Capital Investment in Industry

Part of the debate – in the House of Commons at 12:00 am on 26th April 1960.

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Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford 12:00 am, 26th April 1960

I like the hon. Member to make interventions, but I prefer him to ration them reasonably and not to have too many.

The Financial Times went on to deal with why it thought this was so and made a number of points which I should have made if the hon. Member had not deflected me. I wanted to deal with the structural imbalance which there seems to me to be in the British economy at present. It then dealt precisely with the price picture, and said: A glance at export prices suggests a large part of the answer. Compared with 1953 British prices have risen by 9 per cent., American by 7 per cent., while German prices have remained stable and Japanese have actually fallen. That seems a complete answer to the hon. Member. I hope that hon. Members opposite are not reacting with one of their favourite reactions and assuming that this is just a question of wages, because since 1953 German wages have risen quite as fast as those in the United Kingdom. German productivity has risen much higher, however, and the reason is that German investment has been consistently higher.

The point with which I was dealing is that not merely are we faced with an inadequate rate of long-term growth because of a low level of investment but we are unable to make full use of the growth which would be possible for us, given our present industrial horsepower, because the balance of our industry is such that we have a far greater liability to run into a balance of payments crisis as soon as we move into an expansionary phase than have most of our trade rivals.

The next point I want to make is that, as I said earlier, the 1959 position was thoroughly bad and the present position is given respectability only by what I called the Chancellor's spurt, the additional 10 per cent. investment which was predicted earlier in the New Year. But, of course, that is something in the future and is not something firm; it is something which we hope will happen. Will it take place? After all, these were pre-Budget predictions, and they were probably pre-Bank Rate increase predictions. At any rate, since they were made we have had an increase in the Bank Rate and we have had the Budget and, perhaps more important than either of the other two, we have had the Chancellor's vague credit threats hanging over the economy.

One of the major troubles of the Budget was that it had a deflationary analysis followed by practically no deflationary action of any sort. It was a deflationary analysis with very little action but with general threats that something was about to be done in the use of the monetary weapon. This may well have been desirable at the time, but I am bound to say that nearly every hon. Member, and I think most informed and interested opinion outside the House, thought that when the Chancellor used that threat in his Budget speech he intended within a matter of days in all probability, and certainly within a matter of a fortnight, to make it absolutely clear what he had in mind. Yet we have gone on for two and nearly three weeks with this threat still hanging above the economy.

There is no doubt that if the Chancellor wanted to create uncertainty in the business world and a climate in which people might revise their investment projects downwards, he could not have done this more successfully. What is the position? Can the President of the Board of Trade tell us? The position is causing great concern at present.

I quoted yesterday's Financial Times leader in reply to the hon. Member for Cheadle. The leader in today's Financial Times deals specifically with this point, and deals with it in extremely strong terms. It says: It is difficult to believe that the resulting confusion"— that is, from the Chancellor's policy of nods and winks, as they have been described— has in some mysterious way been beneficial to the economy. The object of the Government's policy is to bring about a slowing down, although not a halt, in the growth of demand, with the emphasis on consumption and property investment. The deliberate creation of uncertainty is a dangerous procedure for achieving this objective, as no one can predict in what direction it may lead. It could lead to too much or too little slowing down of economic activity, and the slowing down could be in productive investment, which the Government wants to encourage. We are entitled to hear something from the President of the Board of Trade this evening. It would have been useful if the Chancellor of the Exchequer had chosen to intervene in the debate in view of the amount of speculation there has been on the subject. I know that the President of the Board of Trade cannot make the Chancellor's statement for him, but I hope that he will tell us whether we can expect from the Chancellor in the very near future a definite statement clearing up the position. Unless that is done, there is grave danger that uncertainty will persist and that the very assumption of increased investment, which was one of the most cheerful factors the Chancellor had behind him in making his Budget speech, will be destroyed by the way in which he has set about carrying out this policy.

The Chancellor is wrong not merely to postpone making his policy clear but also, whether he made it clear earlier or whether he will make it clear soon, in allowing it to depend too much at present on the monetary weapon. The monetary weapon may or may not be effective. One thing which is certain is that, to the extent that it is effective, it is extremely indiscriminate. Looking back over the history of the past few years, it is clear that what we want is not perhaps detailed controls, but a little more discrimination in a broad sense between what activity we encourage and what activity we discourage. We want a little discrimination in general in favour of investment, as opposed to consumption. Within the investment field we want discrimination in favour of investment which will be desirable from the point of view of overcoming the lack of balance in the economy which makes us so peculiarly susceptible to balance of payments difficulties.

Let me give the President of the Board of Trade a few examples on this. We do not want to cut down investment in general. There may be certain forms of investment in which some restriction would be proper at present. What about hire-purchase finance? How does the President of the Board of Trade feel about this at present? My information is that the obtaining of deposits from the public, the general system of hire-purchase finance at the margin, may well be growing into a major public scandal. It is certainly an undesirable use of resources to quite a considerable extent. Is the President of the Board of Trade looking into that at present?

It is generally true that the amount of what one might call property investment in this country is probably greater than we desire from the point of view of balance—even in this country. But to go in for large-scale property investment in New York, on which British capital is now being used on quite a large scale, seams to me to be going a little too far.