An hour or two ago, the Leader of the Liberal Party was boasting that his party had succeeded in dissuading the Government from Socialist measures of nationalisation. It is, perhaps, fortunate that the right hon. Gentleman has left the Chamber, otherwise he might have had his blood pressure unduly raised in listening to the speech of the hon. Member for Dagenham (Mr. Parker).
Many years ago in the House of Commons, I heard the late Sir Winston Churchill describe a debate on the Address as not only an occasion to discuss the Government's proposals but an annual inquest on the affairs of the nation. Whatever Opposition may say, I suppose that no Government is altogether bad, and certainly no Government is perfect. I should like, as objectively as a member of the Opposition can, to examine three of the principal economic problems and how the Government have handled them during the past year. The first is the sterling crisis; the second, the trade deficit; and the third, the question of future growth.
When the Government were faced with the crisis at the end of the summer, they had only one choice, either to devalue or to borrow. There were, I think, some who were in favour of devaluing. I suspect that some hon. Members opposite thought that if we had devalued, that would avoid the necessity of disagreeable deflationary measures. I am convinced that the Government were right. I do not believe that devaluation is a satisfactory alternative. In the long run, and in the not very long run at that, after deflation we should have needed to have even more severe deflationary measures and we should have found ourselves in a weaker position in a poorer world.
I pay tribute to the authorities for their efficient handling of these vast loans, but I do not think that we were lent the money so much because of foreign confidence in the Government's measures as because of a realisation of the consequences and the international damage that would follow devaluation of sterling. The Government, therefore, can take neither credit nor discredit. They must be judged by how they use the time which they have rightly but expensively bought.
The Chancellor of the Exchequer said the other day "Sterling is saved; that battle is won. We have not yet won the battle of the economy." I cannot agree with the Chancellor. Sterling cannot be saved until the battle of the economy is won.
Our trade deficit last year was very serious, but to hear right hon. Members opposite talk about it one would think that there had never been a big deficit before. It is true that we have to go back to the days of a Labour Government to find one of the same magnitude. If, however, any hon. Member refers to HANSARD for 5th November, 1952, he will see that we were running into debt in 1951 at the rate of £800 million a year and that in one half-year the drain on our gold reserves was at the rate of £1,000 million per annum. If reference is made to a few years earlier—to 6th April, 1948—it will be seen that the late Sir Stafford Cripps then said that in 1947 the drain on our reserves was £1,023 million, which he attributed partly to a disappointing falling-off in production.
There has been a considerable improvement in the capital account, but this is largely non-recurring. The year 1964 was one of exceptionally heavy foreign investment. Far more interesting as an indication for the future is what has happened on current account. The deficit there looks like being down from about £400 million to about £200 million, but nearly half of that improvement is due to the improvement in the terms of trade, which were more favourable to us than at any time since Korea. That is no credit to the Government, nor is it something which we can depend upon to recur. Most of the rest of the improvement was due to the decline in stockbuilding, which would have happened in any event.
The test of the Government's measures is not how much we have reduced the deficit this year, but how well we will compete in world markets in future. Costs are rising. If total spending—by which I mean what we spend as consumers, what the Government spend and what industrialists spend on industrial investment—grows faster than production three things must happen. First, costs must rise and, therefore, we export less. Secondly, home demand must increase, and so delivery dates are lengthened and we export less. Thirdly, if home demand increases, more goods are sucked in from abroad and, therefore, we import more. These things are bound to happen. The only remedy—there is no gimmick or short-cut solution—is either to produce more or to consume less.
The First Secretary seems to have an idea that we can get out of our problems by a system of controls. It has, I am sure, been pointed out to him many times before that if temporarily, by some artificial device, he can keep down prices without keeping down money incomes, the inflationary pressure will be all the greater and the position all that much more serious.
The First Secretary is a great planner. I understand that he spends a lot of his time planning what should be produced in the years ahead on guesses what people will want during those years. Such guesses, however, often prove to be wrong, because in a free society the people frequently change their minds. I suggest to the right hon. Gentleman that he could be far better occupied by turning his attention to the vital immediate planning that is necessary: that is, regulating the speed of the economy.
No Government, whether Conservative or Labour, comes out of this very well. They have not had available the indicators to know exactly when to expand or when to contract. Time and time again, we contracted only when we had a balance of payments crisis or expanded only when unemployment reached a high level. That meant that we had to alter course far more violently than would otherwise have been necessary. When we have done that, our instruments for altering course have been far from perfect. I must here pay tribute to my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), who produced what was much our best instrument in the shape of the regulator.
I do not claim that a Conservative Government are blameless in this regard, but I would say to right hon. Gentlemen opposite that if my Conservative colleagues had taken the present Labour Ministers' advice, the economic inheritance that they talk so much about would have been infinitely worse. If anyone is in doubt about that, I suggest that he looks at the Budget debates for 1963 and 1964 and, in particular, at the speeches made by the present Prime Minister, the present Chancellor of the Exchequer, and the present President of the Board of Trade.
One reason why all Governments have run the economy dangerously fast and, as a consequence, we have had rising prices, balance of payments troubles and less growth than we could have had, has been an obsession about unemployment. We have been as frightened of unemployment as Germany has been of inflation. I can understand that fear because of our appalling inter-war experience, when we had mass unemployment. But there is no need for that today, and that fear is quite groundless. We know now how to avoid a glut of goods without the money to buy them. The tragic thing is that we should only have mass unemployment again today if we had a severe enough balance of payments crisis. So the obsession about unemployment, more than many other things, has endangered our balance of payments position.
Do the Government accept that? If anyone studies the National Plan it looks as if the writer of Chapter 6, paragraph 4, has never heard of Lord Keynes. Do the Government realise that their measures are not going to work unless they reduce the pressure on the labour market? It is a medicine which does not work unless it proves a little nasty.
All experience shows that we cannot safely run the economy at much above 95 per cent. of full capacity. Whenever we get much above 95 per cent., we have balance of payments troubles, we get big rises of prices and I believe we actually get slower growth. Ninety-five per cent. is equal to a little over 2 per cent. unemployment, which is a very small part of what Lord Beveridge anticipated and a good deal less than Mr. Gaitskell declared when he was Chancellor of the Exchequer, which hon. Members will find in column 319 of the OFFICIAL REPORT for 22nd March, 1951. I believe we could safely get unemployment down to 1½per cent. in the South. The difficulty is that it reaches far higher figures in the North, and that raises the average. The solution must be to try, by the regional arrangements which are often referred to, to get it down in the North. I was glad to see in this week's Economist, which is not always friendly to the Conservative Party, a tribute to what my right hon.
Friend the Leader of the Opposition had done at the Board of Trade. It said that the improvement which has taken place probably owes most to the incentives devised by my right hon. Friend.
We must be prudent. If we tried to bring down unemployment sensationally in the North by forcibly moving factories that could not economically go there, the cost would be colossal and we should be taking grave risks. It must inevitably be a slow process.
In the days of a Conservative Government I often said that we can afford much larger unemployment pay and we ought to afford it and we ought to spend much more on retraining centres. What we cannot afford to do is to blow up the whole economy so as to bring about excessive labour pressures where there is already a shortage.
I want to examine quite briefly the deflationary measures of the Government. First of all, I am critical about their timing. If they had prescribed a stiffer dose last autumn, a stiffer dose now could have been avoided. With all the double talk that there has been and the slowness in application, I am not entirely sure that they have done enough, and certainly they have not done enough if they are going to carry out the National Plan.
I would like to ask whoever is going to reply tonight what the Plan means. Is it a wishful-thinking programme of what the Government would like, with a bit of an election manifesto thrown in, or is it really an estimate of what they intend to do? If the latter is the case, I am convinced that it is impracticable.
They propose increasing production by 25 per cent. before 1970. That means increasing productivity from under 3 per cent. to about 4¾ per cent. Is that really possible? I am quite sure that it is not in the world as we know it, and that is why Professor Day, who is not at all an unfriendly critic of the Government, said this in the Observer of 19th September, 1965:
The chances are that this is a plan which will be more successful in creating another sterling crisis in 1967–8 than in creating more prosperity in 1970 than we should enjoy anyway.
Secondly, I want to criticise the Government's dependence on investment for curtailing spending. It would have been far better to have brought pressure to
bear on consumption. According to the Board of Trade Journal of 2nd October, the credit squeeze has already, in the second quarter, brought down industrial investment by 3½ per cent. The cutting of the road programme and the revised programmes for school and university building all seem like eating seed corn, which I have always understood is an unwise thing to do. How much better it would have been to risk the unpopularity of reducing consumption? How much better it would have been to cut present enjoyment for a time rather than the basis of future prosperity?
Thirdly, I want to criticise some of the Chancellor's taxes. There are those who say that we cannot afford to spend any more on the Welfare State. I do not go all the way with them, because I believe that the amount that we can afford to spend on the Welfare State is the amount which we can tax expenditure on spending. As my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) said recently, it is vital to get right the balance between total national resources and claims on those resources. Some taxes just come out of savings, and therefore they do not reduce the claims at all. They are of no use. Some taxes discourage effort and enterprise and actually reduce those resources. Those, therefore, are worse than useless. I would go so far as to say that any tax which does not affect consumption serves no economic purpose; but taxes that reduce the resources more than they reduce spending must be bad taxes, and some of the Chancellor's taxes come into that category.
The final problem that I want to examine is how to get more growth of the economy. I have no doubt that I shall have everyone with me when I say that we can only have a high wage economy and the improvement of the welfare services that we want if we can get more growth of the economy. Not enough attention is paid to the difference between more production and more productivity, what the Treasury call the productive potential. As we saw during the war, it is often possible to squeeze a little more production by bringing in older people and older machines. But look at the cost.
that is not growth. One gets growth only when one gets greater output per
man. That means modernisation. I understood the Prime Minister to say today—though I am open to correction—that on the question of modernisation our record of money spent on research was bad compared with other countries. I do not know why he should choose to belittle the activities of the country of which he is Prime Minister, but I think that he has got his facts wrong. The O.E.C.D. Report for October, 1963, says:
The proportion of the gross national product devoted to research in Great Britain is very little behind the United States of America and is ahead of any other country.
Indeed, between 1955 and 1964 the proportion of the national income devoted to research went up by more than 50 per cent.