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 Jack Diamond Mr Jack Diamond , Gloucester 12:00 am, 26th July 1961

It is not expected in a debate of this kind that an hon. Member on this side should, when following an hon. Gentleman opposite, say that he agrees with what the hon. Gentleman said. On this occasion, however, a great deal of what was said by the hon. Member for Worcesler (Mr. Walker) struck sympathetic chords on this side, and the intervention of my right hon. Friend the Member for Huyton (Mr. Wilson) confirmed that.

I was glad to hear the hon. Member for Worcester talk about better education for management in industry. I was equally glad to hear him speak about more enterprise being instilled into private enterprise. I was delighted to hear the hon. Gentleman regretting the Chancellor's decision to reduce the amount of help to be given to the underdeveloped countries and to hear him pointing out that that is not only unwise in terms of helping a neighbour but stupid in terms of self-interest.

I was delighted to hear the hon. Gentleman refer to the export-mindedness of the merchant banks in Germany. Merchant banks are there to serve a need, and the need is felt in Germany because the German, by nature, is an exporter—while the Britisher, unfortunately, by nature, is not yet an exporter. We must change his nature and make him think, first, of exports and, secondly, of the home market, just as the German generally does and as the German did before the war, instead of concentrating on the home market and, if there is anything left over and if someone from abroad is knocking on his door, let him have what is left as a favour. Because of that difference of attitude the German merchant banks, before the war and now, have developed this service by which they are able to help the exporter enormously.

West Germany has no doubt gone ahead substantially and a German can now meet an Englishman in an hotel abroad and buy the Englishman drinks which the Englishman cannot return, because the Germans have concentrated on exports and are in a strong position in terms of foreign currency.

In what I have to say I hope that I shall not be misunderstood or misquoted, but I feel that it is in the interests of truth and my duty to say that what we are considering is not a crisis. I cannot underline that sufficiently. We are not considering a short-term crisis in the ordinary sense of the term, in which the patient must receive special treatment and tomorrow will either die or recover and the crisis will be over. That is not the situation. The situation was correctly described by the Chancellor in a statement which was not even printed and which was hardly circulated until there was an enormous row, and then we did not get it until some hours after the Chancellor had promised it. In this roneo-ed statement the Chancellor described the situation, in paragraph 3, in the following words: This is the third successive year in which our balance of payments has been in deficit … The third successive year, the right hon. Gentleman stated, but, in fact, our balance of payments would have been in deficit for a much longer period had that situation not been shrouded by the very favourable situation in terms of trade favouring us and enabling us to carry on with an inadequate balance of payments.

That is one element of the situation, and the other element of the difficulty was described by the Chancellor in paragraph 7, where he said: … We should maintain investment in productive industry with a view to the long-term growth of the economy. These are the two things and they are both long term. I shall examine them in turn. First, the balance of payments. I regret, as much as anyone, that the Tories have wasted all these years of favourable terms of trade when they could have built up an adequate working capital for the sterling area instead of the inadequate sum we now have.

Nevertheless, since we are in this situation, we cannot do other than borrow temporarily in order to get a breathing space. I recognise that borrowing from the International Monetary Fund and the increase in the Bank Rate are justified, in principle, provided they are seen to be methods by which we can have this breathing space, and are not looked at as in a crisis, so that once the worst is over, all our ill's are felt to be over and one can relax. Once the pressure is over we shall be able to go on and not be diverted from the real needs of securing the long-term growth of our economy, with substantial reserves, so that we shall not again be disturbed in this way.

I also recognise that so long as we want—and we do—to keep a course which is as near as possible to the ceiling of full employment and the full use of our resources, we need to have a sensitive instrument of control available to the Government to prevent wide undulations. In that context and in principle—but not in detail—a regulator of the kind of the first one in the Finance Bill, which we shall be discussing tomorrow, has its place for such a purpose.

I do not share the view, which is often repeated, that this balance of payments crisis is an inevitable situation which will recur and recur. All hon. Members will recall that before the war unemployment was, we were told, a situation which was inevitable; that no Government knew how to deal with it and that there would always be a substantial measure of unemployment. But the more we learn to handle our economic affairs, the more able are we to prevent these crises, and I hope that we are about to learn that lesson on this occasion.

The real answer lies in long-term growth. Perhaps the most constructive way of expressing my remarks would be to indicate what I think should be done about long-term growth and then to compare the Chancellor's proposals and see how they help in terms of long-term growth. The first thing must be genuine overall planning. By that, I have in mind the suggestion which I was bold enough to make two-and-a-half years ago in this House—that the Government should collect together the development and investment plans of the major firms in this country. That would not be a difficult matter, for there are only about 500 firms which are responsible for the largest part of the production of the whole of the country. If the Government were to collect those plans from these firms they could see clearly whether the accumulation is too great, whether it leaves slack, whether some should be encouraged to accelerate their development plans, whether others should be encouraged to go a little easier and postpone some and, in this way, information would be available so that production could be increased among the various industries in the closest possible co-operation between the two sides of industry, the Government and the firms concerned.

That would mean real planning—the whole purpose of planning—and it would achieve results which would be comparable to the planning of the French, who have achieved enormous success in spite of their mainly private enterprise industry. They have been prepared to get together and plan in detail and agree among the firms which is to have the first turn at the next major step forward. That is the first need; for real planning.

The second is the need for better management and administration, as the hon. Member for Worcester said. In that I include more knowledge among skilled and semi-skilled workers. In terms of better management in administration I am always amazed by the fact that hardly a single board of management in Britain does not have a chartered accountant on it. Why should that be so? In all modesty, I am bound to say—and I hope my professional colleagues will agree with me—that we are not supermen. We just have an advantage of the only real practical training for business that exists in this country. As the hon. Member for Worcester said, it is a shocking gap, a lacuna in our arrangements, that there should not be many other methods by which people of equal and greater ability and with a flair for business could have the same experience, could learn the same things and have the same practice, and thus be able to make an enormous contribution to business in this country.

There was a time when to be a businessman was, in terms of status, not quite the thing. That, fortunately, has long since gone by, and we all realise that business makes its major contribution to the welfare of this country. The better able the businessman to conduct his affairs, the better for all concerned. The one thing that every worker wants is a good boss.

One cannot talk about better knowledge in terms of the administration and the management of business without also drawing attention to the need for better education and training of the skilled and semi-skilled worker. We need to get the best out of every one of our people. What the hon. Member for Worcester said is to the point. Many young people go to a firm because their friends or perhaps their fathers have been there. This does not apply universally, but it happens in many cases. They have very little idea of what they are going into and little idea of continuing to make use of the inherent ability which they have.

The best firms realise that their skilled and semi-skilled manpower is their real capital, and they develop it to the full. If all the firms in this country were on a level with the best firms, we could all go out and have our dinner—although in my case it would be my tea, for I am somewhat behind time. The problem is to raise the level of the mediocre to the level of the best. That is the second thing which is needed in terms of long-term growth.

The third thing which is needed is a better relationship and fuller understanding between both sides of industry, which can only be arrived at by management being willing to share their plans and views with the workers' representatives so that they can all feel that they are making a contribution, that they are part of the general organisation and work together to achieve agreed ends. Of course, it is essential that the overall atmosphere should be one of happiness in feeling that there are fair shares all round. Without going into too much detail, those are three broad categories under which one could improve the long-term growth of the economy of this country.

Let us see for a few minutes to what extent the Chancellor's proposals meet those criteria or fail to meet them. The Chancellor has made one proposal which I welcome. It is always nice to find something which one can welcome. I refer to his proposal, very lukewarm as it is, of having a modified form of capital gains tax in next year's Budget. I do not know why it is not in this year's Budget or in the present proposals which we are now considering. However, it is still under consideration and having spoken more than a dozen times in favour of a capital gains tax, I must welcome the fact that there is some step forward. I hope that back benchers will take encouragement from the fact that if there is an idea which is accepted all round, and one keeps giving voice to it, gradually it goes through the machine and in due course comes out on the Front Bench. That part I welcome.

As for the rest, I have nothing but misgivings. In terms of the financial steps—that is to say, the increased Bank Rate, the increase in special deposits and the borrowing from the International Monetary Fund—what are all these going to do? They are going to increase costs. Of course, the increased rate of bank interest will lead to increased costs. It will result in an interruption of essential development and investment. It will slow down production, and anybody who is interested in business knows that slowing down production means increasing the unit cost of what is being produced.

It is going to slow down production especially in heavy industry, which is our greatest need. The cost is felt there most because it is in heavy industry that one turns over one's money only once, whereas in light industry one turns it over four times. In heavy industry an increase of 2 per cent. in the Bank Rate means an increase of 2 per cent. on what is borrowed, whereas in light industry, where the money is turned over four times, it means an increase of ½ per cent. If it is turned over seven times, it means an increase of two-sevenths per cent. It is in heavy industry that this effect will be felt most and will do the greatest damage.

I agree with the hon. Member for Sheffield, Heeley (Sir P. Roberts) that this increase from 5 per cent. to 7 per cent. was unnecessarily stiff for the purpose. It is quite unnecessary, to protect sterling, continually to descend to a rate of 7 per cent. I ask the Government to bear in mind that if they continually descend to a rate of 7 per cent. they destroy confidence in sterling. A low Bank Rate creates confidence in the currency. If hon. Members are interested, the Bank Rate figures, by and large, in most comparable countries are 2½ per cent., 3 per cent. or 3½ per cent. I have the details if anybody wants them. All our competitors in similarly placed countries have a Bank Rate of about 3 per cent.

We are going up to 7 per cent.—more than double the average. This, in addition to being a very expensive way of attracting temporary hot money—which is not a very reliable asset to go on—will lead to the very thing which we are anxious to avoid, namely, the lowering of the status of sterling, sterling being the sort of currency where, in order to protect it, we have to descend to a 7 per cent. Bank Rate every three or four years. The last occasion was October, 1957.

Of course, higher interest rates all round will follow from this. The Bank Rate will tend to increase other rates. It is a very simple proposition that when we have higher rates of interest we have more money going from the borrower to the lender. More money goes from the poor man to the rich man. It is simply a method for making the rich richer and the poor poorer. The man who has to borrow in order to provide his bed, his furniture and his house has to pay more. The man who has money to spare and who lends it out receives more. So, on social grounds, it is completely undesirable.

I repeat that the financial steps are unnecessarily severe to achieve what is commonly desired, the protection of sterling and a breathing space so that we may get down to the major problem of growth in our economy. The steps are over-stiff to secure that and they have many unsatisfactory and anti-social results.

As for the other steps, I can describe them quite shortly as being grossly unfair. They do not have the slightest effect on production. I cannot relate them to what I have been saying about increasing growth. Although the Chancellor said that greater growth was the main need of the country, the proposals he made have no relevance to it whatever, and it is impossible for any hon. Member in this debate to relate the two in sensible speech. What one can say is that, instead of building up a sense of fair play, they do precisely the opposite.

The Chancellor said something about planning, but his words were too vague to mean anything, so far as I could understand them. If they meant anything, they meant that the Government were once more proposing to delegate their responsibilities to industry instead of showing the leadership which any Government should show.

So far from these other steps making any contribution to better understanding between the two sides of industry, they do precisely the reverse. This is the balance sheet put before the ordinary worker. As a result of what the Government are doing now and have done in the past three weeks, the worker is being offered a wage freeze, an increase in the cost of living and fewer houses. On the other side of the balance sheet, the Surtax payer is offered a reduction of one half of his Surtax. Will the Government and hon. Members opposite ask themselves this question? How can any ordinary worker or any ordinary decent-minded person regard that as other than grossly unfair and conducive to the sort of atmosphere in which a man will say, "I refuse to co-operate. They have no understanding of my needs. They are looking after themselves only. If they are looking after No. 1, I shall do the same"?

I beg the Government, even at this late stage, to have second thoughts about their Surtax concession. It is such an irritant to anyone who gives thought to the matter. The Government know that it would not cost them a penny to withdraw the Surtax concession for the current year. Their Budget would not be affected by one penny. Yet the Surtax concession is one of the greatest irritants in society today, one of the greatest bars to overcoming our difficulties satisfactorily.

The Government have talked a lot of nonsense about the Surtax concession being an incentive to production. It is not. We all know that it is an incentive to spending. Anyone at the Surtax level knows that, in a year or whenever it is, he will have, say, £1,250 less in tax to pay. He knows that very well and he feels better off. He can afford more. There are always plenty of pressures on people at home to suggest ways of spending more. By definition, there is not a single Surtax payer who has not now the money to spend more if he wants to. I think that the figures show that about £20,000 is the average sum of capital held by Surtax payers. The average Surtax payer has some cash resources, and he can spend money now in the knowledge that it will be made up to him out of a reduction in Surtax demands in a year or so.

I repeat that the Surtax concession is an incentive to spending at a time when we are considering deflationary measures, It is not an incentive to earnings. If the Government want to make it an incentive to earnings, if they want to meet the point so rightly made by every hon. Member on this side of the House about fairness and justice, why not make it a real incentive to earnings and withdraw the concession this year? They have plenty of time to introduce the concessions next year if they want to. We do not want them to do so, but, if they want to, they can withdraw them this year and introduce them in twelve months, which is the normal date for provisions in Finance Bills changing the rate of Surtax. They could say now that the concessions will be reintroduced in twelve months if the economy is curt of its present trouble and if everyone in the Surtax class has taken off his jacket and done his best to pull the country out of its present difficulties.

Why have the Government not done that? Why are they always so ham-handed in these matters of psychology? They have not by one iota attempted to meat the point we make. It would not cost them a farthing. The Budget would not be affected by one farthing.

I ask the House to remember that the Budget was finished with only one day less than three weeks ago. It was a Budget based on a deficit below the line of about £60 million. The Economic Secretary will correct me if I am wrong in my figures. Yet here we are, not quite three weeks later, and the Government. with their whole machine behind them —we, of course, have to work on our awn common sense and what we can scrape from our past experience—say that, whereas they thought that a Budget with a £60 million deficit below the line was the right thing in our present situation, they now want a Budget which turns that into a very substantial surplus of £120 million or £150 million—I do not know the exact figure, but something on those lines.