During the course of his half-hour speech the hon. Member for Louth (Sir C. Osborne) gave three criteria of what he considered to be a reasonable Budget, and by each one of them he condemned the Budget and his right hon. Friend the Chancellor of the Exchequer. It is not clear why the hon. Member would not go into the Lobby against the Budget and will not do so whenever opportunity arises. His speech was the most sweeping condemnation of the Budget that we have heard today.
I am not surprised at the hon. Member, who represents the constituency next to mine, being worried about the state of the motor industry, because if Dr. Beeching has his way neither of us will be able to get near our constituencies by train. Therefore, I share some of the hon. Member's worries about the state of efficiency of British cars.
The hon. Member was certainly unfair to my right hon. Friend the Member for Belper (Mr. G. Brown), who had merely tried to do precisely what the hon. Member was doing in the whole of his speech. My right hon. Friend was trying to improve the competitive efficiency of British manufacturing industry by making constructive criticisms. The whole of the hon. Member's speech consisted precisely of that.
Following the Chancellor of the Exchequer yesterday, we have today heard the President of the Board of Trade. The debate has become slightly soporific at this stage, partly because the Budget was less exciting than some people expected and partly because the President of the Board of Trade tends to breathe a mood of drowsy euphoria among his listeners. He rattles through an enormous number of detailed points, exuding good humour and amiability all the way round. This tends to have the effect of emptying the Chamber and of diminishing interest, particularly as after one has thought about what the right hon. Gentleman has said, one realises that he has said extraordinarily little.
The right hon. Gentleman reminds me of a well-known story told by Harold Nicolson that when at school he was reproved by his tutor for a minor misdemeanour and was compared, to his chagrin, with an odious school prefect named Marston, who, his tutor told him, had never had a mean or nasty thought. "It was six years," said Harold Nicolson, "before I realised that he never had a thought at all." That is what one sometimes thinks after hearing speeches by the President of the Board of Trade. The right hon. Gentleman was complacent in what he said about British exports. Some of the minor matters which he raised would, no doubt, be helpful, but his whole tone was complacent.
Before coming to the main question of competitive exports, I want to register a protest against what I think is the very dangerous habit of saying that countries like Japan are only growing faster than we are because they started from a point further behind. I think that this is both a very fallacious and a very dangerous argument. I think it impossible to reconcile with the fact that one or two European countries with practically the same standards of living as we have are still going ahead a great deal faster than we are, and I find it impossible to reconcile with the fact that we never catch up with the United States. After all, we are well behind the United States in standards of living, Why do we not catch them up, since we started from a point further behind? I think that this is an argument which proves a great deal of complacency which is very dangerous.
As far as the Budget is concerned, I should like to start by echoing one thing that my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) said, that there was a striking omission in the Chancellor's speech, namely, that there was no serious inquest on last year. Surely the one thing which 1962–63 proved once for all, beyond any shadow of doubt, was that the traditional Conservative and. indeed, Treasury policy that cutting imports and domestic expenditure is a cure for balance of payments without inflation is disastrously wrong; and from the Chancellor's speech I hope that this lesson has been finally learned.
I say that I hope it has been finally learned, because the doctrine that if we hold back home demand we solve the balance of payments and the export problems, and we prevent wages from rising faster, has been the doctrine and the policy for the last twelve years, and last year's economic record shows it to be erroneous. Certainly, last year was an excellent test of this doctrine and we see that the doctrine was without any foundation of any kind.
As far as imports are concerned, they did not fall because we did not get deflation. We had deflation all right and 2½ per cent. unemployment, even excluding the seasonal. This conceals the fact that the labour force could have been very much greater, and there was unutilised capacity—30 per cent. less steel, and a good deal less also in most of the metal-using trades.
We had deflation all right, but what went wrong was that deflation did not do the job it was supposed to do to help the balance of payments. It did not reduce imports, which went up by 4 per cent. during the year; and imports of manufactured goods went up by 12 per cent. in the year, although our industries producing those goods in this country had a great deal of spare capacity. Demand certainly did not solve our exports problem.
Exports, as the President of the Board of Trade told us this afternoon, rose during the first half of the year, but fell during the second half while world trade manufacturing as a whole was increasing, while wages were going up more rapidly in most European countries, particularly in Germany.
I think that this all amply proves that periodic cuts in home demand are not the way to cure the balance of payments. It is true that the balance of payments did improve somewhat, but the reasons for that had nothing to do with cuts in domestic demand. All that this policy does is to slow down the rate of growth, and it means waste of capital and waste of labour in this country. All that it does in addition is to reduce the rate of investment, thus making our whole industry less competitive and very much more insecure. I hope, from the Chancellor's speech and firm statement about expansion and a strong £, that this policy has now been buried once and for all.
As to what the Chancellor has done this year, it is very hard to take up any dogmatic view whether he is giving away too much or too little or not quite enough. Anybody who dogmatises in this field is, clearly, an imbecile. This in the end is a matter of judgment and one cannot state statistical proof. Nevertheless, there is something to be said for what my hon. Friend the Member for Cardiff South-East said, that the Chancellor has acted on the cautious side. He has certainly given away less than most outside commentators thought necessary.
I should like comment on this matter later, but it appears likely that what he has given away will not be sufficient to bring us properly back to full employment and full utilisation of capacity, and it also seems unlikely that the amount he has given away in this year will give us the rate of growth which will bring us back to the N.E.D.C. target. I am not clear what the Chancellor's view about this is, and perhaps it could be explained.
I understood him to say that this concession of £250 million would give us a 4 per cent. rate of growth this year, but if that is the case, since we are already nearly two years behind the N.E.D.C. target of 4 per cent. in 1961–62, this implies that we must achieve a faster than 4 per cent. rate this year to achieve the N.E.D.C. target by 1966. However, it is a matter of judgment whether he has been somewhat too cautious or not.
What I want to discuss mainly in my rather brief speech is the question of the balance of payments, the question to which the hon. Member for Louth addressed himself, the question of making our exports competitive, because, whatever the right figure, whatever is the precisely correct figure for the Budget this year, the major limiting factor of our economic policy under any Government is our balance of payments.
As far as the short run is concerned, the Chancellor, clearly, is intending to take a risk, and I am certain he is right, with exports this year. He reckons, presumably, on a moderate surplus in the balance of payments even if imports go up rather faster than they otherwise would have done. He reckons that he can cope with a certain amount of borrowing, and I am sure that he is right to take a risk and right, if necessary, to borrow to do this.
But this policy does not solve our long-run problem and certainly there is no possible prospect of solving it in 1963. This surplus of £400 million is not within miles of the N.E.D.C. target. The surplus is necessary not only for reasons connected with economic aid, exports and imports, defence expenditure abroad, and everything like that; it is also absolutely essential if we are to reduce the vulnerability of sterling. The speculation against sterling which would occur if we had a surplus of anything like that size is, of course, less than the amount of speculation which occurs with a comparatively small surplus such as we have at the moment. Therefore, to achieve that surplus must be the first priority of any Government's economic policy.
Why is it that it is apparently so hard for the country to achieve this surplus? After all, it must be ten years since the Chancellor first set a target something like this, and yet we are as far away from achieving it as we were then. According to N.E.D.C. we have to achieve a 5 per cent. increase in exports every year. Why do we not achieve this? Basically, we do not—and here I come much nearer to the view of the hon. Member for Louth—because our goods are not competitive. When it can be shown year after year what a huge increase in manufactures there has been, and that industrial production has increased abroad, it is surely hard to suggest otherwise.
If we look at exports we find year after year that our share of the trade in manufactures has declined. This seems to me to suggest beyond any shadow of doubt—and it was confirmed in the N.E.D.C. Report—that our goods are not competitive.
What is to be done about this? Let us assume, for the sake of argument, that we rule out devaluation. But let me say something about devaluation—though not to advocate it—and the exchange rates. One of the curiosities of the change in thinking over the last few years is that the wartime hopes of how we would organise international trade have completely disappeared and no one apparently holds them any longer.
I recall the plans drawn up during the war, in which Lord Keynes and many others played promient parts, Then, it was practically taken as axiomatic that if a nation was faced with difficulties in its balance of payments after the war, instead of being forced to deflate, as was the case before the war, or forced to restrict imports—both of which measures have great disadvantages—it would change the exchange rate. This theory underlay the Bretton Woods Agreement and all that Lord Keynes ever wrote about the postwar world.
But, through various subterranean moves of opinion over the last few years, we find ourselves now almost wholly attached to rigid exchange rates. That is one of the ways in which our postwar hopes have disappeared. Let us assume, therefore, that adjustment of the exchange rate is ruled out for us. What are we to do about the basic problems of making British goods competitive?
I agree with the hon. Member for Louth that this is the No. 1 criterion which should be applied to the Budget. But by that very criterion the Budget is an extreme disappointment. There is practically nothing in it which helps towards solving the long-term problem of the competitiveness of our goods. I believe that only two things in the Budget have relevance to our general industrial efficiency.
The first one consists of the measure to help solve regional unemployment. Naturally, if we can increase employment in these regions we shall help national production. But I am certain that we shall never solve the problem as long as we treat this as a matter of local unemployment and not as one of regional employment. The problem is insoluble on the basis of small development districts, but only when seen in larger regional terms.
The other relevant factor is the halving of Stamp Duty. I am utterly opposed to this. The only justification for not having a proper capital gains tax over the last few years was the 2 per cent. Stamp Duty. It was an argument consistently used by Tory Chancellors of the Exchequer that we did not, therefore, need a capital gains tax.
The reduction in Stamp Duty for Stock Exchange securities is a pure gift to the property-owning class and nothing else. I gather from the Sunday Times colour supplement last week that the Chancellor is given to dancing barefoot on the Riviera. This may be a pleasant past-time and good for his figure, but it is not the slightest excuse for doling out large sums to his Riviera companions.
Another argument is that we need to reduce Stamp Duty to encourage foreign portfolio investment here. But I have grave doubts about this. Such investment is invariably volatile. What flows in easily can flow out just as easily. I do not think that we want our balance of payments to depend on a great measure of portfolio investment from the United States or anywhere else.
To claim that we have to depend on a continuous flow of this portfolio investment implies that we are some backward, primitive, country, being kept by rich foreign investors. We must rely on our own exertions and not try to attract volatile capital from other countries. The halving of the duty is not really justified, but it is the only measure which bears on the whole question of competitive efficiency.
Otherwise, the Budget is distinguished only for a series of omissions. It is to be condemned mainly because of the omissions. I want to list five things which most hon. Members will agree are necessary to increasing our efficiency and not one of which is in any way sustained by the Budget.
The first concerns incomes policy. On the whole, I believe in an incomes policy. I do not think that it is the sort of panacea that the hon. Member for Louth seems to think, nor that it is mainly necessary because wages here have gone up faster than wages in other countries. They have gone up at roughly the same pace. The trouble is that our productivity goes up slower. Nevertheless, an incomes policy has some rôle to play, although I doubt whether it is a major rôle, in increasing competitiveness. From the point of view of encouraging that, the Chancellor should have done two things.
The right hon. Gentleman should have made some concessions not in the form of concessions on Income Tax, but in the form of concessions on indirect taxation in order to reduce prices and diminish pressure for wage increases. It is very unfortunate that he has not done this. Nor has he been bold enough with tax reform. His extreme caution about it is one of the depressing features of the Budget. He has turned down practically every major suggestion. Had he adopted the single corporation tax, he would have made it easier to control the level of profits, which would have had a sensible part in the exercising of an incomes policy. The right hon. Gentleman has missed a big opportunity there. He has shown extreme timidity and, indeed, slackness over the last few months.
Secondly, the President of the Board of Trade talked about export incentives in terms which bore no relation to what anyone is proposing. He said that we must not enter a race for export incentives. No one has suggested that we should. The whole discussion has hinged on an added value tax, and that would be a matter of adopting a tax which, within a short time, has been adopted in most countries of the European Economic Community.
My own view of the added value tax is that it is a matter of acute disagreement as to whether it is an export incentive. Whether it is or not depends entirely on the highly controversial question whether the tax is offset by the fact that manufacturers, at previous stages, have passed the tax on in their prices. I accept that there is extreme disagreement on this.
It is appropriate, therefore, to have an inquiry into it. What is extraordinary is that the inquiry should be announced only now, when the tax has been the subject of acute argument for months, and, indeed, years. We have had the long Report on it from the E.E.C. Commission. It was grossly neglectful of the Government to leave the inquiry until now. It should have been put in hand a year ago. Certainly, it should not be left to a single merchant banker, however eminent and devoted he is. On such a controversial matter, the Chancellor should have appointed a small committee, including not only the merchant banker but also tax experts, accountants, economists, and the rest. That would have been a far better way of going about it. He has missed yet another opportunity.
The third major omission relates not so much to the Budget itself, but to the whole of the Government's economic policy over the past year. The Government have allowed private manufacturing investment to fall to a level nearly one-fifth lower than that of a year ago. We can disagree as to how important this investment is to growth, but no one, and certainly not the Government, says that we must not have higher investment in order to attain a higher rate of growth. To have allowed private manufacturing investment to fall to a level 18 per cent.
below that of a year ago is an extraordinary condemnation of the Government's entire economic policy.
Fourthly, the right hon. Gentleman should have been more forthcoming for education, which is a particular form of investment. The people who write about economic growth cannot avoid reaching the conclusion that it depends very much on the amount spent on higher technical education. There was an O.E.C.D. Report on this very matter. This showed that any given level of investment is very much more productive in some countries than in others. This appears to be very much due to what is spent on education, especially, as I say, on forms of higher and technical education.
The Chancellor is right in saying that our education spending is on a quite rapidly rising curve. But he should have bullied the Minister of Education a little more to spend less time on breaking down the settled bargaining procedures in the teaching profession and more time, if only to escape future strictures by the Robbins Committee, on producing a more rapid spending on all forms of higher education. That was another big omission in the Budget.
The next missed opportunity was that the Chancellor made practically no reference to the rôle of N.E.D.C. He referred to N.E.D.C.'s targets more than once, but he made practically no reference to its rôle, and that was quite astounding in a speech which took an hour and forty minutes and of which a large part was devoted to general economic expansion.
I would have liked to have heard a great many things from the Chancellor about how he sees N.E.D.C.'s rôle. For example, there is now an argument about whether it should or should not have a whole series of industry commissions. This is an argument of great importance and one would have liked to have had the Chancellor's views. There are many things which come within the purview of N.E.D.C. and which are still very controversial and on which the Chancellor, as chairman of the Council, should have given his views. That was a very serious deficiency in his speech.
My general view is that although the Budget is acceptable as a short-term method of getting expansion this year, and although we may get there and I hope that we get through this year and have temporary expansion without a balance of payments crisis, the Budget contributes practically nothing to the solution of the critical long-run problem, which is that of getting a 5 per cent. annual increase in our exports. It comes out with complete clarity from the N.E.D.C. Report that one possible serious obstacle to the 4 per cent. growth rate to which we are all committed—I hope that we all are—is the danger of not getting the annual 5 per cent. increase in exports. Looked at from the point of view of that overriding economic priority, I find the Budget extremely disappointing.
I very much doubt whether the Chancellor of the Exchequer is the right man to get this large increase in exports. He seems to be becoming more and more a Baldwin-esque figure, so far as I can judge from the publicity which he is getting. He made one alarming remark which was quoted in the colour supplement of the Sunday Times last week, when he said that he used to keep chickens, but that every time he looked at them they became extremely sick. I fear that every time he looks at the British economy it becomes extremely sick. He is building up the figure of a comfortable, portly, family man very much on the Baldwin model. The only trouble is that this is a time when we need not a Baldwin as a leader, but a much more dynamic and audacious man.