Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 12th April 1967.

Alert me about debates like this

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West 12:00 am, 12th April 1967

Not at the moment. A little later, perhaps.

I mention this at the beginning, because yesterday, at the very opening of his speech, the Chancellor of the Exchequer suggested that Members should go away and not come back till 5 o'clock. We did not realise that he was serious.

Any Budget, even one without major proposals, has to be set in the context of the previous debates, and I propose to refer, and that briefly, to only one, the debate in which we had the pre-election preview from the Chancellor of the Exchequer on 1st March, 1966, in which he summed up his considered Budget judgment by saying: The best guidance that I can give the House, therefore, at this stage is that I do not foresee the need for severe increases in taxation."—[OFFICIAL REPORT, 1st March, 1966; Vol. 725, c. 1116.] As we know, after the election that phrase turned out to be £385 million in the first year, and a vast amount more in the subsequent measures of 20th July. That statement by the right hon. Gentleman was either wholly dishonest or wholly misinformed and, quite clearly, it was the second.

But the keynote of that particular debate was summed up in a flashing phrase from the Chief Secretary, in his peroration, when he said: We have taken the stop out of the stop-go."—[OFFICIAL REPORT, 1st March, 1966; Vol. 725, c. 1231.] We should not be too critical of the right hon. Gentleman the Chief Secretary. He realised that the Government had taken one of the components out of the stop-go, and there was an even chance that he had picked the right one.

The Chancellor of the Exchequer will remember that last year his Budget judgment was not really in dispute. What was in dispute, from the very beginning, was the timing, particularly in view of the fact that the S.E.T. and, indeed, the minor factors in the Budget, did not begin to operate until the autumn. I am certain that the scar of that misjudgment last year still remains and that it has affected the right hon. Gentleman's judgment this year.

Before turning to that, however, which is my main theme, I would pick up one or two smaller matters to which the Chancellor of the Exchequer may lend a sympathetic ear. There is the question of secrecy of economic decisions and the aura of mystery that surrounds our financial affairs. I do not accept the view that sterling and the true state of the reserves are something that we should not mention. I have refrained from raising these matters at all out of deference to that view—which is one that I think the right hon. Gentleman shares—but I am happy to raise it today, a day when sterling, as I am delighted to see, touched parity.

The position with regard to reserves is that we have got into a habit—it was always there, but it has got worse in recent years—of announcing the figure of, say, £30 million, and then allowing people to guess, with the help of nods here and winks there, what the true figure, it may be up to £250 million, is said to be. During an exchange that the Chancellor of the Exchequer had with some of us on this side, one of my hon. Friends said that the monthly figures were inaccurate and misleading. I said that in my view they were accurate and misleading in that they show accurately the state of the cash transfer in the month, but made no mention, of course, of borrowing.

It is clear that if a man's personal account is, say, £100 in credit at the end of one month and £100 in credit at the end of the next month, we cannot judge whether that man is doing well until we know whether he has borrowed or has repaid borrowing in that month. I would ask the right hon. Gentleman, particularly now that sterling is strong—I understand his difficulties before—whether honesty may not well be the best policy here, because the trouble with guesses is that they invariably tend to be alarmist.

I feel that information in this field should be given by the Government rather than that it should drift out from other sources. For example, the Financial Times said on 9th March: The Bank of England has this month completed repayments of all the special credits obtained in the U.S. at the time of Britain's last sterling crisis in the summer of 1966. It goes on to discuss this turn-round and says that the report was prepared by Mr. Charles A. Coombs. That is fine, but I prefer to be told these matters by the Chancellor of the Exchequer than to read about them from Mr. Coombs. I am sure that the Chancellor shares that view.

The second matter is to consider whether the Government feel that they can share all basic economic thinking with Parliament and the country. When the Conservative Finance Committee tried, a short time ago, to mount an exercise designed to find the basis on which really informed discussion of economic judgment alone could be based, the attitude of Treasury Ministers was deliberately obscurantist.

The approach of the Green Paper is a welcome one. I think that a Tory Government once produced a draft Bill for people affected by it to examine and consider. But it is even more important that we should not be asked to accept matters of gravest import without proper proof.

For example, easily the most important section in the Chancellor's Budget statement yesterday was the one in which he said: In the Government's view the growth is likely to be about 3 per cent. per annum."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 983.] On what basis is this view formed? Was it like the figures in the National Plan—just something which was plucked out of air? That statement is also a requiem for the National Plan itself.

The figures in the National Plan are buried by what the Chancellor said yesterday and we, too, can bury with it a famous exchange, which has been referred to more than once in this House, which took place on the day before the election last year. It was an exchange between the Prime Minister and my right hon. Friend the Leader of the Opposition. The Leader of the Opposition asked. How does Mr. Wilson propose to pay for his programme, which is based on a growth rate of 4 per cent., now that it is absolutely apparent that this growth rate is not going to be achieved? The answer was: It is only apparent to Mr. Heath; it is not apparent to us. We shall pay for it out of provision in the National Plan involving a growth rate of 4 per cent. It is now at least apparent to the Chancellor of the Exchequer, and, I take it, therefore to the Government as a whole.

The other matter I wish to refer to is the question of voluntary limitation of overseas investment which is to be continued at least for one year. I am sure that the Chancellor knows that this is voluntary only in the sense that once upon a time a church parade was voluntary in the Army. It has been very well observed that the two strongest instruments of control in the City of London are the Governor's eyebrows. I am sure that he knows very well that a great deal of this is more than voluntary in its operation.

The Reddaway Report may at first sight confirm some of the Chancellor's analysis and shows that short-term restrictions may be reasonable in a balance of payments crisis, but this problem should be seen in the wider picture of international capital flows to which long-term capital from the United Kingdom makes such an important contribution. It follows that it should be tackled in the context of the world liquidity problem.

I give a brief illustration from Australia, where I was recently. The figures of the relative decline of our trade with Australia are startling indeed. Ten years ago our share of her imports was 43·5 per cent. On the latest figures, it is 23 per cent. and it has fallen behind that of the United States of America. Our share of her exports 10 years ago was 32·9 per cent. It has fallen to 15 per cent. on the latest figures I have, which is behind both Japan and the United States. The growth potential of Australia is enormous. If we do not invest there some other countries will do so.

I shall read part of a note sent to me by Mr. Alan Green, who was a Treasury Minister in the last Conservative Administration. He writes: The restrictions on U.S. capital movements are regarded as temporary. The U.K. restrictions are regarded as permanent. The villain of the piece here is the way in which U.K. Corporation Tax has been set up. Australia sees this as a discouragement to U.K. investors. I am sure that is true and it reflects a Little England policy which could be particularly formidable, especially at a time, with the growth of Concord travel, in particular, when we shall come nearer, in real terms as it were, to Australia and not further away. I should, therefore, like the Chancellor to reflect on this and, when he winds up the debate, as I understand he will on Monday night, say whether he can go a little further and make clear that this further restriction is to be for one year only.

I return to the main stream of my argument. I coined a phrase in an article in the Financial Times a week or so ago about "doing a July". By that I meant the Chancellor of the Exchequer, against a great deal of advice from this side of the Committee, was, until the last moment, too optimistic about the pressures upon the economy and that after his Budget he had to have further deflationary measures in July, 1965. In July, 1966, for the reasons I have given, because of the timing of S.E.T., exactly the same thing happened. The Chancellor believed that he could ride on the reserves all that time and this particular judgment proved to be wrong.

Now the right hon. Gentleman is determined, in spite of much good news which has come recently—and I welcome it—not to be caught in the short term. I think that the danger which has scared the Chancellor into immobility and reading too much into these portents is a real one, but I cannot believe that inaction is the right reaction in these circumstances.

I take three points and I shall concentrate in a moment on unemployment. First, there is the question of prices. The claim is often made that the July measures steadied prices. In fact, that is wholly untrue. We have the figures. The latest prices figure is for February. If we take the figures from July to February inclusive, in no less than seven of the last 10 years the figures were better and in only three were they worse. This is a seasonably favourable period. Therefore, no credit whatever can be taken by the Government for any steadying influence on prices over this period.

Secondly, the February trade figures were very warmly greeted. I found them less encouraging the more deeply I looked into them because I came to the conclusion that the propensity to import was still disturbingly high, particularly when we have a low level of activity as at the moment. It follows that imports may well be sucked in, as often before, when reflation begins.

I was disappointed that the Chancellor yesterday made no reference to this particular problem. He might be leaving it to one of his colleagues. I have always thought, without the benefit of seeing the inside Treasury papers, that something in the nature of a prior deposit scheme has a good deal to recommend it.

Thirdly, and most important, I believe that unemployment is a great deal more serious than it looks. I say that, first, because the mildness of the winter cloaks the real unemployment situation and, second, because the underlying trend is still averse. I am not an alarmist in these matters. When my right hon. Friend the Member for Flint, West (Mr. Birch) and I, in different speeches, analysed this in an economic debate before Christmas we both came to the conclusion that no enormous increase in unemployment, being cheerfully predicted then, would come about.

But the Committee should study the actual position, because it is far from reassuring. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced his measures in July, 1961, when the total level of unemployment was 259,000. The Government's measures last year were introduced when the level was 264,000, for practical purposes an identical starting point. In March, 1962, the figure had risen to 442,000, but in March, 1967, it had risen to 569,000, or 127,000 more than at the comparable period even with a mild winter. I think that we sometimes forget what an enormous effect the weather can have in short winter months. Although there may be a useful debating point in this, I do not believe that we should take it too much into account.

In the particular cycle of my right hon. and learned Friend's to which I am referring the increase in unemployment went on from December to January, by no fewer than 250,000, and after the February peak it dropped by April by no fewer than 274,000. Clearly, these peak figures are quite unreal and one must discount them in considering both cycles.

But what matters, and what seems to indicate that the situation is worse now, is that the average estimate—we have had many estimates—of the end figure for 1967 is given as about 650,000. The Committee should remember that in December, 1962, the actual figure was 556,000, getting on for 100,000 or so less than the figure that we may well see towards the end of this year.

So I must put a point to the Chancellor. If he thinks that unemployment may go more or less according to what I have indicated—he certainly seemed to accept that point of view yesterday—clearly, the situation at all points is worse than in 1962–63, and if there is a severe winter in 1967–68 the figure—it would, of course, be temporary—could easily outstrip that for 1963.

Nor can I see the slightest real evidence that the development areas have been faring, or will fare, better this time. There was a time, with the distorted effect right at the beginning of the Midland car dismissals which swelled the temporarily stopped, when it was possible to argue that this was so, and, I think, the President of the Board of Trade did so. But these figures have disappeared from the temporarily stopped, and we all know very well that the development areas tend to take the full force of deflation many months after areas which are more sensitive to attacks on consumer goods. In short—and, I believe, with good reason—I am less able than the Chancellor to take a cheerful or even passive view of the economy.

I was alarmed to read that the Foreign Secretary was making a bullish economic speech last weekend. He has been doing this on and off, turning corners, going round the bend, ever since October, 1964. The besetting sin of this Government, at least until July, 1966 was infirmity of purpose, which led them always to doing too little and doing it too late. However, I should like to compliment the Chancellor of the Exchequer—it will do him no good on his own side of the Council, but most of my political compliments fall into this category—on his steadfastness since last July. I have twice in debate since July urged him not to reflate. But now I believe that very moderate reflation is the right action to take.

The Chancellor's anxiety is that he may move too soon. No Chancellor ever reflates too soon. Some of them reflate too late, some of them reflate by too little and some of them reflate by too much, but no Chancellor ever reflates too soon. The drag anchors of the Treasury see to that, as they are seeing to it now. The difficulty, to continue in his nautical turn of phrase, is that he has no sea room, no room for manoeuvre at all. Taxation has on many aspects, particularly direct taxation, reached a point where the law of diminishing returns is beginning to operate.

I am sure that the Chancellor is conscious of the difficulty about the level of public expenditure and the problem that will create in 1968–69 and later years. He said yesterday that he is having a new exercise to bring it under control. We have heard this often enough, from both sides of the Committee when they were at the Government Dispatch Box. I should like the Chief Secretary—he is the most appropriate Minister to deal with it—to expand a little on this when he speaks, and, in particular, to reconcile the known facts about the 8½ per cent. increase in public expenditure with the new target, if we can call it that, of 3 per cent. growth. I should like to know whether the increase will be geared to the new growth target, and if so, what year by year increase the Chief Secretary sees as tolerable, and where the slowdown will come.

I do not believe that this is the true problem for 1967, although I believe that it may well be the true problem for 1968 and later years. The true problem now is how to provide incentives and to deal with the most pressing of our social needs. Of course, we welcome—the Chancellor knows this; small though they are, I would not wish to pass them without acknowledgment—the proposals which affect the single women with dependants, the widows and others who have responsibilities for children, and the proposals affecting authors and house buyers and the change in S.E.T. for part-timers, against which on no fewer than three occasions the Chief Secretary and Financial Secretary fought us tenaciously a year ago when similar proposals were pressed on them from all three parties in the House.

But the Chancellor has not tried to deal with—indeed, he has turned his face away, anyway for the moment—what everyone on both sides of the Committee would, I think, accept as the No. 1 problem in the social field, and that is the problem of poverty in the family, particularly when there are a large number of children in the family. I realise that the Government, in their prices and incomes policy, gave a sort of passing nod to the problems of the lower-paid worker, but one cannot solve the problems of the lower-paid worker in the context of the wage structure of the country, because a national wage agreement, or even a local wage agreement, does not take into account the very differing needs of Tom, Dick and Harry and all the rest of us who go to make up the population. If we are to solve this problem, it will never be through a prices and incomes policy, nor will it be through a wage structure. It must be through proposals in the social security field.

Nor would I think it right—I say this in passing—to solve this problem by taking away the tax allowances for children from those to whom they are paid. I hope that we have heard the last of that proposal. It is entirely wrong to make one particular group pay for the subsidies to another. In any case, this would be the worst of all groups—the brain drain group—to be attacked.

I believe that we can only fairly find money for such needs in such a year by reducing Government expenditure. I do not mean, in this year anyway, by cuts in the public sector claims for goods and services, because if we did that we should merely increase in 1967 the recessionary pressures that are just around the corner. I mean, in part at least, by the changes in transfer payments which we on the side of the Committee have constantly put forward. I have always believed that the Beveridge Report, admirable in its day but founded with the experience of, and on the assumption of, heavy unemployment, is quite unsuited to our needs in a much more prosperous society a generation later.

As I put the problem as I see it in a recent speech, "If you help everybody, you help nobody". You cannot help need unless you can identify it. I therefore believe that true compassion in this difficult sphere involves choice. That is the way towards choice in welfare in which we should move, and it happens also to be a way in which the Chancellor, to a small extent this year and a much greater extent in future years, could find the room he needs to manoeuvre.

As for incentives and the over-riding need to reduce personal direct taxation, it is a sufficient comment that the very word "incentive" did not, I think, appear once in a 90-minute speech yesterday. Of course, the Chancellor should have moved in both those spheres, but he could not because he refused to face the necessity for a reduction in Government expenditure, and so he did nothing.

As, I think, the First Secretary is to follow me, I wish now to comment briefly on the Government's prices and incomes policy and its Green Paper. We have always held that the creation of the D.E.A. was a mistake. We believe that we have suffered much from there being two hands on the economic wheel, with the inevitable result that the Treasury has won and has turned itself into a sort of sponsoring Department for unemployment. I hope that the First Secretary will soon be ready—perhaps today—to announce the Government's plans for legislation. It is our view that he should not compound folly by continuing a statutory incomes policy, and I think that that is the view of the great majority of the Committee.

On 25th October last year I said that although Part IV of the Prices and Incomes Act would lapse in August we feared that … some equally unattractive bastard child may take its place."—[OFFICIAL REPORT, 25th October, 1966; Vol. 734, c. 874.] That is not a very elegant phrase, but what we have read about a strengthened Part II makes us fear that the Government intend to breach not just the spirit, but perhaps also the letter, of the promise that compulsory penal statutory powers would lapse. Perhaps the First Secretary will tell us today.

The other point concerns the Green Paper. I do not wish to put forward final considered views from Her Majesty's Opposition, because to do that would be to opt out of the debate, but merely to make some preliminary observations. First, I am wholly in sympathy with the desire to diminish the differences in prosperity between different parts of the country. Everything I say must be taken as subject to that. But the Government should realise that the S.E.T. had a pronounced, built-in, anti-regional bias—that is only one of its many failings. That is why the West Midlands gained from it and Scotland, the South-West and other areas lost. In the Highlands, for example, the service industries are vastly more important than the manufacturing industries.

We have always been against paying premiums to manufacturing industry, just as we were against the original and, to our mind, wholly artificial—in a modern community anyway—distinction between manufacturing and the service industries. It is not a question whether industry in development areas would like £100 million subsidy on their wage bill. The First Secretary would not need a Gallup poll to get the answer to that. The true question is, "If £100 million can be found, is that the right way of using it?" Should it be used, for example, in the general reduction of tax levels, or, if it is thought right to point it exclusively to the development areas—and I have some sympathy with that view, would it not be far better to do so by repaying all payroll tax, which did not discriminate against the service industries? Or would it be better, as a third possibility, to develop the infrastructure of those areas, the roads, the ports and other services?

The Chancellor was right yesterday when he said that confidence is the real key to investment in this country. It is not so much a question whether there is this or that scheme, whether there are grants or allowances. Businessmen are not very interested in a promise that they will get £95 back if they will make £100 loss. What they care about is confidence, and I do not believe that that is built in those areas by a proposal proclaimed to be temporary by its very nature.

I also fear that, at least in some cases, we shall bolster the inefficient firm, and I cannot believe that it is in the long-term interest of those areas that we should do so. Therefore, although my initial reaction is that the proposal is probably misconceived, as was its parent, the Selective Employment Tax, we do not intend to make final pronouncements until we have studied what the First Secretary says today, and in any debate that may follow.

There are four more days of this Budget debate. It will be possible to get through them only by ignoring the Budget itself. I assure the Chancellor that he will have no difficulty this year in arranging a voluntary timetable for the Finance Bill, although it is only fair to give him notice that as Her Majesty's Government have no particular proposals to put forward we shall wish to concentrate for most of the time on the proposals of Her Majesty's Opposition.