May I begin by saying how very strongly I agree with the closing remarks made by the right hon. Member for Thirsk and Malton (Mr. Turton)? It is one of the most ironic and tragic facts about the world today that, as he said, the rich nations are becoming richer and the poor nations poorer. This is what Marx said would happen within countries, but it has not happened in most democratic countries; the two extremes have tended to draw close together towards the middle. But it has happened as between countries.
I entirely agree with the right hon. Gentleman that this poses for Britain, in particular, the major moral problem facing us over the next few years. I am very glad he said that if we are to solve the problem it may involve sacrifices. It cannot be solved merely by expressing nice sentiments. It means sacrifices of goods which would otherwise be enjoyed by the British consumer.
I agree with what the right hon. Gentleman said about commodity agreements—possibly Commonwealth ones initially, preferably world ones. I am certain that relations between ourselves and Europe and between Europe and the Commonwealth and between the trading blocs generally cannot be solved until much wider commodity agreements come into existence. One of the good things which came out of the E.E.C. negotiations was the demonstration of how essential this was if these questions were going to be settled.
I am sorry that the Secretary of State has had to leave the Chamber as I wanted to say one or two things about him. I think the right hon. Gentleman did an excellent job in the Brussels negotiations, and I am delighted that he has taken on this new job, though I do not think that he will have time to take much part in it. I want to comment on one or two things which he said. I think that the regional imbalance in Britain is the most serious of our internal problems, and I hope that his new measures will contribute something towards solving it. I am very doubtful, however, concerning what he said about the co-ordination of these measures.
One of the major troubles over recent years has been that there has been too little co-operation between housing, the siting of new towns, the location of industry, and transport. These matters have been divided between four different Ministries whose separate efforts have been wholly inadequate, and I do not think that the inter-departmental committee about which the right hon. Gentleman spoke this afternoon sounds a powerful enough body to introduce the co-ordination which is so necessary.
I must say that a striking feature of the Secretary of State's speech, and as far as one has been able to glance at them of the two White Papers, is that they represent a frightful condemnation of the Secretary of State's predecessor at at the Board of Trade. They represent a confession that a completely new policy is needed. They represent a major reversal of the whole basis of the Local Employment Act, 1960. Moreover, the growth-point theory when first advocated from these benches was not received with any enthusiasm by the Government. I think the fact that this new policy has had to be adopted shows what a failure the previous Board of Trade activities were.
I want to turn to the speech of the right hon. Gentleman the Chancellor of the Exchequer. He gave us a very agreeable knock-about speech yesterday when what the House wanted to hear was a more serious speech analysing the promises now coming from the Government. Before I come to the central point which my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) advanced as to what these promises amount to, I want to make one or two particular remarks about the Chancellor's speech. The first is this, which may have gone unnoticed in the rumbustious language in which he made his speech. As compared with the Prime Minister's speech the day before and the recent announcements in the Press, the Chancellor's speech represented a great scaling down of the prospects in front of us if we have to endure a Tory Government for some years ahead. In the Prime Minister's speech, what was stressed was the enormous prospective growth in public investment, and, indeed, this is what has been stressed in most Government speeches in the last few weeks. We know the figures from the recent White Paper on public investment and that we are to get an increase in the years from 1962 to 1965 of 7 per cent, in the first year, 20 per cent, in the second year, and 7 per cent, in the third year, and all this, we were warned by the Chancellor, and by others, would mean a very heavy burden on our resources. Indeed it would, 7 per cent, and 20 per cent, and 7 per cent, in three successive years. But then, when we came to the Chancellor yesterday, all these figures had got mysteriously scaled down, because the figures for total public expenditure, yesterday he said, would amount to an increase of only 4 per cent, a year between now and 1967.
There is a very considerable difference between an increase of 7 per cent., 20 per cent., and 7 per cent, in public investment over the next three years and a figure of 4 per cent, for the increase in the total public spending, and what we should like to know, and what has not become clear from the Chancellor's speech at all, is what items in current Government spending are going to be so far below 4 per cent, that die public investment programme can be so far above. Something, clearly, is going to be scaled down, but it was not clear from the Chancellor's speech what it was.
My other preliminary comment is this. Clearly, when next April comes, the Government are going to take great credit for not introducing a pre-election Budget. Both the Prime Minister and the Chancellor have said that we cannot look forward to early or substantial reductions of taxation. One can already see the Chancellor coming down here on April—whatever date it will be—next year preening himself on his moral virtue in giving away no substantial concessions—some sweetenings to some carefully selected groups, no doubt—but no major concessions, and showing how virtuous he is. One does not want to be over-cynical, but the fact, of course, is that we had the pre-election Budget this last April as a precaution against an election this autumn.
Another point I should like to make about the Budget to which we look forward next April, in which there will be no large concessions, is that its relative severity will have nothing whatsoever to do with these ambitious schemes of social spending of which we have been hearing recently, nothing to do with increases in education spending or housing spending or social spending generally. If we look at the increases in spending which have created the situation in which the Chancellor would make no concessions next April, they have contained practically no element of this large increase in the social spend- ing of which we have been hearing. These are still pie in the sky, and it is other spending which has led us to the situation where we have these warnings on tax reductions.
I come to the major question dealt with by my hon. Friend the Member for Cardiff, South-East. How can the Government pay for these lavish promises which are now pouring out in such abundance? Everybody would agree on one thing. They can be paid for provided, and only provided, we get this famous 4 per cent, growth. But the question is, what prospect would we have under a Conservative Government of getting this 4 per cent, growth? What indications are there in the speeches which have been made or in the Queen's Speech that we are going to get 4 per cent, growth?
One must say, as my hon. Friend said, that there are no obvious indications. Under this Government which have been in power for a period of twelve years the average rate of growth has been 2½ per cent., and there is no obvious reason why this Government should suddenly be able to galvanise the economy into a 4 per cent, growth rate. These years were favourable years. World conditions were exceptionally favourable. There was a vast increase in world trade. We in Britain have had an enormous improvement in our terms of trade. Many other countries in a situation similar to ours had faster rates of growth. Yet on average, over twelve years, we had this exceptionally slow rate of growth of 2½ per cent. We now have the same men in the Cabinet and on the Treasury Bench. The Prime Minister, the Leader of the House, the present Chancellor have all been in the Cabinet during the whole of that time, and there is no apparent reason whatsoever why this same group of people, pursuing the same policies, should suddenly galvanise the economy into much more rapid growth.
The Chancellor dealt, or attempted to deal, with this yesterday by saying that, whatever may have been the record over the last twelve years, productivity had now reached the point where we were in sight of the 4 per cent, target. He said, as my hon. Friend recalled, that the productivity rise had increased to nearly 3 per cent, a year and had only to be pushed up a little more and then we should be on the target. However, the fact is, as my hon. Friend pointed out, that productivity is going up rapidly now because we are in a classic—almost a textbook—boom where capacity is being more fully utilised, hence costs going down and productivity going up. There is nothing surprising about it in the slightest. It happened in 1953 to 1955 and again in 1958 to 1959. But on both previous occasions after the boom period with its rapid increase of productivity, we ran into a crisis followed by a classic Tory deflation, when productivity fell back again. Who can say that this is not going to happen again? What fundamentally has changed?
The Chancellor, at this point, took refuge in the N.E.D.C. Report and quoted paragraph 152 which suggested that there had been some underlying improvement in productivity. He found this sufficient for great optimism for the future. But the paragraph goes on to say that this is not something which can be relied upon for an automatic and dramatic improvement in our situation.
The plain fact is that unless we get some fundamental change in the economic policy pursued during the last twelve years we are not going to get a dramatic change from 2½ to 4 per cent, growth. I will set out what I believe must be done if we are to achieve 4 per cent, growth.
The first thing we shall have to do is to effect a permanent improvement in the balance of payments. The basic reason for our failure as a nation to grow as other nations have grown in the last few years is that every time we have a boom it ends in a balance of payments crisis. This is the fundamental cause of the stop-go policy, and that stop-go policy is the fundamental cause of our slow growth rate. So unless the Government can convince us that they have effected a permanent improvement in the balance of payment situation we have no reason to expect a 4 per cent, growth.
At present the balance of payments position is comparatively favourable. Exports, as the Secretary of State said this afternoon, are comparatively buoyant. There has been some improvement in our competitive position, an improvement due largely to the inequitable pay pause of the late Chancellor, which kept British wages down, as, of course, it was fundamentally intended to do, below the increase in wages in other countries. So for the moment, as a result of this, our balance of payments position is, as I said, comparatively favourable. But what the Chancellor has not made clear at all is what he expects to happen in the next six months or in twelve months. Will there be a large spurt in imports? And if we do get one, will it end in the same crisis we have had time after time in the last twelve years?
I personally do not believe, despite the fairly rosy picture at the moment, that the Government have produced any major fundamental change in our balance of payments situation, and I believe they have not because they have not operated on what is the crux of the whole matter, which is the capital account.
Here I follow interesting series of articles by Mr. Conan in the Westminster Bank Review on the subject. Although, like America, we have had over the years a surplus on current account our gold reserves have not gone up equivalently—just as the American reserves did not. On the contrary, they tend to go down. So the surplus in the current balance is more than offset by a deficit in the capital account.
Faced with this situation, I am certain the Government must produce a long-term policy for the capital account. The United States has done so in the measures announced by President Kennedy last July, including the controversial, but, I think, absolutely right and necessary, interest equalisation tax. Until this Government have produced a policy for the capital account comparable to that produced by the President last July, they cannot claim that there has been any permanent improvement in the balance of payments, and there is no reason at all, therefore, to believe that we shall not once again next year follow the same old dreary cycle that we have had before—balance of payments crisis, cuts, and deflation at the end of the boom. This No. 1 pre-condition of 4 per cent, growth has not been fulfilled.