Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 27th July 1961.

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Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South 12:00 am, 27th July 1961

The Chancellor's proposals, which we are asked to endorse tonight, have had the worst Press of any statement made in an economic crisis at any time that I can recall. The criticism has been universal. It has not been confined by any means to Left-wing, or even near Left-wing, papers. I will quote a few of the things which have been said by other newspapers. The Daily Sketch said: The Government has in the same breath admitted that its theories are inadequate to control our economy and at the same time refused to change them. The Chancellor has failed in what should have been his main task: to convince everyone, big and small, that we are being enlisted in a great effort of national recovery.The Daily Mail said:The Chancellor's remedies are, in fact, very much the 'mixture as before', designed to cure a recurrent tummy-ache but not to get at the seat of the trouble. And once again the citizenry have to swallow most of the nasty draught. The Daily Express said this, rather more moderately: It will not seem to the public a very effective method of dealing with the situation. About as useful as an aspirin tablet.… They will not approve of a financial statement composed of vague proposals, pious hopes, a continuing vast expenditure abroad, no fiscal measures against rich speculators—and an attack on two weak sections of the community. The Provincial Press has been very much the same. The Birmingham Post said: Mr. Lloyd offers us Hamlet with all the corpses but no Prince. The long-term programme of major structural changes in the economy which we need so badly to cure the chronic failure of our exports and output to rise as fast as other countries' and the chronic tendency for our wages to outstrip our output is only hinted at.…It is deplorable, though, that after ten years in office the Government has not yet reached the stage when it can offer us more than hints of these things. It is doubly deplorable, because while it finds out whether the hints can be translated into action, we must endure another dose of the old medicine which has never yet looked like putting the economy to rights. The Eastern Daily Press said this: When the Chancellor released the Treasury secrets it was clear that the mountain had brought forth a mouse. The same old medicine is prescribed and the same old advice proffered and one doubts whether even the doctor believes in his own medicine. Even the Chancellor of the Duchy of Lancaster, so experienced in these matters, who works so hard on behalf of the Government's publicity, could do nothing for the Chancellor of the Exchequer. Even the Chancellor of the Duchy of Lancaster failed, because the task was too great for him. Perhaps this explains the rumour recently reported in one newspaper that he is to be given an easier job and made Leader of the House of Commons.

The Chancellor of the Exchequer may be tempted to console himself with the martyr's crown. Standing there like St. Sebastian with the arrows pouring into him, he may comfort himself that he knows best, that the public are wrong, that he is right and that time will prove that he is right. I advise the right hon. and learned Gentleman to resist this temptation. To do so would be to fail to understand the importance, and to misjudge the nature, of the public reaction, because public opinion at this particular moment should matter to him a great deal. Our problems cannot be solved—he will at least agree with this—without the active co-operation of the nation. It is part of the job of the Government in deciding upon their measures to try to secure that co-operation. In this they have so far evidently failed entirely.

Why have they failed? It is not because the public are angry and disillusioned at being so disgracefully misled in recent years. Despite this, they would, in my opinion, have responded had the measures proposed seemed to them to match the needs of the moment, had they been fair and effective. In fact they are neither. Our Amendment sums the whole thing up very clearly and accurately. Indeed, one can say that most of the newspapers have followed exactly the lines we have adopted in it. We have said that the measures are unfair and, because they are unfair, will divide and not unite the nation. We have said that they make no contribution to the long-term problems of our economy. We have said that they are largely the mixture as before.

The measures differ in certain important respects. Some of them are immediate, hard and clear. Others are for the future, vague and soft, and there is a big difference between these measures—a difference which has been noted.

For instance, on the one side, there is the revenue surcharge with its added burden on indirect taxation which, for the most part, must fall and will fall with disproportionate effect upon those on lower incomes. On the other hand, there is the vague notion of extending the tax net to catch some possible capital profits in the future, unless the best brains in the country manage to get to work in time to evade it. On the one side, there is the immediate wage freeze on public servants, including the teachers, and, on the other, the vague request that salaries and wages in the private sector should not rise. On the one side, there is the stopping at once of the loans for the purchase of houses; on the other, the hope that dividends may not rise in the future. About the future, all the Chancellor could bring himself to say on this was: I do not consider that a further general increase in them in the coming year is justtfied."—[OFFICIAL REPORT, 25th July, 1961 Vol. 645, c. 222.] I should think not, after an increase of 24 per cent. last year.

I suppose one can hardly expect a man who is so insensitive to public opinion as to declare that somebody with £5,000 a year is not rich unless he has substantial private means as well to understand how people will judge the contrasts in his latest measures.

The Chancellor, however, is not mainly or merely a poor judge of opinion. He is not very hot as a forecaster of economic development. He has been Chancellor just a year. Throughout all the earlier months of his stay at the Treasury this country was piling up a huge, massive deficit on its balance of payments and borrowing up to £900 million a year or thereabouts at short-term in order to meet this deficit and increase our reserves. It cannot be denied that it was in that time that the seeds of disaster were being sown. Did the Chancellor know? Did he mention it? Did he give us any warning? Did he say as the gold reserves went up that there was something "phoney" about this? Not a murmur, not a thing. As late as our debate on 6th February, 1961, he said about the Opposition Amendment: … the Opposition ship is firmly aground on the rock of despondency, as shown by the use of such words as"— and he quoted from our Motion— 'deep concern at the present grave balance of payments position'". He went on to say: Such words go far beyond what is justified. They give a misleading impression both at home and abroad of the true nature of our position."—[OFFICIAL REPORT, 6th February, 1961; Vol. 634, c. 62.] Now I come to the Budget. We all understand that when a Chancellor of the Exchequer surveys the economic situation and tries to calculate what developments are to take place in the ensuing financial year, he faced with an extremely difficult problem. We all know that, during that year, changes may take place in the outside world, and even the forecasts that are made without taking those changes into account are inevitably uncertain in their nature. That is why, in principle, when the first of the regulators was mentioned in his Budget statement, we did not oppose it as such. But what has happened? This is not matter of a long pause; it is barely three months since the Budget. Indeed, the indications that the. Chancellor was to make this sort of statement were given some weeks ago.

Has the international situation changed? The Chancellor rests has case partly on that, and partly on the political danger. All I can say is that I should have thought it was dangerous enough in April. Not a great deal has happened since then and, even if that were the case—if, indeed, there had been a sudden darkening of the scene—how could this justify the Chancellor's savage cuts on the British economy?

Is the balance of payments position worse than it was? That is not the Government's case. They tell us that it is improving; better in the second quarter than in the first, and better over the year than last year. Are the prospects in foreign markets worse? Will not the American recovery help us a little? If there has been any change at all in the economic situation in the world it has been in a direction favourable towards us. Is it just that there has been a much sharper run on the £ than the Chancellor anticipated? Could not he really have foreseen, when he saw all those short-term balances of that hot money piling up last year, that he might, perhaps, be in trouble this year?

We are told, and this is a comparatively new feature, enlarged upon by the Financial Secretary today, that incomes and spending have gone up much more than was anticipated. I must say that it is very surprising that a change of that kind, coming so soon, could not have been forecast. Had the Financial Secretary said to us, "Well, it is six months or nine months since the Budget, and all these changes have taken place," one could understand it, but to get the forecasting so wrong that such a change —essentially within the purview of the Government—should take place is really about as bad a piece of forecasting as one could imagine.

I will not at this moment argue whether the analysis which the Gover- ment now present is correct. There is an element of doubt about it—that is certain. Many experts believe that the economy is not nearly so overstrained as the Government appear to think. The National Institution of Social and Economic Research in its last published bulletin forecast that there was room for a rise of at least 3 per cent, or 4 per cent. this year, and in the Financial Times of either yesterday or today, Sir Roy Harrod, the well-known Conservative economist, takes the same line. However, I will not argue with the Government over that. Let us assume that there was bad forecasting; that the new analysis is right.

A very important question then arises. Had the Chancellor known in April what he knows now, what sort of a Budget would he have given us? Would he have given us—presumably he would—the changes made by the Revenue surcharge, only given to us in April because, after all, the Government boast that this is an especially sound measure because it affects so many people, and if it is sound on that account now it was presumably sound on that account in April?

Again, I wonder what the answer to this next question is. If the Chancellor would have made those changes then, would he have made the others? Would he have made the Surtax concessions in his April Budget had he known what he now knows? I should like the Prime Minister to answer that question. After all, he is an ex-Chancellor of the Exchequer. He and the present Chancellor of the Exchequer have laboured on together for many years, and no doubt he is fully in the confidence of the Chancellor of the Exchequer. I should like him to answer that question.

If he says that the Chancellor would not have made those concessions had he known what the economic situation was to be, then I must ask this question: Why did the Chancellor not announce the repeal of the concessions in his statement? After all, there was no great difficulty in doing this. He could have said exactly the same about this as he did about the proposed attempt to catch some of the capital gains—that it will be dealt with in next year's Budget—or he could even have said that he was introducing a Bill in the autumn to put it right.

But if the right hon. and learned Gentleman says, and the country is entitled to an answer, "Yes, even if I had known what I now know about the economic situation of the country I would still have made those Surtax concessions", then we know something else. We know that it is in his mind—in the Government's mind—that it is a perfectly fair and natural thing to do to impose, on the one side, a 10 per cent. surcharge on a whole range of articles falling especially heavily on those with low incomes at a moment of crisis and, simultaneously, to give away £83 million to Surtax payers.

It is not only that. This is the third, not the second, Budget we have had, for one must bring in the health charges and the health contributions as well. The Chancellor laid great stress on the wage or income inflation. He pointed out the dangers of it. He said that we were running ahead of productivity, heavily overdrawing on the productivity account so that we must have a pause.

Assuming that the Chancellor is right, how is he going to get it? So far as the private sector is concerned the Government will request it. So far as the public sector is concerned they will impose it. Let us look at what this implies. A number of questions arise to which an answer must be given. Does this mean the suspension of all the agreed procedures and machinery for adjusting Civil Service pay in accordance with the principles laid down by the Priestley Commission and accepted by both sides of the Whitley Council? Is the principle of fair comparison to be put in cold storage? Are the Government going to interfere with the independence of the Civil Service Arbitration Tribunal to do this job and apply this principle?

And, outside the immediate area—and we know what the Government are doing so far as teachers are concerned—is this to apply to the firemen? Can we have an answer to that? Is it to apply to any changes in police pay that may still be made, to local government officers or to workers in the nationalised industries? Are the nationalised industry boards to be given directions by the Government to refuse all wage increases? These questions cannot be evaded. The country will require an answer to them, and soon.

However, before the Government answer let me remind them of what happened once before when the Government tried the same thing, when, in 1957, the then Minister of Health refused to endorse a 3 per cent. pay increase agreed upon by the Whitley Council. It was not a very successful operation. The Health Service employees imposed an overtime ban. Since they were not in dispute with the management they could not go to arbitration, so they submitted a fresh pay claim for a 5 per cent. increase—3 per cent. having been refused—which went to the Industrial Court and in August, 1958, the Industrial Court awarded them increases ranging from 4 per cent. to 20 per cent. That was not a very successful operation, and this is what the Guardian industrial correspondent said about it: The structure and spirit of industrial relations suffered untold damage from this in the Thorneycroft-Macleod era. No. 'wildcat' striker, with or without Mr. Ted Hill's approval, has ever shown greater disregard for the rules than did the Government in the case of the Health Service clerks. Assuming that it does succeed, what do we have? We have a repetition of the last ten years, a growing disparity between earnings in the private sector and earnings in the public sector, because of which we have had no less than four Commissions to put the matter right. There has been the Priestley Commission on the Civil Service, the Willink Commission on the police, the Pilkington Commission on the doctors and the Guillebaud Committee on the railway workers. Is the same thing to happen all over again? How is it to be avoided if the Government persist in their policy? If there were a universal wage and salary freeze, then, obviously, there would be an argument for applying it, but, without such a policy, it becomes a piece of arbitrary discrimination which is economic nonsense and fatally unjust.

My right hon. Friend the Member for Belper (Mr. G. Brown) spoke about the teachers. I add one point only. The Chancellor of the Exchequer is very proud of the discrimination which, according to him, he is practising in favour of investment. Where does he draw the line? Is education investment or is it not? Does he want more teachers or does he not? Could there be a profession more closely related to the whole 'future efficiency and productivity of our country? How shall we achieve our aim if the teachers are treated as the Chancellor treated them yesterday and today? The right hon. and learned Gentleman has not merely done nothing to raise long-term productivity; by what he has done he is cutting at one of the chief roots from which it should spring.

As for wages in the private sector, does the Chancellor really expect that his appeals for restraint will be heard? Does he still believe it? I have some experience in this matter and I know something of the difficulties. I do not minimise them. We did have wage restraint for a limited time, after very exhaustive discussions between the Chancellor of the Exchequer, Sir Stafford Cripps, and the Trades Union Congress. But this is possible only if the climate is fair. Obviously, the climate at the moment is not fair.

I suppose that the Government do not really worry about getting agreement. They think that they will simply be able to impose restraint in the private sector. They want the employers to pick the quarrel and do their dirty work for them. I am not sure that the employers will do it. Will they then force the employers into it? They can, of course. They can cut back demand, they can squeeze profits and prospects so much that employers do not want the labour. But that can be done only by cutting back production. This is the dilemma into which the Government's policy will run in the very near future.

I come now to the greatest weakness of the Government's case. They talk of wages and salaries. They should not. They should speak of labour costs, for it is labour costs which matter, and labour costs depend not only upon wages and salaries but upon productivity as well. Why—this is one of our principal criticisms—have the Government in their statements concentrated entirely on the one and not dealt with the other?

The error is even greater, for the curtailment of production which is involved in the Government's policy is bound to decrease productivity. I should have thought that, by now, the experience of 1958 would have convinced them of this, for it is exactly what happened. Pro- duction flagged, earnings rose not by so much, and labour costs rose. After all these years, it is tragic that we should be making the same mistakes again.

The Chancellor of the Exchequer made a great deal of the way in which he is behaving differently from his predecessans. He was very sensitive to the criticism that it was the mixture as before. Has he behaved differently? A 7 per cent. bank rate: he cannot beat the Minister of Aviation on that. Special deposits: Lord Amory introduced them. A revenue surcharge: admittedly that is a new idea, but here we must not forget the attempts of the Home Secretary. After all, he did increase Purchase Tax on essential articles very substantially in the autumn of 1955. Housing loans—that is new because the policy is new, but, when all is said and done, under the Minister of Aviation mortgage rates went up, which made just the same difficulties for those buying their own homes. Wages in the public sector—that was not the right hon. and learned Gentleman's idea. That was the idea of the Minister of Aviation.

Let me deal with the one claim which the Chancellor of the Exchequer makes, namely, that he has protected investment. It is pretty feeble if all he can claim to have done is not to cut investment allowances. After all, the only person on the Government Front Bench at the moment who did not cut investment allowances is the Prime Minister. As for the instructions to the banks—and I was astonished to hear the Economic Secretary's reference to them—a close examination of them shows that they are precisely the same as the instructions given by Lord Amory in 1958 when he was relaxing the credit squeeze of that time.

The right hon. and learned Gentleman has spoken a great deal about growth. But all that he has claimed in respect of the long-term problem is that we are to have better control of public expenditure. This is the brilliant new idea of the Chancellor of the Exchequer. This, he says, is the really significant contribution which the Government can make, the great discovery which places him above his colleagues on that bench. He might have thought of the Prime Minister before he did this, because the Prime Minister certainly had no doubts about it. He was very concerned with public expenditure. We all remember his Budget speech in 1956, with that splendid passage about the picture of Mr. Gladstone. He said: I am told that some former Chancellors —I will not specify them—could not stand those eyes looking at them, day by day, reproachful and nostalgic. That was just his usual way of getting at the Home Secretary. [Laughter.] Of course, he went on to say: the Government have decided that a review of all Government expenditure, civil and military, should be put in hand at once. It will be continuous and comprehensive. It is an essential part of the effort which the whole nation is asked to make this year. Yet the Chancellor of the Exchequer today thinks that he is producing something new. The Prime Minister went on to say that he was determined that this economy drive should bring us, over the whole field, savings amounting to not less than £100 million …"; and he finished by saying: So much for Government saving."—[OFFICAL REPORT, 17th April, 1956: Vol. 551, c. 881–3.] The Chancellor of the Exchequer talks a great deal about growth. He says that he is very concerned about it, but he has made no specific proposals to deal with it at all. What is the evidence? All that he has given us is a series of platitudes upon which even the Home Secretary could not improve. For instance, he has told us that much more effort is still needed in the training of skilled labour and that the shortage of skilled labour is one of the major bottlenecks in the economy of this country. That is all that he can produce.

The right hon. and learned Gentleman says that a determined effort is needed to deal with restrictive practices. What effort? The long-term policy is that increases in income must follow and not precede or outstrip increases in national productivity. Does the Chancellor call that a policy? It is a splendidly vague aspiration which puts him in the highest class for clichés among Ministers opposite.