We have had a stirring electioneering speech from the hon. Member for Cardiff, South-East (Mr. Callaghan). It will give great pleasure to all those who for a long time have been quite determined to vote Labour; I am not sure that it will give much encouragement to those who, in recent months, have been becoming increasingly doubtful about voting Labour.
I want to try to examine as objectively as I can the cause of prices rising, and what can be done about it. We are all committed to a full employment policy. We all agree that it would be quite intolerable to return to the inter-war years of mass unemployment. That means that spending must be up to just below full capacity to produce. A wise and strong Government have to regulate the economy so that there is neither a glut of goods—and, therefore, unemployment—or, on the other hand, excess demand. But for this full employment, as for most other good things, we have to pay a price.
One price, as I see it, is that there must be unpopular and inconvenient variations in taxation rates and interest rates. No Government—and I certainly do not claim a Conservative Government to be an exception—composed of men is infallible. In addition, many things occur that are quite outside Government control—are external—so that there must be a constant varying of the pace of the economy.
A price we also have to pay is the probability of a slight degree of inflation. It is no coincidence that it is in America, where unemployment is much higher, and in Germany, where there have always been reserves of labour, that price rises have been much the smallest and the inflationary pressures much the least.
An unwise and weak Government could bring about an absolutely disastrous inflation with the full employment policy. I recognise that during the last 12 years there has been a material rise in prices—and a rather more severe rise in the previous six years. That has not, I think, cause a great deal of hardship, because it has been largely offset by a much greater rise in wages, pensions and benefits, but I accept at once that there has been some suffering, though nothing on the scale of what has happened in the past in Europe.
Those of us who visited Germany just after the war know the appalling suffering by starvation that existed there. It was only cured when the present chairman of I.C.I., Mr. Paul Chambers, brought in currency reform. The conditions in Germany then are well illustrated by the story of the unhappy shopkeeper whose job was selling nails. He was very pleased at the beginning of the inflation when one day he found that he had sold every nail in the shop. He was not so pleased next day when he found that with the proceeds he could only buy back half as much stock, but when he sold that stock again at a satisfactory profit he cheered up. But every time he sold his stock he was able to buy fewer and fewer nails in replacement. The story goes that he finally ended up with only one nail, which he used when he hanged himself.
The late Mr. Hugh Gaitskell once warned us against complacency, and said that that sort of inflation could happen here. We should bear that warning in mind. Inflation is serious, either if it is here and only here and not in other countries, so that we have a balance-of-payments crisis, or if it degenerates into galloping inflation, as it could do. Inflation is a very insidious disease, because in its first stages it is so very agreeable. As demand rises, so do wages—and so does employment. But production rises also, so that prices are not at first much affected.
Therefore, the workers are pleased. They get more work and more wages. Employers are pleased. They get more profits, and the consumers are not much hurt. In the second stage, inevitably, incomes not only go on rising, but they rise at a much faster rate, but production cannot go on rising at faster rates when the reserves capacity is used up; then comes the crisis.
It is absolutely vital, therefore, that a Government should regulate spending so that it is in balance with production. I believe that this is the most important and most difficult thing that a Chancellor has to do. It is the most difficult because he almost always has to act before it appears obviously necessary. He has to do unpopular things before it is recognised that he needs to do them and because nearly always, for some reason or another, his advisers over-estimate the effect of restrictive measures and under-estimate the effect of expansive measures.
During the debate on the Finance Bill, Opposition Front Bench speakers, as was put by my right hon. Friend the Chief Secretary to the Treasury on 20th April, all took the view that the burden must be shifted from the consumers on to profits. The right hon. Member for Battersea, North (Mr. Jay), on 16th April, spelt it out very clearly when he said:
Hon. Members opposite sometimes seem to be living in the past. In the days of Gladstonian finance it was believed that the job of the Chancellor was confined to raising enough money to pay the bills. They seem to have the illusion that wealth consists of money and stocks and shares and that a fair and wise Government could redistribute all that and make everyone happy. But wealth consists of the production of goods, and it is on production that the whole of this debate should hang.
Are the Opposition really capable of foreseeing what would happen so as to be able to plan the economy? When the 1963 Budget was made, some people thought that the Chancellor did exactly right, and some thought that taking into account what he had given away outside the Budget he had given away a bit too much. I do not think that any responsible person now thinks that my right hon. Friend gave away too little, but let us look at what was said in that debate.
The hon. Member for Cardiff, South-East (Mr. Callaghan) said, on 4th April, 1963:
In my view, the Chancellor has been too cautious."—[OFFICIAL REPORT, 4th April, 1963; Vol. 675, c. 642.]
Even the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), who, some of us think, is perhaps the brightest jewel in a rather moderate crown—and I hope that he will not think that compliment too damaging—said, on 8th April, 1963:
… I remain unconvinced that the Budget has done as much as it should have done this year in the circumstances that confront us …"—[OFFICIAL REPORT, 8th April, 1963; Vol. 675, c. 999.]
Finally, the right hon. Member for Battersea, North said, on 9th April, 1963:
… on his own showing, the Chancellor is budgeting for continued unemployment …
At that time, the unemployment figure was 3·5 per cent. In the next quarter it was 2·4 per cent., in the next 2·1 per cent. and now it is 1·4 per cent. It was, therefore, not a wise prophecy.
Later, the right hon. Gentleman said:
This timid Budget, I believe, is not enough to give us real steady expansion …."—[OFFICIAL REPORT, 9th April, 1963; Vol. 675, c. 1208–14.]
Production was running then at 113. In the next quarter it was 118, in the next 120 and in the next 124, and now it is 126. I do not think that the right hon. Gentleman who made that statement could be given good marks for accuracy and foresight.