Motion made, and Question proposed,
22. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that this Resolution shall not extend to making—
The Chancellor of the Exchequer has once again passed through the ordeal of presenting a Budget to Parliament and it is one of our more agreeable and civilised customs that the Leader of the Opposition, who is, naturally, one of his severest critics, should give to the Chancellor the congratulations of all hon. Members on his personal achievement.
I do so with considerable pleasure this afternoon. The right hon. Gentleman has made a long and difficult speech and has been under considerable physical strain. He has delivered it with skill, lucidity and courtesy, and even if all his arts of persuasion could not sugar the pill, that is no criticism of his advocacy. I hope that he is content in the knowledge that he in no way fell short of the standard set by his predecessors on this historic Parliamentary day.
The Committee will have noticed that we did not vote on the Budget Resolutions. I myself have thought that it was not a sensible procedure that one should hear from the Chancellor a long and complicated Budget speech, that the Resolutions should be read from the Chair and that immediately those in opposition in Parliament should be expected to vote on very complicated issues. So we have reverted to the old procedure of Parliament, a procedure which we used to adopt I think before 1954. I consider that this is best. However, we of course reserve the right to vote on the Resolutions on Report, after we have had a chance to give the right hon. Gentleman's proposals the really detailed consideration which they deserve. I hope that perhaps the Committee may feel that we should, from now on, go back to the old procedure, a procedure which is perhaps best in the public interest.
During his Budget speech the right hon. Gentleman pronounced general principles which I myself found unexceptionable in many cases; his intention to redress the adverse situation in the balance of payments and his intention to strengthen the £ sterling. Some of the things he announced will turn out to be better ways of doing old things. Nevertheless, the plain fact is, to strip the Budget speech of all the official jargon and all the surrounding persuasive words which the right hon. Gentleman used, that this Budget bears out the traditional pattern of Socialist Budgets, which is that they raise taxes. Whenever there has been a Socialist Government in the past taxes have gone up and the people have paid.
We have now had two Budgets from the right hon. Gentleman. The autumn Budget began by putting taxes up. The right hon. Gentleman has done so again this afternoon. He has, it is true, as he said, avoided the necessities—that is, if he does not think that beer and Scotch whisky a re necessities, which I do. As I say, he said that he has avoided the necessities, but he is taking £250 million—I think that was the figure he used—out of consumption.
I must remind him that the taxes which he has put on the community today are put on people who are already bearing a standard rate of Income Tax of 8s. 3d., and the highest rate is 18s. 3d. For an individual who is today earning £18 a week, who has three children and who is buying a house—and this is by no means an extreme case—the cost of living has risen 14s. a week since October last. These figures come from the B.B.C. and I suggest that the B.B.C. is not likely to want to embarrass the Government. In two Budgets the right hon. Gentleman has the distinction of having put up taxes, in sharp contrast to the Conservative Budgets of the last so-called wasted years in which, in nine out of 14, taxes were brought down.
I say at once—and we have had a long Budget speech from the right hon. Gentleman; I am not complaining about that but I do not wish to take up too much time, but merely stick to the broadest issues—that the attitude of the Opposition to this Budget is that one of our main concerns must be to support the right hon. Gentleman and the Government in sustaining the value of the £ sterling. This must be, as a responsible Opposition, our main attitude to the Government today.
I must say that when I heard about the Prime Minister—who I am sorry is unable to be here; there is a reason for that—the other day spending hours persuading General de Gaulle that the British economy was fundamentally sound and when I heard the Chancellor of the Exchequer this afternoon saying that investment was up, exports in the last three months were up by 6 per cent., production up, stock-building down and the terms of trade turning in our favour, I wondered if the Prime Minister and hon. and right hon. Gentlemen opposite are now reflecting that they might have saved themselves considerable anxiety and the country a Budget like this—and an autumn crisis involving the value of the £ —had they not held up to ridicule similar statements made by my right hon. Friend the Member for Barnet (Mr. Maudling). [Interruption.]
Everything that the Chancellor said under these headings today only reinforces—[Interruption.]—I prefer my matches to the Prime Minister's economics, and I think that "after this Budget most people in the country will, too; we will listen to the speech of the First Secretary with great pleasure, no doubt tomorrow—the policies which we were following over the last—[Interruption.]—in regard to strengthening the economy and the export capacity of the country and underlined every word my right hon. Friend the Member for Barnet said last year.
The main features of this Budget, I think I am fair in saying, are the two new taxes which the Chancellor has introduced; one the Corporation Tax and the other the Capital Gains Tax. We will consider these two taxes in detail when we come to the proper stage. I must say now, looking at the Corporation Tax as it was expounded to us by the right hon. Gentleman, that although he said that his intention was not to take more in the combined taxes than the profits extracted from industry by the two separate taxes now, I consider that the rate of 40 per cent. is very high.
We are greatly concerned, too, about the treatment of profits of companies trading overseas. I understood the right hon. Gentleman to say that he was going to make only transitional arrangements about these. I do not think that this is satisfactory and I shall be surprised, when we come to the time, if we do not vote against the Corporation Tax—that is, unless the right hon. Gentleman is willing to amend it.
The right hon. Gentleman then turned to the heading of the external impact on this country of investment overseas, and noted with pride that assets overseas had risen from what must have been an absolutely minimal figure after the war to something like £11,000 million now. He said that that would be good hearing for the bankers overseas. I agree. He then made a comparison between investment at home and investment overseas and the respective value to our country.
With some of the things the right hon. Gentleman said I agree, but I must say that I find it very difficult to reconcile what he has been saying today with the views of his hon. and right hon. Friends who on every possible occasion from this side of the House were urging us to assist Commonwealth countries and to assist developing countries in Asia and Africa by investing more and more overseas. The right hon. Lady the Minister for Overseas Development has left us, but she will be out of a job on what the Chancellor has been saying. I am not sure that I complain of his analysis, but certainly suggest that his right hon. and hon. Friends must have done a lot of new thinking if he can now say what he has said to us today.
As I understood the right hon. Gentleman, there will be a flat rate of Capital Gains Tax of 30 per cent. for the individual and 35 per cent. for companies——
We shall later have to examine this proposal, and get it entirely clear. I and my right hon. and hon. Friends take no doctrinaire position on this, but I do say that if a Capital Gains Tax is to be part of our financial structure it should not only be at a low level but should not stand alone. It should be only one element in a reform of Income Tax, Surtax and Death Duty, as a whole, and should be in a framework of reduced taxation. My main complaint about the Chancellor's proposal is that it is put forward in the context of rise in taxation, and is not part of what I might call a package deal of Income Tax, Surtax and Death Duty together. However, as I have said, we will examine this proposal later.
I have already referred to taxes on consumption. The Chancellor has argued that they are necessary. That may be so but coming, as they do, from the right hon. Gentleman, I think that I am entitled to ask "Since when?" and "Why?" I recall that in the autumn right hon. Gentlemen opposite—and I can give them a number of quotations it they want them—said that no disinflation was necessary. That was after the General Election. Apparently they had no misgivings in the autumn Budget. The right hon. Gentleman may remember that I then followed him and said that his Budget was inflationary. That brought jeers, and cries of derision from the benches opposite. Well, here is the result today.
Any action that the Chancellor has taken today is in respect of the mismanagement of the economy since November—[Interruption.] Hon. Members opposite again jeer and laugh, but they did not think that any disinflation was necessary after the General Election, they did not think it necessary in November, and they have done nothing between then and today in any way to curtail Government expenditure. Now the right hon. Gentleman has concluded that he must take this large amount out of consumption in this country. [Interruption.] I am entitled to my opinion. The right hon. Gentleman may not like what I have said, but I think that it is true.
The truth is that many of the taxes have to be imposed in order to restore the confidence of the foreigner which the Government lost. If ever there has been a party in thrall to the bankers it is the Socialist Party, and the Government's effort to correct an inflation of their own making is in sharp distinction to the behaviour of hon. and right hon. Gentlemen opposite last year, when they did not help us very much. When we said that the economy was fundamentally strong, they jeered. In contrast with that behaviour, we support the right hon. Gentleman when he says that the economy is fundamentally strong—and he can do so now with more effect when production is rising, exports are rising and the balance of trade is improving, as we said they would.
I turn to the right hon. Gentleman's conclusion about the cancellation of the TSR2. I rose as he was speaking in order to complain that while he told us of the savings that he expected to be made from the cancellation of this aircraft, he did not tell us whether it was intended to buy the TFX from America, or what would take its place—[Interruption.]—I will come to the Secretary of State for Defence in a moment. I have never seen a more scurvy trick played on Parliament than the one that has been played today.
The Chancellor has taken credit for the savings on the TSR2, but he has not told us whether we are to buy an American aircraft, or have no substitute at all. His figures are worthless until we have those facts. What I complain of in the right hon. Gentleman and his colleagues is that they have included in the statement of the national accounts that the Chancellor makes annually in the Budget a decision which alters all the strategic concept of our defence planning and the industrial organisation which services our Armed Forces.
What use is it for the Prime Minister to say to General de Gaulle that we shall go into partnership in aircraft production—because the right hon. Gentleman knows that very marginal minimal things are being considered at the present time—when, in advance of a really worthwhile project being worked out with French or European allies, he has taken a decision that is bound to send all design teams scurrying to seek employment and security elsewhere, and when he gets rid of our greatest asset of this kind—this great aeroplane, probably the best of its kind in the world. I do not think that this is the best way to enter into partnership with Europeans for future projects of this kind.
There is only one explanation for the procedure that the right hon. Gentleman has adopted, and it is funk. [Interruption.] The Government are ashamed of what they are doing, and they want to cover it up by hiding it amongst the rest of the things which a Chancellor of the Exchequer normally says on Budget Day—[Interruption.] The Leader of the House is not present now, but I shall ask for a day to debate this subject, so that we may know the full intentions of the Government. As far as I can see now, we are bound to censure them, and I believe that our censure will be taken up by a great many people who wish to see the country's aircraft industry preserved.
That is all I have to say about the Budget now. My right hon. Friends will give their reviews in more detail, having, studied all the Chancellor has said with the closest attention—and it deserves it —but I must repeat that this is the pattern of Socialist Budgets. We have had two of them. We had the first dose in the autumn, and we have had the second dose now. They have both included rising taxation, and I think that tonight more and more people will join us in feeling that we dare not have from the party opposite a third and a fatal dose.
I hope the Committee will forgive me if I take this opportunity of giving it more details of Her Majesty's Government's decision to cancel the TSR2 programme and of how we propose to deal with the military and industrial consequences of this decision. I hope, in the course of my remarks, to deal with the point which was raised by the Leader of the Opposition.
The Government have been wrestling continuously with this problem ever since they took office some six months ago. It has always been obvious that the cost of continuing the TSR2 programme was likely to impose an intolerable burden on the national economy, in general, and the defence budget, in particular. But we have had to consider also the operational needs of our defence forces and the needs of the sort of aircraft industry which Britain is likely to require in the 1970s for both military, technological and commercial reasons.
On a point of order. I seek your guidance, Sir Herbert. Is it quite in order for the Secretary of State to make this statement now, since the Chancellor of the Exchequer said it would be made at 7 o'clock and many hon. Members are returning at 7 o'clock expecting the statement to be made then? [Interruption.]
I hope that this is a proper and serious point of order, Sir Herbert. Would it not be better and in accordance with the true traditions of the House of Commons if the promise made by the Chancellor of the Exchequer were fulfilled and this statement were made at 7 o'clock? I suggest that the Secretary of State should cease speaking now.
As I was saying, Sir Herbert, we discovered when we came into office that the programme for the TSR2 planned by the previous Government would have cost about £750 million for research, development and production. An order for 150 aircraft would have meant that each one would have cost £5 million. The smaller the order the higher the cost per aircraft. For example, an order for 100 aircraft would have meant that each aircraft would have cost over £6 million, of which nearly £5 million would still remain to be spent. These were the figures which the previous Government accepted as the basis of their policy. I submit that a programme of this order was not one which, in any circumstances, could be held to represent value for money. It was not only too costly in terms of defence expenditure. It was also making far too great a demand on our country's scarce resources of highly skilled manpower.
Nevertheless, I do not believe the Government would have been justified in taking a decision to cancel the TSR2 at the time when they decided on the other changes in our military aircraft programme two months ago. We needed better information than we then possessed on the probable cost of the TSR2 and on the cost and performance of possible alternative aircraft. As the Prime Minister explained on 2nd February, it was the mounting cost of the TSR2 programme on which the previous Administration had embarked which was the essential reason for the review which has been undertaken.
We now have enough further information to take a decision, and it is clear that no more significant information is likely to be obtained for some months. The House was informed earlier——
On a point of order. The Secretary of State is about to embark on a series of statements, as I understand from what he has just said. There will doubtless be a great number of questions which hon. Members, perhaps on both sides, will wish to ask him. Will it be in order, Sir Herbert, to ask him those questions as one usually does after a Statement; or, if one rises to one's feet and is called to ask a question, will one be taken to have spoken in the debate and therefore be precluded from speaking in the rest of the Budget debate?
Sir Herbert, I think that this puts the Committee in a great difficulty. This is a subject in which, as is well known, hon. Members on both sides have a great interest. It vitally affects the future of the country. As my hon. Friend the Member for Stroud (Mr. Kershaw) pointed out, no doubt hon. Members will wish to ask many questions. Will such questions be counted as speeches, or is this matter to be regarded as a statement after Questions so that we shall have questions running for perhaps an hour or more in the middle of a debate? I do not think that this practice ought to be allowed to go without you ruling, Sir Herbert.
I am most grateful to the Leader of the Opposition for his representation. As I see it, however, the Secretary of State for Defence is participating in the debate on the last of the Budget Resolutions, and all speeches that follow his should be directed to that, the scope for which is quite wide. Mr. Healey.
It is not for me to decide how the Secretary of Sate for Defence speaks. He has risen to participate in this debate on the Budget Resolution. I have called him. He is making his speech as he thinks fit.
Would it not be much tidier and better if we were to move to adjourn the debate so that a statement may be made which may be followed by questions, and then we can resume the Budget debate when we finish with that?
Indeed, Sir Herbert. My point of order was directly in relation to what has been said by the Leader of the Opposition. He suggested to you, Sir Herbert, that it would be helpful if the debate were to be adjourned and the statement of my right hon. Friend were made as a statement of the same nature as those made after questions. If that were the course to be taken, would it not have the disadvantage that hon. Members opposite and other hon. Members would only be able to put questions and would not be able to continue the debate? Is it not, therefore, the fact that the procedure which has been adopted by my right hon. Friend the Secretary of State for Defence gives the maximum opportunity to hon. Members opposite?
On a point of order. I find myself in the seat of the Liberal Leader who expected the statement to be made at 7 o'clock. This shows the general confusion caused by the tactics adopted by the Government in this matter. The difficulty that we face can be resolyed only by the Secretary of State for Defence making a statement tomorrow after Questions in the normal way so that there will be no confusion between military, political and economic matters.
On a point of Order. Might I invite you, on a real point of order, Sir Herbert, to look at Resolution 22? It will be seen that this Resolution does not and cannot entitle the Minister of Defence to speak to the Resolution. If that be so, he must be speaking out of order, because he was not called to make a speech in the debate. He was called, or should have been called pursuant—
Perhaps I can help the hon. Member, and indeed other hon. Members, by reading a quotation from Erskine May which happens to have come to my hand just at this moment. It says that the scope of debate on Budget Resolutions enables speakers to be
at liberty to consider expenditure in its relation to the burden of providing the necessary revenue.
On a point of order. Has it ever happened in your memory of the House or the Committee, Sir Herbert, that a leading Government spokesman should make a statement in a Budget speech on a detailed military matter—something which should have been made as a statement after Questions in order that the Opposition might he able to question him in a normal manner?
On a point of order. Is it not the case that the previous Government announced the buying of the American Phantom during a speech in the defence debate? Is it not the case that the then Prime Minister announced details of previous aircraft programmes in a speech in a debate, and is there any reason under the rules of order why I should not do the same?
On a point of order. You will have heard this afternoon, Sir Herbert, during the Chancellor's statement that the Secretary of State for Defence would make a statement at 7 o'clock. A number of hon. Members who have constituency problems are dealing with other matters in this Palace. Is it not absolutely wrong to mislead hon. Members by 40 minutes in the timing? What does it mean?
We are now engaged in debating this Budget Resolution which I have already referred to the Committee. The right hon. Gentleman the Secretary of State for Defence rose to participate in the debate. I called him when he rose, which is the customary thing to do when a Privy Councillor rises. I hope that the right hon. Gentleman will be allowed to continue his speech in silence. Mr. Healey.
On a point of order. This is a perfectly genuine point on the protection of the rights of hon. Members on both sides of the Committee. If you will not accept a Motion from me for the adjournment of the House and that we should take this matter on the Adjournment and then resume the debate in Committee, which I think would be much the best way, I shall have to ask you, Sir Herbert, whether, when the right hon. Gentleman has finished making his statement, you will allow questions in the same way as after Questions. [HON.MEMBERS: "No."] I am asking the Chair, not hon. Gentlemen. Will you allow questions, as you would have done if this had been a statement after Questions?
I take note of what the right hon. Gentleman says, but the fact remains that we are in a continued and consecutive debate and the speech made by the right hon. Gentleman the Secretary of State for Defence, when it is made, will be followed by a speech made by another hon. or right hon. Gentleman. The same position applies, in terms of asking questions, as would apply if I were to agree to accept the Motion for the Adjournment of the House. Questions would not then be in order. I trust now that the Secretary of State will be allowed to make his statement.
On a point of order.The Committee is obviously in a very real difficulty. The Committee has been led to believe that a statement would be made at seven o'clock. It is within the power of the Chair to suspend the Sitting for a number of minutes. I would ask you, Sir Herbert, whether you would suspend the Sitting until seven o'clock when the statement could be made, as was promised by the Government?
The House of Commons was informed earlier that we should seek a fixed price for the TSR2. In view of all the complexities of the programme, the manufacturers have not been able to offer such a price. The best arrangements that they have felt able to offer would have given no assurance that Her Majesty's Government's ultimate financial liability would have been limited. The likely course of completing the development of the TSR2 would have been as high as, or even higher than, previous estimates. Meanwhile, every week that the programme continues it is costing the taxpayer something of the order of £1 million.
In the circumstances, we do not feel that we can justify any further delay. With deep reluctance, Her Majesty's Government have decided that they must now cancel the TSR2 programme. I hope that no one believes that this has been an easy or welcome decision, particularly at a moment when the aircraft was making good progress in its development programme. We are fully conscious of the disappointment our decision must cause to those thousands of people who have worked so long and so hard on a project which has been cancelled through no fault of theirs. The fundamental reason for the cancellation—I ask the Committee to accept this—is the stark fact that the economic implications of modern military technology rule out British development and production of this type of aircraft for a purely national market.
I should like to say a word or two about the military and industrial implications of this decision, and, in the course of so doing, answer the question raised by the right hon. Gentleman the Leader of the Opposition. Her Majesty's Government have no intention of requiring our forces to forgo the aircraft at present planned to replace the Canberra towards the end of this decade without making certain that they can carry out their operational tasks by other means. It will not be possible to define these tasks precisely until the defence review is completed later this year. The review may show that the number of aircraft required with TSR2 performance characteristics—
Now the right hon. Gentleman is getting himself in difficulties. He is perfectly entitled, as I showed by a reading from a passage in Erskine May happily convenient to hand, to consider expenditure in its relation to the burden of providing the necessary revenue. He is not entitled to deal with other questions of defence.
On a point of order, Sir Herbert. Since it is quite clear that the Minister intended to give highly relevant information to the Committee, which you have prevented him from giving, is it not important that he should have a proper opportunity to do so, and ought he not, therefore, to make a statement tomorrow afternoon?
On a point of order, Sir Herbert. It has now become abundantly clear that the Secretary of State for Defence is anxious to give the House of Commons certain information which you have said it is not in order for him to give at this moment. Is not the right course for him to do so tomorrow, making a statement after Questions, when he can be questioned in the usual way?
I shall seek to show that the economic and financial implications of this decision, which are all-important to the nature of the Budget which we are now considering, can be explained only in relation to the likely requirement for possible aircraft to replace the aircraft which is now being cancelled, and I can undertake, Sir Herbert, not to raise any issue which is not directly relevant to the debate.
I understood your Ruling, Sir Herbert, to have precluded the Secretary of State from giving any reasons other than financial for making the statement which he is now making, and he has now proceeded to justify the information which he was giving to the Committee by referring to needs and requirements in terms of material and military weapons which our defence forces might need. Is not the right hon. Gentleman himself failing to heed the Ruling which you have given, which, apparently, will prevent other hon. Members from questioning the Minister on these matters?
On another point of order, Sir Herbert. You have the task of assisting back benchers in protecting the interests of constituents who are affected by statements of this nature. This is a detailed statement concerning military matters. Will you give an opportunity to hon. Members whose constituents are affected to ask questions immediately after the right hon. Gentleman has finished?
Every hon. or right hon. Member who seeks to catch the eye of the Chair does so for the purposes of constituents. I note that the noble Lord has asked to take part in the debate.
The assumption here, Sir Herbert, seems to be that the Minister is making a statement. [HON. MEMBERS: "He said so."] If hon. Members will refer to HANSARD tomorrow, they will find that my right hon. Friend the Chancellor of the Exchequer in his statement, dealing with the TSR2 and the saving therefrom, said quite clearly that my right hon. Friend the Secretary of State for Defence, if he caught the eye of the Chair, would make a speech later on. [HON. MEMBERS: "At seven o'clock."] That is the position. I understand further —I was not in the Chamber at the time—that the right hon. Gentleman the Leader of the Opposition—[Interruption.]—had already indicated that a Motion—
I understand that the right hon. Gentleman the Leader of the Opposition has said that the Opposition are likely to put down a Motion of censure. If the Opposition table a Motion of censure, the Government must, of course, pick it up, and it will have to be debated before Easter. It will give full opportunity for debate. I should have thought that it would be advisable to let my right hon. Friend complete his speech now and let us get on with the general debate, dealing with the points as they arise next week.
On a point of order, Sir Herbert. This is not the first occasion when the Government of the day have, perhaps, misjudged the procedure. Now that it has been drawn to the attention of the Leader of the House that you, Sir Herbert, cannot, under our rules, permit this sort of statement, is it not clear that the Leader of the House ought to alter the order of his business so that the House may be fully and properly informed?
On a point of order, Sir Herbert. There are certain indications that copies of the right hon. Gentleman's statement have already been passed to the Press. [HON. MEMBERS: "0h."] If the right hon. Geltleman's statement or speech is partly out of order, is that in order?
It will not be possible to define these tasks precisely until the defence review is completed later this year. The review may show that the number of aircraft required with TSR2 performance characteristics may be substantially below the existing TSR2 programme. On certain hypotheses about long-term commitments it might even be possible to reshape our defences in such a way as to dispense with this type of aircraft altogether. We shall make every effort to see how far existing or planned British aircraft, or possible and economic developments of them, will meet the whole or part of the requirement. In order to be certain that whatever happens our Services—
On a a point of order, Sir Samuel. The right hon. Gentleman has said that under certain hypotheses he envisages the R.A.F. without a strike aircraft. Surely the only circumstance in which he can envisage the R.A.F. without a strike aircraft would be the complete withdrawal of our forces from the Far East, the Middle East and Cyprus. Is that the Government's policy?
No. I myself think it most unlikely that these hypotheses would be fulfilled. They would, indeed require such a radical change in our commitments as to imply tremendous changes not only in the R.A.F. weapons programme but the weapons programme for the whole of our forces.
In order to make quite certain that, whatever happens, our Services will have appropriate aircraft in sufficient numbers, Her Majesty's Government have secured from the United States Government an option on the F-111A aircraft at a price per aircraft which, even on a full-scale programme, would represent less than half the estimated total TSR2 research, development and production cost. On a smaller order——
This is a very important point. In a previous statement we were told that it would be the F-111 Mark II. Would the right hon. Gentleman make it quite clear that this is on option? Will he also make it clear whether the aircraft has actually been built?
No, Sir; the F-IIIA Mark II, like the TSR2 Mark II, has not yet been built. But it is likely, certainly if there were no change in our commitments—this is a matter which we shall investigate in the course of the review —that it would be the F-111A Mark II which we would require, and this would be our intention——
Perhaps the right hon. Gentleman would allow me to get a little further on, and then I will give way again. I will give way in a moment when I have finished this part of my speech concerned with the option. It it rather complicated, and of immense importance to the Budget, as a matter of fact.
On a smaller order than a full-scale order, the advantage over the TSR2 would be even greater. But even on the full order, on the basis of money yet to be spent the F-111A Mark II is still well over one-third cheaper. After taking full account of all future charges and payments on both aircraft, including cancellation charges on the TSR2, it is now estimated that a full programme based on the F-111A would cost £300 million less than the corresponding TSR2 programme.
The nature of the option on the F-111A is such that Her Majesty's Government have until the end of this year to decide whether to take it up. Any initial order would be a very small number for training purposes. It would not be necessary for Her Majesty's Government to place a follow-up order until as late as April, 1967—that is, two years from now. This arrangement will enable us to complete our defence review before deciding whether to place any orders at all, and it gives us two years from now before we need take a final decision on the total numbers that we require. [Interruption.] We shall have the firm numbers.
If it emerges that the need for a certain number of F-111A aircraft is required, we shall consider every means of keeping this number to a minimum by making the best use of all available British aircraft. We shall also explore fully the possibility of including some British components in the F-111A in order to reduce dollar costs. The Government have already considered very carefully the effects on the economy——
I must interrupt the right hon. Gentleman, Sir Samuel, on the point mentioned by my hon. Friend the Member for Ilford, South (Mr. Cooper). The right hon. Gentleman, in the hearing of the whole Committee just now, said that what he was saying is not available outside. Is that so, or is it not?
A Press release was given by the Ministry of Defence as a Ministry of Defence Press release for Press purposes when I stood up to speak. It contains—[Interruption.]—wait a minute. It is not a release in the exact terms in which I am making the speech now. It contains some of the information that I am now giving to the Committee but no information which I am not giving to the Committee. I am, in fact, giving the Committee some information which is not being released to the Press at this moment—[Interruption.]—Nonsense. The Government have considered very carefully——
On a point of order, Sir Samuel. Is this not a complete abuse of our proceedings? Is there not some protection for hon. Members in this Committee? Ought not the right hon. Gentleman at least to have the courtesy to make an apology to the Committee for the manner in which he has dealt with this subject?
Yes, Sir Samuel. The speech my right hon. Friend is trying to make is in answer to a request from the Leader of the Opposition for information. Is it not clear that the new spate of points of order referring to a Press release outside would have no validity if the Opposition would allow my right hon. Friend to make the speech he was going to make?
On a point of order. Before you took the Chair, Sir Samuel, your predecessor ruled that this speech by the Defence Secretary was being made under Resolution No. 22. He ruled quite clearly that it was in order to discuss matters affecting the cost of this project but not to advance the military reasoning which lay behind the arguments. The Committee is in a very real difficulty in discussing this matter without being able to advance military arguments.
In view of the difficulty in which we find ourselves and of the importance of this statement masquerading as a speech, will you accept a Motion for the Adjournment of the Committee?
They have taken fully into account the dollar expenditure which would be involved in later years if it proved necessary to take up in whole or in part the option they have secured on American aircraft. Some of the resources which will be released by the cancellation of the TSR2 will need to be retained in the aircraft industry on new projects, but the Government expect that a substantial part of them will become available for employment elsewhere.
The Government have opened discussions with the companies and the unions so that there will be no delay in redeploying the resources involved. My right hon. Friend the Chancellor of the Exchequer, in his Budget statement today, estimated that the cancellation of the TSR2 would release resources in this country totalling about £350 million over the next fiveyears. As regards manpower, many highly skilled designers, engineers, and skilled workers of various kinds will become available. These abilities and skills are of a kind which we must apply in the civil sector of our economy if we are to achieve the increases in our exports which are essential to put our balance of payments right. We need to increase the output of goods which can be sold abroad or substituted for imports. But we cannot do this unless we can improve the relative competitive position of our own industries.
In an advanced economy, the growth of productivity and competitive strength is increasingly reflected by the rate at which new products and processes are developed and marketed. Thus, the release of highly qualified people from the aircraft industry must be expected to lead to an increase in productivity and the speeding-up of technological progress in other industries, and thus a widely spread benefit to the economy and the balance of payments. This, of course, will not all come about at once. But the Government hope that the growing technologically based industries, whose expansion is now hampered by the shortage of skilled professional staff and workers, will make the most of the opportunity which is now open to them to fill some of these gaps. The Government are keenly aware that many skilled workers will have to change jobs as a result of the decision which has been taken. As many as 20,000 people may be involved, the majority at the British Aircraft Corporation Ltd. and Bristol Siddeley Engines Ltd. The terms of severance payment are a matter for negotiation—[Interruption.]—between individual employers and employees. The Government expect their contractors to act as good employers—[Interruption.]—and are willing to bear through their contracts a fair share of the burden of severance payments. The Government for their part will keep——
On a point of order. Your interjection a moment ago, Sir Samuel, explains precisely our difficulty. This was to have been a statement, and if hon. Members are not to be able to elicit this sort of information from the Secretary of State, the whole statement becomes absolutely abortive and the purpose is not served.
I just made this point. The Government for their part will keep in close touch with the firms and trade unions concerned and, through the placing machinery of the employment service and the provision of any necessary training facilities, will make every effort to help the people who are released to find alternative work which fully utilises their specialist knowledge and skill.
The benefits from the released resources——
The benefits from the released resources should be secured long before we are called on to make any substantial payment of foreign exchange for any American aircraft which the Government may later decide to buy. We have secured an offer of favourable credit terms from the United States Government which, broadly speaking, would mean that the burden on our balance of payments would be very small for some years ahead.
We must, over the next year or two, succeed in re-establishing our competitive position if we are to restore a strong trading position. From this point of view, we are confident that the case for the cancellation of the TSR2 is unanswerable.
At the end of 1964, the aircraft industry was absorbing too large a proportion of the country's resources and the military aircraft programme, apart from being out of phase with defence requirements, was placing an impossible burden on the economy and on the defence budget. While we in this country cannot afford in the future to undertake a wide range of highly sophisticated projects by ourselves, it is the Government's firm intention to retain a lively and viable aircraft and equipment industry of a size consistent with our resources and needs, both in military and civil aviation.
The decisions to go ahead with the development of the P1127 VTOL fighter and the Comet Maritime Patrol aircraft have already been announced. In addition, we are planning with the French the joint development of a strike trainer aircraft for the early 1970s. In the longer term, we hope to follow this with a more advanced project incorporating variable geometry, and preliminary discussions on this are already under way. There was no chance of accommodating any of these —[Interruption.] — in our defence—[Interruption.]
On a point of order. The right hon. Gentleman is raising issues which cover the whole width of the aircraft industry which is of vital importance to many of our constituents. May we have your assurance, Sir Samuel, that when we come to speak we shall be able to speak as widely or wider than the right hon. Gentleman?
These projects will form a sound basis for the reorganisation of the industry's resources and capacity, certainly on a reduced scale, but also in a manner better calculated to serve the defence and economic interests of the country and to build up an effective collaboration with our allies in Europe.
These have to be negotiated in detail with the company. I can give only a broad order of costs, but this matter can be pursued further if the Opposition want to have a debate on the subject. My right hon. Friend the Chancellor of the Exchequer told the Committee that over the next 12 months, the 12 months with which the Budget is concerned, the saving will be £35 million, taking into account this part of the cancellation charges and termination costs which fall in the next 12 months.
I understood the right hon. Gentleman to say that he has a firm price from the American manufacturers for the F111 Mark II. Can he explain how he is quoted a firm price for an aircraft of which the design has been hardly begun, let alone completed, unless the Americans are prepared to give it as the price for getting rid of the British aircraft industry?
Right hon. and hon. Gentlemen have not been listening very carefully for the last hour. If they had, they would have heard me say that we have a firmer price for the F111A Mark II than we have been able to get for the TSR2.
On reflection, hon. Members on both sides of the Committee will recognise that the decision which we have taken is of crucial importance not only to the military—
It is a decision of crucial importance not only to the military, but also to the economic future of the country, but I must say that anyone who has sat here for the last hour would not have thought that hon. and right hon. Gentlemen opposite thought so.
On a point of order. is it in order for right hon. and hon. Gentlemen opposite, when we are debating the most important Budget in ten years, to interfere in this way with the debate and waste the time of the Committee?
The right hon. Gentleman has just read out a statement to I the House which he should certainly have brought to the House yesterday when lie was first for Questions. He should have read it in the normal way as a statement to the House so that hon. Members on both sides would have had the opportunity in the normal way of questioning him. The right hon. Gentleman knows this in his heart of hearts. The right hon. Member for Easington (Mr. Shinwell) would never have done this, and nor would any of my right hon. Friends. They would never have treated the House with this contempt. This is nothing more than a straight statement—
On a point of order. Is the right hon. Member for Bedford (Mr. Soames) in order in questioning the Ruling of the Chair, because the Chair ruled on many occasions when this point was raised by the Opposition that my right hon. Friend was perfectly in order in making this statement?
On a point of order. I wonder whether you would be kind enough, Sir Samuel, to advise me, and possibly other hon. Members, whether we should follow the rules or conventions as prescribed by Mr. Speaker? You may remember, Sir Samuel, that yesterday Mr. Speaker said that points of order which, in his judgment, were bogus or irrelevant would in future be the subject of disciplinary action by him. Are we governed by the same rules? Secondly, as there have been, according to my calculations, 21 irrelevant and bogus points of order, should not this be borne in mind and reported back to Mr. Speaker?
Since you have ruled, Sir Samuel, that I must confine myself to the financial aspects of this matter, and since this raises so many vital issues concerning both defence and the future of the aircraft industry, obviously this is not the time to take the matter further or for me to follow the Secretary of State into some of the realms which he covered and which went far beyond the bounds of finance.
On a point of order. The right hon. Member for Bedford (Mr. Soames) has just said that my right hon. Friend the Secretary of State, in the speech which you, Sir Samuel, permitted him to make, went far beyond the bounds of order. Is not this a criticism of the Chair and is it a proper point for the right hon. Gentleman to make?
I did on one or two occasions call the right hon. Gentleman to order. I do not think that the right hon. Gentleman should criticise the Chair, if he was doing so, in the way that he did.
It is quite evident from what you have said, Sir Samuel, that if one were to follow the right hon. Gentleman in all the ramifications of the cancellation of the TSR2 and in the purchase of another aircraft to take its place, it would be extremely difficult, to say the least, to keep within the rules of order in this debate. We deplore the manner in which it was done. We cannot understand why the right hon. Gentleman did not come to the House squarely and openly after Questions yesterday, when he was first for Questions, and stand up to the racket. He would not. No hon. Members——
On a point of order. Is it not the case that I answered 45 Questions yesterday? No Member opposite chose to put down a Question on this problem in a form which enabled me to answer it.
The right hon. Gentleman knows full well the extent to which we on this side deplore the abominable decision which has been made. As my right hon. Friend the Leader of the Opposition has said, a censure Motion will be put on the Order Paper and we intend to deploy the case against what we consider to be an abominable decision which will affect very seriously both the ability of the Royal Air Force and the ability of the aircraft industry to fulfil its duties.
I would ask the right hon. Gentleman one question. He said during his statement that the F111 Mark II was as far forward as the TSR2. Does he include in that all the electronics which he wishes to see in the Flll Mark 2 and have these been tried out? Is is not a fact that he is cancelling the TSR2 and reckoning to put in its place an aircraft not yet anywhere near so advanced and which is not even flying yet?
I am very glad to have the opportunity of participating in this most important debate. I should like to congratulate my right hon. Friend the Chancellor of the Exchequer on introducing his first major Budget. We all realise that it is always a very great ordeal. It is an occasion to brace up nervous nerves, and I must say that he surmounted the trial with straightforward determination and good deliverance. After listening to my right hon. Friend's long dissertation, in which he presented the right side and the left side of the nation's balance sheet. I am profoundly convinced that his assessment must depend upon the progress of indispensable objectives in the national economy to make it much more viable.
My right hon. Friend covered a lot of ground and dealt with many complicated natters which, I submit right away, must require more time to delve deeply or to examine all the details, the figures and the analyses of the position presented. While they are of major fundamental importance, they should enable us to probe more deeply into the inner meaning of things, pass judgment and form conclusions arising out of the present state of economic conflict. Without intending to pronounce an absolute opinion, I want only to make a few observations.
It appears that the general mind is becoming more and more preoccupied with tremendous problems. However high or exemplary wishes or ideas may be, conditions of rivalry and strenuousness in economic and social issues have never before prevailed to the degree that they have now reached. There are, of course, antecedent causes in practically every situation. Nothing ever happens without cause and nothing ever happens without leaving behind some results.
We are passing so rapidly through so many moving events that it is impossible to avoid a haunting sense of meaning because we seem to be in the throe of conditions which are inexorable. In the daily sequence of events which is spread before use, most people dislike being told that their economic troubles are grave and incurable without a drastic alteration in their environment, bearing in mind that all sorts of circumstances, foreseeable and unforeseeable, might in one way or another affect the standard of living.
I also believe that until economic difficulties are solved so as to give the mass of people the means of a secure and tolerable existence, nothing will ever solve the struggle in which one survives and another is cast out.
As the mind struggles to ascertain what is reasonable, with the mechanism and the forces that are necessary and capable of producing changes, we need to be reminded that year after year it has been made clear that the theme of the Budget was expansion without inflation and that expansion should continue at a rate that can be sustained without inflation. But the Budget not only deals with Government revenue and expenditure: it attempts to direct the course of the economy over the next few years.
We always wish to recognise things in their true existence and what relative truths we have to face. We need to acquire a picture of that part of the expenditure announced by my right hon. Friend the Chancellor of the Exchequer which represents investment to enable industrial firms in the productivity drive to provide jobs in the future and the measures needed in dealing with the problems of structural change in the old industrial areas.
There are many serious matters connected with such objectives. If we are to secure and maintain a faster rate of industrial growth or expansion, the first objective would be to bring about a more even spread of economic activity and to be able to make the fullest use of our resources.
For many years, particularly from these benches, I have appealed and drawn attention to the extraordinary dimensions and depth of the adverse economic transformation prevailing in my constituency. Being dependent on such heavy industry as coal mining, it has been, and still is, vulnerable to cyclical changes in the economy and the effect of redundancy has shaken the very foundation of the industry in the constituency.
The consequences of this fact furnish an example which should leave no one in doubt as to the meaning of planning and organising economic life. This leads me to say that one of the most important tasks incumbent upon my right hon. Friend the Chancellor of the Exchequer is to tackle the obstacles to economic growth. It is a slow process, but now that the Government have set in motion the regional planning board in the North-East, its value will depend upon its being able to move Government Departments and industry into giving priority to the needs of long-term expansion in the economy in the North-East.
It is against this background that we would expect progress to be made in the provision of additional employment, by attracting new firms from outside the region. Therefore, we welcome any measures likely to give hope for those people in areas where redundancy is likely to develop through the contraction of older industries.
It is obvious that the Budget of a new Government is conditioned to some extent by the economic circumstances left behind by their predecessors. When power was transferred, the country was submerged in an economic crisis of great magnitude and complexity. The conditions that the Government took over included a trade deficit of £745 million, a rapidly worsening sterling crisis and sure signs that the country's internal economy was becoming overstrained.
It may be that the British economic and financial system is vulnerable because of London's pre-eminent position in the world, but as experience has come to be considered to be the best school in life it teaches us that as financial crises grow, the reaction on the London money market can be very severe. In fact, the latest Bank of England returns indicated that up to December last year £570 million had been drawn from the credits allocated by the International Monetary Fund and also foreign central banks to meet the crisis of sterling. It is to be noted that as interest rates were rising most of the year, they accelerated with the rise in the Bank Rate, which brought the total interest payments for last year to £428 million.
In these circumstances it was, perhaps, inevitable that the Budget should have produced increases in taxation and, to that extent, a measure of deflation. But in all the gaunt circumstances, the vital question before us is, how are we to encourage economic growth without inflation?
One solution which must be tried, and on which there should be no disagreement, is the curtailment of unnecessary expenditure. Disagreement will probably arise as to what expenditure is unnecessary, but in fact the only field in which expenditure can be cut on a scale substantial enough to make any difference to our economic conditions is military expenditure. My right hon. Friend the Chancellor of the Exchequer this afternoon drew attention to the more serious aspect of the growth of overseas defence spending. The cost of military expenditure is growing all the time, adding enormously to this country's economic difficulties, and I believe that a reduction here would have an immediate effect in easing not only the strain on our internal economy, but also the strain on our balance of payments, since much of our military expenditure is in foreign currency.
I have previously called attention in the House to the necessity for looking more closely at these costs. Having served on a sub-committee of the Estimates Committee, and having studied the problem for the last three years, I have had plenty of opportunity to think about it. Obviously it is a problem which needs plenty of thought. Because of the need to keep up with the military Joneses, and the necessity of entering into long-term financial commitments in order to do so, military costs have a built-in tendency to rise at a much faster rate than any other form of Government expenditure if they are not curbed.
The cost of our forces in Germany is equal to a very considerable percentage of our trade deficit in Europe, and it is of interest to note that the West German Government have just announced a cut in their defence budget of 1,000 million Deutschmarks, representing a reduction of 6 per cent. on last year"s figure. At the same time, the German Chancellor announced that social benefits in West Germany were to go up by 2,000 million Deutschmarks, and his Budget also contained reliefs for less well-off taxpayers.
It may be that the basic reason why history appears to proceed in great cycles is that each generation retraces old steps which its predecessors have already covered, but for many years Ministers of the Party opposite allowed costs to rise, and I am now glad that my right hon. Friend the Secretary of State for Defence and his colleagues have shown themselves to be alive to the dangers and lave at last ordered a review of defence expenditure.
There is no doubt that in such matters very good reasons can be found for things to go on as they are going on now. Equally, there are probably top people of high military rank who at this moment are busy producing good reasons why military expenditure should be as high as, or even higher than, it is now. But Mere are kinds of economies which we can least afford to make if Britain is to become a modern and efficient society, but in the light of the precariousness of cur national economic position, I suggest that there cannot be any better reason for cuts in military expenditure Man by simply stating that they cannot outweigh the pressing need for huge sums that are needed to improve and advance many vital social programmes. It would be a valuable way of tackling economic problems, and I hope that the Cabinet will continue to look very care-fully at the reasons advanced for our ever-rising military costs.
The last substantial point that I want to make is in reference to local government finance. I willingly accept the assurance of my right hon. Friends that steps are being taken to intensify work on the review of local government finance, and while we look forward to a situation which may be an acceptance of new principles, I only want to limit my remarks in this sphere.
Scrutinising the pages of history, I find it of interest that when the various monastic bodies were abolished, and the monasteries destroyed by Henry VIII from 1535 onwards, a duty of poor relief was imposed on the public at large. In 1552 an Act was passed empowering bishops to put pressure on their flocks so that the necessary money might be raised. Their power was further increased to enable them to bring before the justices any person who refused to contribute according to his ability to pay, and if he failed to pay he might be put in prison until he made a proper contribution.
The progress of the Act of 1597 during the reign of Elizabeth I provided for the raising by the overseer a weekly taxation of every inhabitant and occupier of lands such money as he thought fit. But ever since then we have had nothing but complaints about people having to contribute to pay rates, and there is now evident and widespread concern among ratepayers of all classes.
In the face of financial pressures, the prospect facing many councils is one in which existing sources of revenue are inadequate to meet the ever-rising bills. The last Government introduced the Rating (Interim Relief) Bill, but they did not seek to define hardship. They left it to the local authorities to assess hardship in view of the resources and needs of the householders concerned. It is in this respect that while we must recognise that thrift began when men found it necessary to provide for tomorrow, many old people, whom I know well, have exhibited strength of will and determination to this purpose, but after a lifetime of endurance, trial, and patience, they are now faced with the excessive burden of quarterly rate bills as a consequence of increasing costs in local government services.
The Bill to which I have referred made provision for grants to be paid to rating areas with a high proportion of elderly people, but it meant that areas below the average of elderly population, which was I think about 120 per thousand, would get no grant whatsoever. It was also felt that a clearer guidance should be given on the definition of hardship. but we had to await the Allan Committee's Report, which is an assessment of the impact of rates on householders and the circumstances likely to give rise to hardship.
I am not going to take up any time in dealing with that Report, except to say that it stresses in one short sentence that
people in need can apply to the National Assistance Board for help.
The only comment that I want to make on that is that I know of many retired people who are just a few bob above the Board's regulation allowance, and are therefore ineligible for support.
This may seem a minor matter to some people but it is a real source of worry and concern in my part of the world. There is real hardship among elderly retired people as a result of ever-rising rates. This can be alleviated in the longterm only by transferring some of the burden to the Central Government. In the circumstances of my right hon. Friends feeling their way towards securing the best means of new sources of revenue for local government, I hope that they will give every consideration to those elderly people who are adversely affected.
Finally, whatever surpasses our understanding in the past, the present and the future, I believe that my right hon. Friend has tried to judge the extent to which the economy needs to be tackled to gain stability. He has tried to do many things in his Budget. Any belief that recovery can be automatic must be dispensed with, as it is evident that prosperity will not come of its own accord. My right hon. Friend has had to face a very severe task in giving the closest scrutiny to the difficulties in which we are now plunged and no less by endeavouring to penetrate further towards a solution of our economic problems and guiding our resources to the most urgent needs.
It must demand a clear and positive understanding, and I wish my right hon. Friend every success in his efforts, because it must show substantially that it is of vital concern for the wellbeing of everyone in the country.
I want to make four short points in connection with the Budget. Generally speaking, this is an appalling and miserable Budget, which will have a disastrous long-term effect on the country, and particularly upon Scotland. We have heard a great deal in the past about "stop-go", and the effect which this has on the economy. The Budget is "stop-go" with a vengeance and, together with the financial measures which came into effect late last year, it will have a very serious effect on Scotland.
I see that we have another move in the direction of an increase in general taxation. This is not the way to go if we are to become a dynamic and progressive country. We have been told that about £200 million will come in through the new taxes, but the figure that we should consider is that relating to the general increase in revenue which stems from the existing levels of taxation of higher incomes. The Chancellor mentioned a figure of £380 million as stemming from this natural increase in taxation. We appreciate that higher living standards, higher wages and inflation in themselves create additional tax revenue. It means, in effect, that next year we shall raise almost another £600 million in taxation.
What effect will this have? I can see one obvious effect, which will be aggravated by the Government's other measures, especially those relating to the aircraft industry. In 1963 about 150,000 people left this country to go abroad to look for opportunities which did not seem to be available here. It is clear that if we have successive increases in taxation that figure will rise, and we will lose the best investment we have, namely, our children, in whom we have invested so much through schools, universities and colleges. This is the real danger that is brought about by increased taxation.
In this Budget and in the Budget that was introduced at the end of last year we saw a reversal of the policy which successive Conservative Governments adopted. In nine Conservative Budgets taxation was reduced. Although at the beginning of their period of office in 1951 taxation took over 30 per cent. of our total gross national income, by the time they left this had been reduced to about 25 per cent. In other words, progress in those 13 years was financed out of our expansion, and even then we were able to reduce the levels of taxation. This is the kind of progress that we must make, and this is the only way in which we can hold on to our young people and make ours a viable and progressive economy.
I am sure that the hon. Member does not wish to mislead the Committee. Is it not true that at the end of the period of Conservative Government Purchase Tax covered a wider range of goods than it did when the Conservatives came to office? Did it not include many things, such as children's clothing, sweets and soft drinks, which we never expected to be made subject to Purchase Tax?
The hon. Member will appreciate that when we came to power the maximum rate of Purchase Tax was 100 per cent., and that it was reduced successively by Conservative Governments. Although there were changes in the scope of Purchase Tax the total amount derived from it and its levels were reduced five times. This is the kind of progress that we want to make, and this is the only way in which we shall be able to create a viable economy which will offer real scope and opportunity for our young people, whom we must hold on to if we are to succeed.
My second point concerns the proposals relating to the aircraft industry. This matter will be discussed in detail, but I want to add my personal protest to those which have been made by my hon. Friends. It is a foolish and shortsighted policy to cancel the TSR2. If we are going to demolish the aircraft industry and make 20,000 people change from one job to another it is clear that in the future we shall be in real danger when we seek to negotiate aircraft contracts.
In the short term, looking to our immediate needs, it might be possible to get one aircraft at a reasonable price, but if in the future we have no real industry of our own and therefore no bargaining position, our economy will be endangered. I fail to see how any Government, especially a Labour Government, can have an independent foreign policy if we are to be completely dependent on other nations for the basic requirements of our defence policy.
In almost every debate that we have had on foreign affairs and on defence we have had difficulty in discovering precisely what is the policy of the Government on defence. We have had piecemeal proposals of one sort and another. I have great difficulty in seeing precisely what the Government's intention is. One day we have a White Paper on Defence, confirming the retention of our nuclear weapons and of our independent nuclear deterrent east of Suez, and the next day we read of 30 prominent Members on the Government side taking part in a protest march on behalf of C.N.D.
I must stick primarily to the Budget proposals. I therefore turn to the question of foreign investment. The proposals which the Chancellor outlined in this respect were amongst the most dangerous of all those contained in the Budget. We realise that in investing abroad we are preparing for the long-term future, and are putting our economy on a sound foundation, apart from the good will which is created by investing abroad and the long-term benefit which this brings to the economy, together with the good will which it creates in trade and our prospects of increasing exports.
It is most dangerous to take any action which will adversely affect the economies of the countries concerned. The Chancellor said that in future, in deciding where foreign investments should go, we should think about the return that we should get from those foreign investments. He mentioned a figure of about 8 per cent. How can we possibly hope to get a return of 8 per cent. on our investments abroad from countries like Burma, where, a 99 per cent. tax is imposed on all profits, Ghana, where the rate of taxation is about 65 per cent., Indonesia, where we are not allowed to derive any profits at all, and our assets are expropriated, and similar countries all over the world which impose very high rates of taxation? It so happens that the very countries which have unreasonably high taxes are those which most need foreign investment and aid from this country.
It is clear that in those circumstances we shall prevent aid going to those countries which need it and encourage our investments to go to countries already fully developed. I think this a dangerous thing, and the only benefit which may accrue from this course of action is that we might be able to reduce Government expenditure by a small amount in saving the salary of the Minister of Overseas Development. It is clear that we shall lose good will and undermine the long-term prospects for our economy, and I feel that it would have been far safer and far wiser if the Chancellor had tried to get a specific return from investment, if he had tried to get together with the countries which are affecting our industry and to get a commercial pact accepted by all these nations. Certain measures might be taken to try to get the co-operation of the foreign Governments so as to obtain a fair return from our investments. That would be a sounder policy. It will not help in any way to take steps which will undermine the position of this country abroad.
My chief objection to the Budget is the effect that it will have on Scotland. The Chancellor referred to a position of buoyancy and confidence which existed in certain areas, and he particularly mentioned Scotland. If the Chancellor feels that the action he took at the end of last year and the action he has taken today has in any way helped to preserve this buoyancy and confidence he is being sadly misled. The buoyancy and confidence we have in Scotland stems from 13 years of hard work in that country. Hon. Members opposite may say that in the space of a few months they have changed the situation dramatically. There has been a change in the atmosphere but that is not the kind of thing—
What the electors of Scotland decided was not related to the economic results of Conservative Party policy.
Let me be fair to hon. Members opposite. I feel that if there were a General Election next week, or within a month, or three or six months—certainly in a year—there would be a complete change in the situation. The people of Scotland can now clearly see that instead of benefiting from the false promises made by the Labour Party they are experiencing the reality of Socialist economic policy. That has done great damage to Scotland in the past and will do so again if we carry on in this way.
I do not wish to take up time speaking only about Scotland when so many hon. Members wish to take part in the debate. Having worked in heavy industry in Scotland for five years before coming to the House, it is clear to me that, over the years, Scotland's problems have resulted from a dependence on heavy industry. That has been a traditional problem and in any slump Scotland was hardest hit. The previous Government tried to tackle the major problems in the economy. They improved communications and spent money on big schemes which did not give an immediate return but will provide a long-term benefit to the economy. These included the Forth Road Bridge, the Clyde graving dock and the strip mill. This provided a foundation for the economy and for the last five years we were in fact building a new economy. Two new motor factories were provided and light industry was established right across the central belt of Scotland. A great deal of Government assistance, more than half, given under the Local Employment Act came to Scotland and the results are there for everyone to see.
Against this progress over the years, what have we had from the Labour Government? We had first a 7 per cent. Bank Rate which hit places like Scotland hardest because of the great amount of public expenditure. We had a credit squeeze, which had an appalling effect on local government progress and private industry. There has been a great shortage of money for housing projects, which is serious for places like Scotland where there is an appalling housing position. The general financial measures are even more drastic. The Chancellor said that when deciding on what taxes he wanted to levy he tried to choose those which would not hit places like Scotland too hard. In his previous Budget we had an increase in the petrol tax and if there is one thing which would hit Scotland harder than anything it is such a tax. We depend on transport for bringing down to the South the goods produced in Scotland and the petrol tax was the worst possible tax to choose from the point of view of Scotland. I challenge hon. Members opposite to produce any tax which could have a more general disastrous effect.
To day we have a further proposal to add 50 per cent. to the Road Fund licences of commercial vehicles. This is the sort of measure which hits places like Scotland very hard. Transport costs are a major proportion of costs in the Scottish economy and this is a very dangerous situation which will cause concern to the Scottish people. Here we have "stop-go" with a vengeance and it will affect Scotland extremely adversely. To give a specific example, the measures introduced last year, as a preview of this Budget, had an adverse effect in Glasgow alone to the extent of an extra £180,000 up to the end of the financial year. I am sure that this Budget and the measures which will stem from it, and the attitudes and lack of confidence which will result, will have a serious elect on places like Glasgow.
I am worried by what the Chancellor himself said, that these various measures have a cumulative effect. There is some spare capacity in Scotland and even yet a measure of unemployment exists. The cumulative effect referred to by the Chancellor could prove serious. Although we have had all these measures which will hit my country very hard, we have not had any balancing proposals. The previous Government tried to redress the balance to enable the economy to create a new industrial structure, but from this Government all we have had are measures which will do a great deal of harm to the economy. Generally speaking, this Budget will be dangerous in the long-term because it includes greater taxation and we must not forget its effect on the country as a whole. I feel that it will be dangerous not only to the whole of the economy but also to the new industrial structure which was built up by the previous Conservative Government and which brought a measure of real prosperity to our nation. We must protect this, and when the Bill is discussed during its Committee stage I hope to have an opportunity to propose changes which may help my country and redress the balance in respect of measures which have been put forward today.
I do not propose to follow the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) in the arguments which he has advanced. For one thing, the hon. Gentleman referred in the main to Scotland, and I do not know Scotland all that well. I do not think that Scotsmen generally will be as much afraid of this Budget as is the hon. Gentleman, and I certainly do not think that many of the points which he made were relevant. All the talk about taxation and the fact that there were tax reductions under the previous Conservative Government each year is not strictly true. There were tax reductions in each Budget just before a General Election, but immediately after the election Income Tax was raised, or other taxes were raised, and everyone in the country knows it. The fact that the hon. Member is a comparative newcomer to the House is no excuse for his making this sort of statement. By now the country realises the facts, and because people knew what the Tories were up to they threw out the party opposite at the last election.
I have been in the House just on ten years and we have got to a most extraordinary situation. I am finding it difficult to get used to the sort of calm which we have now, to be able to say something and to have it listened to and to interject properly. This is becoming unusual because of the sort of behaviour which we get when major speeches are made.
Maybe the way in which the speech on the TSR2 was made was not the best way of doing this, but it seems to me that this being the way which had been chosen, it was better to listen to what the Minister had to say. The right hon. Gentleman the Leader of the Opposition made it clear that he would demand a debate on a Motion of censure. Fair enough. That would enable hon. Members on both sides to make their points if they want to. To have 23 bogus points of order when it was clear that the House wanted to get on with its business—there were many hon. Members in the House who wanted to make speeches who had been turned down time after time in the past because there was no time—gives more credence to the view held in some parts of the House that there is an organisation on the Opposition side which is deliberately obstructing the business of the House. I do not know what they call themselves, but they could properly be called "Parliamentary spoilers", because that is what they are. There is nothing useful in their behaviour. They add nothing to the debates, but they prevent——
You are right to tell me off, Mr. Hynd. I have made the point which I have been wanting to make for some time. My hon. Friends feel that if we behaved in a better way, back benchers would have a better chance to speak in debates of this kind.
I have not said anything yet. What I have said was ruled out of order, so the hon. Member cannot possibly intervene about that. I am about to talk on the Budget itself, and then I shall be only too pleased to give way to the hon. Member. I have not started yet.
The Chancellor obviously had an extremely difficult time. One of the points which appears to have been missed is that the Chancellor has brought in a Budget in circumstances which are not entirely of his own choosing. I am sure that right hon. and hon. Gentlemen opposite do not believe that the full effects of their 13 disastrous years have already worn off and that we are already able to do exactly the things which we want to do. Unfortunately, that is not so. The economy is like the engine of a car which needs changes but which cannot be stopped. We have to do many things which we do not find all that palatable. Until we have got rid of the influence of the policies of previous Tory Administrations, we cannot bring in our own policy. The Chancellor found himself in extreme difficulty in dealing with this situation. He has to deal with the problem of the troubles left by the previous Administration and at the same time carry the country forward as quickly as he possibly can.
In his dilemma, the Chancellor has produced a Budget which I shall not find it very difficult to defend. The first good point in the Budget is the Capital Gains Tax, which is long overdue. We know that the Tories brought in something of a Capital Gains Tax, but it always seemed to us who were in the House then that the Chancellor went out of his way to make sure that nobody was hurt by it and that he was not serious about it. The hon. Member for Word, South (Mr. Cooper) is smiling. He knows that this is true. I am longing to hear what he has to say.
The hon. Member can judge that later on if he likes. We shall have some voting to do ultimately. One of the things which I am looking forward to is hearing the hon. Member. I have listened to his speech ten times now.
It was 14 times. We used to have interim budgets from the Tories after each election and I came to know his speech year by year. I shall be very interested to hear what sort of Amendments he has, now that he is in Opposition.
Another point which is, in my opinion, justifiable is the action with regard to business expenses. I have never taken the view that business expenses are necessarily immoral. I believe that they can serve a very useful purpose. It is obvious that for years now they have been absolutely abused. There are a number of places in London where I have eaten, at my own expense, where I have been told by the managers and the owners that if it were not for the business accounts—at night-time and not in normal business hours—they might have to close down. This is a shocking state of affairs, when all of us, including people who have never been into a restaurant in London or any other big city, are helping to finance this sort of spending. This action is long overdue.
The initial allowance on cars is an extremely good thing to abolish. I am finding it extremely difficult to remember which of my friends own their own cars. There are very few, it appears, who buy their cars themselves. Every other one seems to have his car bought for him by someone else. Because of the initial allowance and the annual allowance it is we who are paying for these cars. Psychologically, this is an extremely good move. It will help the Government in coming to an agreed incomes policy. This, once again, is another move to prepare the ground in this respect.
Another point which I was very pleased to hear was regarding the special accounts at the post office. These accounts offer a wonderful service to millions of people who do not have a normal banking account, and that is only right and proper—the hon. Member for Ilford, South apparently agrees on this. He will agree with many more things when he reads reports of the speeches tomorrow. It is right and proper that these people who do not have normal banking accounts will at last get some sort of justice.
The extra tax on cigarettes, spirits and beer will take a little more explaining, because even more so for me, if I appear to be too much in favour of this, my constituents will remind me that I neither drink nor smoke and that this will not Le a burden on me at all. But I enjoy seeing people drinking and smoking, so I do not want to see this sort of pleasure curtailed in any way. One of the things which affects all Chancellors, whether Tory or Labour—or even, miraculously, Liberal—is that they know that although this has the immediate effect of cutting down expenditure on cigarettes and drinking, eventually the habits reassert themselves and the consumption of these items continues at the old level. We ought to say to the Chancellor that, looking at the Budget as a whole, these increases are not unfair, but that as Labour policies begin to make themselves felt we shall expect to see some sort of parallel reliefs in the years to come.
I do not know why hon. Members opposite are so obsessed with the TSR2 project. They speak as though it means the end of the aircraft industry, whereas it has been made clear that that will not be the case. We need not only military aircraft, and in many ways it would be better to spend more money on the production of civil aircraft. If we tie up in a small nation like ours too much of our design and development potential in one project, other improvements which the country needs to increase its standard of living will not take place because of the lack of skilled manpower.
My right hon. Friend the Chancellor mentioned, for example, that the computer industry, among others, is sorely in need of design and development teams. At present too much of our industry is old fashioned and needs to be brought up to date. So long as these skilled people are occupied on one project in one industry the other industries have no chance of obtaining their services to make improvements. Only if these improvements are made will we be able to compete with countries like Japan and Germany, which are not fettered in this way.
The Tories have for years used the excuse that they did not want to take compulsory action. As a result, we had 2 million to 3 million unemployed before the war and while that was going on the Tories continued to claim that people should have the freedom to be unemployed and starve. It was nonsense then and it is nonsense now. All sensible people agree that the Government must take action to redeploy people, resources and finance.
I regret that the Chancellor did not refer in his speech to the question of giving help or relief for the Co-operative movement. References were made to the late Lord Mackintosh and to what had been done in the National Savings movement. I wholeheartedly agreed with my right hon. Friend's remarks on that issue, but it is essential to remember that the Co-operative movement is, among other things, a thrift organisation in essence and that each year £40 million to £45 million is paid back to the cooperators in the form of dividends. I do not have all the statistics, but I understand that in London more than £1 million goes back to the co-operators and that of that amount about 50 per cent. is left in the movement in development bonds or savings. The small savings in the Co-operative movement, unlike Post Office and some other forms of savings, are not treated fairly at present.
If the hon. Gentleman intends to show his ignorance to every one, including those in the Co-operative movement and elsewhere, that is his prerogative, but I assure him that what he says is a load of nonsense.
That has absolutely nothing to do with the point I am making. Millions of people have small sums saved in the Co-operative movement. No tax relief is given on the interest which they receive from their savings. I suggest that that is unfair and unjust. We in the Co-operative movement do not expect to receive privileges from a Labour Government. However, we expect reasonable justice, and I hope that at a later stage, my right hon. Friend will take steps to put the matter right.
I hope that the hon. Member for Romford (Mr. Ledger) will acquit me of any discourtesy if I do not follow him exactly in his arguments, although I will be dealing with some of the points he raised.
Let there be no doubt in anybody's mind about what is happening and has happened. There is no crisis of confidence in the United Kingdom or in our people. There is only a crisis of confidence in the Prime Minister and the Labour Government. The Prime Minister is untrusted and irresponsible and his pre-election speeches were the prime reason for our difficulties today.
The state of our finances was well known and my right hon. Friend the Member for Barnet (Mr. Maudling) had no difficulty in handling the situation, despite the election fears. The present Prime Minister persisted in crying wolf throughout the weeks of the General Election and was most surprised when foreign bankers and others overseas believed him. He also made wild promises for improved social benefits without increased taxes. Not only did he fool the electorate but he fooled those of his colleagues who were subsequently to become some of his Ministers.
I will quote one or two examples. The present Chancellor of the Duchy of Lancaster, in his election address, described himself as Labour's expert on
taxation, finance and pensions. Very modest people they are in the party opposite. He said in his election address:
Labour will not be a spendthrift Government. It will not need to increase the general level of taxation to pay for its programme.
The right hon. Lady who is now the Minister of Overseas Development stated in her election address:
Widows and others are worried silly at the rising cost of living and by Income Tax.
The right hon. Gentleman the present Secretary of State for Education and Science commented in his election address:
Those of us who earn money are all heavily taxed.
It was going to be one of the early tasks of a Labour Government to improve the taxation system to give some help to these overtaxed people.
The November Budget was designed to provide funds for improved social benefits and it put the onus for the higher taxation on the alleged inheritance from the Conservative Government. It was a palpably bad Budget. It had the worst possible effects overseas. Today's Budget is not the Chancellor's. That right hon. Gentleman is only the monkey. The organ grinder is in Number 10. Its content is directly the result of the Prime Minister's irresponsibility.
We are having to cut back for no other reason than to satisfy overseas bankers as a result of their complete lack of confidence in the Prime Minister and his friends. For the second time in 20 years a Labour Government have put us in hock up to our ears, and, for the third time in five Labour Governments, have brought us to the verge of bankruptcy. This is no coincidence but demonstrates the complete incapacity of the Labour Party to govern——
I have not yet discussed today's Budget. I have only so far discussed the November Budget. Perhaps the hon. Gentleman will wait but, in any case, if he had listened he would have known that my right hon. Friend the Leader of the Opposition explained quite clearly why we did not press a vote on any of these Resolutions today.
The surcharge was both illegal and stupid. It put up prices over a wide range of products and, together with increases in the petrol tax, set in train rising prices and demands for higher wages—much to the astonishment of the Government. The credit squeeze and the high Bank Rate have taken us back to "stop-go" with a vengeance. The present high level of activity is due entirely to the policies of the previous Government, and is in no way due to any policies put forward by the present Labour Government. There are signs of a recession later this year, which the Chancellor of the Exchequer himself admitted. With this high level of activity, it is a very serious matter that we can be thinking in terms of a recession later in the year.
The First Secretary says "Forward," and the Chancellor says "Back". As the Red Queen said to Alice, "In my country you have to run very fast if you want to stay in the same place." The Government, if that is the right phrase for them, are bemused, confused and frightened, and are wandering around in the desert with no star to steer by——
The hon. Gentleman has said of the November Budget that his right hon. Friend the then Chancellor had said that he could deal with the situation. How was it that when my right hon. Friend introduced the November Budget the ex-Chancellor said that my right hon. Friend had anticipated all the things he would have done to remedy the effects that were obvious?
My right hon. Friend did not say that we would have had to deal with the same problems. The hon. Member should read some of the speeches made by his right hon. Friend the Prime Minister, and then consider the stupid panic action taken by the Labour Government, which created an absolute loss of confidence throughout the world and has cost the country—let the hon. Gentleman make no bones about it—through the stupidity of those on the Treasury Bench, hundreds of millions of £s.
For the second time in 20 years, a Labour Government have borrowed £1.000 million, and what we were doing during the last 13 years was repaying debts incurred by the Labour Government in 1947. Now we have a debt of another £1,000 million round our necks which, no doubt, we will have to clear again. The Prime Minister said at the weekend that we were back at the top table; yes, indeed—but as suppliants taking the Socialist begging bowl to get what crumbs they can from the capitalist table.
Let us examine in detail our financial position. The Government even in their White Paper, and in the Economic Report on 1964, and in the preliminary estimates of national income and payments, have suceeded in confusing the private and the public sector so let us examine and analyse what in fact the figures show. I address my remarks particularly to the Financial Secretary. The figures show quite clearly—and these are the figures, not of a Tory Government but of a Labour Government—that on current trading—that is, visibles and invisibles—our account for the year had a surplus of £57 million.
The deficit of £744 million is brought about entirely by Government expenditure, official investment and private investment, broken down as follows: Government expenditure, as shown on page 17 of the balance of payments document, £431 million; official investment, shown in page 19, £120 million; and private investment, also shown on page 19, £251 million. These three figures together total £802 million. There is a balancing item of £1 million. It is this £801 million from which the £57 million of surplus on trading account has to be deducted, which gives us our deficit of £744 million.
If our exports improve and our imports diminish, we can afford these overseas spendings. It was interesting to note that this afternoon the Chanceller of the Exchequer spent some time discussing our overseas spendings. But exports will not expand dramatically and if our imports, which are in the main basic raw materials, are curtailed substantially industrial activity will decline.
Yes, I am suggesting that the economy was in a healthy state, for reasons which I will explain. I said earlier that the extent of the deficit was well known, because it was published regularly in White Papers right up to the time of the election. Hon. Members must get it into their heads that there is a very great difference between current trading account and capital spending. I frankly admit that if we had a surplus on current account running into many hundreds of millions of £s we would not have any problem such as this. Of course we would not. What we have been trying to build up over the years is this big current account surplus which enables us to indulge in this sort of expenditure.
However, we have certain obligations to other countries which have been approved by Parliament over the years and which I do not think many of us would like to see changed. For example, our aid to under-developed teritories runs into hundreds of millions of £s every year. Then, for example, this year a substantial amount was expended by the oil companies to acquire new properties in overseas countries, which is part of the seed corn which over the years will build up trade and revenue for us. These were matters of deliberate Government policy and, had a Conservative Government been in office today, there would have been no trouble whatsover in managing this.
There is reason to suppose that in 1964 there was stockpiling of about £300 million. I will admit that the exact figure is speculation on my part, but it is based on certain realities which again are taken from the balance of payments figure, which shows a proportionate increase in raw materials as a result of the increase in the growth of the national product. One can get an approximate figure of what is required year by year to bring about this greater activity within the nation. On the basis of that, the probability is that there wast stockpiling in 1964 to the tune of about £300 million. We can reasonably expect that that will not recur during this financial year. Therefore, this will be a considerable benefit to the balance-of-payments position.
We are faced with very large spendings on Government account for aid, military expenditure and investment accounts, and over the years, not just this financial year but every year, we must keep the closest possible watch on this overseas spending. I made a speech on this subject some years ago during a Whitsun Adjournment debate and spoke of the whole question of overseas aid. No matter if our hearts are in the right place, if we have no money in the bank we cannot help territories overseas. In other words, we cannot invest a deficit. We are a trading nation and our whole policy must be designed to improve the competitive nature of our industry so that we have the exports we need if we want to do these Samaritan acts all over the world.
I agree with the Chancellor of the Exchequer that there are strong arguments for an investigation into private investments, but we must be careful that we do not blight the seed corn. Private investment, whether in shares in companies for control or to acquire new business, brings back to this country over the years considerable revenues which are a great help towards solving our balance-of-payments problems. It will not be lost sight of that since the end of the war we have had to rebuild completely our portfolio of stocks and shares in our overseas territories. We had to get rid of practically the lot as a result of the war. We had to build up from scratch and the figure announced by the Chancellor today of £11,000 million in investment overseas, all done since the war, is a quite staggering performance. We must make sure that this continues and is not allowed to be impeded in any way.
The Budget must be considered in the context of whether it will help us in our balance of payments, whether it will encourage our people to invest their money overseas, and encourage those who want to go into the export markets. Will it do all the things that we all know are necessary for the country if we want to survive? I find this a gimmicky Budget. I cannot find anything much in it which will encourage the working man to put forward a greater effort. I cannot see anything in it which will help the business man who wants to go forward. It seems to me that all we shall get out of it is a standstill right across the board.
I want to appeal to hon. Members opposite. They seem to have from time to time a pathological hatred of a number of things—for example, Spain, Portugal and expense accounts. Mention any one of these things to a member of the Labour Party and he is more likely to blow his top about it than about anything else. He has a quite irrational reaction to these subjects. Hon. Members opposite do not mind how these prejudices get the better of them as long as they have the prejudices and can exercise them from time to time.
I want to tell the Committee something about expense accounts. A great deal of nonesense is talked about this subject. I speak as a sales director of a company in control of staff and responsible to my board as managing director for running a very substantial business. Our job is to make profits, to make the business pay and to make it go forward to contribute to the export markets of this country. I do not approve of expense accounts that I regard as abnormal from anybody, and there is not one of my men whom I know of who would take advantage of his position.
Hon. Members opposite talk about cars. All they seem to have in their minds is that company directors run round in lush cars, Rolls-Royces, Bentleys—the lot. They do not take any account of the hundreds of thousands of ordinary commercial travellers who spend all their day on the road travelling for their companies in cars provided by the companies. There is nothing wrong in this. It is a convenient way for men to get about the country and do their job. They do not abuse it. It is part of our business life. There is one hon. Member present who, I know, is a business man, and he will accept that what I am saying on this issue is absolute sense. He knows perfectly well that, as it applies to the business world generally, what I am saying is right.
We do not object to these people having cars and we do not object to their firms paying for them. What we, object to is the way they are paid for through the initial and other allowances. Many millions of people who cannot afford cars for themselves have to pay through taxation for the cars which companies provide.
One has to look at any item of taxation in relation to the object one is seeking to achieve. In this case, one is seeking to provide an incentive to industry to make itself more efficient, to get men on the road, to get them working, in order that they may promote sales, create employment, make their companies more competitive, and so on. One can think of all sorts of taxes that, as individuals, we might think are of no particular direct benefit. We have to accept this sort of thing. The classic example is rates. Hundreds of thousands of childless people pay rates, 75 per cent. of which go on education expenditure, but, merely because they have no children, they do not grumble and say. "We object to paying the education rate because we have no children". It is part of the general industrial and taxation set-up of the nation.
I am the first to admit that, no matter what class of society one is in, one will always find abuse. I have no doubt whatever that, when the new regulations come in under the Finance Bill, someone will find a way of getting round them. This sort of thing has been going on since the dawn of history, and no Government yet in this country or anywhere else have succeeded in closing every loophole. But we shall have to look very carefully at the expense account question during the Committee stage. There are men, particularly commercial travellers, who will be very hard hit. They are by no means extravagant spenders, and their position must be properly safeguarded. If companies indulge in expense account living of this sort, as is suggested, and they have to pay for it themselves, without a tax deduction, in the end the Revenue will lose because the amount of money which it will receive as a result will be reduced.
I shall say nothing tonight on the two most important sections of the Chancellor's speech, those dealing with overseas investment, capital gains, and the Corporation Tax. Everyone will admit that these are complicated and highly technical matters and that we are entitled to think a little about them and read carefully what is said before we come to a judgment.
A word now about the TSR2. This is a scandal, first, in the cancellation of the project, and second, in the way in which the Government announced it to the Committee and the country. It showed a complete contempt for all Parliamentary procedures. More than that, it was a disgraceful, shabby and sordid business that the Minister gave the Press and the Exchange Telegraph full information about it before the House of Commons received the information. It was a disgraceful episode the like of which I hope will never be repeated by this or any other Government.
The TSR2 is the finest aircraft in the world. It is not just a matter of saying, as one hon. Member did, that it would be better if we spent the money on some civilian aircraft. The aircraft industry is not unlike the motor car industry. One might disagree with motor racing, thinking it highly dangerous, wasteful and so on, but hon. and right hon. Members opposite must recognise that it is only as a result of motor racing over the years that we have developed first-class engines, tyres and braking systems which will stand up to the stresses and strain of modern motoring. That is part of the price of research and development in this country.
Similarly, with aircraft. The TSR2 is the most sophisticated aircraft ever built. Its contribution to future aircraft design and construction would be immense. But we are throwing all this away. The design teams will not stay here. They will go abroad—to America or France or somewhere else where their brains and special skills will be appreciated and paid for. We seem to be selling out to America and France in defence systems. I suppose that one of the projects of the Government will be to set up in some under-developed part of England a bows and arrows factory. Much good that will do us in the years ahead!
No one can doubt that the present travail through which the country is passing is the direct responsibility of the Prime Minister and the Labour Government. The arrogant ignorance with which our affairs have been handled is implicit in the Budget. The only real and positive step that we can take to free our country from the dead and dreary hand of Socialism is to get rid of the present Government as quickly as possible, and this must be our task.
The hon. Member for Ilford, South (Mr. Cooper) referred earlier in his speech to what we could afford. It is a pity that he did not use the same criterion about the TSR2. But he made a valid point about overseas expenditure and the need to reduce it, and I shall have something to say about that later.
To return briefly to the TSR2 incident this evening, I think that there may have been a lesson to be learnt from the rather over-excited event. The Minister of Defence was, I believe, trying to make an extremely valid point, one which will become even more valid in the months and years ahead—that defence really is an aspect of our economic situation. It is no use discussing defence and its costs without bringing in the various aspects of budgetary control.
One of the things we learnt from the Estimates Committee was that in one or two very revealing remarks by Service personnel it was categorically stated that if a certain expenditure on defence was needed, the cost at that time, two years ago, was not assessed. If it had to be done, it was done. This is the way the defence burden has been carried by the country for many years. The fact that for the first time a defence statement of this importance is made in the context of a budgetary debate is of some value.
The Chancellor today laid emphasis on the balance of payments, and it was only right that that should have been done. He mentioned his great hopes about tax reform in the years ahead. I hope that this spirit will blossom and bear fruit in the next few years. Certainly, if my right hon. Friend intends to carry on the reform in the spirit in which he started this afternoon, the next few years augur very well.
It is becoming common form nowadays to say that Budgets are becoming extremely sophisticated and that Budget requirements now are very much more complicated than they ever have been. The need to take into account growth as against exports, the position of the pound sterling and at the same time keeping our economy on an even keel, the need for increased revenue, and the need also for fairness in our tax proposals—all these are various elements that obviously have to be taken into account.
But, in judging the Budget, probably one of the most important aspects is what priorities it gives to the growth of investment in the economy as a whole. Investment alone is not enough. It must be selective. It is no use inaugurating a boom, because a boom does not give selective investment. Tax allowances are possible as an encouragement to certain investment, but far better are the proposals now being made—my right hon. Friend touched briefly on them—for giving certain subsidies to industry for various kinds of machinery and equipment.
I would go even further and say that what we need is controlled investment, and that to do this we need not only to subsidise but to subsidise the kinds of investment we want to encourage. In order to be able to do this, it is most important that Government should have a greater understanding of industry and its needs than it has now.
The report on investment in machine tools is most revealing. It is an indictment of industry that it did not pursue its own best policy in investing and did riot understand how much it would receive from allowances and how much benefit it would gain from investing in machine tools. That is common ground.
What is not so easily accepted is that this is also in its way an indictment of Government—that Government does not understand industry and does not understand the way in which it calculates the costs of capital equipment. If government wishes to influence industry, it must understand it and remember that government needs to influence industry far more than industry needs to influence government, because investment is the key to our whole economy.
Yet, while investment is the key to the whole economy, government, at a crucial point of investment, did not understand the needs of industry. It is all very well to talk about the discount cash flow system when the normal system used by industry is pay back accounting. Industry uses a very simple method in calculating whether or not a certain capital expenditure will pay, and surely industry much be allowed to judge what is best suited to its needs.
Admittedly, we all know that when it comes to very large-scale investment rather more finely balanced forms of assessment are needed than this, but in the ordinary course of investment decisions—the ordinary purchases of £300, £400 or £500 machine tools—this type of accountancy is not usually in force. Nor is it really needed except to satisfy the thinking of Government Departments.
We must also remember that, to the Commissioners of Inland Revenue the future profits of an industry are certain but to each manager who faces ruin three times weekly the future is far less certain. He cannot base himself emotionally on indefinite future profits because he is aware of all the complexities and uncertainties and possibilities of disaster which readily face any person engaged in any business enterprise.
While it is true that these fears are exaggerated, if Government wishes to influence industry it must know its fears and hopes and the way it works in practice. I believe that it is the rôle of the Board of Trade, among other Government Departments, to go out into industry to learn how it behaves, to understand it and thus be able far better to assist it. As we know, before framing his Budget the Chancellor of the Exchequer receives representations, but this is no substitute and is not enough. As government takes on more functions of control over the economy, so its knowledge of industry must be at first hand and the reading of reports is no substitute for that. In further judging the Budget, great importance must be attached to exports. It is not sufficient to cut down consumer spending and expect exports to rise, and my right hon. Friend recognised that in his statement today. I hope that in the months to come we will see rather more subsidies not for direct exports, not export rebates and so on, nor, possibly, even of credit services, although they are likely to be of considerable value. What I hope that there will be additional to these are subsidies of various extra services which can be offered to industry wishing to use certain export services.
Information services, language schools and so on can all be of value, but the most important is the rôle of the Board of Trade in all this. The Board of Trade cannot sit here in London and discuss how to increase exports. I understand that throughout the country there are eight or ten people from the Board of Trade trying to encourage industry to export. That is insufficient. If the Government want to find out what is happening in industry, they need more people going around and taking part and learning something of the decisions which industry faces every day. This would be money well spent.
The rôle of sterling was obviously an important part of the Chancellor's statement. On this matter we are all on common ground. We all know that we must defend sterling, short of massive deflation, and we all know that devaluation is not the answer. But we should also accept that if there is a compromise between an expansionist policy and foreign support, this is also largely a legacy of the previous Government.
We all know, too, as the hon. Member for Ilford, South (Mr. Cooper) mentioned, that the cost of our military expenditure overseas must decline. I got a written Answer from the Ministry of Defence this afternoon saying that the cost of our forces East of Suez was expected to be about £320 million in 1965–66, including about £100 million across the exchanges. I have been trying to obtain the true figures for some weeks. Although given in good faith, the figures I was given this afternoon do not reflect the true cost, because they leave out the overhead part of the cost of our expenditure East of Suez. It is fairly clear that the cost of our operations East of Suez is probably well in excess of £400 million and possibly up to £500 million if a true apportionment of all overheads is made. This burden, which threatens to stunt the whole of our economic growth, is something which we will finally have to start thinking of cutting down over the years ahead.
Investment overseas received a good deal of attention from my right hon. Friend. He made some extraordinarily valid points which I have not heard before and which were welcome to the Committee. He pointed out that rather less return was obtained from investment overseas than at home and he proposed measures to stem the outflow by up to £100 million. His argument was completely valid, but there is another matter which he might consider and which would show that the rate of return was even lower than he suggested. We all know that over the past five, six or seven years difficulties with the £ have regularly occurred. These have led to a fairly high Bank Rate being normally accepted as part of our economic structure and the increased cost of that high Bank Rate must be attributed to this foreign outflow of capital. This makes the return of capital consequently even less than might be thought.
The Chancellor of the Exchequer dealt with the principles of fairness rather well. We have a very efficient system of revenue collection. We all accept this. But the criterion should be the very simple one of "ability to pay". In mediaeval times tax collectors worked only on this. The criterion of ability to pay must govern the whole of our taxation system. If a person has a capital of £50,000 and pays less tax than a person with an income of £1,000, this is so manifestly unfair that only a complicated tax system might be able to conceal it from the eyes of the ordinary people. Any move in favour of this simple criterion of ability to pay should be welcomed by the Committee. It should also welcome the capital gains tax of 30 per cent., the disallowance of enertainment expenses for tax purposes. and the removal of initial allowances on motor cars.
Unfairness has gone on year after year. Each year we have had tortuous complications to remedy enomalies and to stop loopholes when everybody knew that what was needed was a drastic change of our taxation structure. The largest anomaly has always been that the simple criterion of ability to pay was not used. The obvious anomaly, and probably one of the biggest anomalies, is that between the classification of Schedule D and Schedule E. We have been too busy perfecting the small inequalities of an unfair, esoteric system. People understand the simple reasons, and it is rather unfair to conceal them too much.
We should be clear about the two kinds of investment. This Committee often thinks of investment as meaning a transaction on the Stock Exchange. But the more crucial aspect of investment is in industrial investment which, obviously, has some relationship with investment in the Stock Exchange, but is not a direct link with it. When we think of encouraging investment, we must be clear what kind of investment we want to encourage.
The reduction of allowances by Corporation Tax has not worried the Chancellor of the Exchequer unduly. This, feel, is a further indictment of the way in which industry has refused to take full advantage of the tax allowances. It is fairly clear, therefore, that one of the things that we need to do is to simplify taxation, and I look forward to hearing further suggestions next year from my right hon. Friend on this. We must remember that the people who are really responsible for the industrial development of this country did not understand or did not make use of the investment system as it then was.
One of the difficult aspects of a Budget is that it is an annual affair. The Chancellor of the Exchequer this afternoon said how difficult it was to forecast what the position would be early next year. It is a hoary question—it comes up year after year—as to how often we should have a Budget and how often we should make economic plans. It is essential to grasp the simple principle that circumstances should determine the timing of eonomic measures rather than that economic measures should be determined by the timing of a Budget. What we need is full and easy control.
The difficulty about an annual Budget is that we have to wait so long for it that everybody starts anticipating it, often wrongly. The effect upon trade and the uncertainty that it causes is known to us all. The obvious example is Purchase Tax, in which many people this year probably burnt their fingers a little in anticipating certain changes.
The difficulty is that when one leaves decisions until one comes to the annual ritual, one finds that the situation has gone so far that a certain amount of over-correction is necessary. This is one of the greatest difficulties in having Budgets at such long intervals. We must abandon the idea of cataclysmic Budgets in which we change everything for another year. What we need instead is a full, accurate control of the economy and for this we need the information so that we can regulate the way in which the economy works.
The trouble is that in the past we have had the information too late and because of that the regulation has had to be too violent. We want, not so much stop-go, but frequent and gentle movements on the accelerator. What we have had over the past number of years is a brake and an accelerator which can be used only once every mile. And so the violence of using the brake or the accelerator has been only too evident. We need, not the violent upheavals which this causes, but a steady transition. The regulator which has been tried is only a younger brother to stop-go.
What we really need in controlling the economy is a fine screw. I suggest that examination might be made of the use of National Insurance contributions to promote these gentle movements. The use of the fine screw would mean changes before the situation gets out of hand, changes in the economy almost before the change itself is observed. In engineering terms, we want a servo mechanism, a feedback for the economy. We want to be able to control it as soon as we find that there are movements in a certain direction.
This information is required so that action can be taken immediately. The difficulty about the statistics on which we rely to take the action is that they are out of date the moment they are published. This is inevitable. Statistics only record what has happened, and the state of industry is not determined by a reading of the statistics. Business men and men in industry know what is happening in their industry long before any statistics are published. This is the information that the Chancellor of the Exchequer requires and that the Board of Trade should have also. There would then be no need for the surprises which are caused by basing oneself on inadequate statistics of the kind we have seen.
The way to do this is obviously by the use of sample statistics. Sample statistics should be made available almost on a weekly basis and promptly fed into computers for analysis. They could then provide the moving picture of a living economy and not the still photograph of a dead corpse. The living being is what our economy really is. We discuss the body here, but the living, breathing organism is something that is quite alien to the Board of Trade and the Treasury.
The Treasury will need to reassess its whole rôle of information, built upon banks of computers, if necessary. It needs this information. It needs these samples controlled by the computers being able to give weekly or monthly figures that are as near to the real living organism as is possible. Had we done this, we might have been able to be rather better informed last year of what was happening in exports and not be taken in by all that guff which we heard last year when we had to rely on the F.B.I. for the only statement of any value. This is a sad commentary on Government, that we had to rely on that with all its inaccuracies, because there was nothing better available, and there we were all the summer of last year waiting for a rise in exports when action could, and should, have been taken because the Government should have known what was happening.
The same can be said for imports, only it is not so difficult to discover the intentions of importers, the intentions of industry. It is very easy for the Government to get firms to co-operate, as the Chancellor accepted this afternoon. We can take sample statistics of the few firms responsible for large decisions in typical industries. This can be the sort of information on which Chancellors can build.
We ought also to have information on manpower, information of a shortage here and a surplus there. Sample statistics of this can come out. The regional differences in National Insurance Contributions could well be the fine screw that could make the economy work in the way that one decides and wishes. In advance of any catastrophe we can decide and organise.
Prices, too, are important. Manufacturers decide to raise prices, but we hear about them only months and weeks later, when prices have gone up. We should know about these prices when they are being planned. If we had the assistance of industry, assistance that is available, we could take samples of this kind and make decisions well in advance of their actual effect.
We should be able to find out what industry is thinking with regard to the purchase of plant and machinery. We should not be left in the position of finding out what industry has done three months ago. We should find out what it is intending to do. These are all possibilities for sample statistics.
With regard to consumption, we should find out what is happening in selected stores. This is made use of in market research, but the most important use which the Government can make is what is going on in certain stores and to learn what people are buying and how their expenditure is increasing. This information is not now available.
It has been said that when driving the economy of this country one has to proceed by the feel through the seat of one's pants. I accept that there is a certain amount in this, but what we need most is to find out what is happening, and if I felt that there was somebody at the Treasury, or at the Board of Trade, who was telephoning industry daily to keep in touch with what is going on, I would be rather happier than I am at the present time, because one of the most important aspects that I see in the Treasury is its aloofness from what is really going on in the world today.
If we want real planned growth we must have information, because the key to growth is not only investment, but controlled investment. If we must subsidise, if we must use this fine screw of control, we need further to categorise the investment so that we can say that there are certain aspects of investment which are desirable—machine tools, computers, and so on—and that these should be subsidised, and this complete investment control can even out the production cycle in the machinery manufacturing industry.
Investment is the key to the growth of our economy, but it must be proper investment, not investment in Rolls Royces or less essential items, but in machine tools and in the articles that will precede growth.
The information that is available can also be a help in planning investment in the under-employed regions. This should have been done many years ago, but the Treasury and the Board of Trade did not understand industry sufficiently. I hope that in the years ahead feelers will go out to industry, that real co-operation will be sought with industry, and that this planned growth between industry and Government will become a possibility.
I enjoyed the speech of the hon. Member for Ashton-under-Lyne (Mr. Sheldon). It is a pity that there were not more hon. Members present to hear it. I agree with him about the remoteness from industry of Government Departments such as the Board of Trade and the Treasury. I also agree with him about the need for better statistics, but I do not believe that Government Departments would ever be able to obtain accurate information quickly enough to make the decisions which need to be made by industry and business men. This, no doubt, is one of the differences between hon. Members on this side of the Committee and hon. Members opposite.
On one occasion the hon. Member seemed to move very close to what has been implied by other hon. Members opposite on previous occasions, namely —to put it crudely—the proposition that ball bearings are good but washing machines are bad. We must remember that however much we may admire the making of complicated machine tools the object of production is consumption. The most interesting remark made by the hon. Member was that we should judge the Budget by the priorities it gave to growth and investment; and later he added the increase in exports.
The Chancellor made a long speech rather quickly, and it was difficult to hoist in everything that he said. I detected very little in it which referred to growth and investment, or to exports. At the beginning the Chancellor said, refreshingly plainly, that the object of the Budget was to achieve a state of balance, and that the key point was to reduce the net outflow of long-term capital by £100 million and lower internal expenditure by £250 million.
I thought that he would lay stress on a strong £, obtained by means of increased exports. We can reach a state of stability at a very low level. That is ordinary Keynsian economics, but it is not very desirable. We want increased growth, and we must achieve this through exports. The fundamental need is for the country to expand output relative to consumption, or, less satisfactorily—and this is what the Budget seems to tend towards —reduce consumption relative to output.
If we do not increase output sufficiently we will have to do one of three things. We shall have to reduce money incomes, or have a rise in the cost of living—which is much the same—or have rationing. I do not want to be controversial, but I must point out that in one place the Budget proposals came suspiciously close to rationing. I understand, although the Chancellor spoke very quickly, that the travel allowance is to be fixed at £250. If one wants more—again as I understand it—the reasons will be investigated. It can be argued that is not rationing, but it is approaching the rationing of travellers. The Chief Secretary to the Treasury would undoubtedly agree—
I think that is splitting hairs—it will be checked.
As I was saying, the Chief Secretary would agree that we do not want to raise the cost of living, but I have my doubts that the Chancellor will be successful in his efforts to avoid this. The Prime Minister has categorically rejected devaluation and it seems to me that the main purpose of the Budget is to achieve a reduction in money incomes. We have Income Tax at 8s. 3d.; revenue from light car licences and goods vehicle licences is to bring in £48½ million, and there will be £127 million from tobacco and alcohol. There is the petrol tax and we have increased contributions for National Insurance. On the face of it, there should be a reduction in money incomes but I am not certain that this will happen and I should be glad to be corrected from the Treasury Bench if I am wrong.
In the financial year 1964–65 94½ per cent. of the expenditure was covered from Revenue. For 1965–66 expenditure is estimated at £8,482 million and the total revenue at £8,862, giving a surplus of £380 million. We have of course still to get the Supplementary Estimates. One was mentioned in the Defence White Paper, but we have not had the others. Lending by the Government is estimated at £1,228 million. If we subtract a surplus of £380 million, we are left with the amount needed to be raised by borrowing, which is £848 million or about 10 per cent. of the expenditure.
In 1964–65 the Budget covered 94½ per cent. of the expenditure from revenue. It appears that this Budget will cover only 90 per cent. of the expenditure from revenue. It seems to me that it will fail if its purpose is to reduce money incomes, if the figures I have produced are correct. There is over £800 million new money which will be created and go into the economic system.
In addition, I thought that the action of reducing money incomes, or increasing prices in order to release resources, had become discredited because big organisations will not accept it. If prices go up—as they will go up, as a result of this Budget they claim that their incomes should go up also. I am very doubtful whether the attempt to reduce money incomes will succeed. If money incomes are not decreased, we must get a production increase. I should like to ask the Government how they think this is helped by the Budget. In November, we had the 6d. on petrol. We are getting the expense of the training levies in industry, and shortly no doubt also on the shoulders of industry will be the redundancy payments. It will all add to their expenses. Income Tax will go up there is an increase in licence fees on cars and goods vehicles, and there are also the increased National Insurance contributions. These are all great expenses which are being put on the shoulders of industry.
Where, in all this, are the incentives to production? I made a note of two points which the Chancellor mentioned—the rebate, which we have had already, and the better credit facilities. Those two means of assisting production were brought in earlier. The Chancellor today said at the same time that he wants a 5 per cent. increase in the total of exports. I cannot see with these additional burdens put on the back of industry, how he will get that with two small concessions of the rebate and the better credit facilities.
I said at the beginning what other hon. Members have echoed in otherwords,that our object should be to expand output relative to consumption. I do not believe that this Budget will lead to a reduction in money incomes, for the reasons which I have given. There are no incentives to increased production.
I have been trying to follow the hon. and gallant Member's arguments, but he seems to contradict himself. He seemed to be indicating that the Budget was not taking enough money out, and went on to say that we are putting a burden on industry. If I follow him correctly, he wants to see more taken out without it being a burden on industry. Where would he take it out?
That was not my argument. I am sorry if I did not make it clear. I was arguing that the Chancellor's approach was to reduce money incomes, and I tried to extend that argument to show that I do not think that he will be successful. The nub of my argument is that he does not have the right approach. The right approach is to expand production relative to our consumption, not to cut consumption relative to our production. I hope that that makes the matter clearer. There is no incentive in the Budget to increase production. I believe that prices will go up as a result of it and that that will drive up incomes.
The Budget fails on all these counts and I fear that over the months the £ will weaken. I agree with my hon. Friend the Member for Ilford, South (Mr. Cooper) that when the Conservatives left office we did not leave a mess. Indeed, there was an illuminating sentence in last year's Economic Report, which stated:
The only strongly expanding element in home demand during this period was fixed investment, which was rising in all the main sectors private, industry and trade, the nationalised industries, the public services, and housing.
That is a valuable legacy for any incoming Government to have. In 1964 industrial production went up by 6 per cent., exports were rising and confidence was high, a vital factor. The trouble
today is that confidence has gone and I do not believe that the Budget will restore it.
The hon. Member for Ilford, South (Mr. Cooper)—who has unfortunately left the Chamber—made one of those speeches which might have been suitable for a Conservative Association meeting or as part of a seaside funny show. It is incredible that hon. Members opposite should make those sort of speeches in 1965. However, if that is their pleasure, who is to say otherwise?
The hon. Gentleman also said that the TSR2 was the best aircraft in the world. I am sorry that he is not in his place, because he might have told us by what criteria the aircraft is judged If it is the best in the world, why could not we get anybody to buy it? The fact of the matter simply is that this country has begin saddled with the TSR2 to satisfy the stupid desire of the former Administration to maintain a so-called independent nuclear deterrent.
The claim that the British aircraft industry has become bloated, from 150,000 men at the height of Korean rearmament to close on 300,000 men by last year, and that the industry has become like a leach on the taxpayer, costing us hundreds of millions of £s, is not the fault of the aircraft manufacturers but entirely of the former Administration and their military advisers in defining rôles and responsibilities for Her Majesty's Armed Forces which we were incapable of fulfilling or discharging either industrially or on the weapons systems, and nor did we have the resources for them.
For these reasons, I welcome the cancellation of the TSR2. The aircraft should never have been ordered, and we have only ourselves to blame for getting into this position. It has arisen because of the incredible belief of the former Prime Minister and his predecessor that we needed to maintain a so-called independent nuclear deterrent.
I leave that subject and come to the Budget. I believe that its proposals can best be judged by considering whether the Chancellor has really succeeded in dealing with the chronic structural weakness of the economy by the following four parameters. The first is: will his Budget help to provide a good climate in order to get labour and management and the owners of industry to accept and loyally to practise the national incomes policy. I believe that all fair-minded people, after they have digested the Chancellor's pronouncement —which he made so masterfully and brilliantly, there can be no doubt about that—will conclude that his proposals have made a massive contribution to getting the national incomes policy and the National Board for Prices and Incomes accepted and functioning.
The second question is: will his proposals encourage our citizens and the capitalists of the country to use their funds for investment in the economy of the United Kingdom instead of, as hitherto, using the bulk of their funds to invest badly abroad. I think, again, that all fairminded people—and, what is much more important, our bankers and investors here—will conclude that my right hon. Friend has achieved one of his major purposes of encouraging the home capitalist to invest his resources in tools and techniques that we require to increase out competitiveness.
He has done this by calling the nation's attention to the fact that for far too long have we been encouraging—and, in fact, favouring—investment abroad, and that the time has come to switch our funds and resources here. Consequently, he has brought in fiscal incentives that require capitalists to think carefully whether they should send their money to America or Australia or invest it in this country—
A further criteria or parameter by which we ought to judge the success or failure of my right hon. Friend's Budget is to ask ourselves whether his proposals are likely to encourage the re-equipment, modernisation and entrepreneurship in our country in order to give us a sharper cutting edge so that we can get out of our chronic balance-of-payments problems once and for all in a few years" time. Again, I believe that business men, bankers and ordinary people at home and abroad will conclude that my right hon. Friend in his Budget has made a jolly good start to getting industry, and business men and Government to realise the importance and need to use our resources, energy and intelligence to re-equip ourselves with modern tools and techniques to face present-day competition. However, I am afraid that he will not get the kind of speedy results we as a country need at present, and I hope to make some suggestions on how we might improve on getting them by using tools that are to the hand of the Government to get British industry to re-equip itself faster and to encourage entrepreneurship.
The Corporation Tax, once it is examined—[Laughter.] Hon. Members may laugh, but I assure them that some of them may have long faces Mien industrialists have had the opportunity to work out what the Corporation Tax will do for them in business. They will discover that it is a tremendous incentive to re-equipment, to modernisation, to invest in trading, and to invest in sales. There is a whole string of other suggestions in the Budget with which I shall not bore the Committee. Hon. Members can read it tomorrow.
The last and perhaps the most important criterion by which we should judge the success or failure of the Budget is whether the proposals are such that they will genuinely bring about an immediate and rapid increase in the quantum of our exports. The Budget tries to do this, but I am afraid that my right hon. Friend will be disappointed, in that British industry has for so long lived with exhortation and palliatives, has for so long grown rich and fat on the home market, and has for so long heard about our need to export but has failed the nation, that the proposals in the Budget, as they stand at the moment, in spite of the export incentive, welcome though it is, will not be sufficient to help or compel British industry to achieve the kind of increase in exports we badly need.
I come to the suggestion to which I hope that my hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Chancellor of the Exchequer will give serious consideration and perhaps, which is even more important, adopt. I invite the Government to use the purchasing power that they have as a buyer of goods and services of about £8,000 million to modernise British industry and make it more competitive and export minded. During 1964 our economy was allowed to raise its output of goods and services by 6 per cent. Because British industry failed at the same time to increase its exports and maintain our share of world trade in order to pay for our increased imports, we are once again in a most severe balance of payments crisis. The Labour Government had to go cap in hand to foreign bankers and governments to obtain huge cash loans so as to enable us to meet our commercial obligations for the goods and services that we have imported or consumed abroad and to avoid the dire consequences of a further devaluation of the £.
Former Conservative Administrations, the F.B.I. and other industrial organisations have known for years that there are structural weaknesses in British industry and management and in our trade union set-up. We have been trying for years to put it right with palliatives, exhortations and occasional tinkerings. All these have largely failed and Britain's share of world trade has inexorably been driven down year after year after year.
Our rival trade competitors and creditors have apparently decided that we, the people of Britain, do not have the will or intelligence to get out of this ghastly economic position. Our present Government have already taken quite a number of steps and have announced some new ones in the Budget to try to correct these structural weaknesses. I am pessimistic whether these will suffice to make our country's economy capable of steady and sustained growth without inflation and without running into chronic balance-of-payments problems.
During our first six months in office, the steps taken so far have been only improved palliatives and some more and better exhortations, with the exception of the small export rebate. The new budgetary proposals will be too slow in their action and will not achieve the urgently needed increase in our exports this year. To my mind, the Government have in their hands an instrument as a major purchaser of goods and services to the tune of about £8,000 million per annum. They must use this tool to compel British firms to modernise themselves. to use computers and the latest automatic machine tools and other techniques to increase their productivity, their competitiveness and their exports.
Were the Government to announce that they were really going to use this tool, it would not only impress our foreign creditors and competitors but, perhaps even more important, it would impress British industry, its owners, workers and managers. They would immediately realise that the Government are very serious indeed in wanting them to become more productive, more enterprising and more competitive. Once they know that the Government mean business, the British people will rise as they did at Dunkirk, and within five years or less we will cease to be "the sick man of Europe" and, instead of our reapplying to join the Common Market, it will be the Common Market countries who will be applying for us to join them.
As an example of how Her Majesty's Government are using at present the taxpayers" money to finance obsolescence, I should like to tell the Committee what happens when a local authority decides, for example, to purchase a new water purification plant or sewage plant, an item costing several thousands of £s. After the project has been examined in detail and has gone through all the procedures provided for by the Ministry of Housing and Local Government, after it has gone through the committees and gone out for tender to the manufacturers, the final choice of plant is then made by the sanitary engineer or some other qualified engineer of the local authority.
When he chooses a plant and talks to those who make it, he says, "Please show me where a similar water purification plant has been working successfully for 20 or 30 years without any trouble." It is no good a manufacturer saying, "We have done a considerable amount of research and development and have produced a lighter and better water purification plant", because the local authority's engineer is likely to say to the manufacturer, "That is an excellent plant. It should be bought, but by the next local authority." He is interested only in having a plant which has been running trouble-free for 20 or 30 years elsewhere. The consequence is that no British manufacturer can invest money in research and development for new plant. He cannot sell it at home because people will not take plant which is an improvement on what already exists. In the result, we are at a disadvantage in the export market.
What can the Government do? With their block grants to local authorities, they can insist that local authorities do not place contracts with local firms for goods and services merely because they are ratepayers. Instead, local authorities should be invited to place their orders with the most scientific and research-minded and export-minded firms in the country which can offer the lowest prices.
Is the hon. Gentleman recommending that British manufacturers should not produce new plant or that they should produce what the customer wants, which is something which has run trouble-free for 30 years?
Quite the contrary. As matters now stand, we, the taxpayers of this country, are subsidising the purchase by local authorities of obsolescent plant, and we are making it impossible for the British manufacturer to invest in modernisation. He cannot secure the orders because the local authority engineer will only say, "It is a jolly good idea, but let someone else buy it".
The Treasury is responsible for the principles upon which Government procurement is handled. How can the Government show some enterprise and vigour in these matters? As is well known, every Government Department which purchases goods and services maintains an approved list of suppliers containing the names of a number of reputable firms covering the Minister's various requirements. Tenders are invited only from firms on the list. The Government should review all these lists. They should notify firms that they will remain on a list only if they will, where appropriate, acquire British-made computers and the latest automated machine tools, making a definite contribution by increasing their exports and their productivity.
I recommend the setting up of an advisory committee composed of Government purchasing officers, business men and people from the universities and technical colleges with experience in business to advise each Department on whether particular firms should remain on an approved list or not. Local authorities placing orders for capital goods should be encouraged by the Government to place orders for the most modern plants available. If necessary, the higher price should be subsidised because, if a manufacturer has spent large sums of money to improve, for example, a water purification plant, he must recoup his investment in higher prices. Again, where the Government buy under bulk contract arrangements, they ought to insist that they will do so only if firms use the latest tools and techniques to improve productivity and increase their export performance.
The terms of reference of the Government's contracts co-ordinating committee, a committee composed of representatives of the Departments under the chairmanship of a senior Treasury official, should be amended to require Departments to use the Government's purchasing power to induce Government suppliers to modernise themselves and to increase their export performance. At present, this important executive committee is concerned only with eliminating interdepartmental competition for supplies and promoting economy by securing coordinated purchasing wherever practicable. This co-ordinating committee has three very valuable sub-committees, all of which could make an immense contribution to using the Government"s power as a buyer to help our country get out of its economic rut. The major document that the Treasury would need to amend to give effect to this policy is its Standard Conditions of Contract——