Economic Affairs

Part of Bill Presented – in the House of Commons at 12:00 am on 27th July 1966.

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Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet 12:00 am, 27th July 1966

This debate is taking place on the Opposition Motion, That this House has no confidence in the competence of Her Majesty's Government to manage the economic affairs of the nation. and I must tell the Prime Minister straight away that nothing in his speech has in any way increased our confidence, or, to judge by the appearance of his rather unhappy supporters, their confidence either.

As my right hon. Friend the Member for Bexley (Mr. Heath) said in opening the debate yesterday, we have reached a watershed in British politics, with the collapse of so many cherished and boosted Labour Party policies, with the repudiation of so many promises, with the appearance of the biggest, toughest and most ruthless "stop" we have yet seen in our economy.

Today, the Prime Minister tried to pretend that we were not in a stop cycle now. I do not always agree with Professor Alan Day, but he put it very well in the Observer on Sunday when he said: Unless the Government is very lucky, go-stop-go will be replaced this time by go-stop-reverse. The Prime Minister confirmed that very clearly this afternoon when he said that not only were these measures introduced in the short-term but they would be persisted in. He had no intention, he said, of making the mistake which we had made of reversing the restraints. [Interruption.] That is what the right hon. Gentleman said. Let him look at HANSARD and see that he made it quite clear that they do not intend to reverse the hire-purchase restrictions or the cuts in Government expenditure. These are the right hon. Gentleman's own words and will be recorded in HANSARD.

We must be clear on the nature of the crisis. First, it is not an attack from overseas. The Prime Minister rather went that way today. In his broadcast the other day he was talking about an attack on our country from overseas. This is sheer nonsense. Overseas bankers have gone the full extent they possibly could to help us and support the present British Government. It is not a question of the gnomes of Zurich. It is not a question of an assault upon this country. The dangers that we are in arise from the faults of our own Government. That is absolutely clear.

The second point is that in economic terms this problem is a marginal one. About 1 per cent. of the national income, the Prime Minister said, is all that is involved, in mathematical terms, between an adequate surplus and a deficit on the balance of payments. Although in economic terms this is marginal, in financial terms it is crucial. This is a crisis of liquidity. It is a crisis of confidence.

The absence of an enemy battering at the gates, the absence of any apparent immediate economic compulsion, makes it all the more difficult to explain the real situation to the public at large. It is all the more essential, therefore, that the Government should be clear and consistent in what they say. Yet they have been absolutely the opposite. They have been full of contradictions, full of disorder. Time and time again they have fallen to the temptation, having introduced tough measures, of trying to pretend that they were not tough at all and that no one would feel them.

As to the causes of the present crisis, I do not agree with the Prime Minister's diagnosis. The prime cause is excess demand at home. That is absolutely clear. It comes out particularly from his speech today. The lengthening of delivery dates, the main holding-back factor in our export trade, is a clear example of excess demand at home. The growing and continuous pressure on imports is another clear proof of excess demand at home.

The Prime Minister said a significant thing when he talked about the course of the balance of payments in the last 21 months. He pointed out, anticipating my intention, that the great improvement in the balance of payments took place in the first few months of the Labour Government, when it could not possibly have been affected by any measures which they took. The improvement, as he said today, had taken place by the first quarter of 1965. There has since then, as the Prime Minister said, been no further improvement in the visible balance of payments.

As for excess demand at home, I think that the Prime Minister would agree that, apart from the special problems of individual areas and a limited number of industries, there was no undue pressure on resources calling for action when the Labour Party became the Government. That was in their White Paper, and they confirmed it by taking no action. The excess pressure on demand has arisen since then, and it has arisen for two reasons. The first was the total collapse of the First Secretary's incomes policy, and the second was the failure of production to rise.

The Prime Minister gave some figures and I will quote two back. The index of industrial production, seasonally adjusted—the latest published figure—stands now no higher than it did in January, 1965. The Prime Minister talked, as the Chancellor did yesterday, of an increase in productivity per man hour worked last year of 3 per cent. But he did not say that in 1964 it was 6 per cent. This is the change that has been brought about. This is the productivity per man hour worked. It has been cut in half by the present Government. The combined effect of the fall in productivity and the rise in demand underlies the present financial difficulties.

The second reason, as the Prime Minister really knows, is the sudden collapse of confidence at home and abroad, in his own capacity and in the capacity of his Ministers. Many excuses are trotted out. Some have some substance, I agree, such as rising import prices. There are great problems. But the fall in import prices last year created opportunities. I think I am right in saying, as my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) said yesterday, that over the period of the life of this Government the terms of trade have moved in their favour. The seamen's strike, of course, had some effect. The shortage of Euro-dollars has also had an effect. But one could foresee the shortage of Euro-dollars years ago. Seeing that A was going to happen, one ought to have foreseen the difficulties. The truth is that the factors that the Prime Minister mentioned have had the effect of making our problems more difficult, but the sudden onset of this particularly acute financial crisis stems from a collapse of confidence at home and abroad in the Government's ability to manage our economic affairs.

The Chancellor of the Exchequer has on more than one occasion contradicted himself on vital matters within only a very short time. When he first put up the Bank Rate he said that he hoped that it would not have any effect on the domestic economy. Each time that he has said that there was no need for further measures of restriction he has had to come along in a short time and produce new measures of restriction. As to the incomes policy, one day in Brussels the Chancellor said that this was a bonus on top of the rest of it, and the next day in the House of Commons he said that it was an essential part of policy. How can one have confidence in Ministers who contradict themselves like this?

Possibly more important was the introduction first of all of the Capital Gains Tax and the Corporation Tax. The announcement that they would be introduced was made at a time when the Chancellor clearly had not the faintest clue how they would work or what their effects would be. This was bad enough. The even more inspired lunacy of the Selective Employment Tax must have done more harm than anything else to the British Government's credit overseas.

The other factor in the collapse of confidence has been the Prime Minister himself. The fact is that the world has rumbled the Prime Minister. His technique of gimmick after gimmick, of covering the failure of one publicity stunt by the noise of the next one, has now been exposed. His latest examples have been some of his worst, such as his weekend expeditions to Moscow and Merseyside, his much-publicised meetings with Mr. Kosygin and Mr. Ken Dodd. The fact that the Prime Minister does these things is one of the major contributing factors to our present crisis of confidence. Another is the excessive use of inspired leaks from No. 10. At one time, "There is going to be no mini-Budget". The next time, "The First Secretary's powers are to be greatly extended". Which of these two did more damage to confidence I do not know.

The worst effort of the Prime Minister was when he said, "We have worked out a prepared package and not one of the old scratching together of panic measures". It could not be possible to say more clearly the opposite of the truth. I am astonished that the Prime Minister should have made the fundamental error of saying this knowing, as he must have done, that it would be openly contradicted by his own statement within a few days of his saying it. We are censuring in this Motion the men in the Government because we believe that there has been a collapse of confidence in them.

I turn from the men to the measures, to the "prepared package" that we have been told about. It is true that the deflationary effect will be sharp of the addition of £500 million, as the Prime Minister said, to the £700 million already withdrawn from the economy. It is a pity that the Chancellor of the Exchequer and the President of the Board of Trade yesterday tried to blur this over. It will waste the effect. If one is taking deflationary measures, they are bound to hurt someone. One reduces demand; one reduces employment: it is mathematically certain. But if the Government try to take the credit for taking bold measures, they destroy the result if at the same time they pretend that the measures will not hurt. So if the Government are not careful the country will get the sacrifices to bear without the psychological benefits.

These proposals are immensely vague. Were the cuts in the nationalised industries a carefully prepared package? I doubt it. With regard to cuts in overseas expenditure, the Prime Minister produced a wide range of possibilities. How long have the Government been considering them? Not long ago the Government had a defence policy that they were to maintain. What is the position now on the incomes policy front? I was glad to hear indeed that the trade unions will support the Government in this matter.