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 John Cronin Mr John Cronin , Loughborough 12:00 am, 11th July 1960

I gather that he does not agree with me. We all feel a little discomfort when considering the possibility of who the next Chancellor will be, whether the Foreign Secretary or the Minister of Education. In any case, whoever does become Chancellor, I hope that he has all the success he deserves. I hope that that thought does not depress hon. Members unduly.

My hon. and right hon. Friends have expressed great dismay at the series of restrictive measures to which the country's economy has been subjected during the last few months—the January rise in Bank Rate, the April hire-purchase restrictions, and the further rise in the Bank Rate in June. As hon. Members have said, these measures do present formidable problems for the country's economy. If the restriction and constraint had come on top of a long period of economic advance, no one on this side, I think, would have worried very much. If our productive position were as good as that of the rest of the world, we should be perfectly happy. It has, however, followed a very short period of economic expansion, a period of economic expansion which, I have no doubt, purely by coincidence, occurred at the time of the General Election. Nevertheless, it was a very short period of economic expansion.

To emphasise this point, we should consider some figures. I apologise for using figures, because they are rather tedious things. I think it was Disraeli who, when rather pressed by figures, classified lies as lies, damned lies and statistics. As the Government themselves now produce many figures, I think we should examine them. The Chancellor will not disagree when I say that the country's gross national product has varied between£4,100 million and£4,200 million quarterly. The level has been steady from 1955 until 1959, and there has been hardly any change. It was only last year that there was an increase in the total product of the country.

Taking the level of industrial production in 1953 as 100, we find, by reference to the O.E.E.C. report to which reference has been made, that our index of total industrial production in this country was 114 in 1955 and 1956, 116 in 1957, dropping back to 114 in 1958. Only last year did it rise to 120. We see that the expansion of industrial production was for a very short period only and it followed a period of complete industrial stagnation.

I hope that the President of the Board of Trade, when he winds up, will answer this very simple question. In what conditions will production in this country be allowed to expand for a long period? In what conditions can our economy look forward to a marked rise? Under the present Government, as far as one can see, any increase of productive activity for a few months is immediately curtailed by severe restrictive measures.

This situation is made all the more serious by the rapid rise in production in neighbouring countries. Using the same basis of 100 for 1953, again taking the figures from the O.E.E.C. report, the index for Germany last year reached 172, for France 170, for Italy 166, while for the U.S.S.R. it reached 170 in 1958. There seems to be little doubt at all that we are lagging very seriously behind our competitors in productive capacity.

The Government have a duty to state exactly their aims. What are their intentions in regard to productive capacity during the next few years? Do they intend to continue their restraint? Are we entering a period of industrial stagnation as we did in 1957? Are we to maintain our production at that low level which has been maintained almost the whole time we have had a Conservative Government?

We ought to consider various aspects of the Chancellor's restrictive measures individually. As we all know, the raising of the Bank Rate has many deleterious effects. It has a very unhappy effect on housing, on mortgage payments and on local authority finance. Moreover, of course, every increase of 1 per cent. means an increase of£15 million on the adverse side of our balance of payments per year.

Are these large increases in Bank Rate really worthwhile? Would it not be better if they were scaled down. If one looks at the Radcliffe Committee's Report, one sees that that Committee did

not seem to regard Bank Rate as being a very important factor in affecting the country's economy as far as it affects balance of payments. I shall not weary the Committee by quoting the Report, but if one looks at paragraphs 433 to 440, one sustains the impression that an increase of Bank Rate is largely a psychological gesture and is effective only if it is part of a package deal and is combined with other forms of economic restraint. So I think that the Government ought seriously to consider whether they should keep on using Bank Rate so vigorously as an economic weapon or whether they should dispense with it, or certainly reduce the size of the increases and decreases.

I turn now to the special deposits. These are for the purpose of decreasing the banks' liquidity. The banks, when the Government want them to reduce their liquidity, have to deposit certain sums in the Bank of England and, as a consequence, they are not in a position to make advances to the extent they were before. Of course, the special deposit mechanism depends very largely upon the Government not being agreeable to the purchasing of gilt-edged stock which the banks sell, because the banks can always maintain liquidity by selling gilt-edged stock; and in February, I think it was, the Government let the bottom drop out of the gilt-edged market to show the banks that they could not remedy their situation by selling gilt-edged stock.

This seems to be a rather cumbrous mechanism for controlling bank advances, particularly as it depends to a large extent on undermining the security of gilt-edged stock, and I would suggest that the Government give some serious consideration to more direct control of the banks than they are doing at present.

We know that the 1946 Bank of England Act gave the Chancellor of the Exchequer power to give directions to the Bank of England and also gave the Bank of England power to give directions to the banks, but this power has never been used, and if one looks to the evidence in the Radcliffe Committee's Report it seems rather doubtful whether the Government can through this double mechanism actually give directions to the banks. It does seem that the legal ability of the Government to direct the banks directly as was envisaged in 1946 does not really exist. So I think that the Government might well think in terms of some amending legislation to enable them to give the banks directions without this sort of rather cumbrous mechanism. I seem to recollect that the right hon. Member for Monmouth (Mr. Thorneycroft) himself gave the banks informal directions; he expressed a request; but it was not effective. I should have thought that some formal and legal ability to give the banks directions as to their advances would have been more effective.

I turn to the question of hire-purchase controls. These seem to be rather unfortunate because they affect largely the people of the lower income groups. Wealthy people do not buy their goods on hire purchase. Hire-purchase restrictions very largely affect the lower and middle income groups.

Of course, hire purchase is always a somewhat erratic part of the economy. There is always a tendency for the hire-purchase pattern to be unstable. An unstable purchase pattern is always followed in a few years by an unstable pattern of replacement, and so there must always be big changes in the total amount of hire-purchase credit outstanding. Purchase of the sorts of commodities bought through hire purchase can usually be postponed or accelerated, so there is always a tendency for instability.

Of course, Government interference with the hire purchase of consumer durables such as kitchen equipment does, if anything, increase this instability. One rather doubts whether those Government interventions in hire purchase are really worth while, because this constant wide fluctuation between the peaks and valleys of hire-purchase debt outstanding is one of the most consistent features of Western economy. So I feel that the Government might seriously consider whether it is worth while intervening in this way. It may be argued that the intervention should be more continuous, but the sort of intervention we have had, complete freedom from restraint in 1958 and then quite severe restraint in 1960, seems to me rather likely to aggravate the problem of instability in hire purchase credit.

Of course, hon. Members on both sides of the Committee have deplored the standstill on investment for 1960–61, and there can be little doubt that our invest- ment situation compares very unfavourably with that of most of our competitors. I think that mast hon. Members who have given thought to this matter must deplore that it is rather difficult to comprehend that the investment situation next year will help any economic crisis which is likely to arise this year. We have had an exposition from the Chancellor today of the desirability of these various forms of constraint, and all these forms of restraint in the economy have one common purpose that appears to be to damp down expansion and as a consequence decrease imports and have a favourable effect on the balance of payments.

Missing from the Chancellor's speech was any attempt to improve the balance of payments from the other side of the equation; in other words, to improve exports. We have not heard that the Government have any policy at all for improving our exports situation. I think that one hon. Gentleman on the other side of the Committee did speak somewhat unfavourably of the controls, the allocations, under the Labour Government between 1945 and 1950; but they did work, they did induce companies to concentrate on exports, which certainly is not being done at present. One gets the impression that many manufacturers are rather export-shy, and it is rather disturbing to look at our declining share of the world's export markets.

There has been throughout the world in the last few years an export boom. Countries have been increasing exports to a large extent, but if one looks at the Board of Trade Journal for even last June one will find that the United Kingdom's total share of world exports was 19·7 per cent. in 1955, that it dropped to 18·1 per cent. in 1957 and was 17· per cent. in 1958. If that continued drop goes on, it does not require much arithmetic to see that our exports will be reduced almost to zero in about eighteen years from now. This is, of course, posing a rather extreme hypothetical case, but the figures do clearly show that our share of world exports is steadily decreasing.

So have the Government any definite policy for persuading manufacturers to export more? Have they considered the possibility of some form of controls, some form of allocations, so that exports increase? Of course, there is an answer to which some of my hon. Friends would agree, and that is that there should be increased public ownership.