Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 17th November 1965.

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Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West 12:00 am, 17th November 1965

Oh, yes, I am; and we know the reason which was given, the reason of priorities, which echoes the famous Socialist phrase which we all remember, and it is not surprising, perhaps, that the hon. Member for Ebbw Vale (Mr. Michael Foot) found that rather hard to take; but the point I want to put to the Prime Minister—I know he has to go in a few moments, and I am grateful to him for giving me notice of that—is a sentence he used when he spoke on 9th November, when he said: Actions taken in good faith within the industry and in the normal course of business are unlikely to be challenged."—[OFFICIAL REPORT, 9th November, 1965; Vol. 720. c. 39.] I hope he will take the opportunity, or that one of his Ministers will, to delete that word "unlikely". The steel industry is in quite enough uncertainty at the present time. He has said, if I correctly understand the exchanges he has had with his own side of the House, that steel nationalisation remains part of the policy of the Socialist Party.—[HON. MEMBERS: "Hear, hear."] Let us wait and see. I think he would agree that it is desirable that all the actions that can be taken and are taken in good faith should not conceivably attract any penalty in any circumstances in future.

The other point which my right hon. Friend the Leader of the Opposition mentioned, and which perhaps the Chancellor of the Exchequer might like to refer to when he winds up the debate, is in the paragraph in the Queen's Speech which says: Steps will be taken to improve the arrangements for providing incentives for industrial investment… I ask again the question which my right. hon. Friend asked. Are those words, "arrangements for providing" simply tautologous, in which case what will be improved—I hope they will be— are the incentives themselves, or is all that is planned some improvements in the arrangements? That is a small point which the Chancellor can make clear tonight, but I think it important.

I turn to our Amendment. I shall not spend too much time tramping over the ground we have debated so often, and will debate again no doubt when the next General Election comes, of the exact responsibility and where it lies for 1964 and 1965. I think the House will agree that the start of this particular period of reflation which came to a halt in the first quartet of this year—I think I am right in saying that the production figures for September were released a few minutes ago and are down again. [HON. MEMBERS: "Oh."] I think that is correct. The figure, I am informed, is 131, dropping from the 134 of January. This particular period of reflation clearly started. I think we will all agree, mainly with the Budget of 1963. That Budget stimulated consumer demand by about 2 per cent. The public investment programme was increased in line with the proposals made by the N.E.D.C. for its 1961–66 targets and private investment was at the time encouraged. Looking back, with of course hindsight, the verdict of the O.E.C.D. on the two years is as follows: In retrospect then, the expansionary policy measures taken at the beginning of the expansionary phase must clearly be judged to have been excessive. That they were so was not apparent to many observers at the time. Indeed, that is so, and it is also true, as the O.E.C.D. admits, that it itself was amongst those who did not judge them excessive at the time, as the Report for 1963, the annual survey, makes clear.

At all stages, as the Prime Minister will know, he agreed with the analysis of my right hon. Friend the then Chancellor of the Exchequer when he said in April, 1963, that economic expansion would entail a temporary rise in imports. The Prime Minister then said: I think it is perfectly reasonable and sensible to finance such a movement out of our reserves or out of our borrowing facilities in the I.M.F. and elsewhere. The Swansea speech endorsed that approach and when my right hon. Friend —turning now to the 1964 Budget— warned of the possibility of a deficit on the balance of payments and said: Provided that it is temporary this should give rise neither to alarm nor dismay. … it is a predictable accompaniment to a vigorous rate of growth which all of us are committed to seek. Over and over again the Prime Minister, in interviews, in speeches, in his speech, for example, to the T.U.C. on 7th September, endorsed that analysis. He said at the time: this trade gap means a deficit on our current balance of payments of £500 million a year. In fact it turned out to be £412 million. The clear evidence of that is that the Prime Minister knew very well all the time what the figures were. He knew how the problem was being dealt with and he thought that the right methods were being selected to deal with the problem. He knew that there was no crisis and he said so, and called for no restrictive measures before the election. Nor did he scale down the Labour Parly's lavish preelection promises.

There is one small point which should be made. On two occasions the Prime Minister and my right hon. Friend the Member for Barnet (Mr. Maudling) have clashed in this House on the question of the issue by Her Majesty's Treasury in the middle of the election last year of the United Kingdom balance of payments, the article which was published in "Economic Trends". When my right hon. Friend said that he had published this in the middle of the election, the Prime Minister replied: Yes, and in the middle of the night. If that meant anything it was an accusation either against an unnamed civil servant in the Treasury or against my right hon. Friend the then Chancellor of the Exchequer. He was asked to withdraw it and he refused to do so. Now we have the comparable paper for 1965. I have it in front of me. It was issued by Her Majesty's Treasury and it says, in red type: please note embargo. Not for publication broadcast or use on club tapes before 0030 hours.— in the middle of the night.

We came to the General Election in 1964 without a crisis of confidence. As the Prime Minister knows very well, sterling held throughout the election and held throughout the immediate post-election period and on into November. Then the mistakes began. In our view, the first of those mistakes, although it did not affect confidence, was the formation of the Department of Economic Affairs.

I personally had no objection; indeed I think it an excellent thing to refresh the still waters of Whitehall from time to time with some people coming in from outside. I did not object on those grounds at all. But the result of this was that the Chancellor of the Exchequer was, for a time at least, reduced to counting candle-ends. He was removed from his chairmanship of the N.E.D.C. and removed even from membership of the N.E.D.C. He was the first Chancellor—his Budget in April was proof of this—who had no true responsibility for the economy. The Chancellor would be less than human if he did not resent this, and he is a very human man. I am bound to say that he was saved. He was saved partly by the pressure of events and also saved by the skill of his Department, because the Treasury knights slew the foreign dragons by one of the prettiest pieces of knifemanship we have seen for many years. I think the Chancellor would be less than human if he did not chuckle a little about that.

Secondly, there was the handling of the import surcharge. I understand that we are to have a day's debate on that in a few days' time and I need not develop my argument on that particular theme, but what the House as a whole must know beyond doubt is that, apart from the merits, the handling of it came as the gravest possible shock to confidence abroad.

Finally in this particular phase, we had the autumn Budget. That autumn Budget, as many of my hon. and right hon. Friends have pointed out, was basically inflationary. It was an inflationary Budget imposed upon a potentially inflationary situation. It was not inflationary in the figures and it may not have been inflationary in intent, but it was inflationary in effect.

The Chancellor, and indeed many hon. Members, will have read in the May issue of the National Economic Review an extremely interesting article which shows, I think with great clarity—the point was well made by my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) in the first day's debate on the Address—that if in theory we balance consumption and taxation, they may be balanced for the first year, but immediately after that the inflationary effect becomes very marked.

The last point I want to make about the errors of those early months was the double-talk that went on from every single Minister at all times. The classic example of this was the Chancellor himself saying that he hoped the 7 per cent. Bank Rate would not work through to the domestic economy. One might well ask what the object of it was. The observations that he made helped to weaken confidence abroad.

So, viathe Budget of April, we came to the July measures. It has never been cleared up yet, although the Chancellor and I have had at least one exchange on this in the House of Commons, why these appeared in their particular guise and with this particular timing. The Chancellor will remember the famous sentence he used when he said that he was restraining himself from taking further measures. He in fact restrained himself for about a fortnight and then we had the measures which came at the end of July. It was put around at the time that he had added this sentence as it were to his brief, or impromptu notes, because he was tired.