Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 11th July 1960.

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Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland 12:00 am, 11th July 1960

If it is indeed true that what we heard earlier this afternoon was the Chancellor's farewell to the Committee, then this is a sad occasion because, quite apart from our views about his economic policy, undoubtedly the right hon. Gentleman will be sadly missed as a Member of the House of Commons. He has some distinctions. He has made the best Treasury jokes since the war without being accused of being a mere farceur. He has contrived to give the impression that he understands the Income Tax laws without incurring the most devastating of political criticisms, that of being clever. In addition, he has a distinction which makes him almost as rare as the Yeti or other strange beasts of being genuinely believed to be an unambitious politician even after he has had the sweet smell of success in his nostrils.

Having said these things about the right hon. Gentleman, I must confess that his remarks about the Common Market this afternoon must have been the most unenlightening exposition of Government policy since the days of Ramsay MacDonald, who said that he was going on and on and up and up.

I do not share all the views of the right hon. Member for Thirsk and Malton (Mr. Turton) about foreign trade. To me, he seemed to disapprove of the possibility that we should import from foreign countries at all. But his views about public expenditure are respected in this Committee, and I think he had something when he stressed that what is wrong with public expenditure is not so much the total of the money spent but that it is badly laid out. I think, however, that we must look at the economic situation in a rather wider context, because the fundamental fault of the country is not that the Government has spent too much, even though the Government have spent it badly, but that the country is not producing enough.

When people look back to the 1920s and 1930s, they are astonished that we tolerated the unemployment of men who were willing to work. I suspect that when the Chancellor settles down in the west country and contemplates the 1950s, he will be astonished that he tolerated a system which has led to continual economic and financial difficulties, to the considerable under-employment of machines, and has impeded the technical advance in various ways. I think also there is a danger that we are coming to accept this condition.

If we are to manage the currency, some reins are necessary. The disturbing feature about the reins we have had round our necks during the last ten years is that we have managed them in a way which has invariably given us a poor rate of economic growth. The Chancellor spoke of throwing our weight sometimes on stimulation and sometimes on restraint, but the sad thing is that the result seems to be curiously similar, that we have always lagged behind our neighbours in economic growth and investment.

In The Times of 7th June, there was a table which showed that in growth of output per cent. per year from 1950 to 1958 Britain was lowest of the eleven countries listed. If it be objected that Japan and Germany were in a special position—because of their need to build up since the war—with their figures of 7·9 per cent. and 7·4 per cent., there is no reason why we should have been passed by Belgium, with a figure of 2·9 per cent., or even Denmark which, with 2·3 per cent., got ahead of us.

Again, the Chancellor says that last year we did much better in raising the industrial output. We came sixth out of eleven. That is not a very sparkling record, but even that got us into trouble. Now we have to cut back even on that. If we look at productive investment as a percentage of the gross domestic product from 1950 to 1958, the United Kingdom was ninth, sneaking ahead of the United States and beating Belgium. In a commentary on the figures The Times wrote: If industrial expansion is examined over the past decade Britain's performance becomes even more discouraging"— with a low rate of growth in production and a very modest rate of investment, probably because in the post-war balance of payments crisis investment-demand was the first sector of demand to be restrained by controls. That, surely, is true and is one of the root causes of our maladies.

On the other hand, it has been widely assumed that we cannot have growth without inflation. But there has been very little more inflation in most of the countries which surpassed us in production than there has been in this country. Taking 1953 as 100, the United Kingdom on one computation had a figure of 120 for its cost of living by 1959. Admittedly France beat us and went up to 129, but Germany, Japan, Belgium, the United States and Italy were all below us in the rising cost of living race. So it is not true that our record lately in holding the cost of living has been so very outstanding.

Everyone knows that today expansion is expected. Expansion is talked of all over the world, and most of the world is expanding. I think that the expectations of expansion must be met in this country. We must get off the recurrent switchback of inflation and balance of payments crises leading to restriction and eventual stagnation. In the introduction to Mr. Shonfield's book, "British Economic Policy", there is an economic diary showing that ever since the war we have had this recurrent series of crises all primarily met by cuts in investment. A pamphlet issued by the Federation of British Industries said that we have always tended—and this is true—because of our small reserves to produce emergency decisions at the expense of our truer or longer run interest.

Our children will look back and ask why it was necessary. Why did we have to run an economy in this extraordinary fashion? The indictment of the Government surely must be their failure over the years to deal with the long term problems which erupt so often into crises. I am bound to say that at the same time it is rather astonishing that the Left in this country should have given practically no thought during the last 15 years to the financial methods by which the country is run. Surely the Commanding Height of the economy today is the control exercised by economic and financial policy. It has nothing to do with nationalisation of particular industries.

Surely, when the hon. Member for Coventry, East (Mr. Crossman) writes a pamphlet drawing attention to the danger of a great upsurge of production in Communist countries, the answer is not the conclusion reached by the hon. Gentleman that we must nationalise a few more industries in this country. The answer is that the Communist countries may achieve this by the way they run their whole economy. We have to learn how to run our economy with a high rate of production, without recurrent crises, without interminable inflation, and without intolerable restraints on freedom. Surely, one of the things we might be discussing is that it might be well to separate the economic from the purely fiscal parts of the Budget as Norway has done with some success. Again, must it be taken as the law of the Medes and Persians that the Government should continue to finance themselves short-term by Treasury bills and that these should form the basis of the credit in the country? What is the real rôle of our reserves? Should our private dollar holdings not now be included? Are we seriously to go on for ever with the present Income Tax structure? It may not be true that it stops people from working, but it certainly stops them from changing jobs, and it is incredibly complicated. If it is to go in this form, it will be beyond reason. What we need is not a Radcliffe Report, which tried to get a maximum agreement about the present situation, but some radical new thought on our economic and financial methods.

Another aid to expansion would be to broaden the whole basis of our economy by trying to join the Common Market. I agree with the right hon. Member for Thirsk and Malton that we should first enter into negotiations with the Commonwealth and with the Seven to see whether we cannot negotiate a combined entry, but we must make up our minds whether we are to go in or not.

But I want to make one particular and major suggestion on this topic of expansion. While I do not accept that one can have sensible and productive investment simply by decree, because it depends on a generally expanding economy, confidence and rising demand, I believe that in most countries which have been enjoying a high rate of expansion and investment there appears to be a mainspring in their economy which we have lacked.

In Russia, there is the forced blast of Communism. In the United States, there is still the frontier urge, a growing population and a mobile society. In France, there has been the drive of a small band of politicians behind de Gaulle, and the European-urge of certain people high up in the French Civil Service dedicated to the idea of a United Europe. The Scandinavians rely on their Governments to push their economies, and many backward countries have made advances by calling on a spirit of dedicated nationalism.

This urge seems to be somewhat lacking in Britain. I do not wish to exaggerate, for we are not doing all that badly, but there is a lack of a determined movement forward. We should be becoming a highly skilful country, eager to accept new methods and ideas, with a higher mobility of labour. But I do not think we are. Some people will say that it is the fault of the trade unions. That is so, in part. But it is time that the employers gave a lead. I would remind the Committee of a remarkable speech made in 1957 by Lord Chandos. I will give some of his arguments and conclusions: First of all, longer notice of termination of employment, based upon the length of service of the man employed. It is, I think, a psychological anomaly that everybody in my industry should be nominally at one week's notice, whether he has been employed by the company for 25 years or 25 days That is the first thing—to give contract of service. Secondly, I believe in a wage agreement covering five years giving an annual increase in the basic wage of (say) 2½per cent. per annum to every employee working a 44 hour week who had served his reference period of a year or two. Lord Chandos then went on to explain how this would be calculated, and continued: We should then have to combine, Government, employers, trade unions, to see that these advances in wages were real and represented a real increase in real living standards. Now nothing is easier than to say that such a wage agreement sets out upon an inflationary spiral. In practical politics, such a system would make for far greater stability than the conditions under which we now live.I should describe the present system as a dreary routine. First, an annual wage claim is put forward, supported sometimes by figures relating to the cost of living index…The next round follows almost inevitably, the routine rejection of the claim, whether rain or fine, by the appropriate Employers' Federation. Lastly, some uneasy compromise, usually of short duration, closes the cycle until the next one begins…It is an outrage that an industrial nation of our maturity should still carry on in conditions of complete instability regarding wages. The speech of a man with such experience of running industry cannot be ignored.