Cost of Living

Part of Orders of the Day — Civil Estimates, 1964–65 – in the House of Commons at 12:00 am on 20th July 1964.

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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, 20th July 1964

—but at least I can accept his statistics. I do not think that my hon. Friend need quarrel about them, because he has assembled on page 23 a series of international statistics concerning the rate of increase of earnings of 19 countries from 1953 to 1957 and from 1957 to 1963 and they are set out in this table. What it shows is this, that out of 19 countries we stand twelfth in the average annual rate of increase of earnings. Earnings have increased literally faster in Austria, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Portugal and Switzerland.

The simple truth is that our present position arises from a combination of increasing earnings with low productivity and one cannot isolate one factor from the other. The two must go together in every discussion which takes place. And for low productivity the responsibility lies both with industry and with the Government, and that is why I say it is unjust to isolate the trade unions in this particular matter.

So of our present position I must say that it is extremely disappointing, after an increase in productivity which we secured last year, a latent increase arising out of the stop-go in 1961–62, productivity seems to have stopped rising for the time being, and moreover, the high levels of employment in London and the South-East and the Midlands are resulting in increasing costs to industry at the present time. Raw material prices are going up. I know I carry the Chancellor with me at least in this little section of what I am saying. Fourthly, retail prices are rising. Fifthly, on the other side of the coin—this is a problem which must worry the Chancellor very considerably—industrial production has been stationary, according to the tables, for nearly five months and seems to be very sticky indeed. And, even more worrying for him, exports are stodgy; while world trade is increasing our share is not, and it is still declining. And imports are too high.

We are today bringing into this country materials, manufactures and semi-manufactures, which we cannot afford, and which at the moment we are not paying for. Let us be quite clear about this. Whatever conclusions we may draw from it, this is the position, and as the Chancellor knows, it is getting worse and not better. The balance of trade figures came as a thunderclap to a number of people. I do not know whether they came as so much of a surprise to the Chancellor of the Exchequer, because he knows that he is at the moment running a dreadful race between the date of the election and the date on which he will have to make major decisions of policy, and the question is: which will come first?

The Chancellor is gambling on the election date coming first, but the incoming Government will be required to handle an external position in which we are running deeper into debt every month, and an internal position—and this is a new feature—an internal position in which the economy is not running all out, not working to capacity, except, perhaps, in building and construction in some parts of the country. Of course, the normal remedy of the Government in the past, faced with a situation which the internal deficit has coincided with the economy moving full out, has been the slamming on of the brakes. This time such a solution is not applicable.

I do not envy the Chancellor of the Exchequer his colleagues, flanked as he is by the Lord Privy Seal, on the one hand and the Minister of Defence on the other, both of whom returned to the classic stop-go method of halting the economy. I am bound to say that the right hon. Gentleman is going to be in bad spirits with these two right hon. Gentlemen. I read what Lord Kilmuir said about the present Lord Privy Seal. It is only too clear that this appointment was a mistake. There were few indications that he had thought deeply on the great problems of our time.

The right hon. and learned Gentleman's first Budget gave the impression of being based on a detailed forecast of the future, but it was proved wrong on every matter of importance and Ministers were confronted with an economic crisis as astonishing and urgent as it was unexpected. What were virtually panic measures to meet the drain on our resources were called for as a necessity.

Lord Kilmuir has something to say also about an ex-Chancellor of the Exchequer, Lord Heathcoat Amory. It was evident that he had lost his grip on economic matters and it was with some relief that we heard of his determination to resign as soon as the Finance Bill had passed through the Commons.

When I read about the shortage of talent on the Labour side I comfort myself with these comments by Ministers who lived with them and so I do not envy the Chancellor his present difficulties with his colleagues. Indeed, we are in a difficult position because the expansionists among those in the country who want to see us moving ahead are terrified about telling the truth about the serious nature of the problem because they are afraid that they will wake the Lord Privy Seal and alert the Minister of Defence once again. [An HON. MEMBER: "What about the right hon. Member for Wolverhampton, Southwest (Mr. Powell)."] The right hon. Member for Wolverhampton, Southwest is not in the Cabinet, thank goodness, but the Lord Privy Seal and the Minister of Defence are. They have cost this country some £5,000 million per annum in lost production, production that would have enabled us to build the schools and would have enabled us to avoid the crash programmes for housing and hospitals. If their remedies were adopted once again—and they are still prominent members of the Cabinet—then industry will be thrust into despair, we shall cripple our social progress and wreck our prospects of additional exports.

Under the Tories this country faces the prospect with these men who have learned so little in the last 13 years that the present current boom will peter out once again and will end in a pay pause, a credit squeeze and unemployment. We must also be grateful that the Secretary of State for Industry and Trade did not carry us into the Common Market on the terms then proposed.

I wonder if the House has paused to think what would have been the effect on our import situation today. How much more would bread have gone up when we look at the price that has to be paid in the Community for a ton of wheat in comparison with what we pay our farmers and even the guaranteed price which we are laying down? The plain truth is that we have suffered from a great deal of muddled thinking, not only on the VC10. It is the same sort of muddled thinking in the Cabinet as led to the B.O.A.C. controversy in which Government policy has been pulling in two different directions at once.

Of course, the Chancellor today must operate in the international rather than in the domestic field and in the present weakness of our overseas trade position he is right to seek a credit of 1,000 million dollars from the International Monetary Fund. We should all be careful in discussing this position because everyone, I hope, wants to see the expansion continue even though some may not think it possible, though I do. But that does not relieve the Prime Minister of the obligation to tell the country what the facts are. There is far too much soothing syrup being put about today concerning the overseas trade position which is as bad today as it was in 1961, and which then led to the pay pause, even though some of the short-term defences can shore up the position for a little.

I refer to the I.M.F., to the B.O.P. arrangement with the United States, and so on. But the Chancellor must take the measures open to him to deal with his balance of payments problem—I will not use the word "crisis" yet. The right hon. Gentleman should give exports encouragement, and measures are available to enable him to do this. More flexible prices in exports would be a very great help. If there is one thing which has been analysed in recent researches it is that British prices are far more sticky and far less flexible than those of our competitors in the export field.

The right hon. Gentleman should discourage imports, and measures are open to him to do that. What we need above all are improved liquidity arrangements especially for the developing countries and in order to take the strain of the two major reserve currencies of the dollar and the £. In Tokio we can expect little progress represented as we shall be by a Government with no authority and a Government that are expected shortly to be defeated at the polls. [Interruption.] Hon. Gentlemen opposite can take their own comfort. I am saying what internationals think about it. Hon. Gentlemen opposite may or may not like it, but certainly there will be no authority behind the Chancellor when he goes to Tokio a month before the election, and I expect him to make little progress. It would have been far better to have had the election before the conference.

The main difficulty with which the Chancellor is confronted is that we should maintain our rate of expansion. We have managed to get an expansion rate of 4 per cent., but for the third time we have run into the balance of payments problem. This time the expansion of industry must go on. Is this the united objective of the Government? Does the Chancellor believe this, and do the Lord Privy Seal and the Minister of Defence, one of whom was rejected from the Government and the other who resigned from it? Does the Chancellor carry a united Government with him in the expansion of British industry even despite the present balance of payments difficulties?

If this is the right hon. Gentleman's objective, how is he going to do it? I think that we are entitled to ask the right hon. Gentleman how he is going to do it and he should feel bound to give us the answer. Faced with these difficulties and faced with the objective which he says he has of an expansion rate of 4 per cent., how is he going to achieve this objective? What measures is he going to take concerning our balance of payments problems, both in the long run or in the short run? Is he going to take drastic steps similar to those taken by his colleagues in the past? It will be insufficient to refer to the short-term arrangements in the International Monetary Fund or the B.O.P. arrangements.

The Prime Minister frequently says in the country, "Look how irresponsible the Labour Opposition are." The right hon. Gentleman says that the Labour Opposition are going to take over a programme of social benefits, housing, school and hospital building which is larger than that of the present Government. The Prime Minister frequently makes this criticism. It is true, of course, that our programme was for a long time larger than that of the Government, because in the 1950s we based our programme on a growth rate of 4 per cent. whereas the Government have been jog-trotting along at 2½ per cent.

We believed that if the expansion rate could be put up to 4 per cent. we could contain the increase which was necessary to modernise Britain. That was why the right hon. Member for Bromley (Mr. H. Macmillan) was able to poke fun at us in 1959 and say in the course of the election, "Look, they are going to have another £1,000 million of expenditure, and yet they will not increase taxation." That is what the Tories are now doing and what they are proud of doing. They have at last discovered the merits of putting the growth rate up to 4 per cent.

Since they have committed themselves to a 4 per cent. growth rate and since they have committed themselves to the dividend that will arise from that—a £2,000 million increase in Government expenditure—it has become clear that, although this addition will make a substantial improvement in our housing, road and hospitals programmes and so on, it is nothing like sufficient for the needs that we have in modernising the country. This is where the difference comes out.

An examination shows that the target of £2,000 million extra falls short of the needs that we have if we are to achieve modernisation in a reasonable period of time. That is why a number of my hon. Friends have been pressing for more. We on this side of the House certainly cannot be permanently satisfied with an expansion rate of 4 per cent. per annum. The arrears on 4 per cent. per annum would take too long to clear off. It is the probable maximum that the Chancellor can hope for in 1964, and maybe in 1965, because of the balance of payments troubles. However, 4 per cent. should be to this nation a base camp and not a mountain peak. It should be the base from which we move forward. We should be aiming in the latter part of the 1960s for a 5 per cent. and then a 6 per cent. growth rate. Only then shall we attain the programme of social expenditure that is both necessary and desirable.

I want to make it clear that on this side of the House we recognise that our programmes cannot be achieved until we are maintaining a growth rate of 5 per cent. or 6 per cent. The 4 per cent. has already been fully committed by the Government. We shall have to strive to move to a higher rate of expansion in order to fulfil these programmes. They can be attained by a combination of factors—by planning our resources, by fixing our targets, by new investment in industry to stimulate expansion, by using more scientists and technologists and engineers in industry, and by ensuring that our industry, especially our export industry, is customer-based and not product-based—and if we had had regard to this some years ago in the early stages of the VC10 controversy, perhaps changes would have been made in the policy then which would have obviated the great loss which has been sustained today.

Next, there should be import substitution through new industries at home and an all-inclusive and fair incomes policy which would include earnings, dividends and rents. There should be continuous pressure on prices and especially on monopolies and restrictive practices, and there should be flexible export prices. By more competence and less waste in Government we could ensure that there would be fewer Blue Streak and Ferranti projects for us to hold inquests on.

A society in which tax avoidance and Stock Exchange gains more than six months old and three-year land speculation go scot-free—which does not augur well for an incomes policy—while the P.A.Y.E. taxpayer pays on every penny and the postman has to ban overtime in order to get the ear of the Government, means that we cannot in this country have a true or a fair incomes policy. This is the legacy that the Chancellor has inherited.

The weakness of the Government is that millions of our citizens no longer believe in the Government's fairness or competence; they do not believe that the Government are just, and they certainly have little reason to believe that Her Majesty's Ministers show compassion except in the face of the electorate. That is why the Government have reached the end of the road.