Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 1st March 1966.

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Photo of Mr Patrick Duffy Mr Patrick Duffy , Colne Valley 12:00 am, 1st March 1966

The right hon. Member for Flint, West (Mr. Birch) spoke entertainingly, as always, and stimulatingly. Some of it we heard on the Finance Bill last year. With some of it, especially his reference to imports, surprisingly enough, I agree. I agree that there was a considerable stockpiling in 1964. There was stockpiling also in anticipation of an election in 1964, which the right hon. Gentleman did not mention. I am surprised that he holds the view that there was a sharp improvement in the terms of trade last year, and I should like to know what his evidence is there.

I take issue with the right hon. Gentleman on his view, which was expressed also by the right hon. Member for Orkney and Shetland (Mr. Grimond), the Leader of the Liberal Party, that the Motion before us does not deserve support or, as the right hon. Member for Flint, West put it, the fundamentals have not really changed at all during the tenure of office of the present Government. The Motion admirably expresses the priorities in the management of our economy. It attaches first importance to strengthening the balance of payments, and there is no doubt, in the light of experience in the last 10 years, that this is still our No. 1 problem.

What most of us want—and here I agree entirely with the right hon. Member for Hint, West—is a satisfactory rate of growth. Yet we know that the balance of payments position is still the major constraint on growth. Some of our balance of payments difficulties may be attributed to demand management policy. For example, the 1963 expansion, like the previous upswing in 1959–60, led within less than two years to a serious balance of payments crisis. The right hon. Gentleman made no mention of that, yet we all know perfectly well—there is the evidence of his speeches in HANSARD at that time when he was on this side of the House—just how critical he was of that policy. There was no more acid critic in the House of the Government's management of our economy.

The persistence of an unsatisfactory underlying balance of payments position, on an average of fair years with bad, points, however, to more deep-seated factors than just the rôle played by the Chancellor. The disappointing export performance over the last few years is, perhaps, the most serious of these factors. It is interesting to look briefly over the past 10 years at the conduct of the Opposition when in Government and examine their management of the economy, then to bring the picture up to 1964 and compare it with 1965.

When we look at exports, for example, over the last 10 years, we all know, yet it cannot be repeated often enough, that Britain's share of world exports of manufactures had fallen from 20 per cent. to 13·7 per cent. The amount of imports which these exports would buy rose by 48 per cent., with a much more distinguishable improvement in the terms of trade within that period than any I am aware of in the last year to which the right hon. Gentleman referred. Yet, despite this rise in the amount of imports which those exports could buy, the volume of imports moved faster than the purchasing power of exports—56 per cent. against 48 per cent., and much faster than the gross domestic product figure of 33 per cent. During the same period, retail prices rose by 36 per cent. and unit costs by 37 per cent. The figures speak for themselves. It is not surprising, in view of this—and this, though a brief description, is a description of the hard core of our economic situation in those years and an overlying deterioration—that our reserves of gold and convertible currencies were consistently low in relation to short-term liabilities.

When we look at 1964 and compare it with 1965, we find that in the last year of the Conservative Government the cumulative current account on our balance of payments was it is true, in balance, but only just, and it was making no contribution whatever to the financing of long-term capital exports, which by this time were averaging £175 million a year. Once again, we trace this weakness to export performance. We were always hearing from the Treasury Bench and notably, the Chancellor during that last year of the Conservative Government, about how exports would improve, but the fact remains that they did not. They were thoroughly unsatisfactory, as they had been during the previous three years. Considering the United Kingdom's comparative cost position as well as the generally buoyant conditions of world demand, it was a most unsatisfactory state of affairs.

Our exports of manufactured goods, which, incidentally, make up the bulk of our exports, have risen less fast than those of other major industrial countries taken as a whole. Our gold and dollar currency reserves were under £1,000 million, and lower than seven years before. The United Kingdom was the only major developed country, apart from the United States, not to increase its reserves in this period. One could mention other like facts, but those are sufficient to show that our economic position in 1964 was thoroughly unsatisfactory, and, of course, this reflects immediately upon the conduct of our economy and its general management by the previous Government.

When we come to the Motion and compare the state of our economy in 1964 with the position that we had reached by the end of 1965—we can even look right up to date, to last month, February—we notice the distinct improvements in certain key aspects. If we compare the reserves position in the autumn of 1964 with that of 1965, we find that the reserves have risen during the last quarter of 1965 compared with the previous year.