Orders of the Day — Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 5th November 1962.

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Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne 12:00 am, 5th November 1962

The Chancellor of the Exchequer has administered a soporific and has departed and does not appear to have any more interest in the debate.

I deal first with the increase in investment allowances. Figures show that when investment allowances have previously been introduced or raised to any major extent, it has taken at least twelve months before they have had any effect. The incentive to take advantage of investment allowances by a manufacturer is that he can see that he can get his present capacity going 100 per cent. and that he will make enough profit to be able to afford the machines to install after that.

The right hon. Gentleman said nothing whatever about many important things which he might have mentioned. What about the 17,000 new jobs which are being created in the City of London each year as a result of the new blocks of offices which are going up? That is the estimate of the Town and Country Planning Association. But this subject of drift to the South has been dealt with by hon. Friends of mine who understand the development district situation better than I do, and I leave it to them to develop it further.

With regard to incomes policy, I draw attention to the fact that during 1959 and 1960 the Stock Exchange values rose from the lowest in 1959 to the highest in 1960 by 100 per cent. If there is to be a stimulation of the economy now and the increase in Stock Exchange values for which Tory back bench members are looking, I would say that unless there is a more determined effort to put into operation an effective capital gains tax, the incomes policy will meet with no success.

There are scores of young people eagerly looking over the counter at the Ashton-under-Lyne and other employment exchanges. This has been said previously. It is a standing disgrace these days when young people cannot get a job. The Chancellor never said what he was going to do about that in his speech.

I turn to the situation in 1961 when the balloon had burst and it was necessary for the former Chancellor of the Exchequer to bring in his 10 per cent. regulator to damp down imports and the economy. When Stock Exchange prices began to fall and manufacturers started going slow on investment plans and morale was low, manufacturers, hoping that there would be reflation soon, were hoarding labour and waiting for the reflation which they were certain was to come as a result of Government action.

But there was one thing that did not go down at the end of last year, and that was the profits Which were being made in the property market. For instance, there is the example of a public institution, the Bank of England, selling the St. Luke's property to the Oddenino trust just before Christmas for £ 900,000 and the Oddenino trust selling it to the London County Council a fortnight after Christmas for £ 1,600,000. That is the sort of thing which is calculated to cancel out a good deal of effort on the part of the Government to get the confidence of labour.

In 1961 there were 200,000 new entrants to industry. In that year industry did less work than it did in 1960. A negative budget was brought in this year because the Treasury believed that industry was still expanding. Manufacturers then began to cut down on labour and there was very little investment. In the October bulletin mentioned by my right hon. Friend it seemed as though the Treasury was surprised by what had happened. Meanwhile, N.E.D.C. sets a target of 4 per cent. expansion, which means 5·7 per cent. increase in exports. That depends upon a 3·3 per cent. increase in productivity by workers and a 0·7 per cent. increase in the labour force.

Unfortunately, N.E.D.C. set the beginning of the five-year period in 1961 and as the economy has been stagnant, a growth of more than 5 per cent. per annum will be needed to reach the N.E.D.C. target. The Government have tried various incentives, such as the release of £ 45 million post-war credits and £ 70 million for development districts and the release of £ 80 million special deposits and the easing of hire-purchase restrictions. Just as they did twelve months before the election in 1959, they also say that they are to put into operation gigantic schemes for houses and hospitals and schools and so on. But they do not seem to have taken cognisance of the fact that the building industry is already fully booked up for a long time. It is fully employed and is the only industry with a long order book. Where do the Government expect to get the labour and how long will it be before these programmes are put into operation? The pundits in the financial papers are recommending buying shares in bricks and tiles and cement, relying on the 1963–64 boom to make such buying a first-class investment for those who speculate.

If there is an investment boom, such as we had in 1958– 59, we must suffer for it in terms of a sorry 1961– 62. Unbridled capacity investment in a boom means spare capacity immediately we run into a balance of payments crisis. The Government know that. The United States has had great difficulty getting its economy off the floor by the old-fashioned stimulus of the manufacture of consumer durable goods. Stimulating the economy by over-investment in the manufacture of consumer durable goods is out of date. European activity is levelling off because of that, and it will be more difficult in the future to get Western economies going again by stimulating the consumer durable goods industries as they have in the past.

With our present spare capacity estimated at 15 per cent., I believe that the Government will find it difficult to get it going. I do not believe that they know how much stimulus will have to be given to the economy to take up the slack of the 15 per cent in a fiercely competitive market. We do not even know whether the goods which the spare capacity can make will be suitable for sale. No doubt the Government are hoping that N.E.D.C. will provide the answers, and I am sure that it will.

Let the Government conduct their affairs in the next few months not with an eye on the election, but to ensure that our economy is properly set on its feet. N.E.D.C. should be encouraged to pursue its inquiries industry by industry, harnessing the research associations and machinery makers to help the industries under review to assess the productivity of the available machinery. The Government should then set up investment boards for each industry to appraise and approve any investment and to decide whether any proposed expansion would be in the interests of the country.

During the recess, I was in Malaya. In the civic hall of one large town I saw a large sign, "Inspector of pawnbrokers". It may sound amusing, but the reason was that in the hinterland there was a large agricultural area where poverty had been rife for years and where there were so many pawnbrokers that it had become necessary to have an inspector of pawnbrokers. There was poverty because of the fluctuations in world demand for Malayan commodities. There were complaints about rubber prices at that time.

If we are to have a planned and steady economy, the standard of living in countries where it is now low will have to be raised, and I strongly recommend that Mr. Grondona's scheme should be given a chance to work. If the expenditure of £90 million could prove its efficiency, let the Government get on with it. It would not be more than the cost of three groundnut schemes, or one-quarter of the cost of Suez. To try it would be a constructive act.

I also suggest the appointment of a Minister for exports and imports in a new department in the Board of Trade. There must be more co-ordination of exports and imports. In the recess, I also went to Japan and spent some time examining the Japanese method of dealing with imports and exports. Japan has a good record for energetic exporting, and it is interesting to note that only fifteen firms control the whole of the exports and imports which make up Japan's gross overseas trade. One exception is the famous Canon camera firm which has its headquarters in Geneva. Five of the fifteen firms are responsible for 65 per cent. of the exports and imports, the remaining ten carrying the remaining 35 per cent.

This suggests the need for planning here. These firms have offices in every major city in the world. The country has a target of a 100 per cent. increase in the standard of living in the next ten years, and this is how they intend getting it. I think it would as well if the Government thought seriously about our export organisation and whether we can sustain an export drive of 5·7 per cent. during the next few years with our present organisation. I do not think that we can. It is interesting to note that the Japanese, with their magnificent organisation, say they also need an added incentive for exports by way of tax relief. So we shall have to really get down to this problem.

If we were to establish an export corporation of a size which would be able to compete on equal terms with one of the large Zaibatsui firms of Japan, it would be one of the most forward-thinking efforts attempted here in recent years. It need not be a Government organisation, but it must be closely tied in with the Government. During the last few years, due to the Government thinking in terms of liberality, the Common Market, and that type of thing, there has been engendered in civil servants in the Board of Trade and in the Treasury an attitude of detachment from some British industries.

If we had a Minister for exports in charge of one large-scale export corporation which was tied in with the Board of Trade, in the sense that the civil servants in the Board of Trade would regard the export of British goods as paramount and give the corporation every help that was needed, this would help the country generally. If the N.E.D.C. is pursuing its inquiries into our industries in depth, it is of paramount importance that inquiries should be conducted into the export side as well.

I make those suggestions in the hope that the Government will get going on something constructive so that in the future we can look forward to a more stable economy than that to which we have become accustomed during the last few years.