Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 19th March 1962.

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Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee 12:00 am, 19th March 1962

When the Government run into heavy weather there are always traditional explanations. First, the Government say, "Our sources of information are not good enough. We must get closer to the people." Obviously, Ministers must frequent the Smoking Room more often. That is the first explanation when things go wrong.

The second is more fundamental, and tends to unite a party; that is, the Government say, "We are doing the right thing, but we have to pay the penalty for it. Everything will come right in the end. People do not understand yet, but they will later." That is the classical explanation which was advanced by the Leader of the House to comfort the Conservative Central Council, or whatever it calls itself, last week. "These are just flesh wounds, but we must pay the penalty for doing the right thing," is what the Government have said.

There is, however, a third explanation, and the Leader of the House might consider this one: that the Government are, in fact, paying the penalty for doing the wrong things. I must say that during the last decade I have rarely been more sure than I am today that the Government's economic and financial policies are wrong, ill-conceived and damaging to the interests of the people and the nation as a whole. Let us examine just what is their policy, starting last July with the Chancellor of the Exchequer's "little Budget," in which he told us that he had six aims.

The aims were to keep down wages, to keep down prices, to keep down Government expenditure, to expand exports, to expand Britain's industry and to balance our payments for imports and exports. What has been the result? The right hon. and learned Gentleman has kept down wages—but prices have gone up, new Government expenditure has exceeded the target, exports have remained stationary, industrial production has gone down and our payments are still unbalanced. One mark out of six; not a very good term's work.

The Chancellor has succeeded in keeping wages down—the most unpalatable part of the exercise—by setting aside established, freely negotiated wage agreements, mutilating the authority of the arbitration courts and by creating what I believe to be unparalleled bitterness among tens of hundreds of thousands of very loyal public servants. He has been unfair to them, admittedly unfair. The Chancellor himself said that he accepted that the burden did not bear equally. He has been unfair on the ground, well understood in Communist countries, that the end justifies the means. He said, "I must be unfair because I must achieve the other aims I have set myself." The only difference between the right hon. Gentleman and Communist countries is that most of the Communist countries usually attain their ends, whereas the Chancellor has failed to do so.

The retail prices index has increased by three points, from 114·6 to 117·5, since the Chancellor announced his measures in July, 1961, much faster than it went up in the same period a year ago. It has hit, first, and the worst, people on small incomes and pensions. They are the people who are paying for the Chancellor's blunders.

Secondly, as we all know, Government expenditure has exceeded the Chancellor's target. The right hon. Gentleman confessed to the House on 27th February that he had exceeded it by over £100 million. Exports—and these were the objects of the exercise—have remained stationary. During the first six months of 1961, before the Chancellor's "little Budget", they were £1,920 million and in the second six months—and remember, this was what the measures were all about—they had risen to £1,926 million.

We have had the results for the first two months for 1962 and if the present trend continues for the current six months—and I am not attempting to prophesy, but merely commenting on the basis of the trend—the total will be £1,890 million. Thus, exports are not merely stationary; they are, in fact, slightly turning down. They are as flat as a pancake.

Industrial expansion—this was the other object of the exercise—far from increasing, has declined. When the Chancellor's measures were announced the index of industrial production stood at 116, but it has gone steadily down until, in December, it stood at 112. New investment is declining. According to the Federation of British Industries' last survey, nearly 60 per cent. of firms are working below capacity, mainly because of a lack of orders. The steel industry is depressed. In my own constituency, a fortnight ago, I was in a large modern steelworks where only four blast furnaces out of six are working. I stood on the stage, and saw that only four of the open hearth furnaces out of seven were at work. Capacity is about 70 per cent. There is no unemployment. At least, we get over that; the men are kept standing there doing nothing. Unemployment generally, however, has substantially increased. It is very much up on what it was a year ago. So in all these aspects the Chancellor has failed.

Our balance of payments figures have not yet been published, though I suppose that they will be within a fortnight's time, but we can measure them on a trade basis—not on a balance of payments basis. On a trade basis, the last six months of 1961 showed no noticeable improvement over the first six months. Likewise, on a trade basis, January and February of this year show an adverse balance as big as it was a year ago. The Chancellor's policy, in short, based on the six objectives that he himself enumerated when he gave us his "little Budget", last July, has been a complete and total failure.

The only success that the Chancellor has had has been to keep down wages. That is the one major success to which he can point during the eight or nine months in which his policy has been in operation. He is like a doctor who said, "Take this medicine and it will do you good." We grimaced a lot, but we took the medicine: The trade unions, broadly, have taken the medicine that the Chancellor has dished out, and I think that it is true to say that, at any rate, so far, wage increases are not very much above the level that the Chancellor expected to get.

But having taken the medicine, we find that the patient has not recovered. We are still where we were. Maybe in the course of time we shall get better.

Maybe by the effluxion of time we shall get better. For one thing, I understand that according to those who study these things, world export trade is likely to improve by 8 to 9 per cent. this year, and it will be a very poor affair if we cannot scrape up an odd per cent. or two out of that. Then, I suppose, we shall be told that all the sufferings of the pay pause were justified. Nothing of the sort. We shall get better in spite of the medicine and not because of it.

Now about imports. I was a little suprised, reading back as I have been doing, that last July the Chancellor had nothing to say about imports. They have remained at a very high level since his measures. We are importing nearly as much today as we were before last July. Indeed, according to the Bank of England Bulletin, exports fell last quarter and imports rose. But one of the most noticeable features to which I would call attention is the startling rise in imports since 1959. Till I examined the figures I had not realised what had happened. From 1952 to 1959 there was a steady but fairly slow increase in imports every year. The average rate of increase was about £60 million. But in the last two years imports have risen at the rate of £400 million a year—an £800 million increase in two years.

This increase in imports in the last two years is more than, or as large as, the increase in the whole of the previous decade. I am astonished that the Chancellor had nothing to say about that when he introduced his "little Budget", last July. It has been brought about by several factors, among them being a relaxation in import controls that took place in 1958 and 1959. Much greater freedom was given for dollar imports in August and September, 1958, and again in May, 1959. Most of the remaining import quota restrictions were removed in November, 1959. My right hon. and hon. Friends made protests at that time about the effects of this indiscriminate purchasing spree, but the Government disregarded those criticisms.

Attempts are made to explain away the figures. It is said that the increase in imports would have taken place irrespective of whether this relaxation of import restrictions and freedom of dollar imports had been there or not. Whether or not this is true, the figures are there for all to see, and we can only draw the conclusion that if imports had remained at their 1959 level when they were running at a high level, and exports have pursued a slow and painful upward climb, the Chancellor would not have been faced by a balance of payments crisis last year, with all the attendant evil of the pay pause and constriction that we have had in industrial output.

The real position was that the Chancellor allowed us to bring in imports that he knew we were not in a position to pay for. We were living "on tick". This is the origin of "You have never had it so good." It is a synonym of the rake's progress. One can always live higher than one's income if one chooses to bring in things that one cannot pay for. But the reckoning day comes, and it came last July.

Let us look at some of these increases in imports. The biggest increase has been in finished manufactures. They have grown by 80 per cent. in four years, and are mainly in consumer goods, machinery and instruments. It is possible to argue, indeed, I will accept the argument, that imports of machinery and instruments may add directly to our efficiency on a long-term basis. We need the most efficient instruments and machinery that we can get. To a lesser extent, I suppose, it can be argued that in the long term unrestricted imports of consumer goods will benefit the nation, because we shall have the competition in design and all the rest of it that will get us up to date. All these are perfectly valid arguments and I would not dispute them.

However, the Prime Minister tells the Liverpool businessmen "Trust in God, but keep sterling firm". If keeping sterling firm is our first objective, I cannot but wonder at the infirmity of a Government who permit the unregulated importation of consumer goods and machinery which is bound of itself to endanger sterling The Prime Minister and Courtaulds between them seem to be taking over heaven at the moment. Oliver Cromwell said many things, quite apart from "Trust in God, but keep sterling firm." The other quotation that I looked up during the weekend was from his speech when he addressed Parliament in 1658. I imagine that he looked along the Front Bench when he said this, though I cannot swear to it. He said: I would rather have kept a flock of sheep than to have undertaken this Government.