Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 7th February 1961.

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Photo of Mr Harold Wilson Mr Harold Wilson , Huyton 12:00 am, 7th February 1961

I should like to thank my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith) not only for his courtesy but also for the speech to which we have just listened. Over the last two days the debate has been made memorable by a number of speeches from hon. Members on both sides of the House, and I cannot refer to them all. I want to pay tribute, however, to the hon. and gallant Member for Carshalton (Captain W. Elliot) who made his maiden speech yesterday and rightly earned the praise of hon Members on both sides.

Yesterday's debate was also made memorable by the speech of the hon. Member for Halifax (Mr. Maurice Macmillan). Today it has been made memorable by the speech of that noble survival, the hon. Member for Dorset, South (Viscount Hinchingbrooke), among others. The first part of the noble Lord's speech showed the House and the country what the more atavistic of the Conservatives are thinking, but his concluding words utterly redeemed everything he had said previously, in that they contained one of the most utterly moving and noble statements of the case for helping the under-developed areas. I see that the noble Lord has now entered the Chamber. I am sure that the whole House was deeply moved by his concluding words.

The debate has re-emphasised the fact that the centre of the economic problem is our export-import gap. I shall not repeat the figures and the analyses which my right hon. Friend put before the House; I merely want to hammer home one or two of the more salient of them. Compared with 1959, which was itself a bad year, exports rose by 6 per cent. and imports by 14 per cent., and the gap was widening towards the end of the year.

Chancellor after Chancellor has said that our balance of payments surplus must be not less than £450 million a year if we are to meet our obligations in terms of private investments and aid to under-developed areas. Far from reaching that target, we had only a £139 million surplus in 1959, and a very serious deficit last year, getting on for about £200 million on current account. In fact, our 1960 showing—and the Chancellor showed little awareness of this—was between £600 million and £650 million short of the target which every Chancellor has said we must achieve.

This worsening was partly due to our shocking showing on visible trade. It was the worst since the Korean War period. I hope that nobody will try to burke that fact. But there has also been a serious worsening on the invisible account. We have the figures for only the first three-quarters of last year, but for that period invisible earnings worsened by £100 million, oil earnings were down, and there were far greater payments across the exchanges because of the high Bank Rate on borrowed money, and an alarming increase in net military expenditure abroad, which last year was running at £100 million more than three years ago.

The drain on the exchanges was equal to the whole of our exports of woollen and worsted goods or three times our exports of machine tools—all swallowed up in this increasing drain from higher military expenditure abroad. I hope that we shall be told something about that. Yet all the Chancellor could say yesterday about the balance of payments was that our gold reserves had just about staggered up to the 1951 level. He did not say it in those terms, but that was what he meant. Last year they rose by £177 million, even though he had paid back as Chancellor some of the American loans he raised as Foreign Secretary in order to pay for Suez.

What happened was that the balance of payments deficit at £200 million last year, plus the current new long-term investments, were covered and our reserves increased by one means only—we borrowed, and borrowed heavily. We borrowed on short-term hot money from the financiers of the world—vulnerable money, easy-come-easy-go money, lured here by virtually the highest interest rates in the world. The position is that hard-pressed local authorities in this country are asked to bear heavy burdens. Owner-occupiers have to bear a heavy mortgage charge. Industry has to bear fantastic prior charges and the National Debt charge—which has to be borne by the taxpayer—for the first ten months of the financial year has so far been £56 million up on the same period of last year. In fact, when we look at the economies we are asked to agree to by the Minister of Health, they just about balance the increased amount the taxpayer has to pay in higher interest rates because of the Government's financial policy. All these burdens are the price of an economic policy now utterly dependent on short-term borrowing abroad to the tune of some £900 million, in 1960—fifteen years after the war.

I do not need to warn the House of the dangers of borrowing short and lending long. Were he present I should not have to warn the Minister of Aviation about how quickly short-term capital can take wing and involve us in catastrophe, because the right hon. Gentleman would remember 1957. Yet in 1957 the volume of hot money was far less than today and our export-import situation was far better than today.

I think that the whole House will agree that the urgent priority is to increase exports, and I hope that the Government will not forget our repeated warnings on this question; how year after year we pressed for higher investment to strengthen our competitive position; how before and after the election we warned them that a consumer boom aimed at electoral popularity would strangle our export drive; how in 1959 in the debate on the Queen's Speech the President of the Board of Trade, like the grasshopper in the Aesop fable—rather an overgrown Ministerial grasshopper, we grant him—scorned our warnings as he disported himself in the sunshine of a hire-purchase boom, and laughed at our suggestions that the economy would be so overloaded by the hire-purchase boom that there would be no room for extra exports and investment. The President is singing a very different tune today, and well they all may.

Look at our comparative export record. In 1959 we were still lagging behind our trade rivals. It was not a very good year. Yet in the first nine months of 1960, while the world trade had increased by 18 per cent.—Germany and the United States increased their exports by 18 per cent., France increased hers by 28 per cent. and Italy by 48 per cent.—ours had increased by 6 per cent. Our share of the world trade in manufactured goods, which was 25½ per cent. in 1950 and which had fallen to 19·6 per cent. in 1955, and to 17·3 per cent. in 1959, fell last year at an accelerated rate from the 17·3 per cent. in 1959 to 15·4 per cent. by the third quarter of 1960. Ten years ago we were the pacemakers of Europe, today we lag behind in shame.

Look at our trade with particular areas and figures of our direct trade with the United States. In 1959 we had a visible trade surplus of £11 million. Last year we had a deficit on Anglo-American trade of £227 million, a worsening of £238 million on the trade between this country and the United States. Exports were badly down as we know, but imports were also spectacularly high.

Look at the position of individual industries. Cotton and textiles are now, of course, a heavy net importer. Shipbuilding is a net importer. Machine tools are only just in surplus; we are only just exporting rather more than we import in the machine-tool industry Undoubtedly, there are strong criticisms to levy at some of our exporters, not enough effort, in some out-dated methods, deliveries too long and not on promised time, problems of servicing and spares, but the main fault lies with the Government who sacrificed the export drive to Tory freedom when they abandoned planning and sacrificed to electoral popularity when they unleashed the hire-purchase boom in 1959.

I ask hon. Members opposite, how can export-minded managers and directors concentrate on the difficult tasks of grasping export opportunities when all the time they are looking over their shoulders to see which take-over grabber is to move in with take-over graps motivated, not by export considerations, but by quick tax-free capital gains or some devious manoeuvre of property exploitation? How can export-minded boards of directors cut their export costs or plough profits back into productive investment when the fear of a take-over bid forces them into the payment of uneconomic dividends to speculative shareholders who are only too ready to listen to the offers of the take-over tycoons?

Today we are all agreed on the need to increase exports. That cannot be done easily or quickly. The rot has entered far too quickly into the economic life in the last few years. There are things which the Government can do. I referred today to our fourteen-month-old proposals for increasing international liquidity, now receiving such powerful support at home and abroad, and our proposal for increasing capital goods.

Look at the Government record. First, we have had the Prime Minister with his bad joke, badly received, about exporting being "fun". We are now getting a spate of speeches from the Chancellor and the Board of Trade Ministers. The Minister most active in export markets is the Minister of Aviation, the bagman of the guided weapons industry, peddling Blue Streak with indifferent success around the capitals of the Western world. While I am on him, although I am sorry he is not here, I will refer to responsibility for the deal between Messer-schmidt and Hawker-Siddeley, a deal which is carrying very serious historical overtones for this country.

Our exports of arms and munitions are, of course, booming, but I think we all agree that the future of this country lies in exporting the munitions of life to underdeveloped nations—nations which, as the noble Lord reminded us, have lived in darkness throughout the centuries—not in earning foreign exchange by shipping the instruments of death to Germany, the Middle East or Central America. None of us can be happy about seeing so high a proportion of export trade dependent on that kind of traffic.

I turn to the internal situation. The main fact here, as hon. Members have repeated, is the stagnation shown by the fact that over the greater part of 1960 industrial production stood still. In November, the latest figures we have, production fell. Once again they have proved that under their governance we can expand only for a short time. Then a balance of payments crisis is upon us and the shutters go up—credit squeeze, wages freeze, higher taxes, social service cuts, a tight hold on investment in the publicly-owned industries and the rest.

We are bound to ask whether under the Tories we are so short of wind, so flabby of muscle, so rheumaticky in the joints as a nation, that after one short burst of expansion, one brief attempt to keep up with our neighbours in Western Europe, we fall exhausted by the wayside. This seems to be the lesson we have to learn from so many years of Tory rule. This is our central problem on the home front—the problem of the lost dynamic in British industry.

Once again I ask hon. Gentlemen, as I have asked them before, reviewing the last ten years, to name any country which in production has done worse than Britain under the Conservatives. There are a hundred Tory Members present at the moment. I will help them and name two countries. One is Belgium. Are they proud of that? The second is Eisenhower's America. Now in America, under a new and youthful President, they are flexing their muscles once again. They are looking to new frontiers, while this tired, discredited, caste-ridden Government, boasting of nothing but a certain amount of Edwardian elegance—I grant them that—and rather questionable family appointments, allow Britain to lag behind.

Where do they think it will lead? Where do they think it will lead when Britain over the years achieves an average industrial expansion of 2 per cent.

and Germany has one of 10 per cent.? Where do they think this will lead as years succeed years?

This is not the whole pattern. Look at the distribution of the profits of industry. Last year wage rates rose by 4½ per cent., and that is causing apoplectic attacks to many right hon. and hon. Gentlemen above and below the Gangway. But profits rose by 14½ per cent. We have not heard that fact mentioned. Dividends rose by 33 per cent. I say nothing of unearned tax-free capital gains.

Let us consider the state of the gilt-edged market, which hon. Gentlemen opposite used to be concerned about and which was once regarded as the test of the national credit. Today it is almost at an all-time low. Suppose an investor were moved by the Home Secretary's eloquent speech at the Conservative Party Conference in 1954—the "Invest in Success" speech—to put £1,000 into gilt-edged at that time. Today his investment stands at £690 or, allowing for the fall in the value of money, £600, while his neighbour, who invested in an average packet of equities, would today have £2,170—that is a tax-free gain of 117 per cent.—or he would have just under £1,900 allowing for the rise in prices. If he had gone into property shares, steel shares or land he would have done far better, and the whole gain would still have been tax free.

The Government are responsible for the slump in gilt-edged securities, not only by their high interest rate policy, but by their immoral decision to sell publicly-owned steel prior charge stock to private holders. It is calculated that their activities in this connection will be enough to cause a four points fall in Consols or War Loan.

In the face of all this, what are the Government doing, apart from busily selling steel shares to their friends at a loss borne by the taxpayer? Of course, we have a new Chancellor of the Exchequer. A few weeks ago the Sunday Times said this about him. It gave him a wonderful write-up. I hope that he was duly moved by it. The Sunday Times said: In all the fuss and excitement about the state of the economy the Chancellor has maintained an Olympian silence: he has neither threatened nor cajoled, nor has he read any Treasury homilies on what we should do with our own money. He has deliberately kept his own counsel until he has completed his factfinding … his main concern is to break the cycle of squeeze and ease and find an alternative to reliance on monetary controls alone. In other words, he has not a clue.

If there were any doubts about that, they were answered by the right hon. and learned Gentleman's speech yesterday. Faced with a very grim economic situation we hoped, in the words of the sergeant-major to the young officer when the troops were marching over the cliff edge, that he would say something, if only "Goodbye". We did not even get that. I think that the kindest thing I can say about the Chancellor's speech yesterday—paraphrasing the remarks of my hon. Friend—is that he set up a row of Aunt Sallies and then proceeded to get knocked down by them.

He gave us every cliche in the book—not forgetting even Scylla and Charybdis, those overworked standbys of cancellarian peroration—and when the occasion needed the inspiration of a Crippsian call to national selfless action, all we got was the prosaic flatness of a Foreign Office communiqué.

But, of course, he did tell us this: he is setting up a committee to see what is involved in raising production by 3 per cent. per annum. This is fine—we applaud it. After ten years the Government have set up a committee—a committee to see how we can raise production by 3 per cent. per annum. Of course, if by the end of the day that committee reports that what is involved is a whole series of policies that cut across their doctrinaire Tory Party views, the report will be treated with the same cavalier discourtesy as was the Radcliffe Report some time ago.

I want, however, to be fair to the Chancellor—I will even go so far as to apologise to him. I must confess that I was wrong when I forecast last summer that he was to get a Department of his own. That just has not happened; he is just as much the Sorcerer's Apprentice as when he was at the Foreign Office. As if the economic outlook were not black enough, with all the figures I have given, we have the Prime Minister descending from the misty stratosphere where he has been disporting himself with such singularly little effect and taking charge once again, as he did in 1956, of our economic affairs. We remember the Prime Minister's previous intervention in economic affairs—the start of the great stagnation; prescription charges, the collapse of sterling following Suez.

Yet only very recently—and I am sorry that the Prime Minister is not here because I want to quote some of his more eloquent passages—he told us that the economic problem was solved. His always significant coefficient of euphoric misrepresentation, of course, reached an all-time high in the election. On 23rd September, 1959, he said: The British economy is sounder than at any time since the First World War. Sterling has been re-established as a strong and respected currency. Our balance of payments is strong. I was hoping to get some applause for that, because it was said by him in a year when we chalked up the miserable balance of payments surplus of £139 million and were moving into a year with a deficit of close on £200 million.

Again, he told us: I do not remember any time in my life when the economy has been so sound and the prosperity of our people at home so widely spread. Four months after that speech, the brakes were put on. Ten months later, he appointed the right hon. Gentleman the Member for Wolverhampton, South West (Mr. Powell) to be Minister of Health.

Of course, we have had all this kind of talk in successive election manifestos. In 1955, it was claimed that under a Conservative Administration we had broken away at long last from the regular cycle of crises. That was six years ago. I will take another gem: The future beckons this generation with a golden finger". Of course, no one said whose finger was going to be in the gold. It went on: Peace can bring abundance for all, if we match the opportunity with the will to prosper. Abundance for all, after last week? Is it abundance for all, except the old and the sick? Now, of course, the magic has gone. MacWonder has become MacTarnish. But that does not alter the fact that those words I have quoted were from the prospectuses on which right hon. Gentlemen opposite got themselves elected.

I gather that a sizeable number of right hon. and hon. Members opposite are now incensed at the noble Lord, Lord Hailsham's repudiation of their earlier election pledge about free drugs for private patients. I do not know why there has been all the fuss about the Hailsham doctrine of not being bound by promises made by the Tories in elections which they lose. They have never paid any attention to the promises they made in elections they won.

It may be the Chancellor—I do not know—but I suspect that it is the Prime Minister who is behind all the pre-Budget kites which are being flown. All the suggestions, repeated again today, that our export effort is being held back because manufacturers and traders feel that their Surtax is too high are a gross libel on the patriotism of British businessmen. But I repeat the warnings I have given to the Chancellor. First, let him ignore the pressure to transfer the burden from direct taxation to indirect taxation, the pressure to make the tax system more unjust and regressive. If he wants to alter the balance within the taxation structure, let him shift it from taxation on earned income to taxation on unearned income.

Second, let the right hon. and learned Gentleman realise that, if he is thinking of using the proceeds of the Health Service cuts to reduce taxation on the richest taxpayers, he will, as we warned him last week, arouse a storm such as he has not seen since Suez.

Third, if he wants to review direct taxation—and we have often said that rates generally are too high—let him first make a real drive against tax avoidance. When I say that, I do not mean just the familiar ones, expense accounts and so forth. I have in mind also the virtual frustration of death duties by gifts and ingenious trusts of all kinds. Let him introduce the capital gains tax. Then, having done all that, let him apply the proceeds not to the benefit of the Surtax payer but to improve personal and child allowances and the earned income allowance.

Having reviewed the facts of our economic situation, with its weaknesses and dangers, I come now to my main proposal. For years we have deplored the Government's abandonment of planning. For years we have advocated a four-year or five-year plan covering the lifetime of a single Parliament to strengthen our industrial base, to increase exports and—I do not need to emphasise this—to fortify the social services against the attacks of Ministers whose 'political stock-in-trade is to preach a rather selective austerity directed against the poorest sections of the community.

When I refer to a four-year plan, let no one under-rate the success in expanding industry, investment and export earning capacity achieved by the Labour Government in the implementation of the four-year plan that was put to the O.E.E.C. in 1948, from the success of which the Conservatives were quick to gather the fruits. [HON. MEMBERS: "Oh."] Certainly. Without that expansion of the basic industries and of exports, it would have been impossible for them to achieve anything at all. The Government should announce now a four-year plan for sustained industrial expansion, investment and increased exports.

We are all pledged to maintain full employment, even if that pledge rings a little hollow in the industrial Midlands, Scotland and elsewhere today. The Government will know that by 1970, allowing for changing age-distribution and for every measurable factor, we shall have to find work for 1,100,000 more people—that is about 5 per cent. more—and for 700,000 more by 1965. This emphasises the tremendous apprenticeship and juvenile employment problem with which my hon. Friend the Member for Newton (Mr. Lee) dealt today.

With those figures of increased manpower in the country, if we assume productivity increasing at only 3 per cent. per annum—we ought to be capable of something very much higher than that—in order to maintain full employment in 1965 national production will need to be 20 per cent. and in 1970 42 per cent. above the 1960 level. I suggest to the Government that they should make those calculations the basis of the plan and then draw up a series of investment programmes in the key industries, both public and private—such as fuel and power, steel, machine tools, chemicals and the rest—designed to ensure the necessary rate of expansion and the selective expansion of the industries which can make the best contribution to essential investment and to exports, because we all know by now that we will not get our exports by the overspill of the affluent society or by trying to sell to highly-advanced industrialised countries the sort of things we are building up in this country to meet the television consumer market.

Having done that, they should draw up and measure the public commitments for years ahead in the social services, including education and health, and ensure that the resources will be there to meet them. I suggest that the Government should draw up and publish a national plan on this basis. There is no time tonight to go into the details of it. [HON. MEMBERS: "Oh."] If the Government will give another day to debate this matter, then I shall be happy to go into full details. Tonight I can only summarise what this programme would mean if we were to embark on a national plan for expansion. We cannot achieve such a programme without physical controls, such as building licensing to hold back less essential industries in the interests of a full realisation of an expansion programme for essential industry. Hon. Members know perfectly well that Mr. Clore and Mr. Cotton can spend millions of pounds on putting up speculative office blocks, whereas an important county council has been to the House today to protest because its essential school programme has been cut by half. Do not the Government realise that all these resources, whether for offices or schools, come out of the same national pool?

The fullest consultation with both sides of industry will be needed. It will mean taking a great deal more of the essential commanding heights of the economy into public ownership. I have referred to the record of some of our private industries in world markets. Last Friday, a Minister stood at the Dispatch Box and told us that this country leads the world in the development of nuclear power for civil use. That was done by public authority and public ownership.

It will also mean the full mobilisation of the scientific resources of this country, more scientists and technologists and facilities for training them. It will mean redeployment away from unproductive missile research, still more redeployment from unproductive work to provide more frivolities for advertising agents to get worked up about—in fact, redeployment for the real service of the nation.

If we are to have research and development contracts in defence, why cannot we have them for new machine tools, new automative methods, new textile machinery and new techniques in shipbuilding? The nation was shocked to read in the Mitchell Report that in ninety of the biggest machine-tool firms there were only twenty-five graduate research engineers.

This plan will mean that financial planning—monetary and Budget policy—must year by year match the physical plan, providing fiscal incentives to essential investment and making consumption, and not exports and investment, the residuary legatee. It will mean also adequate Budget provision for those in greatest need and industrial provision for adequate wages to match increases in national productivity. This is what a plan means.

One of the significant things of the past few weeks is the way that the idea of planning, planning for expansion, planning to recover our lost dynamic, is receiving support from quarters far beyond the Labour Party—the F.B.I., the merchant bankers, the bank chairmen, even the Bow Group in its recently published pamphlet. I only wish I had time to read its eloquent passages. Even the President of the Board of Trade had paid lip-service to the idea, although I am bound to say that such speeches from him carry about as much conviction as the sight of a confirmed alcoholic hiccupping his way into the Band of Hope.

Let us have from the President of the Board of Trade tonight, instead of his usual speech, which we all know and like so well, his acceptance of a purposive four-year plan for Britain. This is the only way to keep Britain's place in the world. It is the only way to guard our hard-won social services against the wreckers. The tragedy of last week is that, once again, the Conservatives are using an economic crisis brought on by their own policies as an excuse for attacking the social services.

In 1956, the Prime Minister reacted in the same way when he imposed the prescription charges. They were not removed as we urged in the big tax handout of 1959. The National Health Service was born free. Last year, in the very month when we mourned the loss of the great architect of this greatest experiment in social services that the world has ever seen, the Prime Minister appointed the present Minister of Health to office. We warned then what would be the result of that appointment.

The country is facing a Tory-created crisis and so the sick and the aged must suffer. Pharmaceutical manufacturers, as evidence produced to the Public Accounts Committee last year showed, are making up to 108 per cent. profit on their capital out of the Health Service and getting away with it, and prodigiously wasteful advertising is paid for by the State, all because the Minister of Health refuses to control their prices. He even refuses to ask them if they will kindly let him see their cost schedules.

The language of priorities is the religion of Conservatism, too. Last November, I contrasted the £120 million worth of financed expense account cars with the refusal of the Minister of Health to provide invalid cars for paraplegic ex-miners. Today, I draw attention to £40 million worth of free drinks a year on the Chancellor of the Exchequer and a mean saving of a few thousand pounds a year on cod liver oil and orange juice—bloated expense account meals and vitamin tablets at the Assistance Board for old-age pensioners.

The Chancellor appeals for restraint, self-discipline and sacrifice. The Colonial Secretary, in a political broadcast, quoted President Kennedy's challenging phrase: Ask not what your country will do for you. Ask rather what you can do for your country. Let these appeals be made first to the take-over bid merchants, to the landlords, the racketeers in land and property and the speculative dealers on the Stock Exchange. Truly, all national wealth, all their private wealth, comes out of the national pool. It is the responsibility of the community and the responsibility of this House to the social services and the Budget to see that wealth and sacrifices are fairly shared.

Because the past week, especially this deliberate attack on the Health Service, has marked more clearly than for years past the great chasm which divides the philosophies and policies of the two parties, a division that was so clearly illumined for us by the life work and fearless eloquence of Aneurin Bevan, I make no apology for ending my speech tonight with a quotation peculiarly appropriate for summing up our case in this debate and in the whole week's succession of debates.

I quote the last paragraph—the last sentence, indeed—of the last speech that Nye made. All who heard it ranked it among his greatest. I quote this last sentence. He said: I have enough faith in my fellow creatures in Great Britain to believe that when they have got over the delirium of the television, when they realise that their new homes that they have been put into are mortgaged to the hilt, when they realise that the moneylender has been elevated to the highest position in the land, when they realise that the refinements to which they should look are not there, that it is a vulgar society of which no decent person could be proud, when they realise all these things, when the years go by and they see the challenge of modern society not being met by the Tories, who can consolidate their political powers only on the basis of national mediocrity, who are unable to exploit the resources of their scientists because they are prevented by the greed of their capitalism from doing so, when they realise that the flower of our youth goes abroad today because they are not being given opportunities of using their skill and their knowledge properly at home, when they realise that all the tides of history are flowing in our direction, that we are not beaten, that we represent the future: then, when we say it and mean it, then we shall lead our people to where they deserve to be d.