And Northern Ireland.
But, quite apart from all that, it surely is rather a monumental piece of cynicism that we have been told for years that rises in labour costs would be inflationary and price us out of export markets and all the rest and now we are suddenly told that a rise in labour costs, provided it does not come through an increase in wages but through this tax, will be beneficial after all because it will stimulate industrial development. The Chancellor gave us a homily this week about higher wages, and then we had the extraordinary speech of the Economic Secretary this afternoon. But if this is really so and we are now told that a rise in labour costs is desirable, for heaven's sake let us have it by a rise in wage rates.
The truth, of course, is that any direct charge on costs of this kind, whether the National Insurance contribution or this surcharge, is a direct addition to financial costs and, therefore, to prices, including those of exports; whereas a tax coming out of profits to pay for our social benefits or anything else is not in the main an addition to costs or to prices. The Chancellor does not seem to realise that because we finance a great deal of social expenditure by taxes on profits rather than charges on costs, we confer a great competitive advantage on British exports throughout the markets of the world. It would be utter folly to throw this away just at the moment when we want to enhance the competitive power of our exports. I hope that we shall hear no more about this amateurish and half-baked proposal for a payroll tax which the Chancellor introduced.
The most remarkable feature of the debate perhaps has been the complacency and, indeed, the defeatist attitude of the Chancellor and the President of the Board of Trade towards the present plight of our balance of payments. We are, after all, faced with the highest United Kingdom deficit for ten years. The Government have performed a remarkable feat in achieving this in a year of high world trade and of terms of trade extremely favourable to this country. I still do not know what the Government mean to do about it.
The March returns of overseas trade show that there has been no significant improvement, and we have had absolutely no information in the debate about what Ministers propose to do if there is a severe exchange crisis this Autumn. Are they relying on some new form of help from the Central Bank and the International Monetary Fund? If so, we have been given extremely little information about the concrete methods by which this will be achieved.
We have been told often in debates on economic affairs that there is a dilemma between, the aims of growth and balance of payment solvency, and between incentives on the one hand and social justice on the other. But the astonishing fact is that in the last twelve months we have achieved neither growth, balance of payment surplus, price stability nor social justice. When the President of the Board of Trade asks what we on this side of the Committee would do, I have to remind him that his Government have been in power for ten years and have failed to achieve all the main objectives of an intelligent economic policy.
I am astonished when the Chancellor of the Exchequer argues, as he apparently does, that we are now fully employed and that demand is again pressing on our resources. It is extraordinary when production has stagnated in three years out of the last four, and the index of production published this morning shows no change at all since January of last year, to be told that we are now in a condition of over-employment and over-strain. Is it really the Government's view that after three years of stagnation, and one year of advance, we are now, after another twelve months of stagnation, producing to capacity and unable to stand a further stimulus? If that is true, it is an astonishing commentary on the way in which our economy has been conducted in the last few years. Production ought to increase by 4 per cent. or 5 per cent. a year. After a year of stagnation we ought to achieve by the end of next year a level of production at least 5 per cent. to 6 per cent. above what it is at present. But instead we are told that the brakes must be put on once again.
The other necessity for an expansionist policy—I am an unrepentant expansionist, like the hon. Member for Eastleigh (Mr. D. Price)—is to keep our imports within the level that we can afford. There is no doubt whatever now, looking back on it, that the President of the Board of Trade's sweeping and unilateral removal of import controls in 1958 and 1959 was recklessly premature and was the cause of the 40 per cent. rise in manufactured imports which took place in that year, and of the balance of payments crisis from which we are now suffering and which is inhibiting any further expansion.
That is not merely our view, constantly expressed at the time. It is the view, as the President of the Board of Trade knows, even if the Chancellor of the Exchequer does not, of Sir Roy Harrod, who is a devout free trader and a passionate believer in G.A.T.T.
Now that the President of the Board of Trade has made the hasty blunder of taking these controls off, it is much harder to replace them, even though with a deficit of £344 million we should be perfectly entitled under the G.A.T.T. rules to do so. So the Government now find that they have to limit imports (because they have to be limited one way or the other), by holding back the growth of production and employment, and a reluctant Chancellor of the Exchequer is forced for this reason to balance the tax cuts that he wanted to make by tax increases at the same time and by increases in the health charges.
The irony is that this is where Tory freedom has now led us. It now deprives us, not merely of growth, social justice and international solvency, but even of the sweeping general cuts in taxation which I know that real Tories desire more passionately than anything else, except the restoration of corporal punishment.