Orders of the Day — Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 5th April 1960.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 5th April 1960

The hon. Member need not apologise. He said "Quite right" to what I said about the housing subsidy before I even mentioned port.

I now turn to the other criterion by which a Budget must be judged, and that is its effect on the economic situation. Yesterday, the Chancellor gave an optimistic and complacent account of the economic position. As I listened to his recital of last year's results— 10 per cent. increase in production, a big increase in productivity, buoyant revenues, and stable prices—I could not help feeling how events of the past year have proved the case we have been putting year by year, which is that only by increasing production can we create the revenue needed for improved social services, and that the way to keep prices down is not by holding production down and endangering full employment, but by following a policy of steady expansion.

The tragedy is that because of the neglect of investment our industrial base is still so inadequate that after only one year of expansion the Government take fright and begin to apply the brake. Yet, even in the fourth quarter of last year, production was still only 8 per cent. above what it was in the corresponding quarter of 1955—an average increase of 2 per cent. a year. We are still lagging behind the rest of Europe.

A tragedy is that the brake is being applied just as investment in manufacturing industry is beginning to recover from the cuts applied in 1957 by the right hon. Gentleman the Member for Monmouth. As the Economic Survey pointed out, even in the last quarter of 1959, manufacturing investment was 7 per cent. lower than it was a year earlier. I cannot emphasise too strongly that in the long run it will be by our investment record that we shall survive and prosper among industrial nations.

It was significant, also, that the very week in January in which the Board of Trade figures showed a prospective rise in investment in manufacturing industries was the week in which the Bank Rate was raised. When the Governor of the Bank of England, last autumn, began to hint at the need to use the brake—even before investment had shown any signs of recovery—he made it clear that one reason in his mind was that the Stock Exchange boom, the speculative fever in the City, was getting out of hand. It is because the Government can find no means of restraining the City, and because acquisitive interests in the City could not restrain themselves, that we have had to put the brake on the economy as a whole and productive industry and urgently needed capital investment have had to be sacrificed to an uncontrollable speculative boom concerned only with private gain.

The Chancellor of the Exchequer was very frank when he told us about our serious balance of payments position. When the Prime Minister, during the election, claimed that our balance of payments position was strong, he was speaking in a year in which the balance of payments surplus was the lowest since 1955—£145 million. He was speaking in the fourth quarter of last year, when there was a deficit on our current balance of payments account.

I understand that it is Government policy to produce a surplus on current account of £450 million. The Treasury said this in its evidence to the Radcliffe Committee, as shown at Question No. 13,358—£450 million should be achieved year in and year out as a current surplus on our balance of payments. Last year it was not £450 million, but £145 million. The Chancellor gave some explanation. He said that our imports have risen a good deal more than our exports, our re-exports are down and there is a worsening on invisible account. This is partly due to increased Government expenditure abroad. In present circumstances we might be able to afford either an expensive Foreign Secretary or an expensive Minister of Defence, but not both at once, and it seems to be time to have an investigation into this very serious increase in Government expenditure abroad, which is worsening our balance of payments year by year.

There has been an increase in net expenditure on foreign travel and a big fall in net oil earnings, as the Chancellor said. How big this is we do not know, because the Chancellor is very coy about publishing any figures about oil earnings. He publishes statistics of most other things in detail, yet he refuses to tell us anything about oil, and considering the great political influence on the Government that the oil companies seem to have, it seems to me that at least we ought to be told something of the economics of the oil industry.

When I said that the balance of payments last year was £100 million worse than even in the crisis year of 1957, this does not necessarily mean an impending foreign exchange crisis. In 1957, against a background of a favourable and an improving balance of payments, a grave exchange crisis broke out on speculative grounds because many people wanted to get into deutschmarks and dollars. At present, there is no sign of any serious imbalance in world currencies which could precipitate a similar run on sterling, but the figures which the Chancellor gave yesterday show, I think, that we are highly vulnerable in our balance of payments and that we have been made the more vulnerable by successive acts of Government imprudence.

The position is that our trading surplus, such as it is. including that on invisible account, is nothing like big enough to pay for our commitments in the way of investment overseas. This means that our monetary reserves have been falling, and in so far as we have been able to keep afloat, it has been by short-term capital movements coming in from abroad.

I am not suggesting that we are over-lending. My complaint is not against the amount we are lending but against the fact that we are not making enough available in terms of current surplus to honour that lending with savings. We are now getting into our traditionally vulnerable posture of borrowing short and lending long. I hope that this afternoon the President of the Board of Trade will address himself to these problems. What are the prospects, in his view, for increasing exports? The markets are there, but we are losing ground year by year compared with other countries. The right hon. Gentleman recently told industrialists, I understand, that delivery dates for exports are lengthening—another sign of strain.

I hope that either he or the Chancellor will tell us what they think of the proposals which we put forward in the debate on the Radcliffe Report for an export-import bank in this country to supplement the work of the E.C.G.D., and the various other suggestions which we made about international liquidity. I also hope that he will give us an up-to-date statement on prospects in Europe. Whatever the Prime Minister may or may not have said in Washington last week, the position is deteriorating sharply while the President of the Board of Trade is still proceeding in stately fashion from seminar to seminar round Europe.

Let me give the Committee just two examples. We export a lot of washing machines to West Germany in competition with Common Market countries. Under the Hallstein plan the tariff for Common Market products will fall from 7 per cent. to 6 per cent. but for British machines it will rise from 7 per cent. to 10 per cent. We are still exporting a lot of the bigger models of cars to Western Germany. Under the plan the tariff on other Common Market cars will fall from 16 per cent. to 14 per cent. while that on British cars will go up from 16 per cent. to 24 per cent. These are very serious figures, and I hope that the President of the Board of Trade will say something about them.

Turning from exports, we should like to know more about the Government's policy for easing internal strains. Certainly, the Budget is quite inadequate for dealing with these. Yesterday, the Chancellor was muttering dark threats at the banks. What has he in mind? An increase in the Bank Rate? Surely it is high already. Any further increase will place an impossible burden on local authorities, on building society mortgage holders and on holders of gilt-edged. Was he hinting at the use of special deposits? It might commend the idea to hon. Members opposite if I told them that the special deposits idea was first put into the Chancellor's mind from these benches. It is another product of our very limited bipartisanship in these matters.

Is it not time that the Chancellor dropped this game of cat and mouse with the banks, all this pre-1914 mumbo-jumbo, all this elaborate quadrille, keeping the banks guessing? Why does he not send for the banks' chairmen, tell them what he wants them to do and then see that they do it?

I must tell the Chancellor that it is no good his thinking that he will bail himself out this time by appeals for wage restraint. The Government have lost the right to make those appeals. During the election, one Minister after another, not least the present Colonial Secretary, then Minister of Labour, claimed that under the Tories wages had risen high. The truth was that they had risen in spite of the Government, not because of them. It was all the fault of the wicked trade union leaders. You cannot appeal for votes in 1959 on a higher wages policy and then spend 1960 asking the trade unions to bail you out with wage restraint.

I go further and say that the whole election was fought on the principle of free for all, grab all you can, never mind those who have not a dinghy. For three months after the election the Stock Exchange thought that the country had voted for that. You cannot have a free-for-all and say that the only people who should observe restraint are trade unions and their members, the more so when the Government's policies promote more and more unequal distribution of wealth and income.

If hon. Members look at last year's figures, for example, they will see that wage rates rose by just over 1 per cent., or 3d. in the £. Wage earnings, partly through increased hours, rose by 5 per cent., or 1s. in the £. Company profits rose by 11 per cent., or 2s. 2d. in the £. Equity dividends before tax rose by 13 per cent., or 2s. 7d. in the £. Equity dividends after tax rose a good deal more. Share prices rose by 45½ per cent., or over 9s. in the £.

If hon. Members look at the figures of the equity shares boom over the past two years they will see the growing inequality due to this. Anyone who held £10,000 of representative equity shares in January, 1958, would have found his holdings in January this year worth £18,000, the whole of the increase being tax-free. But if the holdings had been in a representative group of property shares, the £10,000 would now be worth nearly £27,000. He would have made, tax-free, without raising a finger, £17,000 in those two years. It would take a mainline engine driver, of whom we have heard a lot recently, thirty years, nearly his whole lifetime's work on the footplate, to get as much money as that— and it would be taxed.

For those who own land the capital profits are even more fantastic. More and more newly married couples in this property-owning democracy are being priced out of the market by land charges when they want to build on the outskirts of large towns and cities. As for land prices in the centres of big cities, the problem can be judged by the fact that I am told that to build a 10-storey garage in Central London—knowing how expensive it is to build a 10-storey garage in Central London—costs less than the money which has to be laid out to acquire the site.

Before I sit down I want for a few moments to take the debate on to a rather wider theme than that provided by the right hon. Gentleman's Budget. This is the first Budget debate of the new Parliament; the first, indeed, of the 1960s, a period which, for good or ill, will leave its mark on the future of the country. Not only our material prosperity but our moral influence in the world will depend to an unpredictable degree on our success in solving our economic problems and building up our strength. We are all agreed about that.

We should, therefore, this week be looking ahead and devising the pattern on which our economic and social life will be woven in the next decade. For a moment I should like to draw attention to one or two disturbing features which have developed in the last few years and which, with the right hon. Gentleman in command for the next four years, are likely to develop still further.

The first of these disturbing trends I have already referred to—the growing inequality in our society. The gap, not only between rich and poor, but between the very rich and the average householder has widened, is still widening, and ought to be diminished.

I have already referred to the treatment of the old and disabled and I have described the system of fiscal privilege which has grown up. Not only income, but wealth and economic power are becoming more and more concentrated in fewer hands. We have seen the movement towards monopoly, with mergers and take-over bids reported almost daily. We see the inordinate capital gains which accrue to those who have substantial holdings in equity shares or in land. We have seen some of the details of the squalid property deals of recent months. As certain of these are sub judice, I cannot refer today to any of the features to which, in other circumstances, it would be my duty to refer.

Apart from those, vast fortunes can be made by financiers who add not one jot of wealth or productive power to the nation, at the expense of tenants and other productive workers. A few moments ago I gave some representative figures of capital gains. It will be clear that even in the most representative, the least spectacular, cases the growth of unearned wealth through capital gains from generation to generation goes far beyond the equalising effects of Estate Duty which falls only once in a generation, even on the somewhat unrealistic assumption that Estate Duty is not avoided by the usual methods. In any period of economic expansion—and we are all looking forward to continued expansion—there is a law of increasing returns to the rich; of an increased proportion of newly produced wealth accruing to the owners of property, whether in equity shares or land.

The second theme is the way in which, more and more, productive industry is being subordinated to finance. It is a recurring theme of our economic policy. We see it in the take-over bids, where efficient but prudent managements have to stand back looking over their shoulders at unproductive financial groups who come in and take them over.

We see it in the redevelopment of the nation's productive resources. For example, in terms of manpower from June, 1955, to December, 1959, while the numbers employed in production, that is, manufacturing, mining and agricultural, fell over the last four and a half years by 6,000, the numbers employed in the group known as "professional, financial and miscellaneous", rose by 207,000.

We see it in the figures of bank lending since the end of the credit squeeze. Advances to industry rose by 22 per cent.; to stockbrokers, hire-purchase finance companies, "Other Financial" and "Personal and Professional"—much of it for Stock Exchange speculation—by nearly 60 per cent. The Chancellor, by allowing taxpayers to offset interest on overdrafts incurred for, perhaps, speculation against their taxable income, is conniving at the process.

We see it, too, in the commanding position which the Stock Exchange, in my view wrongly, once again occupies in the economy, with a totally unjustified and often harmful influence over productive industry. I would quote to hon. Members some wise words written twenty years ago: The volume of credit and the quantity of money should be regulated in accordance with the needs of the productive system and not dominated by irrational and anti-social speculation in the fluctuating value of securities. The proper function of the Stock Exchange is, as its name implies, to facilitate the exchange of stocks and shares for cash. A method must be found which will enable this useful function to be performed while at the same time abolishing the frenzied speculation which has such evil disturbing consequences of the productive system". Those words were taken from page 257 of "The Middle Way" by the present Prime Minister, and was published in 1937 by Macmillan and Co.

I will not follow the Prime Minister in his contumacious reference to the Stock Exchange as a "casino", or his disruptive suggestion that the Stock Exchange be by-passed by a newly created investment board for all shares except those of new firms. For hon. Gentlemen opposite the commanding heights of the economy are and should be in the City, and in private hands. In our view, they should be within the control of the community and accountable to it. That is why I said the Chancellor's reference to the hiving-off of some of the profitable parts of the State-owned steel industry would be bitterly contested.

The third development to which I would draw attention is the growing practice of financing private industry out of State funds. The right hon. Member for Woodford (Sir. W. Churchill), in his famous panegyric on the Conservative Party, forty-two years ago, referred to "the open hand at the Treasury", but even he could not have foreseen the arrival of a Government which have established themselves as a public assistance committee for mendicant capitalism.

In recent debates hon. Members on both sides of the Committee have expressed their anxieties about both the scale and the manner of some of these subsidies and loans. I will not, therefore, repeat these arguments, but I ought to mention what some Members may have missed, the alarming statement made during the election by the then President of the Board of Trade, now the Minister of Education, when speaking in Lancashire. He proudly boasted in Lancashire that the £30 million he had asked the House to provide for cotton would not be enough. He said that it would cost £50 million to £60 million, but he had not dared to tell the House it would cost that sum or he would not have got it. In other words, he admitted misleading the House in asking for this big sum. I have the right hon. Gentleman's exact words, which show the utter contempt with which Ministers treat the House in matters of public expenditure.

In this, as in so many other directions, the Government are standing the economic system on its head. The traditional position is that local authorities are free to borrow from the Treasury while private enterprise borrows from the market. Under this Government local authorities are forced on to the market on unfavourable terms while private concerns are encouraged to come and borrow from the Treasury.

Fourthly, I would draw attention to the growing "Americanisation" of our economy. We all welcome increased consumption and a rise in the standard of living. Indeed, this party has fought for these things for ordinary families for sixty years. But in some respects, as in the United States, our real productive strength, and the means of further expansion in the shape of capital investment, are now being sacrificed to sheer frivolities. They are frivolities called forth not by what the consumer wants, but by the lunacies of the advertising agents, who then go to fantastic lengths, at great expense, to persuade the consumer that those are the goods he or she really wants.

How many of the scientists we need are misdirected into these irrelevancies? I ask hon. Members: are they really satisfied with a scale of values under which, as a nation, we are spending more on advertising than on industrial research, more on packaging than on education, more on the egg subsidies than on the universities?

Finally, I ask hon. Members to consider how all these developments that I have mentioned can be said to be strengthening the basic economy of the country as it must be strengthened if we are to meet the challenge from abroad, especially the formidable scientific, educational, technological and industrial challenge from the Soviet Union. I ask them to consider how the excesses of speculation, the take-over bids, the property deals, the subordination of industry to finance, the misdeployment of our scientists and the development of an economy dominated more by the advertising agent than the productive engineer, all measure up to the purposive challenge from abroad.

Soviet production is increasing at a rate of at least 10 per cent. per annum against our five-year average of 2 per cent., and a much higher proportion of what we produce is irrelevant to the challenge of the age. Four per cent. of our national income goes to education, against 10 per cent. in Russia. If these basic trends are allowed to go un-corrected over the next decade—and the Chancellor yesterday showed no awareness of these problems—there is a real danger that our civilisation will be shaped in a way that can lead only to national decadence and a loss of our moral influence in the world.

The one hope for Britain lies in the reasonable assumption that before the 1960s are half over, an election different in its result from the last will ensure that these dangerous trends are reversed.