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 Iain Macleod Mr Iain Macleod , Enfield West 12:00 am, 27th July 1966

I am grateful to the hon. Member for Hornchurch (Mr. Alan Lee Williams) for telescoping his speech. As the last backbench speaker in the two-days' debate, he made what I think was in these two days the only back-bench speech which was wholly uncritical of the Government's measures.

I ought to start by paying a tribute, which I gladly do, to the two maiden speeches, one by the hon. Member for Carmarthen (Mr. Gwynfor Evans), and one by my hon. Friend the Member for Canterbury (Mr. Crouch), both of whom succeeded hon. Members who had friends on both sides of the House; and we were very glad to hear those hon. Members' speeches, and the tributes they paid to them.

Even two days, or many days, would not be enough for this traumatic debate. I am sorry that a number of hon. Members on both sides have not been able to make their speeches.

The reason why the announcement of last Wednesday is such a watershed in British politics was given by my right hon. Friend the Leader of the Opposition yesterday, when he said that it exploded every myth, and shattered every illusion, which had been nurtured by the Left for years and foisted on the people."—[OFFICIAL REPORT, 26th July, 1966; Vol. 732, c. 1451.] We have come a long way in 21 months, because on 11th November, 1964, the present Chancellor of the Exchequer, condemning the 1961 approach of my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), said that the balance of payments had led him to a credit squeeze, a pay pause and other measures which led to the slowing down of British industry and a high level of unemployment. On our first weekend, when the present Prime Minister formed his Administration, we determined that we would not tread that path again."—[OFFICIAL REPORT, 11th November, 1964; Vol. 701, c. 1023.] They are treading it now, and it is a rougher and a harsher road than any that the British people have ever previously been asked to walk.

It is for that reason that there has been so much criticism, not just from this side of the House and from the Liberal benches but from the Government benches as well. The dialogue—it has been almost pleading with each other—has followed the same sort of course as it did on the Prices and Incomes Bill.

Last night, when the President of the Board of Trade wound up, at one point in his speech he was picked up by an hon. Member who spoke from the Government benches when he started to play down these measures to show how small this vast sum of £500 million in domestic demand was. As he talked about relaxation, I murmured some comment which I am happy to see does not appear in the OFFICIAL REPORT, and the right hon. Gentleman asked me if I was alarmed. The answer is that I was, and perhaps I might tell the House why.

It is a great boast of the Government that their unemployment figures are the lowest for 10 years. I well remember the time 10 years ago, because I was then at the Ministry of Labour. Those particular figures, which really I inherited from Sir Walter Monckton, were one of the many signs which we could see at the time were leading us into inflation and into a balance of payments crisis, which came in 1957.

As my right hon. Friend the Member for Wirral said, inflation hurts the poor, the unorganised and those on fixed incomes. Those who are organised are all right, Jack; they can organise themselves out of it, in ordinary circumstances. Anyone who has been at the Ministry of Labour as long as I have—and I was longer there than anyone on either side of the House—has an attitude towards unemployment which, I am happy to say, he never loses. I never think of unemployment figures in terms of percentages, because it makes little difference to an unemployed man who sit at Westminster and on which side they sit. If a man is unemployed, for him it is a tragedy.

I loath seeing the planning of recession and the planning of unemployment, whoever the Government may be who plan it. I loath one thing even more—and that was the purpose of my silent intervention in HANSARD last night—and that is infirmity of purpose. That is why on Thursday, 14th July, a date to which I shall return, after the Prime Minister had made his statement, and winding up the Prices and Incomes Bill Second Reading debate, I said in the course of a very brief speech: I therefore urge the First Secretary to plead with the Prime Minister to do it soon—and this time please can we have no double talk to accompany it. Do it and say it and mean it, for there is no other way and indeed I do not believe that there is any other hope."—[OFFICIAL REPORT, 14th July, 1966; Vol. 731, c. 1840–1.] What has happened so often in the past 21 months is that we have had action watered down by words, so that further action had to be piled upon it, all to the suffering of the people of this country.

If I might give one example—and there are scores of them—The Guardian had this to say on 5th February, 1965: Mr. Wilson's message to a private meeting of the Parliamentary Labour Party yesterday was one of good cheer. He told his followers that things would now begin to improve. The economic crisis, with the unpopular measures it had demanded, was now virtually over. The future was bright with promise. It is that sort of remark made for that sort of purpose at a private meeting of the Parliamentary Labour Party that, all the time, has led those who hold and deal in sterling to doubt the intensity of purpose of Her Majesty's Government. We have had all the other illustrations that we know so well—the Chancellor saying that the 7 per cent. Bank Rate would not work through to the domestic economy, the measures in July, 1965, which he was going to resist, and which he resisted for a total of a fortnight before he brought them in, and so on. The right hon. Gentleman knows that these measures will hurt. They are meant to hurt, but it will be much less painful if we do not wrap reality in illusion.

There is another illusion which is being fostered by speeches which we have heard from that Dispatch Box, and that is that there is some magic recipe for sheltering the development areas from disinflation of the economy. This is simply not true. All the measures which operate to create unemployment operate in the development areas. The regulator operates in the development areas. Hire-purchase restrictions operate in the development areas, so do Post Office charges, and so does the 10 per cent. on Surtax. So, too, do the various restrictions on holidays, and next year is World Tourist Year. What a wonderful contribution we have made to that institution by the measures announced last Wednesday.

All this would be bad enough for the development areas, but it comes on top of the Selective Employment Tax. This tax will deal hammer blows to the remote areas of this country, where there is so little industry, and where they depend so much on services. It is, therefore, an illusion that we can somehow protect them. I wish that we could, and to some extent the measures which both sides have united in bringing in since 1961 may help, but they will help only marginally, and we should not try to create the illusion that unemployment will not rise fiercely in the development areas if these measures are to succeed.

I want, now, to say a word about the one measure which was announced by the President of the Board of Trade last night in relation to hotels. It is an absolutely worthless proposal which the Government are putting forward. Let us consider what this industry has suffered in recent months. It has suffered the imposition of the Selective Employment Tax. It has had to put up with the withdrawal of investment allowances. It has had to put up with increased Purchase Tax on its essential equipment, and some of its products and goods are now going up in price. The effect of the S.E.T. alone will put up hotel costs by about £20 million a year.

What are they offered? They are offered a loan at, I presume the going rate to be about 7½ per cent., for 15 years. It simply is not good enough to offer a loan as a substitute for the money which has been withdrawn from this industry in extra taxation, and these proposals, which have not been discussed with the British Hotels and Restaurants Association, are a useless exchange for the damage which the Government have done to this industry in recent months.

The Motion concentrates on the incompetence of three men whom we regard as guilty—the Chancellor of the Exchequer, the First Secretary and the Prime Minister. The Chancellor yesterday made an admission that his Budget judgment was wrong. He was quite cheerful about this. He said, "Yes, I was wrong, and you were right", and on that he was prepared almost to leave the point. But the right hon. Gentleman gambled, as he gambled last year, with the economy of the country, and because he lost we are having this debate, and the people of this country will have to suffer the unemployment which is coming.

Of course it was a difficult judgment to make. It always is, and I acknowledged in my Budget speech that it was a particularly difficult judgment this year, but the criticism which has come from this side of the House has been consistent. In all our speeches it has been almost a dialogue with the Chancellor since the day of his Budget. I put it the very day after his Budget. He will remember it. I talked about the danger of a soft and a hard Budget, or one that might be thought to be, and I said that the great danger seemed to me to be that the proposals did not operate on demand until the autumn. On 9th May the Chancellor replied to this point. He said: If I understood his argument aright, it was that he would have preferred me to reduce purchasing power in the economy straight away rather than wait until September, when the Selective Employment Tax comes into operation. It is an arguable case; but I think the right hon. Gentleman is neglecting two points which I put forward and adhere to."—[OFFICIAL REPORT. 9th May, 1966; Vol. 728. c. 163.] He went on to say that the first point was the check in demand that was supposed to come over the next few months. This was the only economic forecast—this check on demand, following the Budget—that the Chancellor offered to us, and it was wrong. Demand was not checked; demand went on. It is no good saying, as the right hon. Gentleman said yesterday, that this was unforeseen. In the Second Reading debate on the Finance Bill, having rehearsed exactly the same argument about the timing of the Chancellor's proposals, I said that the Chancellor justified this on what seemed to me to be a very strange argument about the course of demand anticipating the Budget. This can only be a trifling factor in the ordinary course of demand. It is far too slender a base on which to hang as much as the Chancellor has chosen to do".—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 632.] He was challenged at once on that, even in detail, and he was wrong and we on this side were right.

He then produced the excuse about commodity prices. Anybody who has read the newspapers and knows what has happened in Rhodesia and Vietnam knew what was happening and what would happen to commodity prices. Then the Chancellor produced the question of import prices, which have risen—but so have export prices. The point was very efficiently dealt with by my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) in his speech yesterday. Although the price of imports has risen by 3 per cent. since January, the price of exports has risen by 2 per cent., and they have had the benefit of favourable terms of trade throughout the period since October, 1964.

Finally, the last argument they produced, which the Prime Minister relied on again today, and relied on in his telecast to the nation, was the seaman's strike. They were blown off course. That is the alibi that they now put forward. I want to put two simple questions on this point. If it was the seaman's strike, which lasted all that time, which blew them off course why was there no planning, and why was there no plan when we came to 20th July? Secondly, if our economy is really to be blown off course because of one strike, how on earth does the First Secretary hope to mount a prices and incomes policy on the lines that he has been indicating? Does he hope, magically, that there will be no strikes at all—or is it to be that every time there is a serious strike we are to be blown off course?

The Chancellor of the Exchequer, who has made various forecasts about the balance of payments, knows that those, too, were challenged at once when he made them so optimistically just before the election on 1st March, and he knows that what we said proved right and his estimate proved wrong.

All this led up to his conclusion, at the end of the Budget, as the House will remember, when he considered all the possibilities of taxation and put them all on one side. He said: I therefore put all of them on one side. There will be no increase in the rates of Income Tax, Surtax, Purchase Tax, vehicle licence duty or other Customs and Excise revenue duties".—[OFFICIAL REPORT, 3rd May, 1966; Vol. 728, c. 1453.] But we have them all now. We have the Selective Employment Tax, and the duty on beer has gone up; the duty on petrol has gone up; Purchase Tax has gone up, and hire-purchase restrictions have been imposed. These were put forward to the House at the time of the Budget as alternatives, not as additions which could be piled on at some appropriate later date. The Prime Minister this afternoon said that this crisis came out of the blue. Anybody with any experience of Government knows that that is absolute nonsense. These things do not happen like that. The First Secretary might like to deal with this point.

How comes it that, on all these points—as I have shown—the Chancellor, with all the resources of Government and the Treasury, was wrong and the Opposition, on all these points and in detail, were right? How comes it that there was no contingency planning at all in the Treasury, just in case the Chancellor was not right, just in case some of the things which were being said from this Dispatch Box and by my right hon. and hon. Friends behind me turned out to be right? The Chancellor—he admitted this yesterday—has been proved to be comprehensively and massively wrong in July, 1966, as he was in July, 1965, as he was in November, 1964.

I turn to the First Secretary of State. I agree with my right hon. and learned Friend the Member for the Wirral. The right hon. Gentleman had, in one sense at least, a hopeless task. I believe that it would be right to scrap the Department of Economic Affairs, because I do not believe that two people can be in charge of this country's economic direction.

This can be put quite simply. The wage bill of this country is about £20,000 million a year. One per cent. of that is £200 million and 2 per cent. of that, £400 million, unrelated to productivity, would be a massive deflation in itself and would cancel out and has cancelled out many of the efforts—