Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 26th July 1961.

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Photo of Mr David Ginsburg Mr David Ginsburg , Dewsbury 12:00 am, 26th July 1961

I was a little amused when listening to the hon. Member for Sheffield, Heeley (Sir P. Roberts). He was one more of the procession of hon. Members opposite who have suddenly become converted to planning. I felt somewhat sorry for the Financial Secretary, who is rather isolated on the Front Government Bench. He and the Treasury are at present the last repositories of liberalism and an unplanned economy for the country.

Four issues already stand out in this debate. The first is the absolutely lamentable record of the Government's conduct of our economic affairs over the past ten, and particularly the last five, years. I shall return to that. The second is the Chancellor's appalling failure in the normal prudent exercise of budgeting. The third, and perhaps more difficult point, is the validity of his diagnosis of the economic situation which faces the country. The fourth is the actual soundness of the measures and their relevance for dealing with the problems we face at this time.

As to the Government's record, I shall simply list a few facts which have been mentioned before, but which could be profitably restated. First, Britain's costs and her export prices have risen faster than those of any of our competitors. Secondly, productivity rises more slowly in this country than in the performance of our competitors. Thirdly, investment in new capital equipment for private industry is lowest in this country compared with that of our competitors.

Fourthly—and this is a point of considerable importance at the moment—the rise in our imports, in contrast, has been relatively the largest of the major industrial countries, This rise in our imports has been paid for almost entirely by a favourable turn in the terms of trade, a turn in the terms of trade which on present trends may stop very soon indeed.

Fifthly, under the Government we have lost traditional markets, especially within the sterling area and among many primary producers, which we shall find it very difficult indeed to reconquer. As a result of this unique combination of circumstances—they are unique compared with many other advanced industrial nations—we have the facts that our standards of living have risen far less than those of any other country and our cost of living has risen far more than in any other economically advanced country. All those facts were brought out in the debate last week. I feel it only right that they should be stated again and again.

It is the more surprising that the Chancellor, knowing these facts, should have produced a Budget last April containing the biggest budgetary miscalculation in Budget history. It is widely recognised that steering the economy is not a oncefor-all operation. We do not have a Budget once a year and then leave the economy to run on its own. It is something which has to be attended to all the time.

When the Chancellor came to the House in April and put forward proposals for economic regulators they were generally welcomed, not because we viewed the particular regulators with favour or disfavour, but because we felt that it was necessary to steer the economy along. If we talk of steering the economy, and, in particular, if we talk of using the Budget to influence the economy, two things, above all, are absolutely vital. First, there has to be forethought by the Government. Secondly, there has to be confidence by industry in the continuity of a Government's policy. Reading the Press, and considering what was done and stated yesterday, I wonder how the Government's measures leave industry in regard to continuity.

I wish to say a further word about continuity and certainty. Given that continuity and certainty are so important, could we be told why the Chancellor kept the country waiting for so long in uncertainty? He kept the people waiting for several weeks. Why was there all this rumour and build-up? Why all this dithering? If we examine the particular measures outlined yesterday we find that only one of them, the increase in the level of Purchase Tax and other taxation, had to wait until this week. All the other measures, good or bad as they may have been, could have been introduced weeks ago. Then, from the point of view of the Government, considerable uncertainty could have been avoided.

One critical requirement is faith in the ability of the Government to budget with competence and prudence. I turn immediately to the Economic Survey, written in April, 1961, because it is on this document that we base our case that the Budget was one of the most imprudent ever embarked upon. Paragraph 25 makes it clear what was the Government's philosophy at the time of the introduction of the Budget: The Government believe that the measures taken in recent years to influence the level of demand have made conditions more and not less stable than they would otherwise have been. Nevertheless they recognise the desirability of having a higher and steadier rate of growth. provided that this can be done without risk to the balance of payments, in order to encourage the sense of security and confidence in the future which are so important for business development". I am bound to ask, three months later, whether the Chancellor was wrong when those words were written, or what 'has happened since to make them wrong. Was the advice which the Chancellor received at that time sound advice? Or is it that the advice contained in that document is sound advice, that it holds good at present and that the mistake which has been made is that the Chancellor has totally misunderstood the nature of the economic problems which the country faces?

That brings me to the third leg of my argument. It has been developed in the House, and even by the Chancellor, but it needs saying again: the British economy faces two distinct problems, the major long-term, problem, on which hon. Members opposite have exercised their minds, and the immediate short-term problem. The long-term problem is simply the structural failure of the country to compete and to pay its way. It is generally recognised that planned and sustained economic growth is the only solution to that problem.

But the Chancellor was not sufficiently frank with the House, particularly yesterday, in that he did not make it clear that the short-term problem is simply and solely a new crisis of confidence in the £. It has nothing to do with the pressure of demand, as I shall show in a moment. We recognise that the Chancellor's task was to separate the two problems and to ensure that the measures which he took to tackle the short-term difficulties did not prejudice our long-term recovery. It is our indictment of him that he failed to do this exercise in separation.

I turn to my fourth point, the adequacy or the relevance of the Chancellor's measures. Last week, in his concluding words, the Chancellor berated hon. Members on this side of the House for denigrating the country's economic achievements, but, having heard him yesterday and today, one is bound to ask who has been denigrating the country's economic achievements this week? I have looked at the figures extremely carefully. The Chancellor has spoken about reforms in planning and in statistics, and he ought to look at the way in which some Government statistics are produced.

I have looked at them extremely carefully, and there are convincing and sound reasons for believing that, because of the resilience of our people, and not because of anything which the Government have done, the country's economy is beginning to climb out of one-and-a-half years' of credit squeeze and that, as a result of the built-in pressures of full employment, production is at last beginning to rise. I think that informed opinion would generally share my view on that point. Is this the right time, therefore, to administer another turn of the screw, another, much tighter, credit squeeze—because it is much tighter than that imposed at any time in 1960?

What is wrong at present? The Chancellor, particularly yesterday, made it clear that in his view there was too much demand and that the economy was overloaded. I found his evidence that the economy was overloaded singularly unconvincing. He should look at the durable goods industries and also at many other industries in which there is excess capacity, and at other industries in which, owing to the deterioration in demand, excess capacity is likely to occur. That is particularly probable in the clothing industry.

Apart from the excess capacity which exists at present, we have it on the Chancellor's authority, repeated yesterday and today, that the country's economic potential is already rising at about 3 per cent. per annum. It is, therefore, true that we have excess capacity, and, secondly, that at last production is rising. I find it extremely hard to sustain the argument that the economy is overloaded unless the Chancellor is postulating that there is a level of demand which is growing at the rate of 5 to 7 per cent., which I do not believe to be the case. In fact, rash though it may sound, I will go as far as to do the Government the credit of suggesting that we are as near equilibrium between production and demand as the economy has been for some time.

The Chancellor said that his main concern and priority was to help exports. There is nothing in this catalogue of economic actions which can be remotely held to sustain, foster or increase exports. The Chancellor's actions are also deficient in one other very important degree. He has failed to press home the fact that the country's long-term problems arise from the failure of our invisible account to earn the country any money. Before the war, as has been said in debates this year, about 25 per cent. of our imports were paid for by invisible earnings. These invisible earnings were to a large extent mortgaged during the war. They recovered when my right hon. Friend the Leader of the Opposition was at the Treasury; they then recovered to the substantial level of paying for l3 to 14 per cent. of the country's imports. At present—and I hope that the Economic Secretary will contradict me if I am wrong—our invisible earnings are paying for less than ½per cent. of our imports.

I am, therefore, bound to ask, what is contained in the Chancellor's statement which will give positive assistance to the fortification of the invisible account? There were many vague promises and hopes about Germany in negotiations, but nothing very positive. It is worth while looking at the profits of overseas companies, which the Chancellor hopes to tackle—or, rather, he said that there should be tighter criteria for new investment of overseas concerns and that we should look at the balance of payments position and the profitability of any investment before deciding whether it was desirable that it should take place.

What is the position at present with regard to the oil industry? We on this side have been pressing for an examination of the whole balance sheets of the oil industry to see whether this vast amount of economic activity is paying off for this country. I see that the hon. Member for Kidderminster (Mr. Nabarro) is looking towards me. At present, I am quite prepared to suspend judgment. In March, I pressed the Prime Minister to publish figures on this subject. My right hon. Friend the Leader of the Opposition sustained me. I wrote to the Prime Minister on this topic. He replied that he had the matter under study. After two months I rang up his office to find out what was happening. I gathered that the matter was being actively considered at the Treasury.

If the Prime Minister felt that I was talking rubbish, and that there was no need for the figures to be published, it was up to him to write and say that that was the position. Inasmuch as the matter was still being considered at the Treasury, it is to be assumed that the Government still feel that there is some force in the argument. I hope that one of the Treasury Ministers will say something about the oil figures. I hope that adequate statistics will be published enabling us to judge whether, on balance, we are gaining or losing from this very vast and continuously growing Investment overseas.

What are the measures which the Chancellor outlined yesterday designed to do? As I understand them, they are designed principally to do one thing only, namely, to deal with a crisis of confidence in the £ which in political terms can even be said to be a crisis of confidence in the Government. From the point of view of the crisis of confidence, unpalatable as it may sound, there is some logic in raising the Bank Rate, always recognising that there will be a pay-off in the future. It will in the short-term, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) recognised, buttress the reserves, but in due course a reckoning will have to be paid.

Even if there is a case, which I concede, for increasing the Bank Rate as an emergency measure, there is no logic in the cuts in Government expenditure as a method of fortifying the £. There is no logic in the restraints on housing. There is no logic in the restraints on people's spending and living standards. Al these things are a far cry from defending the £.They do nothing to help it, and they indirectly help to depress the economy further.

Mr. Andrew Shonfield wrote some very wise words in an article in last Sunday's Observer explaining why the Government were using the axe. He said: It is hard to avoid the suspicion that the real trouble is that the Government feels that it must impose some general punishment at the moment—if only to impress foreign opinions and to create confidence all around the place by showing its readiness to indulge in painful activities. Financial masochism, of an exhibitionist variety, is an essential ingredient of public relations nowadays for an international currency struggling to hold its own in foreign exchange markets. Since it has now been decided that it would be wrong to take another swipe at industrial investment, what is left is a tax on consumption goods. These words illustrate the philosophy behind the action which the Government have taken.

Is the real truth that the Government did these things to get the loan from the I.M.F. or, to put the question in another and perhaps a blunter way, were the Government told by foreign bankers or by the I.M.F. that they had to do unpleasant things to the British economy if they were to get the loan? If this is the fact, it would have been better for this country if we had not applied for the loan. It would have been better, if necessary, for us to have lived on the reserves, as the French did in their difficult period. It would have been better if the Government had come to the House and asked for sacrifices, which people would have made. If, as I suspect, there was no such pressure from the International Monetary Fund, what fools the Government are. Not only are the Government foolish in their misunderstanding of international banking psychology. They are equally foolish in their complete misunderstanding of the psychology of our own people.

I stated earlier in my speech that there was the possibility of equilibrium in the British economy between demand and supply. If that is so, the trends in incomes in the next few months are admittedly matters of important concern. Between December and May wage rates rose by only 0·9 per cent. They have risen slower than profits—not faster than profits, as the Chancellor stated yesterday. If the Chancellor really wants moderation in incomes, given the extremely small increase there has recently been in wages, the obligation is on him to desist from measures which will put up the basic cost of living.

My right hon. and hon. Friends, particularly my right hon. Friend the Leader of the Opposition, have always recognised that it is important to have moderation in demands for incomes of all kinds. We recognise that the problem of demands for income in a fully employed economy in a free society is an exceptionally difficult one. We believe that the problem can be solved, but only in an atmosphere of fairness. I believe that this year the Chancellor had an opportunity of securing income advances in our community which would have corresponded to the economy's capacity to produce. I believe that such a development would have been very welcome to our people. I believe, too, that by successive Government actions—I say "Government actions" deliberately—by pushing up the cost of living of the less well off he has forfeited this confidence. I sincerely believe that it is in the national interest that we should have fresh economic leadership.