Orders of the Day — Motion of Censure

Part of the debate – in the House of Commons at 12:00 am on 2nd August 1965.

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Photo of Mr Edward Heath Mr Edward Heath , Bexley 12:00 am, 2nd August 1965

It is the Government's policy on which they will be judged, even if these were the facts which they claim to have found when they came into office.

What did they say on 26th October in their White Paper? They said: Apart from special problems of individual areas and a limited number of industries, there is no undue pressure on resources calling for action. Moreover, the Government reject any policy based on a return to stop-go economics. That was the decision of the Government after they had examined the whole of the situation and reached their own conclusions and decided on the measures which they would take.

Then we come to 27th October. When winding up the debate on Thursday evening, the Secretary of State for Education and Science stated that Mr. Gordon Walker had never made any statement about the Bank Rate. The right hon. Gentleman is another example of colleagues who do not even know what their own former colleagues were doing On 27th October, in Washington, Mr. Gordon Walker said that the Government … would not raise Bank Rate in the near future. That, too, had its effect on international opinion.

On 11th November, we had the autumn Budget, with its disincentive to initiative and its incentive to higher industrial costs. Then there was the announcement about prescription charges. On 19th November, we had the E.F.T.A. meeting, the run on sterling and Bank Rate raised to 7 per cent. on the Monday—not on a Thursday, as many expected but, panic-wise, on the Monday. What did the Chancellor say? Having taken the step to raise the Bank Rate to 7 per cent., the right hon. Gentleman said: … I hope it will not work through to the domestic economy …".—[OFFICIAL REPORT, 23rd November, 1964; Vol. 702, c. 916.] What, then, is the point about Bank Rate? This is an excellent example of the doing of one thing and immediately denying its validity which permeates the whole of the Government's actions.

The Minister of Housing himself said that It should be a matter of weeks and not months before we can hope that the 7 per cent. Bank Rate is over. It was, of course, not weeks but months.

On 25th November, there was the 3 billion dollar credit; on 8th December, a credit squeeze; on 16th December, the Statement of Intent was signed, and then, on 19th January, local authority borrowing was eased—let us note that point; a deliberate action by the Government to ease local government borrowing and encourage local authorities to borrow more. Let us remember that when we come to the Chancellor's statement of last Tuesday. It was an action taken by this Government, in full possession of the facts, knowing the situation, and deciding what ought to be done. On 21st January, in this situation, the Government lost the Leyton by-election, but the Prime Minister went to a parliamentary meeting when, according to the report in The Guardian, he gave the Labour Party a message of good cheer. He told his followers that things would now begin to improve. The economic crisis, with the unpopular measures it had demanded was now virtually over. The future was bright with promise. Is that what his supporters thought on Tuesday, when the Chancellor of the Exchequer made his statement?

On 22nd February a £600 million increase in public expenditure was announced—let us bear that in mind, in view of the Chancellor's statement last week. Then, on 29th April, special deposits were called in, on 5th May the credit squeeze tightened and increases in advances were limited. On 20th May the Chancellor said: The credit squeeze has not yet started to bite but on 7th June he said: I think we are round the corner or at least turning the corner. Bank Rate has come down and that is a good sign that from now on we can look forward to an improvement. On 1st July, the Prime Minister said: What we have done is to stop the boom getting out of hand"— there is no doubt about that— and I hope put an end to the stop-go policy of the last 13 years. We come now to the night that many of us will remember, the winding up of the Third Reading debate on the Finance Bill, after all our long debates. We listened to the Chancellor of the Exchequer then, perhaps with some astonishment. He said: There is a temptation to assume, because the effects of these measures are not immediately obvious, that we should rush into further measures which would have the effect of restraining the economy even more.This would be an unfortunate thing to do and I am resisting the temptation to do it."—[OFFICIAL REPORT, 15th July, 1965; Vol. 716, c. 911.] The next day, sterling fell and equity prices rose, and on the Saturday, at the Durham Miners' Gala, the Chancellor reversed his position and said that, of course, he would take action. So, in less than 48 hours, he had changed his position.

For the Prime Minister or the Chancellor to argue that "measures" commonly refers to financial measures or another Budget does not hold in the context of all this, and those of us who heard it know full well what the impact of that statement was. That is the whole story of the Government taking action gradually, in driblets, denying always the validity of the action they took, and always having to take more.

In 1964 there was written—with the usual political exaggeration, perhaps—the classic definition of what stop-go is alleged to be: The Government, panicked by the loss of gold and currencies, institutes frantic measures, such as crisis interest rates, and a general attack on business confidence. At the same time harsh cuts in Government spending on social services and on that considerable area of capital expenditure which comes under Government control adds to the deflationary effects. The banks are held on a tight rein. The labour unions are threatened with all the pains of hell in an holy wages freeze, or 'pay pause'. Hire-purchase (consumer credit financing) is restricted by Government fiat. An emergency Budget raises taxes"— it should be three emergency Budgets— falling mainly on the poorer members, particularly on consumption of the community. We are forced to borrow abroad on a prodigious scale. That was written by the Prime Minister and is almost exactly the definition of the policies that he has been following.

There are many things we have to ask about the Chancellor of the Exchequer's statement, and particularly about its timing. Why was this statement made when it was made? Obviously, when it was made it put the Chancellor in, to say the least, an embarrassing position, in view of his Third Reading speech on the Finance Bill. The Prime Minister, speaking in last Thursday's debate, made explanations which were almost frivolous. He told us about a "Chinese gold spree", but this was a withdrawal by the Chinese Government of gold from London to meet their trading commitments because they were not meeting them in sterling. That is not a "gold spree", but a perfectly normal action by a Government in those circumstances.

Then the right hon. Gentleman said, "Well, we had just completed our review of expenditure and as it had come forward we made it then, regardless of embarrassment"—but did not the Chancellor know that this was likely to happen when he made that Third Reading speech? How can he have been put in such an embarrassing position?

But when one looks at the paragraphs on expenditure in the Chancellor's statement, the whole thing is even more extraordinary. It says: We have, accordingly, reshaped the total programme and I can inform the House that from now on expenditure will be kept to the level that we as a nation can afford. I am giving instructions to Departments that the 1966–67 Estimates shall be drawn up within a limit which has been determined for each Department within the agreed total."—[OFFICIAL REPORT, 27th July, 1965; Vol. 717, c. 229.] What exactly does that mean? It means absolutely nothing whatever. There are no figures in it. Why are no figures given, so that the Government can carry conviction about what they say will happen to Government expenditure? The plain reason is that there has been a display of differences among members of the Government which shows itself in that paragraph.

The real reason for the statement was given by the Chief Secretary, I believe, on television, when he said: You are right in saying it is to strengthen the confidence of the foreigner. It is not connected with the internal economic situation of this country, and the facts I have given about the state of the economy which cause anxiety to so many hon. Members on that side of the House as well as on this. What has happened is that the Prime Minister has forced the Cabinet to make this statement in an attempt to restore the confidence which he lost long ago and which it has taken him so long to regain.

I want to deal only briefly with the effects of the Chancellor's measures. Hon. Members will already have looked at those, and they are plain, but there are questions to be asked. What is the amount of public investment which is to be saved as a result of this slowdown? Can the Chancellor tell us that?

Then we see that the building industry finds all the promises that were made to it by the Minister of Public Building and Works earlier in the year denied, and there is now a further state of uncertainty in the industry. Hire-purchase restrictions will affect the motor industry, in particular. What I would say in the circumstances—and I hope that the Chancellor will endorse it—is that I believe that it is vital for British industry, if overheads are to increase as a result of the Chancellor's action, which is what the Prime Minister himself has always forecast, that it is essential to keep those overheads down by greatly increasing exports in every possible market. It is the only way that those overheads can be reduced.

Housing is to be contained within the existing programme. What exactly does the Chancellor mean by "within the existing programme"? that has to be answered explicitly. Is it the programme for three years or for one year? I ask the same question about hospitals: will the Chancellor tell us exactly what the programme for hospitals is to be? What has been happening is that the Government have been privately, without telling the House, cutting back the hospital programme for some months. We ought now to be told what is happening. Then we see that schools are to be contained within the existing programme. What is meant by that, and for how long are they to be contained?

I want to make some comments on the Chancellor's latest measures.