

Today, they are thrown on the scrap heap, and not for the first time, because during the years of depression many of them were on the scrap heap for so long that they found it impossible to save for their old age.

I will say no more. I leave to the consciences of right hon. and hon. Members opposite whether they are doing right by the old-age pensioners.

7.10 p.m.

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

I have very great pleasure in following the hon. Lady the Member for Glasgow, Kelvingrove (Mrs. McAlister), who made too short a speech. I think what I enjoyed most of all was her reference to the washing board being turned into a musical instrument. I regret very much that my hon. Friend the Member for Kidderminster (Mr. Nabarro) is not in his place. If he were, I am sure we should have some very interesting supplementary points on tie subject of Purchase Tax on washing boards regarded as musical instruments. I am pleased to see that my right hon. Friend the Chancellor is already looking up his notes.

As one who has just heard his first Budget in the House. I have followed events during the last two months with delightful and beguiling uncertainty. As always in these matters, it is almost impossible to fulfill all the hopes which are entertained at Budget time. On most occasions, perhaps, it is better to travel hopefully than to arrive, but this occasion is an exception, because the Budget has been greeted, even in the Press which is usually sympathetic to the party opposite, as a Budget which has done much for many sections of the community.

Another thing which interests me very much is the respectful and courteous pre-Budget lobbying which one receives from every section, from every industry and from every interest in the community. Heavy arguments are advanced against every kind of tax. One is presented with a world where there is no Schedule A Tax, where there is a severe reduction in Income Tax, the abolition of Entertainments Duty, more severe reductions of Purchase Tax, and so forth. Here again, one can imagine many more interesting mental exercises on the part of my hon. Friend the Member for Kidderminster. Perhaps that is one of the reasons why my right hon. Friend did not reduce Purchase Tax even more. There were arguments about beer duty and the duty on heavy wines. If we were to accept all these arguments we should be living in cloud-cuckoo-land, with Utopia knocked into a cocked hat. We have been inundated with a massive weight of evidence showing that all taxes are oppressive, unjust, discriminatory and unfair.

I particularly welcome the reduction in Income Tax in all rates. It should be remembered that the reduction is pro rata and greatest at the lowest level of tax, where it is one-fifth of the existing tax levied. On the standard rate, it is one-tenth of the tax levied before the Budget. I regard that as fair. It is right that people should have the incentive to work harder and, if necessary, to work longer in the knowledge that they can take more of their earnings home.

I hope that people will spend some of the money which they will now have as a result of my right hon. Friend's Budget and thereby help to give further stimulus to the economy. Also, I hope that they will save some. Unlike the hon. Member for Loughborough (Mr. Cronin), I attach the greatest importance to saving if the stability of the economy is to be maintained. In this connection, I will say also that I am delighted that post-war credits are being attacked in such a manful manner. I am sure that the attack will be kept up. Part of this money also will be spent and part of it will be saved and. invested, as we all want.

As a newcomer here, I hope that I may be excused if I try to put my mind back to what are the two essential purposes of any Budget. The first is to meet the requirements of the great spending Departments of the country. Over the centuries, these have expanded beyond diplomacy and defence into many other realms — the Services, the Welfare State, the agricultural support schemes, and, below the line, capital expenditure upon the State industries.

The second purpose — as an airman, I shall put it in this way — is to control the velocity of the economy, by which I mean the speed and direction in which our economy operates. I acknowledge, of course, that there are many other financial means, apart from the Budget, for regulating these matters. There are the Bank Rate, hire-purchase restrictions, the credit squeeze and Purchase Tax, all of which can be adjusted outside Budget time. The Budget, however, is generally regarded as the main instrument for regulating our financial affairs. As one who was brought up at a time when the Budget generally made an increase in Income Tax when we were rearming prior to the war, I recollect that it always appeared to coincide with my school report. Both had an equally depressing effect upon the spirits of our family.

Considering for a moment the velocity of our economy, I should like to refer to what has been said, particularly by the hon. Member for Loughborough, about stagnation. No Member of this Committee should forget that not very long ago inflation was the arch-fiend to be exorcised at all costs. All the wage claims one heard of since the war were based, and in many cases very soundly based, upon the rise in the cost of living and upon increases in profits. Now that the cost of living has been stable for a considerable number of months and profits have been going down, the great responsibility people have in the matter of wages and wage claims will, I am sure, be appreciated. I welcome that.

There has been talk about unemployment. In the United States there has been unemployment twice as bad as we have it here, and there there has been inflation as well. One of the reasons has been that, with unemployment, people have been unwilling to spend more money on investment in the home, on further hire-purchase commitments. As a result, more money has been channelled into consumable goods and, because of the depression, the prices of food have risen. It is a paradox, but it is something within the experience of the American economy, and I think that we have had just a trace of it here.

In this country, we always view unemployment very seriously. We regard it as a grave problem, and hon. Members on both sides, I think, adopt a very responsible approach to it. It is very welcome that our unemployment level is among the lowest in Europe, and some credit should be given to my right hon. Friend the Chancellor for his direction of our economy and, if I may say so, to my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), who did much of the unpopular work. There has been talk about "Mr. 7 per cent." on this side, and we had "Mr. 2 per cent." making a most impressive speech yesterday from the benches opposite. I know that I would much rather have "Mr. 7 per cent." Than "Mr. 2 per cent.", because the latter would bring about a return to inflation.

Having got inflation under control, we are now stimulating our economy again. I welcome the reduction in Purchase Tax particularly on the labour-saving devices which go into our homes. These things are stimulating production again. They are stimulating and expanding the consumer goods industries, and these consumer goods industries are, in their expansion, beginning to invest in more capital plant. By this means, we are gradually bringing about the restimulation of our basic and heavy industries. It can be done not by means of the vast expenditure and investment so glibly talked about by the right hon. Member for Huyton (Mr. H. Wilson). It is done by creating a steady economy for the parts of industry which require the heavy capital goods.

We have talked about stagnation and we have talked about inflation. I am glad that many hon. Members opposite have said that this is not just a national problem. We saw it first in production because stocks were being run down. We saw it in commodity trading and in commodity prices. To give a few examples, the price of copper fell from £420 per ton to £160 per ton a year ago. The price of wool tops during the last two years fell from 150d. to 90d. per lb. in two years. The price of rubber fell to 20d. per lb. Many of the peoples of the Commonwealth who are dependent upon these goods for their income have had their income reduced and, as a result, have been unable to order from us. The result has been a decline in our export trade.

These are matters not of speculation, as suggested by the right hon. Member for Huyton and his hon. Friends. They are matters of international trade, of international businessmen meeting demand with supply. When they see the demand dropping off, it is quite natural and prudent that they should reduce their supply. It is welcome to see that wool tops are up again, to 105d. per lb., and that copper is up to £250 per ton and looks like being reasonably stable, although the troubles in Nyasaland and Rhodesia have caused a slight increase in the price of that commodity because businessmen have, through prudence — not speculation — been compelled to lay down extra stocks. Rubber, also, is up to 27d. per lb. These are good things. They are bringing greater prosperity to the primary producing, countries in the Commonwealth and in time they will increase our exports.

It is a brave thing that the Chancellor has done in making it possible that we shall now he buying in more stocks and thereby losing our gold and dollar reserves to a considerable extent as the terms of trade go against us, knowing quite well that it will be some time before these countries have their economy on a keel sufficiently even for us to increase our export trade to them. I know, however, that that was done by the Chancellor with a full sense of responsibility for the other countries within the Commonwealth. This is something which is frequently talked about on both sides of the House.

It is not enough, however, simply to reduce Purchase Tax and to make hire purchase easier. There are many people who will in no circumstances deal on the " never-never " system. We are much behind the Americans in this respect. There are many people, in both political parties, who will never buy anything on hire purchase. They know now that because they are getting greater net earnings, they can use some of the savings which they have put into the bank in the last few years. That is a situation that will continue as long as we have financial stability and people continue to put their money into the bank. At times like this, when they feel that the need arises, they will go out and buy the washing machine or the refrigerator, and, possibly, throw the hon. Lady the Member for Kelvingrove another washboard as an additional musical instrument.

It is essential — 1 disagree heartily with the hon. Member for Loughborough — that we should maintain the value of savings and encourage people to continue to save. We cannot do that, however, if there is the slightest risk of a runaway inflation. If there is fear of inflation, people will withdraw their savings straight away because they know that the value of their money will decrease.

Furthermore, at this time, when so much has been said about mortgage rates. being high, any manager of a building society will say that he can get plenty of business lending to would-be purchasers of houses but that he has the greatest difficulty in getting people to invest in the building societies. As long as this trend persists, it will be necessary for that reason to have moderately high rates of interest.

The reduction in Income Tax will assist in saving as well as in expenditure. This is so much better than the other methods that have been mentioned, because it is not an artificial stimulus but is a genuine encouragement to net earnings. Since the war, taxation has been too high. Despite the improvement in the tone of the right hon. Member for Battersea, North (Mr. Jay), when, for a time, he stopped saying that my right hon. Friend the Chancellor was giving away, he later reverted to his old habit and said it in almost the next sentence. That kind of thing is often said by hon. Members opposite. I have heard it said that my right hon. Friend the Lord Privy Seal has made the same mistake, but it is probably because he has listened so intently to whatever the right hon. Gentleman is always saying.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Might not the reason for my saying it sometimes be that I listened so attentively to the Lord Privy Seal?

Photo of Mr David Webster Mr David Webster , Weston-Super-Mare

I am glad that the right hon. Gentleman has listened to my right hon. Friend, and I hope that he has learned much from what he heard.

We on this side consider that we are not giving away. We are letting the earner have more of his own money to save and to spend. That will be a greater stimulus for him, and for all of us, to earn more, to work harder and, as my right hon. Friend the Chancellor has said, to he competitive. That is what we have to be and it is that aspect of the Budget which I welcome most.

7.25 p.m.

Photo of Mr Arthur Moyle Mr Arthur Moyle , Oldbury and Halesowen

The observations which I intended to make have to some extent been covered by a number of earlier speakers. There were two points in the speech of the hon. Member for Westonsuper-Mare (Mr. Webster) in which I was interested. One of them concerns the hire-purchase system, which has grown up in recent years. It is not the kind of thing in which one can take pride. I like to pay cash down if I can afford it. There is greater pride in that kind of transaction than in anything that America can import into this country by way of hire purchase.

Hire purchase has become such an enormous part of the British way of life in recent years that the Chancellor must step in and defend the people against this system. We shall have to adopt in law the same attitude to the finance corporations which run the hire-purchase system as we did many years ago towards the insurance companies, by establishing in law the principle of cash surrender in cases when people through economic difficulties are unable to sustain the payments they have undertaken to make. At the moment, if a person is unable to sustain even his last two payments the people concerned can, if they so wish, step in and distrain upon the goods.

Photo of Mr Arthur Moyle Mr Arthur Moyle , Oldbury and Halesowen

Oh, yes, they can. If the hon. and learned Gentleman can persuade me otherwise, I shall be very pleased. In essence, I want the same defence for the consumer in hire purchase that he enjoys in the field of industrial insurance.

I am sorry to disappoint the Chancellor. I do not consider his Budget a sound one. I am very glad that some of the Press comments today stem from second thoughts. The whole of the priorities upon which the Budget is based are wrong. It is no good the hon. Member

for Ilford, North (Mr. Iremonger) describing this side of the Committee as guilty of a political sin in making a political issue of the interests of the old-age pensioner by declaring that we would prefer an increase of 10s. a week in the old-age pension to a reduction of 2d. a pint in the beer duty. That cannot be anything other than a political issue.

The whole quarrel between the two sides of the Committee on the issue of national finance is, first, to discover the incomes of the people and their relative economic importance to society and then to decide what burdens we shall impose upon them. On that basis the necessary revenue to finance the business of Government is collected.

The relative merits of the claims of the old-age pensioner against other sections of the community is an important political issue. Having regard to the Chancellor's background, I did not think that he would introduce a Budget which gave priority to the chronic alcoholic over the claims of the old-age pensioner. The decision of the Government as expressed through the Chancellor to give such a priority to the beer consumer in the interests of the brewer has offended the conscience of the nation. A great deal more will be heard about this issue until the Government have second thoughts and give priority to their obligations towards the old-age pensioners. There is a great deal more to this issue than the Government appear to have imagined.

I was talking only on Wednesday morning to a number of workpeople. They did not know who I was, and I asked them what they thought about the Budget. They said that it will make no difference to them and that they will receive nothing out of it. That is perfectly true, because only two classes will reap any material benefit from the Budget: first, people in receipt of more than £20 a week in either earned or unearned income, and secondly, the chronic alcoholic. The vast section of the population in receipt of a wage of less than £20 a week will get very little out of the Budget.

Let us consider the position of people regularly receiving £15 a week. The amount of benefit which they will receive from the reductions in Purchase Tax will be about 2d. or 3d. an article. It will be about 2d. on a frying pan and 3d. on a saucepan. The Chancellor has decided to reduce generally the rates of Purchase Tax instead of considering the merits of the existing system of Purchase Tax and discriminating between what are essential goods and what are mere luxuries — I ask the Chancellor to be good enough to reconsider his proposals about Purchase Tax to see whether he can get rid of the 5 per cent. tax. The average family, which makes up the bulk of the population and upon whom the efficiency of industry and output depend, would derive great benefit from the abolition of the 5 per cent. Purchase Tax.

The hon. Member for Ilford, North made great play about the question of price stability. We have said that price stability is an important factor in any national economy. As I said last year in the debate on the Finance Bill, price stability over the last 12 months has not been as a result of the policy of the Government but is a consequence of another policy which they have pursued. What has particularly engaged the Chancellor and the Government is not so much price stability but the prevention of falling prices as a result of the amazing reduction of between 10 and 12 per cent. in the import price levels. The Government know better than anyone else that if prices start to fall there would be increased unemployment and general industrial recession, but they dare not contemplate passing off the benefit of reduced prices in world imports because the Tory Party have never been able in their history, in all the years in which they have been in office, to govern a society where falling prices have taken place without an accompanying increase in unemployment. The price stability of the last 12 months is a by-product of their determination to avoid falling prices in our economy. I think that that is a fair comment.

I thought that the Chancellor would introduce a Budget which was characterised by a measure of imagination and possessing some colour. I want to make one or two suggestions to the Financial Secretary which I hope he will pass on to the Chancellor. In view of the astonishing surplus of £300 million odd and as the Chancellor has emphasised so often the importance of industrial efficiency, why does he not devote a large sum of money to industrial scientific research? Why not give the people engaged in industrial scientific research the same status as those engaged in the universities? Why not give them a kind of equated status with the University Grants Committee so that industrial scientists shall not feel a sense of inferiority, particularly these days, when engaged on such important work as the improvement of the productivity of industry?

There is another suggestion of a minor character, although very important, which I would make. Why does not the Chancellor, in co-operation with the Minister of Education, increase the number of State scholarships? That would further our desire to secure the greatest possible industrial efficiency.

I should have liked charges on prescriptions abolished. That is a matter which is crying out for a remedy. In conclusion, although I did not agree with the President of the Board of Trade by a long way this afternoon, I was delighted to hear the sympathetic note which he struck in the interests of India. We should be very thankful that Pandit Nehru is Prime Minister of India in the present situation. The stemming of the development of Communism cannot be done by talking about the essentials of liberty or the evils of Communism. It can only be done if the people of the free world and of our own Empire help the uncommitted nations. It can only be done provided we have the common sense to combine bread with liberty. What is the use of talking to people about liberty when they want bread, sustenance and shelter? Until the Western nations realise this and extend a helping hand to the people of India, Burma. Ceylon and elsewhere and give them bread. we cannot talk about the philosophy of democracy and liberty. When they have the bread and physical sustenance they will listen, and I hope that having listened they will march with us along the road to democracy and forsake those outdated methods which have been part of our history in the past but which will never, I hope, in any way now come within the region or be repeated in the future of the Western World.

7.40 p.m.

Photo of Hon. Patrick Maitland Hon. Patrick Maitland , Lanark

In several respects I am happy to follow in his remarks the hon. Member for Sheffield, Park (Mr. Mulley).

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The hon. Member for Sheffield, Park is seeking to speak, but has not yet been called.

Photo of Hon. Patrick Maitland Hon. Patrick Maitland , Lanark

We shall get it right, eventually.

It is a pleasure to follow the hon. Member for Oldbury and Halesowen (Mr. Moyle). I apologies for naming the wrong constituency. It is a pleasure to follow him in the debate, because he took the opportunity to say a kindly word about a fellow Prime Minister; and by that I mean the Prime Minister of a country which is a partner of ours. How right the hon. Member was in his remark, for we have many things to be grateful for with regard to India, and not least Pandit Nehru's sang-froid at present.

I was surprised, however, at some of the other things the hon. Member said, though I agree with him about the usurious character of the hire-purchase craze and have much sympathy with his thought that it may be possible to recover for cash the value of goods surrendered when hard times come. If I did not misunderstand the hon. Member, he said that households whose income is under about £20 a week get very little out of the Budget. I am sure that he will correct me if I am wrong.

Photo of Mr Arthur Moyle Mr Arthur Moyle , Oldbury and Halesowen

That is what I said. I said that they would receive relatively little. I was speaking about the married man with a family.

Photo of Hon. Patrick Maitland Hon. Patrick Maitland , Lanark

I am much obliged. I should not want us to misunderstand one another. The very fact that such a family gets little from a Budget which eases 9d. off Income Tax shows how very considerably the middle-income group has already had its tax position eased in the previous Budgets of successive Tory Chancellors.

I envied my hon. Friend the Member for Weston-super-Mare (Mr. Webster) when he spoke, for two reasons. The first was because he made a number of remarks most apposite about the position of our raw material prices and the structure of Commonwealth economics. I endorse what he said. Secondly, I envy him because he had the pleasure of following in the debate the hon. Lady the Member for Glasgow. Kelvingrove (Mrs. McAlister), who is not now in her place. She was the first Scottish Member to speak in the debate. [HON. MEMBERS: " No."] Anyhow, she was either the second or the third.

The hon. Lady represents a constituency for which we all have a certain amount of affection, not least because of the late holder of the seat, who endeared himself for many years to both sides of the Committee. The hon. Lady, of course, went back to her Rent Act campaign which won her the seat, but she made one remark of great sense. She complained bitterly that the Chancellor had neglected the cinema industry and she referred particularly to the small cinemas, I am sure in Scotland. I endorse what the hon. Lady has said and I warn the Chancellor that when the time comes a number of people will be after him on that issue.

This is a debate very largely about the balance between investment and consumption. It is a debate about the kinds of investments we want and about the scale of overall deficit that we can sustain. It is a debate about the measures to finance that deficit, and the Chancellor has so far kept his own counsel about the measures to which he will resort. It is a debate about our hopes of borrowing, and about the main object of policy that runs through the Budget.

We all agree probably that whatever clichés are used to describe the theme of the Budget, whatever nautical and other analogies have become common and even commonplace in past years, a major object of the Budget must be to secure full and stable employment. This is recognised in paragraph 88 of the Economic Survey which concludes that the speed of expansion will be determined by three factors, the third of which is the need to increase employment opportunities.

That prompts my first question, because the deficit for which we are budgeting includes an enormous below-the-line public works programme. It is, perhaps, one of the factors in the debate which has distinguished contributions from opposite sides of the Committee that, on the whole, the Labour side thinks of the whole Budget operation as a means of putting money aside for various kinds of public works judged necessary according to a scale of social priorities, and on this side of the Committee there is a general feeling to trust the people and leave free enterprise to accomplish roughly the same ends.

One single feature of the public works programme came to my attention recently and caused me to do a little inquiring. We are to spend about £140 million a year on roads. I made some inquiries to find out what that meant in terms of direct creation of employment opportunities. These are crude arguments and the figures which I present are crude, but I do not believe that the argument that I shall use is altogether invalid.

If one makes an experiment and divides the 1957-58 figures for expenditure on roads, which was £123 million, and one learns, as I am sure is the case, that that created directly about 81,000 jobs, one has this kind of coefficient, rough and ready but useful — that about £1 million spent on road works creates about 650 jobs for a year. I have made inquiries about the number of employment opportunities that it may be expected will be created by oversea orders for heavy engineering capital goods such as turbines, locomotives, generating plants and lock gates.

I need hardly worry the Committee now with the precise calculations in which I was involved, though I would he glad to supply hon. Members who are interested with the details. The answer which I and friends of mine reached from that investigation is that about £1 million worth of orders in that field creates not 650 jobs, but nearly 1,000 jobs for a year. These are crude comparisons, but I do not believe that they are altogether unsound. If they have any meaning at all, we come to a broad conclusion, which is my first point, on the capital works programme, the below the-line budget for which this enormous deficit is being undertaken. The expenditure of £140 million a year on roads might be expected to create about 90,000 jobs, whereas the same value of export orders in the heavy engineering and capital goods realm would produce perhaps about one-third more jobs, namely, about 140,000.

I believe that this Budget was framed and must be considered in the following light. During the rest of this year the country will need to find some stimulus to create the best part of 200,000 or 2.50,000 jobs. Unemployment is going down at present at the rate of about 50,000 a month for the United Kingdom as a whole, but it seems premature to assume that it will continue at that rate indefinitely. On the contrary, it seems more likely that in the latter part of the year we shall have reached a level where some other stimulus is necessary.

I ask whether this Budget will help to bring the extra 200,000 or 250,000 jobs we need. As it stands, I would call this an inward-looking Budget. The Chancellor said, in effect, and the Paymaster-General said yesterday, that it is designed to stimulate the home market, to stimulate the manufacture of consumer durables, to stimulate factory expansion and re-employment and, indeed, the export of such goods. As such, the Budget is designed to secure on our external visible balance of trade a sufficient surplus for investment overseas. So far, so good.

It seems to me, as thus set out, that there is a sufficient answer to the gibes of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) yesterday, when he called this a soft-centre Budget for a salesman's economy. Yet, as the Chancellor himself said in the Economic Survey, expansion alone is not enough and cannot be an end in itself.

Paragraph 88 of the Economic Survey, to which I have already paid attention and to which I allude again, states: In considering how fast expansion can go ahead three points have to he kept in mind: the need to maintain a strong external position. the need for stable prices and " — this is put last, but with the greatest emphasis — the need to increase employment opportunities Indeed, expansion irrespective of markets could very well be an inflationary procedure in itself, and, therefore, the shape of our export markets is, and must be, our main worry.

I notice that in his speech, my right hon. Friend the Chancellor of the Exchequer had this to say: We have made good progress in the dollar markets, but generally our exports have been hampered for some time past by the reduced incomes of the primary producing countries and the slowing down of economic activity in many industrial countries.I think that we must expect this reduced purchasing power in some of our most important markets to continue for some little time yet." — [OFFICIAL REPORT, 7th April. 1959; Vol. 603, c. 43–4.] Table 26 in the Economic Survey shows that over the years 1956 to 1958 we sold about £25 million worth of goods less to the Colonies, to South-East Asia, to the Anzac Dominions. This £25 million worth of sales, coming back in terms of orders for capital goods and for heavy engineering goods, would be equivalent, on my calculations, to about 25,000 jobs in this country for a year.

Or, again, if one surveys the peak purchases from the Dominions since 1956, we find that latterly we have been buying rather more than £100 million worth a year less from the Dominions than at the peak. In the case of wool, I think that the differential is corning on for £50 million less. Even in the Colonies it is possible now to find surpluses of their products worth about £30 million piled up in different places.

I cite these figures to show that there is a shortfall in our purchases from the Commonwealth amounting to about £140 million in the last year or so which, coming back in the traditional kind of orders for heavy engineering and capital goods products, would amount to about 140,000 jobs in this country. When I draw attention to that, may I remind the Committee that we are prepared to spend £140 million a year on roads in this country which will generate 30 per cent. less employment.

Professedly, the Budget seeks to stimulate the sale of consumer durables, yet we are warned in the Economic Survey that manufactured goods are hard, and will get harder, to sell; that is to say, manufactured goods in contrast to the kind of capital goods to which I have been referring. Paragraph 98 of the Economic Survey makes it abundantly clear what difficulties we have to face: In the conditions of world demand and intensified competition described above, exports will be hard to sell in 1959. It would be prudent to expect some further fall in the early part of the year… This is not a world in which Britain is likely, generally speaking, to be able to increase her sales of consumer durables very greatly. Not only do we meet great competition from Europe and from Japan, but some of the markets to which we have sold in the past — Australia, India, South Africa — are themselves industrialising and learning to make these things.

On the contrary, the natural type of our exports from now on, as I see it, will be more and more heavy engineering and capital goods. Let us bear in mind that the Commonwealth to which we may seek to sell these goods is the largest seek potential market in the world. Not only are there 660 million people in it, not only is their population rising rapidly year by year, but in every country for which tolerable statistics can be secured it is evident that the wealth per head is rising. To the surprise of many hon. Members on both sides of the Committee, no doubt, that is as true of India and Pakistan as it is true of great tracts of the British Colonial Empire. It is not correct to imagine that the Commonwealth, as such, is not a growing market; growing in depth and in value, as well as in extent and terms of population.

Yet the Economic Survey seems rather to dismiss the problem of stimulating this market, since paragraph 90 states: Exports to primary producing countries may continue to be affected for some time yet by the diminished purchasing power of these countries, especially those in the sterling area. In due course, however, they should be helped by a revival of demand for raw materials and by an increase in loans to them from the international institutions and from other countries, including the United Kingdom. In paragraphs 84 and 85, the Survey says: In 1958, various independent Commonwealth Governments raised £45 million on their own credit in the London market and Colonial Governments raised a further £5 million. It goes on: However, it has become increasingly clear that private capital, which naturally flows to those places which are likely to be most profitable, is insufficient by itself to meet the needs of the underdeveloped countries of the Commonwealth where there is a scarcity of local resources for capital development. There is a later reference to Commonwealth assistance loans, which have been this country's policy since the Montreal Conference.

On the face of it, that policy does not appear to have been pursued with great vigour. About £50 million worth of assistance has gone to Pakistan and India, but so far I have not heard of a single case where there has been an application for permission to borrow on the London market from any of the subordinate authorities in the Commonwealth to which at Montreal we pledged ourselves to give assistance. There is obviously some shortfall in the Commonwealth's approach to us for funds, or some shortfall in our capacity and readiness to meet them.

My hon. Friend the Member for Weston-super-Mare and my hon. Friend the Member for Ilford, North (Mr. Iremonger) alluded to raw material prices in general. In neither the Economic Survey nor the Budget statement was there a word about measures to assist in the stabilization of raw material prices. In a sense, this might be called a red herring, but I am one of a number of hon. Members, on both sides of the Committee, who have asked not once but a dozen times for a serious and considered Government statement on the merits or otherwise of the so-called Grondona plan.

It may be that it does not work, but we have not yet had a serious and scientific disquisition from any Government source on the merits of that plan, which is now one of world-wide study, even if it has also created world-wide puzzlement. I do not know whether the Grondona plan is the answer and I should not like the Government to think that I am in any way unthankful that we have undertaken to take part in the wheat and sugar Agreements, but very little attention is paid in the Economic Survey to the causes and possible cures of the slump in raw material prices — other than the broad philosophical approach that increased de-maid by industrial countries will no doubt help to increase those prices. From where is that increased demand to come? We are stimulating the home market, but there is more to it than that.

That brings me to my fundamental anxiety about this Budget, an anxiety more competently expressed by my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) and my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), both of whom speak with great knowledge and great experience. We are bound to ask ourselves from whence the savings are to come to meet this tremendous deficit.

Is the Budget a programme for securing savings which can be lent to the Commonwealth and which will come back in orders for capital goods which will create another quarter million jobs in these islands? My right hon. Friend ended his Budget statement with a peroration which included this tantalising sentence: But, even more, I want to encourage the continuance of a high level of saving because on that the growth of investment and our whole future welfare depends." — [OFFICIAL REPORT. 7th April, 1959; Vol. 603. c. 651 That is the "below-the-line" part of the Budget scheme which has not been disclosed. My right hon. Friend has not said what his savings proposals are. It may be that for reasons of policy he cannot disclose them until he has seen the reactions to the Budget as it stands, but in the coming year we will have to study carefully his funding proposals and whatever other steps he takes to raise the loans needed.

I have a query — put it no higher than that — which relates to the borrowing plan. I would have liked to have seen a relief in Stamp Duty, not because that would assist the rich capitalists, but because I want to see everything done to encourage everybody who has a spare pound to put it into savings. I hope that later in the year, if not in the Finance Bill, the Chancellor will be willing to return to this idea. I put it to my hon. and learned Friend the Financial Secretary, who will pass it on in the appropriate way.

I would have liked some relief of taxation for those investing in Commonwealth development. It might be said that it would be very difficult to draw the line. I can imagine all the difficulties which were put up to the present Prime Minister when he was at the Exchequer and planned the Premium Savings Bond scheme. I can picture the civil servants in glad array bearing down upon him to dismiss what the Opposition called a squalid raffle but which is bringing in £50 million a year in savings.

Of course, there are many difficulties, but if we are to maintain stable levels of unemployment here and to develop the Commonwealth, we have to develop new savings for Commonwealth investment, either direct investment in the Commonwealth, or investment of a sort which will release other funds for that purpose. I should have liked a relief of tax on dividends on a potential Commonwealth unit trust which might be formed. I should like workmen and ordinary people to regard the Commonwealth as their nest egg and to look upon Commonwealth development as a great opportunity to build up a small capital fund which gives every man that sense of independence without which he is the nearest thing to a slave.

I hope that in due course the Chancellor will consider this new kind of Premium Bond type of project to suck up new margins of earnings in small lots for the development of the Commonwealth and thereby the creation of new orders for capital goods from this country. By some such programme, when he comes to initiate the savings side of his Budget later in the year, the Chancellor will encourage the ordinary man, what is known as the small man, to save, and to accumulate capital backing for himself and for a developing Commonwealth, to help make steady jobs for his next-door neighbour and to establish his own individual standing in the expanding Commonwealth which the Chancellor himself, at Montreal, adumbrated as our great purpose.

I conclude by saying that, with others, I salute the Budget and recognise its immediate aim. I implore my right hon. Friend to think of the Commonwealth markets and of savings and to develop them as the key to providing long-term employment in this country and, above all, as encouraging every free man to buy and build and nurture his stake in the free world of which the expanding Commonwealth will for ever, I pray, be the core.

8.10 p.m.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The hon. Member for Lanark (Mr. Patrick Maitland) has done well to remind the Committee of our Commonwealth responsibilities, and if time allowed I would have liked to develop that theme further, because in my view the economic policy of the Government does not permit us to do what hon. Members on this side of the Committee think we should do in assisting the backward countries.

I want to refer to the point made earlier by the hon. Member concerning full employment, in connection with which he gave us some interesting figures about the number of jobs created by £1 million spent either on roads or heavy engineering. He seemed to have a quaint idea that in advocating full employment the Labour Party suggested that it all had to be done by some form of public works programme. That is complete nonsense. We believe in full employment through the proper direction of the economy by the Exchequer, just as the Chancellor says he is doing now. That is the way we believe that full employment can be achieved. I believe in the roads programme not only or even mainly because it would provide employment but because I believe that the country badly needs an efficient road system, for both personal and commercial reasons.

Several versions have been given of the Chancellor's motives in producing this Budget. I am not clear which to accept, but I should be loath to assume that the Chancellor is the political innocent that his modest demeanour sometimes leads us to suppose. In fact, when he was on television on Tuesday, talking, as he often does, in motoring metaphors, about accelerators and brakes, I noticed the conspicuous absence of any reference to a steering wheel, and I recall what was said in that connection by my right hon. Friend the Member for Huyton (Mr. H. Wilson) on previous occasions. The economy must be in a much worse state at the moment, because not only has the Chancellor got his foot on the accelerator but he has both arms round the electorate, and is totally unable to direct the economy in the way in which hon. Members on this side of the Committee think that it should go.

The complaint of my hon. Friends and myself is not so much against the Budget proposals as against their background. A good deal of light was shed upon the situation by the entertaining story which the Chancellor included in his speech, about Lord Derby and Mr. Disraeli. The Committee will recall that Lord Derby told Disraeli, "They give you the figures." The Chancellor went on to say that, happily, the same custom maintained today. That is precisely my corn-plaint. The right hon. Gentleman seems to be approaching the job of Chancellor as though the last hundred years had meant nothing in the development either of domestic or international finance.

In my view, he has as much responsibility for the state of the economy which determines the figures as he has for the annual presentation of the accounts, and our charge against him is that he and his predecessors have made a mess of the general conduct of the economy over the last seven years. Like my right hon. Friend the Member for Huyton, I cannot accept the legend that this Government began only in January, 1957, to battle gamely to put right the deplorable state of affairs that then existed. I agree about the deplorable state of affairs, but I would remind the Committee that the present Prime Minister was the Chancellor of the Exchequer before that magic date. We have recently been told — it was not evident before — that all the members of the Government accept responsibility for Suez.

I want to refer briefly to two points in connection with the Budget. The first concerns the position of old people, especially old-age pensioners. It is very apposite that I should make these remarks because in Sheffield the local newspaper—the Star— is this week running a series of articles based upon a full investigation of the circumstances of old people in Sheffield. I will not go into details now, but I intend to send that series of articles to the Chancellor so that he may realise the great need for something to be done for old-age pensioners.

When the hon. Member for Portsmouth, Langstone (Mr. Stevens) was speaking I intervened, because I do not accept the reasoning in the leading article in The Times today on this subject. The Times says that the cost of living has gone up by only 79 per cent. since 1946, and that old-age pensions have gone up by 92 per cent., and asks what people are complaining about. At any rate, that is the sense of the article as I understand it.

First, it is wrong to assume that because the general cost of living has risen only by 79 per cent. the same holds good in respect of the particular items which form the bulk of the expenditure of old-age pensioners. In 1946, most food was subsidised, and there was no Purchase Tax on the basic essentials as there is today. The general cost of living index has been assisted by the reduction of Purchase Tax upon the more expensive articles, by a reduction in the prices of certain manufactured goods, and so on, and although I appreciate that it is not practicable to provide such a cost of living index, I suggest that if there had been an index weighted for the expenditure of old-age pensioners in 1946 today's figures would show that old-age pensioners were no better off now than they were then.

But that is surely the wrong way to look at the matter. Are we to say that the standard of life of the old-age pensioner is to be frozen in relation to what the Government could give in the difficult circumstances of 1946? In my view, the old-age pensioner is as entitled as anyone to benefit from the extra productivity that has taken place since then. Even on The Times' figures — which, as I have said, I do not accept as accurately describing the position — the old-age pensioner is only 10 per cent. better off than he was in 1946. If we are to have any regard to the Lord Privy Seal's optimistic statement about doubling our standard of living in twenty-five years, in the thirteen years that have elapsed since 1946 the old-age pensioner could have expected to be 50 per cent. better off now than he was then.

The point has been made that since provision for old people is not strictly a budgetary matter we may later have a Bill which will provide what hon. Members on this side of the Committee believe to be an urgent necessity — an increase of at least 10s. a week in the old-age pension. If this matter had been in the mind of the Government I should have thought that it would have been sufficiently large, in terms of expenditure — I believe that the Chancellor has mentioned a figure of £200 million — at least to be mentioned in the Chancellor's calculations. However, I do not complain about its omission. If the Government have second thoughts; even if, as part of their electoral strategy, they decide to give old-age pensioners an increase just before the election, I make no complaint. But it is a sad commentary upon a Government and a society which puts old people at the very end of the queue.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Does not the hon. Member agree that the two primary requirements for retirement pensioners are: first, the stabilisation of the purchasing power of the £and, secondly, an increase in the production of goods and services? Does not he agree that both those are far more important than the actual money figure of the pension itself?

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

I agree that the number of pound notes is meaningless unless it is related to what they will buy, but I am going to deal with the two points made by the hon. Member about the stability of prices and the expansion of our economy.

The other point which I wish to raise concerns Income Tax. Obviously, hon. Members on this side of the Committee welcome reductions in Income Tax, even though we wish they were distributed slightly differently. But, of course, the position of the Opposition in discussing reductions in taxes is like that of a man who is asked whether he has stopped beating his wife. Whether he gives an affirmative or a negative answer there is likely to be a certain misunderstanding. We should like to reframe the question. I would say categorically that the emphasis on the standard rate of Income Tax reduction is not very satisfactory. There is £57 million of the £192 million of Income Tax relief which, as the Chancellor told us, will go to the undistributed profits of the companies. I wish to know whether that money will be reinvested, o whether it will go to increased dividends. While hon. Gentlemen opposite make frequent references to the need for wage restraint, there appears to be no great enthusiasm for restraint on the payment of dividends.

There is this important distinction between wages and dividends. If a worker forgoes a wage increase, he loses it for ever, but if a dividend increase is not implemented the money remains with the company and accrues to the benefit of the shareholders. In their case it is a postponement of the benefit and not surrender. During the last year we have seen that profits have fallen by 5 per cent. but the increase in dividends has been about 61 per cent., so some of the money they were obliged to put away for a rainy day has been drawn out.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The hon. Gentleman asks for the figures. Gross trading profits fell by £150 million and, according to the Council of the Stock Exchange, dividends on equity shares on all the investments quoted on the London Stock Exchange rose from £603 million to £630 million. If one takes the dividends paid out in 1957 as a percentage market value, it was 5½ per cent. Taking dividends paid in 1958 as a percentage market value, it was 6⅔ per cent., compared with 4¼ per cent. in 1947. I do not unduly criticise the companies for this approach, because how can we blame —

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Where do those figures come from?

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

I am referring to the publication of Council of the Stock Exchange. If the hon. Gentleman says that this book is wrong, he is perhaps in a better position to do so than I am.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

I would refer the hon. Gentleman to Table 22 in the Economic Survey for 1959. He will then see that between 1956 and 1958 — I did quote the figures in my speech, and I think the hon. Gentleman was in the Chamber at the time — whereas wages rose by 9 per cent., dividends rose by 9-1 per cent., which is not a tremendous difference.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

If the hon. Gentleman had listened he would know that I was talking about 1957–58. I said 6⅔ per cent. and it could well be that the 3 per cent. was in the year previously. One can always quote impressive figures if one chooses the right dates.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The point is that the wage earner suffers if he gives up an increase in his wage, but when a dividend is postponed the money is still available in the form of enhanced share values or a later dividend distribution. One cannot blame the companies for this, because no practices operated in the City have been as sharp as some recently operated by Chancellors of the Exchequer.

Our main criticism of the Budget is that there has been no selection. The flat-rate Income Tax reduction, investment allowances and the reduction in the Purchase Tax have all been carried out on a general basis without any reference to the present particular needs of the economy. This indicates, as I said before, that the car is being driven without the use of the steering wheel.

The other interesting question is why these concessions or reliefs have been made this year and not before. In particular, in view of the difficulties of the economy, why were not post-war credits paid out a long before this Budget? As the Chancellor explained, they cannot be dealt with by a Finance Bill or by budgetary procedure, in any event. In the Budget debate last year I said that I thought the Chancellor ought to have spent at least another £100 million either by way of tax reliefs or on additional social service expenditure. But what has happened is that all the relief has been saved up for this Budget to make an electoral impact.

What is also clear is that whether the present Chancellor is in office next year —which I think unlikely—or whether someone else presents the next Budget, it is not likely to be a Budget in which there will be any scope for tax reductions or concessions at all.

Photo of Mr Geoffrey Stevens Mr Geoffrey Stevens , Portsmouth Langstone

Not if it is a Socialist Budget.

Photo of Mr Fred Mulley Mr Fred Mulley , Sheffield Park

The Chancellor has not only spent up to the hilt, he has mortgaged the future by the number of reductions which he has made.

The question of inflation has been referred to many times in this debate. I do not think that hon. Members opposite realise that we cannot have full employment, a stable £and a free market or unregulated economy. Of those three things we can have only any combination of two; it is impossible to have all three. One has to choose which of the three to throw overboard. We on this side of the Committee attach so much importance to the objectives of full employment, on the one hand, and a stable £, on the other, that we are prepared to throw overboard the unregulated economy. Because the Government are not prepared to do that we get a situation where there is expansion only in one year in four. It is that situation in which we are now.

While it is perhaps too much to ask that under the present Government we should have expansion at the rate equivalent to the average for the O.E.E.C. countries, it is interesting to realise what would be the Budget position had we such an advantage. Over the last four or five years the average increase in industrial production for the O.E.E.C. countries has been 5 per cent. per annum. Had we been able to maintain that increase over the last three years since the last election, we should now have a gross national product of £3,000 million more than it is, and the Chancellor would have an additional £1,000 million of revenue.

What would be the situation in this Budget if the Chancellor had that additional £1,000 million either to spend or to give away in tax reliefs? Old-age pensions could be increased, the whole of the post-war credits could be repaid and Income Tax reductions made, all at the same time, with an increase in social service expenditure or the restoration of various cuts. Also, had we been able to maintain that 5 per cent. over the last three years, in addition to the £1,000 million which the Chancellor would have had, the taxpayers would have had £2,000 million extra in their pockets. Five per cent. is a lot. In the election year 1955 even this Government were able to increase production by 5 per cent. If Government supporters say that 5 per cent. is too high, let them take 3 per cent. In his enthusiasm when talking about doubling of the standard of life in twenty-five years that figure must have been in the mind of the Lord Privy Seal.

Let us take an average of 3 per cent. increase in industrial productivity per annum, as compared with the third of 1 per cent, which has actually been achieved. On that basis, the Chancellor would now have an additional £500 million to spend or to give in relief, and the ordinary taxpayer would have more than £1,000 million extra in his pocket. Is it not obvious that we cannot possibly achieve our targets of increasing the standard of living at home and of discharging our responsibilities abroad and in the Colonies unless we can get an average increase in productivity of about 3 per cent? I agree that it means we must resolve to solve the problem of inflation.

We have to choose between two out of the three items that I enumerated earlier. It can only be done if the Chancellor is prepared to direct the economy and not merely to act as its accountant. In practice, even a Conservative Chancellor of the Exchequer must do this, in spite of protestations about a free economy. The balance-of-payments problem alone makes it a vital, inevitable and permanent feature of our economic life. Even the President of the Board of Trade, who is as doctrinaire a free-enterprise man as one knows, went so far today as to suggest that businessmen could be helped by the civil servants in the Board of Trade. That was an encouraging sign of wisdom.

We should have a permanent policy, not an expansionist Budget in one year out of four. There is a good case to be made out for having a Minister for Industrial Development. I hesitate to suggest that there should be yet another Minister on the Government Front Bench, but it would be an advantage to the administration of any Government and it would indicate to the people that the needs of industrial development are paramount. Such a Ministry should be supported by a national council representing both sides of industry. That would go a long way towards achieving our objectives.

The Government have failed to increase production, or have deliberately decided not to expand it, except in an election year. They have mortgaged the country's economic prosperity for their own political and electoral future. That is a hard thing to say, but I believe that, as in 1955, time will prove it to be true.

8.33 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am in the unusual position of following one of my hon. Friends because there is not sufficient support for the Budget among Government back benchers. I agree with everything that my hon. Friend the Member for Sheffield, Park (Mr. Mulley) said. He was very critical of the Budget, so perhaps it would be appropriate if I were to say that there are one or two things about it that I welcome.

I welcome in the first place the absence of any proposal to eliminate Schedule A tax. I offered the Chancellor my support last year on the principle of retrospection for dividend stripping. I said that he would certainly need it. By the time it came to his winding-up speech on the Monday evening of the Budget debate, the Chancellor had been got at by his own back benchers and he ran away from that sensible principle. In so doing he gave the greatest encouragement to tax dodging that any Chancellor has ever given. It is therefore with some hesitation that I offer him my support again and say that it will certainly be needed by the Government Front Bench in resisting proposals to do away with Schedule A tax.

I welcome the decision to do away with dividend stripping and bond washing, which are two refinements of tax avoidance. If anybody could have been accused of tedious repetition by the Chair, it was myself in the Budget debate last year and in the discussion on the Finance Bill for saying time and time again that the proposals made for dealing with dividend stripping were inadequate, that there would be a hole made in them as sure as eggs are eggs, and that the only safe way to deal with it is to make it perfectly clear that if any further holes are made retrospective legislation up to the date of the last Budget will be brought in to keep the net which was intended to be effective closed.

I said that time and time again. I urged this on the Financial Secretary to the Treasury, I pressed it on him, and I shouted it at him, but the Financial Secretary did not listen. The Financial Secretary "was stiff and proud. He said, ' You need not shout so loud'," and he paid no attention. When the Finance Bill comes up he will have the unhappy, unpleasant and face-losing task of explaining to us why it is, within twelve months of saying that the tax avoidance provisions cannot be overcome, a new proposal is now necessary.

Three main questions arise on this Budget, as on any Budget. I am most grateful for my own Front Bench coming in such force to listen to my entirely worthless remarks. I ask three questions in regard to the tax reliefs given by the Budget. The first, is the amount right? Second, is the spread right? Third, is the timing right, and, if not, what suggestions can be made about that? As to the first, the amount is certainly not too large, and beyond that I would say very little indeed. This is a matter for economists, not accountants, to make comments about, and as we have the proverbial nine economists in the House we shall have the proverbial ten answers.

As to the amount, I would say that we must remember that it is when the economic machine is running at its slowest that it needs the greatest encouragement, that it is when its tank is nearly empty that it most needs refueling, and that it is when its tyres are sagging that they need inflating most.

There is only one minor point that make with regard to that. Every year the Chancellor finds it necessary, in reviewing the figures, to refer to the all-important final figure of the net amount to be borrowed, taking into account above the line and below the line expenditure. Every year he finds it necessary to refer to it, but every year hon. Members on both sides are unable to find the figure, because notwithstanding the fact that it is the most important figure it is the only one which is never published. It is not beyond the wit of man to provide that this figure should be part of the figures in the White Paper. What is shown is the surplus above the line and the deficit below the line, but never the difference between the two. If this figure were also shown, hon. Members would be able to follow each Chancellor with greater clarity.

I turn then to the spread. With regard to the spread of the amount distributed this year, I say that it is largely inequitable and that it is largely irrelevant to the needs of the nation. It is largely inequitable, as has been carefully explained and in numerous detail by many of my hon. and right hon. Friends. I need only add, to bring the picture up-to-date, that whereas yesterday reference was made to advertisements on the front page of The Times of Rolls-Royces and Bentleys for sale as a result of the Budget, today The Times on its City page published a picture of a queue outside a shop to buy furs at the newly-reduced prices For those who want their Rolls-Royce or Bentley and an appropriate fur coat to adorn it properly within, this is a Budget to be welcomed, but for the young housewife who wants to furnish her house, or the husband who wants to buy his clothes, this is a Budget which gives negligible or no help at all,

It is a wholly inequitable Budget in its Purchase Tax provisions. The details have been discussed many times, but I am even more concerned with the principle. I am even more concerned with the attempt that has been made this year, in fact the step taken this year, towards the clear establishment of what is in the mind of the Government, a regressive sales tax fixed at somewhere around 5 per cent. and upwards.

It is quite obvious that what the Government have in mind is that there should not be a tax which collects more from those people able to pay more and less from those able to pay less. It is obvious that the Government have not that kind of Purchase Tax in mind but a flat, simply collected sales tax, to which they are advancing as fast as they reasonably can without making it too intolerable for themselves. This is a regressive tax, and it is a regressive step taken this year towards that end. It is right that we should be aware and warned about that.

The Budget proposals are wholly inequitable in relation to Income Tax and Surtax provisions. I find it completely impossible to explain why the Surtax- payer, the wealthiest in the land, in respect of the greatest amount of the top level of his income should have an increase in spending of 50 per cent., whereas those who are so poor or have such responsibilities that they pay no Income Tax at all get no relief of any kind. The wealthiest get an increase of 50 per cent. in their spending, that is to say, the l s. 6d. left after the 18s. 6d. Income Tax and Surtax have been paid will go up by a further 9d., whereas those on the bottom end of the scale will get nothing whatever. I find that impossible to explain by any moral principle.

It is always alleged that the rate of tax is so heavy that relief has to be given on the standard rate and the Surtax-payer has to get the benefit as well. We ought to look at what the effective rate of taxation is and consider whether the burden is as heavy as we are continually told it is. Of course, we are told that it is heavy, and we shall always be told that it is heavy. We were told that it was heavy when it came in at 6d., 11d., or whatever it was. We were told it was an intolerable burden; but look at the facts today. In the case of the average taxpayer, the man with wife and two children, he has to have an income of more than £100 a week before he starts to pay one-third of his income in tax. That is more than £100 a week before the effective rate of Income Tax and Surtax exceeds 6s. 8d. in the £.

He has to have an income of more than £200 a week—the Economic Secretary should not lick his lips with such appetite—before his effective rate of tax is 50 per cent. and goes above 10s. in the £. I do not regard these rates of tax as so burdensome. I do not regard it as something intolerable to our social conscience. I regard it as something we can well accept. We could well accept it if these were in fact the effective rates, but they are not. The White Paper should be altered. They should not be called the effective rates but "the more-or-less effective rates", more effective at the lowest levels and less effective at the higher levels.

It cannot be impressed too much nor repeated too often that the man at the bottom of the scale, particularly the man taxed under pay-as-you-earn, pays on the whole of his income. The more income one has the more valid and legal opportunities there are for reducing the burden of taxation. This is a case where the law about the higher the fewer applies. The higher the income the fewer people pay the full rate of tax. This is being said by one who knows, Sir. if the effective rate of tax were in fact the effective rate, it would not be too heavy a burden.

Therefore, I cannot see why it was not possible on this occasion, when 9d. in the £was being given away to the Surtax and Income Tax payer—much more than was expected in the City, as has been reported —for there to have been a compensatory increase of a modest 3d. in the £ on Surtax. Would it have been so immoral that the Surtax payer should receive an increase of from 1s. 6d. to 2s. only, namely an increase of one-third in his spending money as against an increase of 50 per cent. in his spending money?

At this stage I ought to deal with the fallacious argument advanced yesterday by the Paymaster-General which has arisen so often, namely, that it is wrong for hon. Members on this side to claim that it is immoral and against principles of equity that those with the largest spending power and with the largest incomes should receive the greatest benefits from the distribution of Income Tax reliefs. The argument of the Paymaster-General, and it has been repeated time and time again, is that this inevitably follows because it is a matter of arithmetic: those who pay the highest tax receive the largest benefit when there are tax reliefs.

There is no logic in that argument. It is based on the complete misconception that the man with the large income, the man with an income three times as large as his neighbor's, has needs three times as large. The Economic Secretary will agree with me that he can eat only three meals a day. He can sleep in only one bed at the same time. His needs are no different from those of the poorest in the country. Once his needs are satisfied the well-to-do man, the rich man, the man with the larger income, has a surplus which grows faster and faster. I cannot see why it is held to be right that the man with the largest surplus after satisfying his living needs should receive the largest benefit when tax reliefs are being distributed. Therefore, I hope that we shall not hear any more of that kind of argument.

I am dealing with the inequities of the Budget. I come now to the reduction in the Excise Duty on beer, as to which I am told that one must be careful, because lots of people drink beer and it is not very politic to make comments about beer. I say what I think is right in these circumstances. I think it is right that people should be perfectly free to drink beer in moderation and to learn to drink it in moderation. What I do not follow is the logic of a Government which put up the price of food by removing food subsidies and brings down the price of beer by reducing the Excise tax. I do not follow that logic. No doubt the Economic Secretary will explain the high moral principles behind it.

May I bore the House with a little personal anecdote which arose on my way to the House today in a taxicab? As soon as I had told the taxi-driver my destination and entered the cab he said, "I expect the boys will be at it again today". I said, "Yes, I expect they will, and the girls, too". Then to taxi-driver went on to say, "There is only one thing I want to say about the Budget". I said, "yes. What is that?" The taxi-driver said, "In our garage we are not very happy about the tax off beer. We were talking about this last night "—all these taxi-drivers were talking in their garage, and I have been told that people would never take this high moral view—" and we all came to the conclusion that we would much rather not have had any relief on our beer but that some relief had been made available for the old folk ".

I asked him if he drank beer. I will not precisely repeat his answer, but I gathered that all taxi drivers drink beer from time to time. Far from what I would have regarded as a reasonable suggestion, namely, that one penny should have been taken off beer and the other made available to help social services in one way or another, these taxi drivers said they would rather pay an extra Id. for their beer because the way the old folk were being treated was on their conscience.

That aspect of the Budget is inequitable, but it is also irrelevant. The need is for increased productivity and increased competitive power. The reduction in Income Tax and Purchase Tax gives some 'indirect encouragement there, but the direct encouragement is very slight indeed. In fact, the only direct encouragement is the provision of the investment allowance, and as this is the only direct encouragement to improved efficiency perhaps I can spend a moment on it.

The investment allowance is undoubtedly a step in the right direction, but it is a very modest step. One must realise that the effect is that one will get discount, in effect, of about 1s. 9d. in the £on any machine one buys now, provided one is prepared to wait until about February, 1961, for it.

As the Economic Secretary does not clearly follow me, perhaps I may repeat that. The investment allowance is, of course, a reduction in the Income Tax assessment. In the normal business, the tax on the assessment is payable in January or February of the year following. Therefore, if a business man were to succeed in rushing out now and buying new plant at the earliest possible moment he would not get any monetary relief until about February, 1961. A discount of 1s. 9d. in the £in 1961 is not an enormous encouragement. I agree that it is a psychological encouragement, but it is not enormous. As Table 11 of the Financial Statement makes perfectly clear, the cost to the Revenue this year of the investment allowance is absolutely negligible—it is not even marked.

Another reason why it should not be relied on, of itself, to achieve an immediate increase in efficiency and production is that the Chancellor has decided to withdraw initial allowances to the same extent that he is proposing to provide investment allowances. The benefit is therefore much reduced.

A third reason is that as every business man is coming to realise, the investment allowance does not give him a present at all—not at all. It merely puts him in a position of being able to pay for his new plant at the increased price. The so-called "present" of the investment allowance is just about equivalent to the fall in the value of money over the life of the machine, as it has been recently, at a figure of about 20 per cent.

It is not very difficult to work out. Suppose a machine lasts ten years and money values fall at the rate of 2 per cent. per annum, we get a fall of 20 per cent. Therefore, although the 20 per cent. investment allowance is, theoretically, a present, it is only just sufficient, when added to the normal depreciation, to cover the total cost of buying the new machine to replace the old one. There is a very insubstantial present, or no present at all, and the only encouragement is a very slight psychological one.

The Chancellor has done enormous damage already to the benefit that ought to be obtained from an investment allowance by making us all anxious as to whether or not he will withdraw it too quickly, as happened on the previous occasion. Most people refrain from investing purely as a result of the encouragement of an investment allowance because they know that the Conservative Government has in the past vacillated on this. It is sometimes two years before a major scheme has been brought in—and a major scheme is really the only worthwhile one—under which an investment allowance will be granted. By the time it is granted the owner of the business is afraid that the investment allowance will be withdrawn.

Although I agree with the Chancellor that there is every need to encourage new investment now, it would be sensible for him to make it absolutely clear that in respect of any scheme started now, and indeed encouraged by the present provision, the owner will get his discount no matter how soon it is decided to withdraw investment allowances, as the Chancellor made clear yesterday he was going to do.

This is not enough to encourage production immediately. The direct action in this Budget is not enough. The effects will not be sufficiently encouraging at the present time. The financial encouragement is too remote. There is not enough to encourage and obtain the increasing production which is so vitally necessary. No real drive has been shown by the Chancellor or the Government to do that one vitally necessary thing. If I may use the golfing terms which the Chancellor himself started, the trouble is that he has left his driver at home and is relying on a spoon.

The third question which I will cover in precisely two minutes is the question of timing. This matter has been mentioned so many times by my hon. Friends that I will not go over the ground again in detail. We have said time and time again that towards the end of 1957 and throughout 1958 there was a need to reflate the economy. What is being done now is being done far too late.

The only theme running through the various reductions made in this Budget is not that which is alleged to have been made, that of increasing production. The only theme I can see is that of wide application and general attractiveness. In fact, we have a very ambivalent Chancellor indeed. He tells us that we must not have a spending spree and hands us an extra million pounds a day to get on with it. He says that we must have an increase in productivity and so hands out a reduction of 2d. a pint on beer.

The Chancellor says he wants improvement and competitiveness in our economy. I endorse that. It is a wonderful phrase, and I could not put it better myself. That is the note the Chancellor wanted to sound, but someone must have got the music mixed up. The cover sheet may have borne the title "Concerto for Today", but when one examines the score one finds that it is really " Variations based on a theme of 1955."

9.0 p.m.

Photo of Mr Charles Simmons Mr Charles Simmons , Brierley Hill

In the two or three minutes left to me, 1 want to say a word, first, about the incidence of the Purchase Tax and its effect upon industry in my constituency. I sympathies with my colleagues who represent Lancashire and Yorkshire constituencies because nothing has been done in the matter of Purchase Tax to help employment in their constituencies. In my constituency, we have the hollow-ware industry, what one might call the pots and pans industry. The products of this industry bear a Purchase Tax of 15 per cent., which the Government now propose to reduce by 2½ per cent.

This reduction of 2½ per cent. will not do anything at all to help the hollowware industry in Brierley Hill and the other places round about. Moreover, if my memory serves me aright, the Government have no mandate for this tax on pots and pans. It was imposed on a postelection Budget to "pinch" back some of the money which they had given in a preelection Budget. In this case, it was the housewife who had to bear the burden. We regard this 2½ per cent. reduction as an insult to the industry in my constituency. It will make no real impact upon the problem of growing unemployment and under-employment in the industry which has come about as a result of the tax upon household utensils and pots and pans.

I turn now to another matter entirely. The Chancellor made a cryptic remark in his Budget about Service pensions. I gathered that Service pensions included the pensions of the Fighting Services as well as of the Civil Service. A reference was made to dealing with the matter by Royal Warrant.

A Chancellor with over £300 million to give away should have some regard for the poorest members of the community. Much has been said already about the curious omission of anything for old-age pensioners. I have in mind the position of war pensioners and war widows. Quite recently, the Government did something for the war widow. The position of the 1914–18 war widow, whose average age is now 71, has been eased by the recent 10s. increase. But only 58,000 out of the 82,000 widows are benefiting. Could not the Chancellor see it in his heart to ensure that all the war widows concerned received the full benefit of the 10s. increase?

Also, could not the right hon. Gentleman do something to deal with the problems of the 1914–18 war pensioners, whose average age now is about 71? His colleague the Minister of Pensions and National Insurance knows all about them. Could he not ensure that the age allowance they were given about two years ago was graduated at the same rate as the pension, so that some of the anomalies could be ironed out? A Chancellor who is a former Minister of Pensions himself, with over £300 million to give away, ought to have some regard for the problems of war widows and war pensioners, particularly those from the 1914–18 war.

9.4 p.m.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

Whatever else may be in doubt about this Budget, one thing is certain. It arouses very little support on the benches opposite. I do not think that there has ever been a Budget debate—certainly not one in my experience—in which four Labour speakers have addressed the Committee in succession and there has been no Conservative willing to intervene and say a word in support of the Chancellor. It is not only the back benches, although they are at the moment 50 per cent. populated by resigned Treasury Ministers. It is the Front Bench, also. Until the President of the Board of Trade reappeared—and we were all glad to see him—the Economic Secretary to the Treasury sat there all alone, to such an extent that we were not sure whether there had been another wave of resignations or the election campaign had already started. At least, the hon. Gentleman has been fortified now and, I trust, it is possible that he may be fortified even a little more before he speaks.

This year, the Chancellor of the Exchequer, paradoxically fortified by the slack in the economy, has felt able to make relatively big concessions. They should not, however, be seen out of proportion. Even these concessions, nearly £400 million, amount to barely 2 per cent. of the national income. That is less than the increase even in a year as unbuoyant as 1958, and far less than the increase in the national income which could take place in a year in which there was what one still regards as a normal increase in production. Therefore, in considering even the most give-away Budget, let us bear in mind that the Budget is more important for the increases in the standard of living which, if it directs the economy properly, indirectly it can make possible than for any direct benefit which it gives away.

It has been suggested from the benches opposite that the Budget, apart from its reliefs, concessions, or whatever they should be called, also applies a little nicely-judged stimulus to the economy and, therefore, make it possible for more to be earned in this way. There are two major points to be considered. The first was mentioned yesterday by my right hon. Friend the Member for Huyton (Mr. H. Wilson) and was developed to some extent by my right hon. Friend the Member for Battersea, North (Mr. Jay) this afternoon. Some attempt has been made to reply to it from the Government Front Bench, but not a very adequate attempt. The question is: why was this expansionary impetus not given earlier?

It cannot possibly be said that it was because the Chancellor did not foresee what would happen in the past twelve months. The Chancellor can be congratulated on an accurate gift of prediction. Not only did his Budget estimates turn out to be extremely accurate, but so also did his prediction of what would happen in the economy generally during the year. He foresaw the slack, the unemployment and the stagnation, but he still considered that it was necessary to have these because he thought that our external position could not afford any expansion last year.

In spite of the speech of the President of the Board of Trade this afternoon and of the speech yesterday by the Postmaster-General— [Hon. MEMBERS: "The Paymaster-General."] I am sorry, the Paymaster-General—

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

—I am still waiting to know— possibly the Postmaster-General may have to come in to try to explain this to us—what are the hard reasons for this difference between last year and this year. Particularly because the President of the Board of Trade applied himself to this in some detail, I want to return to it in some degree of detail.

The Chancellor put the position precisely concerning the balance of payments by saying that, in deciding whether we could expand, what we had to consider was whether we could afford the £60 to £70 million of imports which, he thought, would be involved in the expansionary impetus given by his Budget. That was how he put it, quite reasonably. Surely, however, from the balance of payments point of view, it cannot conceivably be accepted that last April, in the midst of the most favourable half-year, from a balance of payments viewpoint, for forty years, we could not afford that. Nobody suggests that this half-year or the year as a whole will be nearly as favourable. In the first half of last year we earned a £321 million surplus. What will we earn this half year? it may perhaps be £120 million or £150 million, certainly not more. It is clear, therefore, from the point of view of sustaining this surplus that the position is very much less favourable.

Then there is the question of the prospects for our export trade. The President of the Board of Trade, who ought to know about our export trade, I suppose, put great weight on this matter this afternoon. He said that the prospects for exports looked very much better. Is that really so? What have we seen during the past year? We have seen a decline of 3 to 3½ per cent. in our volume of exports. What else did we see? We saw one extremely significant factor, which I do not think has been referred to in this debate, namely, that during the past year, in which, according to the President of the Board of Trade, our export prospects have been brightening so markedly, Germany replaced us as the second major exporter of manufactured goods in the world. Is this a very encouraging development in our export prospects? I am rather sceptical whether the export prospects look all that much better, if at all.

The second factor is obviously the gold reserves. It is not merely a question of the trading balance, but a question of our reserve position. The reserves have, of course, improved a great deal since the autumn of 1957. They needed to. But, as has been said, almost the whole of that improvement had already taken place by April last year. The whole of it had taken place by June, which is a significant date, because that was The month in which the Chancellor turned down our Amendment to the Finance Bill to restore the investment allowances as from that date.

The Chancellor quite rightly laid stress on the importance of not merely considering the reserves on their own, but of considering our net capital position—the reserves against the short-term liabilities. He also made it clear that, while our net capital position had improved somewhat during last year, the prospect of it improving in 1959 did not exist. He thought that the best which could happen was that our surplus would be just enough to cover the overseas investment to which we were committed. There is, therefore, no prospect of a further improvement here.

The other factor is price stability. I am bound to say that in dealing with this issue I thought that the Chancellor, surprisingly and unusually, foresook his habitual modesty. He said: Nevertheless, a greater degree of price stability exists in the United Kingdom today than at any time since 1945." — [OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 29.] It was not clear to me why, for instance, he excluded the period 1948–50, when, under Sir Stafford Cripps, without falling import prices to help him, the degree of stability on the published Treasury figures was almost exactly equivalent to that which prevailed in 1958. Nor was it clear to me why he was so unfair to his right hon. Friend the Lord Privy Seal.

I suppose that everybody is almost automatically unfair to the Lord Privy Seal these days, but it seemed a little hard completely to exclude him from any credit for what happened in 1953. So far as I can see, and certainly so far as was illustrated by The Times graph which it published on Budget morning, 1953 was, if anything, a period of slightly more stable prices than 1958. It is, therefore, difficult to see why the Chancellor should claim this special result for 1958.

Apart from this surprising and unusual burst of immodesty from the Chancellor, what is surely the important thing to the extent, at any rate, that expansion is regarded as the enemy of price stability —which I think is a very doubtful assumption to which I will come in a moment— in deciding whether one can expand is not so much a basis of moderate price achievement as the prospects for the future.

Here again, surely, the position is not so good as it was twelve months ago. There are no falling import prices. There is no prospect of falling import prices to help us. Indeed, the Chancellor made this absolutely explicit in his own speech, because he said that if we were to have stability during the corning year we could not afford the 3½ per cent, increase in wage rates which we had during 1958. In other words, he could not absorb the degree of wage increase in the forthcoming year which he was able to absorb during the year that has just gone by.

It is a fairly gloomy prospect if, even in the one year in four in which Conservative Chancellors feel in an expansionary mood, we cannot afford wage increases of 3½ per cent. If this is to be a rate of progress which is too fast, we shall never get anywhere near the Lord Privy Seal's target of doubling the standard of living in twenty-five years. I do not want to suggest that expansionary Budgets are too closely linked with General Elections, but I think from the point of view of moving even slowly towards the Lord Privy Seal's target it is at least fortunate that we nave abandoned seven-year Parliaments.

While none of us wants to encourage excessive wage demands, and while, undoubtedly, some past wage increases have been rather rapid and difficult for any economy to bear, it is important that the Committee should not get into too restrictionist a frame of mind about wages. There is a great danger of what one might almost describe as a neurosis on this issue developing on the benches opposite.

The main reason why our competitive position has worsened vis-à-vis the Germans, for instance, in the past few years is not that our wage increases have been greater than theirs, but because their productivity has risen and has been allowed and encouraged to rise so as to carry those wage increases along with it. Between 1954 and 1957—and this was after all building up to the period when the President of the Board of Trade first noticed that inflation was in the economy —British wage rates rose 23 per cent. and the German 27 per cent. The difference was that in Germany there was a very big increase in real wages, and relative price stability, because the German economy was allowed to go ahead at a rate which made it possible to carry the wage increases.

It seems to me, therefore, that the position on the price front joins with other factors in being less favourable and not more favourable than a year ago. Why, then, did the Chancellor not move, at least some distance, a year ago in the direction in which he has now gone? Why, in particular, did he not at least accept our investment allowance proposition nine or ten months earlier than he is now intro-clueing it in his Budget? Surely it would have been desirable to get investment going earlier and not to have had to rely so much on the attempted expansion of consumption which was partly successful during the autumn of 1958. Surely it would have been desirable to use the opportunity somewhat to jerk up the percentage of investment in the economy.

I was amazed at some of the remarks of the Paymaster-General upon this exact point yesterday. The right hon. Gentleman is a distinguished economist, but he sometimes adopts a technique of debating rather different from that of his hon. Friend the Parliamentary Secretary to the Ministry of Education. Sometimes he reminds me of a moderately distinguished academic figure addressing a Rotary Club and being more determined to be a success with his audience than to preserve his academic standards. I thought that that was rather the mood in which he addressed the Committee yesterday.

Does the right hon. Gentleman really believe, as he was telling us, that Governments have no control over the general level of demand in the economy today? Does he really believe that investment decisions about the general level of investment can, and should, be left completely to private businesses, and that for the Government to attempt to interfere is merely to run the risk of encouraging waste through over-investment?

If the Government have nothing to contribute in this respect, as the Paymaster-General certainly argued yesterday afternoon, if any attempt to step up private investment by Government action is merely to waste national resources because it might take it above the level of demand —if that is so, what possible point is there in having investment allowances now? What point was there in having initial allowances last year or in stepping them up in July? All those measures represent a direct attempt at Government interference to determine the level of investment in the private sector. Therefore, I cannot understand what was the force of the right hon. Gentleman's argument on this point yesterday.

Why did the Chancellor hesitate a year ago, and also yesterday, on the point of the investment allowances? I think that the answer was that he still thought the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) was a powerful figure.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I find it difficult to think of an alternative explanation. I listened with interest and enjoyment to the speech of the right hon. Member for Monmouth this afternoon, though I was sorry to hear him fighting his old battle of 1957 once again a battle which was already rather out-of-date when he first started to fight it. If he goes on fighting it year after year I am afraid that, even if supported by the acute intelligence of his hon. Friend the Member for Wolver-hampton, South-West (Mr. Powell), he will not continue to be as powerful a figure as he once seemed to be. I have no doubt at all that last year the Chancellor was under the shadow of the right hon. Gentleman, and that largely, as a result, we have had an unnecessary year of persistent stagnation, with the employment and waste which goes with it.

The second major question which arises is: are we now at last in for a period of sustained expansion? Are we to go steadily and fairly rapidly ahead? Are we to try to close some of the large gap between almost all our trade rivals and ourselves which has been allowed to develop during the past years? Or are we merely to take up a little of the slack and then quickly retreat again into restriction and stagnation? I am bound to say that the tenor of the Chancellor's speech made me fear that this was a limited move towards expansion. It is perhaps a curious feature of his speech that its substance went rather further than its form. Its form was extremely cautious, and I doubt very much whether there is indication of a sustained expansion. I thought that the Paymaster-General's speech underlined these fears.

After all, the Paymaster-General devoted a powerful passage towards the end of his speech to pouring scorn on the Labour Party for having suggested that an increased national output of £1,700 million was possible for the period of the next Government—I see the Paymaster-General nodding and the President of the Board of Trade shaking his head. As it was the Paymaster-General's speech, I will take the nodding rather than the shaking. The right hon. Gentleman said that it was impossible to do that, except in conditions in which, as in the postwar years, industry was shaking itself out into peace-time conditions.

Let me say at once that a target of this size does not require that the rate of production increase attained by the Labour Government—perhaps in rather exceptional post-war circumstances—had been continued right throughout until the present time. If that had been the case, we would today have got not £1,700 million of extra output, but£3,500 million of extra output. All that it asks is that the rate of increase which was briefly attained under the Lord Privy Seal in 1953 and 1954 should have been sustained since the last election.

It is a very dismal comment on the state of mind of the Front Bench opposite if they regard such a modest target as being something which it is entirely unreasonable to put forward. The Paymaster-General may not have had much success, but he has had much experience of negotiating with the O.E.E.C. countries over the last year or so. They have all been achieving increases, as my hon. Friend the Member for Sheffield, Park (Mr. Mulley) pointed out, at a rate rather greater than this over the past five years, and they are confident, and I agree with them, that they will achieve a similar rate of growth in the next five years.

Why do we have to accept a situation in which that cannot happen here and in which anyone who suggests that it should is said to be indulging in wild inflationary dreams? In the period 1955–58, the Soviet Union increased its industrial production by 35 per cent.; West Germany by 18 per cent.; Italy 19 per cent.; and France 31 per cent. Those are big figures. As the Committee knows, our production increased hardly at all.

In future, will we be able to afford to expand at these rates or will we not? If it is the view of the Front Bench opposite that we cannot do so, why can we not do so, if other countries can? Hon. Members opposite scoff at controls. I am not dogmatic about controls and I would by no means place an absolute reliance upon them, but if an uncontrolled British economy is manifestly incapable of achieving the same results which economies all round it, some controlled and some uncontrolled, are achieving, at least we should not be too complacent about the present position, and nor should we be too complacent about the exact trading position which we have built up for ourselves.

The Front Bench opposite got very excited some time ago when I and some of my hon. Friends raised the question of sterling as a world currency. Let there be no doubt about it; we are all equally anxious to preserve the value of sterling. The point at issue is whether it was of primary importance to us in this country that we should at all costs maintain sterling as a world currency, in which a large volume of trade and other transactions, not merely British trade, of all sorts was conducted, or whether it was more important that we should re-achieve our dynamism and rate of growth and rate of expansion here at home.

This is something which must be carefully considered. It would be extremely foolish to say that we had achieved a situation in which everybody else could expand but that we were, none the less, completely satisfied with what we had achieved and that we were not willing to go back over it and to study the situation again.

I am afraid that the Budget is only a faltering step in the direction of expansion. I cannot see in it a sustained expansionary drive. That means not only a great loss of national wealth and standard of living, very considerable and serious though that is. It also endangers our present economic position. I have already said that during the past year, with far less Press and other publicity than if it had happened with a Labour Government in office, West Germany has been allowed to pass us and to become the world's second major exporting nation. The Soviet Union has made great strides forward as a manufacturing nation. So far, it has not become a major exporter of manufactured goods, but it might do so. If or when it does it will be a very powerful one, which, unless our economy becomes far more dynamic, will be a great danger to us.

From where do the dangers to our exports come? Do they come from countries which try to improve their competitive position by the methods described to us by the President of the Board of Trade —by damping down, and by not allowing any expansion in order to squeeze out a few exports—or do they come from the great dynamic economies of the world, with high rates of investment, a rapid rate of growth, and a great build-up of manufacturing capacity? They come from the latter economies. Although, in the short run, it may be possible to improve our export position by the methods described by the President of the Board of Trade, in the long run there is no doubt that we cannot improve or even sustain it in that way.

Therefore, I believe that this Budget's stimulus comes too late, that it should have been more tilted towards investment and that—apart from the maldistribution of reliefs to which my hon. Friends have referred —there is no indication that it heralds any sustained drive towards expansion. The spirit of complacent stagnation is still much too firmly entrenched on the benches opposite for us to feel any confidence in the economic policy of the Government.

9.31 p.m.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

As usual, we have had an interesting and wide debate, and in the short time at my disposal I cannot hope to reply to the many points that have been made yesterday and today. However, my hon. and learned Friend the Financial Secretary will be dealing on Monday afternoon specifically with points raised in connection with Income Tax. He will also deal with the question of investment allowances, which was referred to by a number of hon. Members, and most particularly by my hon. Friend the Member for Langstone (Mr. Stevens), in a most interesting speech. My hon. Friend told me that he would not stay to hear me wind up because he realises that his items will be dealt with more particularly on Monday. I also hope that my hon. Friend will refer particularly to the points made by the hon. Member for Gloucester (Mr. Diamond) in one of his interesting and somewhat provocative speeches.

First, I want to refer to Purchase Tax, which, through a small re-arrangement of duties at the Treasury, is now one of my responsibilities and not that of my hon. and learned Friend. Some hon. Members referred to the 5 per cent. rate, including the right hon. Member for Battersea, North (Mr. Jay), who said that he would like to see it abolished, the hon. Member for Oldbury and Halesowen (Mr. Moyle), the hon. Member for Glasgow, Kelvingrove (Mrs. McAlister) and others. The principal articles charged at the 5 per cent. rate are clothing and footwear, furniture, mattresses, cushions and haberdashery.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Will the hon. Member confirm that made-up cotton goods are included in the Tax?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

Made-up cotton goods, but not cotton goods in the piece. Cotton goods in the piece were exempted from Purchase Tax in May, 1955. That leads me straight to the point that if the tax were abolished it would not help the Lancashire textile industry to any great extent because we do not wear cotton goods in the piece. The proportion of Lancashire's output which goes into cotton textile clothing is relatively small compared with the total output, and in any event cotton textiles are also used for furnishing fabric and many other purposes. Further, the tax of 5 per cent. on the wholesale value represents only 8d. in the £on retail prices, and if the tax were removed it is unlikely that so small a reduction in retail prices would lead to any stimulus in demand.

Several hon. Gentlemen suggested that the industries supplying goods for the 5 per cent. range were those which were most depressed. But apart from the Lancashire cotton textile industry, that is not in accordance with the facts. The furniture industry has been doing very well since the removal of the higher Purchase Tax; production has been increasing. The wollen industry is fairly steady and can by no means be described as depressed.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

The furniture industry was doing very well up to January, but since then it has again fallen into depression, as I have been told by furniture manufacturers.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

The percentage increase over a year ago, in February, was 15.3 per cent., so that even now they are doing much better than a year ago.

Before leaving this subject, I should like to mention a few more general points about Purchase Tax. I realise that it is not altogether a popular tax either with hon. Members or with traders or the general public. The hon. Member for Brierley Hill (Mr. Simmons) said we had no mandate for extensions of the Purchase Tax. I should like to say something about the place of tax in the fiscal system.

Purchase Tax was introduced in 1940, and it has been accepted as an important element in the peace-time structure of taxation. Successive Chancellors have looked to it for substantial contributions to the country's revenue. In the present financial year, after allowing for the reductions which my right hon. Friend has been able to make, it is expected that Purchase Tax will still yield over £470 million. Apart from Purchase Tax, a large proportion of the revenue from indirect taxation is produced by the duty on tobacco, alcoholic drinks and oil, and it would be unfair and unwise to rely on these three stalwarts alone for the contribution which has to be made to the country's revenue by indirect taxation. We need to provide a basis for taxation which is provided by a tax extending over a wide range of goods of general consumption. The Purchase Tax fulfils this function and must continue to occupy an important place in our fiscal armoury.

Hon. Members may remember the considerable agitation which developed in January about the possibility of my right hon. Friend making an announcement about his intentions regarding Purchase Tax. Now that he has made his Budget statement, I am sure the Committee will agree that it will have been quite impractical to have made an announcement in January of any sort. The possibility of changes in Purchase Tax naturally arouses a good deal of speculation each year, particularly this year, and traders and others have argued that the expectation of changes is disturbing to trade in the first throe months of the year. They say the difficulty is made much more acute over this period when stocks should be built up after the Christmas trade.

It should be said straight away that any ill-judged speculation of the sort which took place in January certainly exaggerates the uncertainties of the situation. When my right hon. Friend changed the structure of the Purchase Tax last year he aimed at getting it into a form which would be not only simpler and easier to administer, but which would enable any future changes to be made with the least disturbance to trade. This year, therefore, he was able, by making the percentage reductions over the top three rates, to carry out that intention. The preparatory work of last year has been put to good purpose this year.

Nevertheless, there remains the argument that it would be helpful if changes in Purchase Tax were normally made in January, or at least that the Chancellor should put an end to any uncertainty, however small, by announcing in January his intentions with regard to the Purchase Tax. I do not think that people have worked out fully what that would represent. It is obviously impossible to prevent people anticipating tax changes which they think, rightly or wrongly, are likely to be made in the near future. To alter the normal time for such changes from April to January would not dispose of the difficulty but would merely move the period of disturbance from the present time into an earlier period of the year.

Nor would it be practicable for the Chancellor to announce in January his intentions in regard to Purchase Tax changes, because he clearly could not give any definite indication of intended changes in rates. It would place him in an impossible position in any year in which a change was likely and which could definitely be foreseen, and it would unduly restrict the Chancellor's room for manoeuvre at the time of the Budget, when he had, for the first time, all the economic data on which to make his decision.

I turn now to a subject which has interested the Committee during the last two days, namely, investment in the public sector. A good deal has been said about the shortcomings of private and public investment. I would remind the Committee of the important change in the Economic Survey this year, in that it includes for the first time an Appendix B which deals with public sector investment. This Appendix shows a rise in total expenditure of £190 million between 1957–58 and 1959–60. Of this rise, £160 million is contributed by the programmes of the nationalised industries. There is no doubt that this increase in activity will mean a year of high and intensive activity for the civil engineering industries. It will be of valuable assistance in maintaining high and stable employment.

I accept the proposition put by right hon. Gentlemen opposite about Government control of investment in these industries, and therefore our ability to secure an increase in time of slack demand is helped by the fact that these industries have been nationalised. I regard that as a very small advantage compared with the many disadvantages which nationalisation produces. We are thankful for one small advantage.

Photo of Mr Alfred Robens Mr Alfred Robens , Blyth

Why do the Government not denationalise them?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

Because in many cases the process is not reversible. I must reply to the debate. We are now in danger of debating another subject.

Many of the programmes of investment are intentionally long-term in character and cannot be started up or stopped suddenly in order to fit in with changes in the pattern of demand and investment in the country.

The right hon. Member for Huyton (Mr. H. Wilson) in his speech yesterday and the hon. Member for Fulham (Mr. M. Stewart) suggested that the beer money would have been better spent on hospitals. The right hon. Member said that this was the year to build more hospitals and more training colleges and to make more progress with water and sewerage schemes.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

And housing, certainly. This is exactly what we are doing, but we have to remember that a programme of this sort takes time to fulfill and we do not want to start a programme which might at a later stage of its development have to be seriously modified.

Perhaps I might give figures for the examples, which the right hon. Gentleman himself mentioned. Expenditure on. sewerage, one of the items which the right hon. Gentleman mentioned, was £31 million in 1956–57. It rose to £34 million in 1958–59. It will go up to £39 million in the coming year. The University Grants Committee, another item which he mentioned, including training colleges and the like, spent £7 million in 1956–57 and the figure will rise to £18 million this year. Similarly with hospitals, expenditure on which will go up from £16 million to £26 million during the same period. The increases for those three items alone amount to £29 million. If water schemes are included, the increases total £33 million.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Can the hon. Gentleman give the corresponding figure for council housing?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

I am just coming to council housing. The right hon. Member for Battersea, North referred to council house building in his opening speech. The Economic Survey, which I will not quote in detail as time is short, deals on page 59 with the programme for 1958. I should like to tell him that in January and February of this year there was a marked increase in local authority housing starts. It suggests that the rise in output has already begun. [HON. MEMBERS "No."] I am going to give the figures. In January and February, taken together, no less than 20,700 houses were started by local authorities compared with 17,700 in the same period of 1958, a rise of nearly 20 per cent.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

No, I do not think I can give way any more.

I want now to deal with a phrase which was very often used in the debate in reference to stagnation. I sometimes wonder whether hon. Members who use the term bothered to look up the word in the dictionary, because I cannot believe that they meant to use it in its dictionary sense. The definition of stagnation is: "An unhealthy absence of activity", and the adjective means "that which is at rest". I should like to ask the hon. Member for Stechford (Mr. Roy Jenkins) whether he is prepared to go into any factory in his constituency and ask the workers there if they are stagnating because of "an unhealthy absence of activity". or whether any hon. Gentleman opposite would care to say to a bus conductress in the rush hour that she was "at rest"? The fact is that throughout the country there is a very high level of activity, and it is continuing steadily and wholesomely, and to use the word "stagnation" in this connection is entirely a misuse of this well-known word in the English language. A continual and steady flow of economic activity is the phrase that I would use.

The right hon. Member for Battersea, North queried the fact stated in the Economic Survey that production was rising. He referred to paragraph 100, but the point is, of course, that paragraph 100 of the Economic Survey refers to total demand and total output, of which industrial production accounts for only about one-half. The latest National Income and Expenditure figures show that total output rose significantly in the last quarter of 1958, and that the gross domestic product was 1½ per cent. higher than the year earlier, whereas previously it had been falling. Figures since the end of the year are still very incomplete, but there are enough indicators to show that some further increase in total output has continued.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

As production is not going up, can the hon. Gentleman say what activity was expanding? Was it the advertising industry?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

I am glad the right hon. Gentleman follows my speech so closely that he is always able to anticipate the next thing I am going to say. The fact is that service industries and ancillaries of that kind were going ahead at that time, as also were the distributive industries.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

Very far from stagnation?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

Yes, indeed it is very far from stagnation. Turning briefly to the question of the gold and convertible currency reserves, the right hon. Member for Battersea, North said that the gold reserves had risen only £32 million in the last year—I think I heard him correctly. In actual fact, they rose by £132 million, not £32 million. I have had the figures carefully checked before replying. They were £989 million at March, 1958, and at 31st March, 1959, they stood at £1,121 million. This was after repayment of £71 million to the International Monetary Fund in the course of the month and £67 million on United States and Canadian loans on 31st December last. So there has been a very real and substantial increase of the reserves. The hon. Member for Stechford asked me about this. I admit we needed to improve the reserves during 1958. He will be glad to see that we have done so, and done so substantially.

Photo of Mr John Cronin Mr John Cronin , Loughborough

Is the hon. Gentleman deducting from that the 100 million dollars from reserves which have come from take-over bids and 350 million dollars which is " hot " money attracted by existing high interest rates?

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

There are a number of factors on the credit side which make the position, particularly the long-term position, considerably stronger than the figures which I gave, which related solely to the current position.

The exceptional size of the United Kingdom's balance of payments in 1958 has been referred to by many hon. Members on both sides of the Committee. It is quite right to assume that that was due to the transient effect of lower import prices, but we used that favourable opportunity to fortify the reserves rather than going on a spending spree. I am sure that was the right course for us to pursue. If the exceptionally low import prices persist our exports will inevitably be held down or produce a smaller surplus than we earned in 1958. If as is more likely to happen, imports begin to rise again, our exports will also recover with the new prosperity of our customers. Even making allowance for that, we do not expect the surplus in 1959 to be as big as it was in 1958. But it is with expanding world trade that we can hope to increase our exports and thus keep our surplus up.

The point I want to make, particularly in reply to the hon. Member for Stechford, is that some deterioration can take place from the 1958 rate of surplus on current account—£455 million—and yet the surplus can still be sufficient to meet our needs. We do not need an annual surplus as much as was earned in the first half of 1958. As I said, that surplus enabled us to add nearly £300 million to reserves of gold and convertible currencies, which was a very valuable reinforcement of our reserves after their previous depletion, but it would be a quite impracticable aim to go on adding to our reserves at that rate.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

Is the hon. Gentleman now announcing a new target for export surpluses? I think the Lord Privy Seal laid down £300 million as a continuing target.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

I am not announcing a target for many years ahead but giving an explanation of the exceptionally large figures of 1958 and of why we shall not be unduly concerned if they are not so big in 1959.

The hon. Member for Stechford referred particularly to planning investment. I should point out that while the Government believe in using their influence in securing a high rate of investment in manufacture and manufacturing industries, and in distribution and retail services, we believe that manufacturing investment which we all desire takes place best and most naturally when there is a good prospect of increased demand for the goods which the new facilities will be capable of producing. In a free economy encouragement: of consumption is the best way of stimulating investment in production. That is why we are taking steps this year where we can to increase the level of consumption. That is the best guarantee of an increase in manufacturing investment.

The right hon. Member for Huyton referred to the pull of the home market which holds back our exports and increases our imports. The fact is that industry after industry has stated over and over again that a successful export programme cannot be achieved unless there is a successful home market from which an export drive can be mounted. While that is true, there are some exceptions to that generalisation. One should realise that a steady home demand, which we are determined to maintain and improve upon, is the best guarantee of increased exports when the receiving countries are in a position to pay for the goods which they would like to buy from us. At a time like this, when our productive capacity is not fully used, it would be no remedy to try and damp down home demand, because that would not necessarily stimulate exports.

In any case, we cannot dictate to the rest of the world what they shall buy from us. It may be that Western Germany at the moment is doing better than she has been doing. As the hon. Member for Stechford said, Russia is increasing her production but not yet her exports. It must not be forgotten that we do not export goods only. We also export services, and particularly Britain is a great exporter of capital. The West Germans may be exporting goods, but they are not exporting capital on anything like the scale that we are, and this will strengthen our long-term position as the capital begins to bring in further dividends from overseas.

Several hon. Members have referred to the fact that if home demand rises, imports will increase and, with them, the import bill. The right hon. Member for Battersea North suggested that there should be restrictions on imports. We are grateful to him for specifying at least one control which he would use if he had the opportunity. He would deny British manufacturers the right to buy the best and latest American equipment if they wished to do so.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

On the contrary, imports of American plant and machinery are now free from control.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

I cannot give way again. I have already given way a great deal, much more than any other hon. Member.

We accept that our import bill will rise. It is a risk, but it is inevitable if our production is to increase. The payments for these increased imports will, in turn, provide more money with which our overseas customers can pay for an increased volume of exports from us. After a pause in world economic expansion it is for highly industrialised countries such as ours to take the lead with a further expansion designed to help ourselves and other countries. I believe that the modest risks which we are taking will be proved right and the reward will be a resumption of expansion, both for the world and for ourselves.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again. — [Mr. Bryan.]— put and agreed to..

Committee report Progress; to sit again Tomorrow.