Budget Resolutions and Economic Situation

Part of Orders of the Day — Ways and Means – in the House of Commons at 12:00 am on 10th April 1962.

Alert me about debates like this

Photo of Sir Alexander Spearman Sir Alexander Spearman , Scarborough and Whitby 12:00 am, 10th April 1962

In that country also, there are far more savings, and after all, how much we save must be a limiting factor on investment. In Germany today, they are consuming 57 per cent. of the national income, compared with 66 per cent. in this country. Why is that? The reason is that there is quite a different distribution of wealth. I am not regretting our distribution in any way, but I am saying that it is quite clear that those with small incomes do not save at the rate of those with big incomes. In this country, four-fifths of the spending is done by people with £20 a week or under, and I would ask the hon. Member for Cardiff, South-East, if he were here, what he would do about this. Would he propose to cut investment in the nationalised industries so as to get a better rate elsewhere, or does he propose to cut taxation on the rich and put it on the poor in order to get more savings? The conclusion I draw is that investment, though it is am important one, is not the main obstacle to expansion, and that we should do a great deal worse under Labour.

The hon. Gentleman also wanted planned expansion. In so far as he means that we should have a greater exchange of information, and co-ordination of projects, of course, I agree with him, and that is why my right hon. Friend has set up the N.E.D.C. If he means a precise ordering by the Government of what should be produced and where it should be produced, I emphatically say "No". I believe that only an authoritarian Government can do that, because it has to have the control to be able to force people to consume that which is produced, instead of what they want. It means going back to the rationing we had during the war—unless, of course they are absolutely infallible in their judgment, and I do not think that anybody would accuse hon. and right hon. Gentlemen opposite of that.

Judgment is a very elusive quality. In this country, we are singularly blessed with senior civil servants who are men of immense industry and intelligence, who are entirely disinterested, and who advise the Government very well on general policy, but when it comes to particular projects, it seems to me that the businessman, with his pocket at stake, somehow or other has the faculty of judging better what the public want.

That much respected trade union leader, Mr. George Woodcock, in a recent article in the Statist, said: The Government rely too much on general remedies. What the trade unions want— and I suggest that he was speaking for the Labour Party in this— —are specific solutions for particular problems. I believe that attempting piecemeal solutions always creates more problems than they cure. I think that that was what the late Sir Stafford Cripps was saying when, towards the end of the time that he was Chancellor, he said that they had been trying to deal with the situation by a series of temporary expedients, which led to a series of crises as each expedient became exhausted.

Then, the hon. Gentleman, like the Leader of the Opposition last night, wanted to create more demand in order to get more production. It is only possible to push up production by the amount of the growth in capacity, plus the slack on the economy. In 1959 production went up by 9 per cent. and the slack in the economy came down from 7 per cent to 1½ per cent. In 1951 production was pushed up until there was no slack at all. There was a sharp rise in prices, and a balance of payments crisis. In 1955 the same thing happened. In 1960 nearly the same thing happened.

In 1958, we had between 5 and 7 per cent. surplus capacity. Then we had stable prices, and no mass unemployment. It is, I think, generally accepted—indeed, the Leader of the Opposition repeated it last night—that if incomes rise more than production—and incomes means wages because wages and salaries comprise 93 per cent. of incomes—then inflation is certain. I think that inflation is certain if there is no slack in the economy, because production cannot go on rising at that rate when the slack is taken up, but incomes do go on rising.

When every industrialist can sell everything he produces there is not sufficient competition. As a result, these things happen. First, wages go up, because the industrialist knows that with no competition he can put the cost on to the price of the article he sells. I do not believe that wages go up excessively because of the militancy of trade unionists at all. Wages have gone up in domestic service, and there are no unions there. Pay has gone up in the Services, and there are no unions there. I believe that wages go up because employers prefer to give more rather than have trouble—when they can put the increased cost on to the price of what they sell—and they are particularly likely to give more when they want more men. Therefore, if there is no competition, wages are bound to go up.

Secondly, we get a hoarding of labour, because when employers see excessive demand they keep labour which others want to insure their future requirements. Thirdly, in their investments they aim much more at the sort of investment that maximises the amount of production rather than the sort of investment that minimises the cost, and I believe that it is the cost that is the more important. Fourthly, in conditions of excessive demand, there is tremendous encouragement for the inefficient to stay in industry. I am sure that industry in this country is efficient in many places, but there are many inefficient units which, if there had not been excessive demand in the last ten years, would have been forced out of business. Inflation is rather like other stimulants. It is exceedingly agreeable when it is first imbibed. Profits and wages go up, and so does production for a time, but I would not recommend any hon. Member however pleasant it may be for an hour or two, to drink three bottles of champagne, and I think that the same applies to inflation in industry.

I have tried to make some comments on the hon. Gentleman's remedy for our present situation, and now I should like to suggest some more realistic remedies. The Government sometimes have to take measures which have the result of checking production for a time, but they do not have to take measures—and are not doing so—to check the expansion of the growth of capacity. I think that hon. Gentlemen opposite often get confused between production and the growth of capacity to produce.

The one has to be checked and the other we must push on all we can. I believe that we shall get growth at a higher rate if we can get rid of some of these restrictive practices that cost so much. I recognise that this is only partly the Government's job. I believe that we should get a quicker rate of growth if only we could get the men to work more shifts—as they do on the Continent—and so make more use of existing investment; and, above all, if we could get more mobility of skilled labour.

The National Institute in a recent article suggested that to get full capacity in the engineering industry 300,000 more men were required. Here I think that the Government could do more than they do in the way of training. Paragraph 57 of the O.E.C.D. Report says: There is a wide field over which official action can be intensified to increase the mobility of labour. These must include better training facilities, the modification of certain apprenticeship arrangements and other restrictive practices and the provision of financial incentives and special housing facilities to workers changing jobs. I hope that my right hon. Friends will study that part of the Report very carefully.

Above all, the real responsibility of the Government is to keep the economy going at the right speed. It is not the motorist who goes flat out at 100 m.p.h. and then has to jam on the brakes who gets there quickest. Being a democracy, the Government cannot command employers where and what to produce. They cannot command workers what they should receive and where they should work, and being mortal they cannot command universal altruism—that is why I never have much faith in all these exhortations, whether they are to management or workers. But what the Government can do is to create conditions where it pays the citizen to do what is in the interests of the State, and particularly they can create sufficient competition.

What are the prospects of an equilibrium which will produce competition? On the demand side, if my right hon. and learned Friend is right in anticipating that spending will go up by 4 per cent.—and I think that it may well do—and if he gets an increase in exports of £200 million—and I must warn my right hon. and leaned Friend that, tremendously vital as it is that we should increase exports, they push up demand just as much as anything else and we could have a situation where exports went up splendidly and brought about no solution if this were not countered by other measures—and if we get the increase in Government expenditure that we have been told to expect, and we get an increase on balance in investment, I calculate that demand at the end of the year will be up by £800 million to £900 million. On the supply side I think that there is a good prospect of production going up by about £800 million, or 3½ per cent., but I do not think that it can go up much more. That is why I am sure that my right hon. and learned Friend is right both in having a standstill Budget this time and in giving himself the reserve of the regulator, which I rather think he will have to use.

My right hon. and learned Friend is often criticised, and not only by hon. Gentlemen opposite, for not doing more for exports. I have not much faith in these fancy incentives. I realise that in an emergency they may be necessary, but the things that one does in an emergency are not generally good for health. The real way to help exports is to keep down costs and stop having an easy home market to absorb too much, and this is what my right hon. and learned Friend is doing. If there is excessive demand in this country, a balance of payments crisis is certain, and I can think of no industrial country in recent years which has had a balance of payments crisis except when it has had inflation at home.