Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 26th July 1966.

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Photo of Mr Reginald Paget Mr Reginald Paget , Northampton 12:00 am, 26th July 1966

My first point refers to the escalating costs of the Rhodesian confrontation. I warned the Government at the time how they were climbing out of control. According to the Financial Times of this week, copper will cost us up to an extra £100 million on the balance of payments by the end of this year, and that is only one of the items which have got out of control. To it is now being added the diversion of South African gold as well as of South African trade. We just cannot afford this to continue.

Rhodesia is an independent country. We can do nothing to stop it. We can make it a poorer independent country, or an independent country which is more dependent upon apartheid South Africa, but we cannot stop it being independent. When we recognise independence, the terms do not matter very much. We had elaborate negotiation on terms with Ghana, Uganda and Nigeria. They were all torn up. Recognition of independence must be upon the basis of good faith and one's influence depends not upon the terms but upon how one gets on with the country and how helpful one is to it afterwards. The runaway costs of this confrontation are something which we cannot afford to see go on.

My main theme is that the case we put against the Tories was wrong priorities. Nobody put it with more eloquence than the Prime Minister. We did not say that their intentions were evil, that they wanted unemployment or did not want production, but we said that when it was a choice between the industrial interests and the financial interests they gave the priority to the financial interests. Thus, the moment production began to climb and financial difficulties occurred, production was made to conform to finance.

We said that that was wrong, that if we were to get production we must make finance the servant of production, and make the value of our currency conform to the needs of the production programme. It must find its value at the level necessary for the production planned. This was the case which we made against the Tories. This was the stop-go policy: the preference given to the financial interest over the industrial.

I remember talking to my right hon. Friend the First Secretary—I was very close to him in those days—back in 1964, and urging him not to take the planner's job unless he was given control of the Treasury. Any planner who cannot control money, which is the instrument which controls production in any price economy, does not have a real job. He has only the pretence of a job, a "phoney" job.

The essence of a planned economy is that the planner controls the money. In my view, the Chancellor should not have been put in the Cabinet at all. He should be a subordinate in a planning administration to a real economic Minister.

I have all along been a critic, sometimes a bitter one, of the present Government. I know that a great many of my hon. Friends reckon that this is bitterness on the part of somebody who was left out. I suppose that we are never entirely successful in analysing our motivation, but I do not believe that that reckoning is correct in my case. I have never suffered from a particularly burning ambition, and I have a feeling that I am a great deal happier as a relatively insignificant freeman than I would be as a great servant. I am not unhappy about my position. Indeed, I think that it suits me better.

It was the decision—it was taken in 1964—to make the maintenance of the £ our first priority that upset me, because that seemed to me to deny everything about which we had ever spoken. It was the acceptance of the Tory thesis, which had been criticised all along—the preference of the City, of banking and of financial interests over industrial interests. I believed that that would lead us to the position at which I came into the party, the position of Macdonald, in which we would find a Labour Government preferring unemployment to exchange control. That is where, it seems, we have arrived.

What about the Measures which have been introduced by the Government? The thing to notice about them is that they are not measures which we have chosen. I do not believe that anyone on the Government Front Bench believes that they will help the economy. Nobody imagines that the economy will be helped by measures that kill investment dead. They are measures which have been chosen because it is believed that they will impress foreign bankers. They are, therefore, measures for the bankers and not for the country.

Save very temporarily, I do not believe that the measures taken by the Government will work. We will be in the same position again, probably in a shorter time, and we will be all the weaker because of the production we will have lost. That is why I say that this is Conservative policy. It is the policy adopted by the Conservatives over the years, and it will not work for us any better than it worked for them. Indeed, it will work rather worse for us because we inspire rather less confidence in the bankers.

My right hon. Friend the Prime Minister was distrusted because those bankers thought that he was a Socialist. I think he is distrusted now for himself. [Interruption.] What should we do? I believe that the first and essential thing is exchange control. In a situation in which we really believed in the need or a priority of production and in the guidance of the direction of production, that is the first thing about which we would all agree. We agreed about it in 1914 and again in 1939. The very first action we took when we went to war—when production and the guidance of production became essential—was to put on exchange controls. Until that is done one is not the master of the situation and one cannot take a proper decision. At this time we do not need munitions of war but munitions of peace; export and investment goods. It is only if we have exchange control that we will be able to govern that direction.

I turn to the question of devaluation. The right hon. Member for Stafford and Stone (Mr. Hugh Fraser) made an interesting speech on this subject. The effect of devaluation is to increase the profit margins on exports and to lower them on imports, but there are two small but important points to remember. Devaluation does not raise one's domestic prices to anything like the level of the devaluation itself. If one imports about one-fifth of one's consumption, then when one devalues by 10 per cent. that is a 2 per cent. increase in prices and not a 10 per cent. increase. Indeed, it is generally a great deal less.

The second thing is that, according to The Guardian, the Prime Minister said yesterday that if we devalue everybody else will, and that will create a liquidity crisis. Really, what utter nonsense! If everybody devalues, that simply means that the price of gold is raised, and raising the price of gold is the classic method of increasing international liquidity, from the lack of which we are suffering, so that if that was the result it would be admirable.

In point of fact that would not be the result. The result would be that some nations who export to us would devalue with us so that their imports would not be put at a disadvantage, but the nations to whom we export would not devalue, and that means that the increase of prices would probably be only one-tenth of our devaluation because about half the people from whom we import would devalue with us. But the particular point at which we control our exchange is highly debateable. The one important thing if we are going to get out of these troubles is that in this crisis, which is as serious as wartime, we do control our exchange.

Let us take the question of interest rates. Nobody really sanely imagines that 6 and 7 per cent. is a rational interest rate. It is necessary in order to attract foreign money to support our banking position. It does that, but it makes an awful mess of the shape of our economy. It means that an inflation is imposed on us, because otherwise the burden of debt would be intolerable. If one does not write off one's debts by 3 or 4 per cent. per annum, the weight of a real 7 per cent. would be intolerable.

Before it is possible to begin to make the economy make sense, it is necessary to exercise those controls, that is to say, freeze the sterling balances, make them available for commercial transactions, and control the leads and lags, so that they keep level with commercial transactions.

We have had plenty of experience of it in two wars, and all the time during the 1945 Government. This is necessary to extricate ourselves from our position as world banker which we cannot afford on our reserves. A research project in America came to the conclusion that it did not pay the Americans to run a reserve currency. They get their money from the world at interest rates which are often half those which we have to pay to get ours. That is some illustration of the amount we lose by trying to run that business.

The other thing we have to cut down on is the pretence of being a world Power. We just cannot afford the cost of the Indian Ocean, east of Suez commitment. Merely bringing troops home is not relevant. We should be cutting down on the Fl 11 s, the frigates which are being developed at £20 million apiece for an oceanic role, the aircraft carriers. The "Ark Royal" will be costing us £30 million in a year or two to prolong its life for a year or two for the oceanic rôle which is beyond us.

We should now be cutting down on the amount of expenditure for a capacity that will not develop for several years. Surely, we should not be cutting down on N.A.T.O. at this time, when we are trying to get European unity and urging General de Gaulle to come in. What do we get for it? After all, we had to cut off immigration from the Commonwealth, and here we shall create an artificial immigration of these men, with all their dependants. When we think of the housing requirement that would result, to bring these people back at this stage is crazy. Agriculture could set off their cost by increasing production for an internal price incentive.

I would not particularly object to this Motion of no confidence in the Government if it were not for the implication that it involves confidence in right hon. and hon. Gentlemen opposite. After all, they were the people who created this mess; our trouble is that we have simply followed them. When we find that the solution advanced by the right hon. Member for Flint, West (Mr. Birch) for this great problem of our being extended as a world bank without the reserves and as a world power without material is prescription charges and charges for school meals, I find that he and his party as an alternative to the present Government present a very unhappy option.

I wish there were a Socialist alternative. I believe that what the country wants is a Socialist alternative. We are not providing it. Socialism is a faith. One does not get it without dynamic drive, and, as we found in the distant days when I first came into this party, the job of driving a leader who does not believe in Socialism to take the path we believe to be right does not work very well.