I do not quite know what the hon. Member for Ashton-under-Lyne (Mr. Sheldon) was talking about, but he certainly had a great deal to say. I was able to pick out one or two points. He said that taxing casinos at the rate of £50,000 would produce a great social change. I presume he mant that they would move into lower-rated property. That is a change of sorts. A significant thing which he said was that what the Chancellor had said about taxation in the coming Budget would reassure people in the election. That is what it was designed to do, but my goodness if he wins the Election the Budget he will have to bring in will bear no relation whatever to what he said today.
I agreed with much of what the Leader of the Liberal Party said. I do not think he spoke with that brilliant dash and wit which he employed when he was known as the Rupert of debate; since his mother-in-law let him off the hook he has lost interest. It was certainly a good speech, and he was perfectly right to take up the point of the Daily Mirror, as did my right hon. Friend the Leader of the Opposition, that this Motion is a nonsense. The Chancellor, one of the more honest members of the Government Front Bench—that, of course, is relative—must have been ashamed at having to move such a ridiculous Motion.
If we look at the fundamentals of the situation, we find that they have not improved. They have worsened during his tenure of office. The most fundamental consideration of all is the costs per unit of output in this country compared with costs in the United States of America. In that the position has deteriorated almost disastrously since the present Government came in. The Chancellor keeps saying that we shall be paying our way by the end of this year. I know of no one whose judgment I respect who thinks there is a chance of that happening.
Exports are encouraging, and I think they will go on being quite reasonably good, but imports are not encouraging. With the absolutely brimful over-employment announced in February and with the vacancies higher than they have been practically ever at that time of the year, imports are absolutely bound to be sucked in. Last year the position of visible trade was better than it had been in the year before, for two reasons. One reason was that there was no stocking up as there had been in 1964. The other was that there was a sharp turn in our favour in the terms of trade. Nothing is more difficult to predict than stock building and the terms of trade, but it would be very remarkable if there were no stock building this year, and so far this year the terms of trade have turned sharply against us. So I do not rate the chances of our being in balance at the end of the year at all high. If the Chancellor is to introduce a soft Budget as he indicates, there is no chance whatever of us being in balance.
I wish to say something about sterling, not just on the main issue, but about some of the side-effects of the Rhodesian crisis. I ask the Financial Secretary to the Treasury to convey this view to the Chancellor. It is extraordinarily dangerous for the Government to be so cagey about what the costs to us of sanctions are and what the costs to us are of aid to Zambia. If the Government refuse to say anything, or if they give a few misleading titbits, every outside analyst starts totting up the cost for himself and the longer this goes on the higher the figures which are bandied about are likely to be. I do not know how big the figures are, but when they get into hundreds of millions the right thing to do is to come clean and say what the truth is.
There are two other effects of the Rhodesian crisis which I believe are, and will be for all time, damaging to this country. The first was the nabbing of the assets of the Rhodesian Reserve Bank. I do not think that did any harm to Smith. It gave him a perfect excuse for cutting off all payments to us, and on invisible account we are large creditors of the Rhodesians. Probably it actually helped him. What about the legal regimes of other countries such a Uganda, Nigeria, Ghana and so on? No one wants a banker who blocks one's balances because he does not like one's politics. What I believe will happen is what has been happening for some time—more and more countries in the sterling area will try to build up a little reserve of gold and currencies other than sterling. I believe the return in the last quarter of sterling balances was far less than previous withdrawals and far less than one might have expected.
The other side effect, again damaging for all lime, was that of forcing Lloyd's to dishonour their contracts. Lloyd's has helped our foreign exchange for centuries and has made the American insurance industry very jealous of us. The Americans never lose an opportunity of trying to muscle in on Lloyd's territory and to get the business. This gives them a perfect chance. It does not do any harm to Smith at all. It makes no difference to him, but it makes a grave difference to Lloyd's. Already South Africa wants to insist on Lloyd's maintaining balances there to cover their liabilities. Lloyd's does not have to do that everywhere, and if it does so there it will have to hold balances in other currencies. Nothing could be more damaging to our balance of payments.
The present sterling crisis has been different from any other since the war for the reason that it has lasted so much longer. I have tried to analyse previous sterling crises. The period they have lasted in acute form has been on average five and a quarter months. When talking about a crisis in an acute form, I mean the time from when there has been a run on sterling till the time when people say it is over and money comes back in a flood. This crisis has been going on for 15 months.
The Chancellor, giving some figures today, said that something has come back. I think the major speculative open position has been closed and some of the leads and lags have been allowed to run off, but there has been no general increase in confidence and the money has not come flooding back. It is now beginning to go out again. I cannot help feeling that the Treasury must be slightly shocked at some of the ways in which the Chancellor presents his figures. I cannot help feeling that, listening to what he said today, most of his hearers would think that reserves in February had increased, whereas they actually decreased. The position is beginning to turn sour again.
I do not think this has anything to do with the election, but it has something to do with what the Prime Minister said. This is not the quotation which my right hon. Friend the Leader of the Opposition made, but something the Prime Minister said at the dinner of the Bankers Club on 8th February this year. He was doing his usual act there, beating his little chest-wig and saying how tough he was. To illustrate this, he said that in September we were absolutely "bust" and used all the loans we could get and pledged all our assets. That is perfectly true, but the point is that at that time the authorities were representing this as a move from strength. If one does that sort of thing, how can one expect anyone to believe one again?
My right hon. and learned Friend the Member for St. Marylebone (Mr. Hogg) quoted some remarks the other day of the Minister of Housing and Local Government. He said that it was all right for politicians to tell lies and even to be caught red-handed, but the dotty thing to do is to catch oneself red-handed. That is precisely what the right hon. Gentleman has done.
Before returning to the main topic, I want to say something about the backwash of the two tax changes in the last Budget—the Corporation Tax and the Capital Gains Tax. I do not believe that the Chancellor of the Exchequer would have introduced either of these taxes if he had been given the chance to think about them. As the House will remember, they were put into the "Brown Paper" almost as soon as the Government came to power. These two taxes were advocated by the First Secretary of State on the grounds that they would help with his wages policy. People who think like that obviously do not know where to turn. When buffoonery reaches that level it becomes positively morally oblique.
These taxes were also advocated by the Hungarian Mafia. What their motives were I do not know, but they said it was for simplification.
Let us look at the effects of the Corporation Tax on the rate of interest. This is the point we made over and over again in Committee on the Finance Bill. Towards the end of our debates I think the Chancellor of the Exchequer hoisted it in. This was bound to have the effect of forcing up long-term rates of interest, because it forces industrial companies to raise their capital by depentures rather than by shares. We have got to the stage where first-class companies with first-class credit have had to pay 7½ per cent. for their money on debentures.
This raises costs, but it does not stop there. It pulls down prices and puts up the yields of Government and local government securities. There was a perfect example last week, when the Greater London Council put a loan out to tender at 6¾ per cent. at 98½. Fifty per cent. of it was left with the underwriters, and now any hon. Gentleman opposite who wants to make a safe loan will be able to buy a few millions at a discount. Not long ago the L.C.C. was lending money on mortgage at 6¾ per cent. and below on house mortages. If the G.L.C. must borrow at 6⅞ per cent. it will not be able to do much on that.
It is all very well having concessions such as that announced in regard to mortgages, but that will not alter the fact that it is more than likely that building societies themselves, as they have said, will have to put up their rates above 6¾ per cent. After all, it is anomalous that a building society should be lending money at a cheaper rate to the ordinary borrower than the rate at which the G.L.C. can borrow.
It has had its effect on National Savings and turned them into a negative quantity. The Chancellor of the Exchequer has been forced against his will to bid up the rate of interest. Meanwhile, as National Savings have been turned into a negative quantity it means that more taxation will have to be raised, for the simple reason that the Chancellor of the Exchequer cannot rely upon part of his borrowing requirements being filled by National Savings.
Then there is the effect on the Public Works Loan Board. As local authorities cannot borrow on the market, they are coming more and more to the Board. Already lendings by the Board are about £70 million more than the Budget estimate for the whole year. That would not matter if the Government could sell Government securities against these lendings to genuine savers, but the Government have not been able to do any genuine selling at all for months. The gilt-edge market is dead. All this is adding to taxation, adding to rates, adding to costs, and it all comes about through a completely misconceived tax.
The real difficulty about the Capital Gains Tax is its appalling complexity. Mr. Harold Wincott has written some admirable articles about this. He gave an instance of a woman who bought 50 shares seven or eight years ago in an ordinary company and who sells them now. The question is—what tax is she liable for? Mr. Wincott got two first-class accountants to try to work it out. They put wet towels round their heads and came back a week later with different answers. I am told that if different tax offices are asked the same question they give different answers. Most tax offices when asked a really interesting question simply say, "We cannot possibly know the answer to that until there has been a case in the courts". That is the state we have now reached. The British people have been the most docile taxpayers in the world. They have put up with murder for years. The way to bring the whole tax system into disrepute is to introduce a tax under which nobody knows where they are and when they cannot even get professional advice to tell them.
I believe that the tax offices are very busy recruiting as many people as they can. They are faced with appalling complex problems, often involving very small amounts of money. These problems are bound to stuff the tax offices up. They are bound to delay the collection of taxes. They are bound to have a bad effect The only thing to do with the Capital Gains Tax is to simplify it drastically, reduce it to 20 per cent., on the American lines, and have a de minimis clause. We cannot go on like this. I am told that the Treasury already has 400 Amendments on the Corporation Tax and the Capital Gains Tax waiting for the next Finance Bill.
I return to the main economic situation. The trouble is soaring incomes and stagnant production. Much the most interesting article I have read on this for some time was one by Professor Paish in the Daily Telegraph on 16th February. He predicted a very heavy increase in taxation in the Budget, a continuing balance of payments crisis, and rising prices. The most interesting thing he predicted—I am sure correctly—was that as a result of the way the Government have played their hand, we are likely to have stagnation for at least for another two years.
Shades of the last election! Then Britain's Osagyefo said that he had the modern philosopher's stone and that he alone knew the secret of perpetual growth without inflation. What has happened is that nobody has been running the economy. And "Ossie", like his African counterpart, has been swanning round the world, the most fatuous visit of all being the last one to Moscow. His one claim to fame in regard to that visit is that poor Lord Chalfont was insulted in the North Vietnamese Embassy. What he has done is simply to leave the economic policy to be fought out between the First Secretary of State and the Chancellor of the Exchequer.
And a fight they have had. As has been pointed out, no kind of wages policy can be pursued if the number of unfilled vacancies is immensely greater than the number of unemployed. Everybody knows that, but still it seems to me that the First Secretary has made a pretty good mess of it. What is the point of fighting the Chancellor of the Exchequer? The Chancellor orders gas boards to raise their tariffs. The First Secretary orders them not to and refers the matter to the National Board for Prices and Incomes. The tariffs go up. We all know they will do that, anyway. Meanwhile, the Treasury has had to print money which it would not otherwise have had to do.
Again, what could be the point of referring the price of coal to the National Board for Prices and Incomes? The National Coal Board has had its £80 million increase. Three things could be done about coal. The Government could sack Lord Robens and get on with it; they could put up the price of coal, or they could find the money out of taxation. All these are Government decisions. They are not decisions for Mr. Jones. The Government are simply wasting his time.
Take Forces' pay. The Government obviously thought that an increase of £55 million was pretty desperate and they did not want to face it. On the other hand, they did not quite like to refuse it themselves. They tried to use the unfortunate Jones as a living shield, rather like mobs in Cairo drive the women and children in front of them. Mr. Jones had the sense not to be caught.
But something can be done by the Prices and Incomes Board. It depends on referring only key issues to it and taking its view on those key issues. If we clog it up we shall never get anywhere at all. What has really happened is this. When the First Secretary wakes up in the morning and seizes the papers, he refers to the Board anything which has most annoyed him when he has read the papers. Are laundry prices a key issue? What is the good of clogging up the machine by making the Board look at laundry prices? The whole thing has been hopelessly run.
Turning to the Chancellor's side of things, in preparing this speech I have looked back, tedious though it was, at every date on which the right hon. Gentleman announced new deflationary measures. He announced new deflationary measures on 17 different dates, though not just 17 measures, of course; there were a great many more measures than that. When the Chancellor spoke contemptuously of how we got out of financial crises, he said, "But your measures worked". What has happened to his measures? They have not worked. We have had the worst wage inflation there has ever been in our history. As we have said an infinite number of times, he would not have had to do anything like as much as he has done if he had acted with decision, and done enough at one blow, and said, "This is my policy", speaking honestly about what he was trying to do. He would have got the necessary check and had to do much less. But he did not do that, and the consequences are very grave.
The amounts involved are enormous. My right hon. Friend the Member for Barnet (Mr. Maudling), in a distinguished speech the other day, gave some figures showing the great weight of money involved in wage increases. I will not go into all that, but I mention merely the £55 million on the Forces. Again, I must criticise the Treasury for its presentation of figures. As I understand it, when the Chancellor was saying how clever he had been about reducing expenditure, the £55 million on the Forces was not considered as expenditure in real terms. That would be all right, of course, if one could rely on the Forces using every single extra pound to light cigarettes with, and the Treasury may, of course, expect them to do so, though I hardly think so. What they will do is spend the money on real resources, and a great deal of it abroad. By this steady mismanagement of our economy, by the Prime Minister paying no attention at all to what was going on and leaving others to fight it out, by all of them being wrong and ineffective, we have been put in a very dangerous position. I do not believe that these men will get out of it, and I am certain that, with the present Prime Minister in power, this country could never conceivably recover.