Orders of the Day — Budget Resolutions and Economic Situation

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

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Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash 12:00, 12 April 1967

The hon. Member for Merioneth (Mr. William Edwards) used a good phrase when he dubbed the Budget a "Financial (Miscellaneous Provisions) Bill". It is evident that he disagrees with most of its miscellaneous provisions. I hope that the Minister is in a position to answer some questions about some of these miscellaneous provisions and, in particular, the Financial Statement 1967–68, because there are some miscellaneous provisions in that which need amplifying.

On page 23, dealing with capital expenditure, there is a curious item headed: Cash expenditure on acquiring company securities … £48 million". When the First Secretary was trying to reassure the C.B.I., I trust that he realised that the members of the C.B.I. read the small print on all documents and are not likely to be happy about a provision to spend nearly £50 million on acquiring company shares. Nor, I suggest, would his hon. Friends want such an amount spent on this exercise rather than on social provisions.

Will the Minister comment on what the Government will have to borrow this year? Table VII, on page 14, Exchequer Borrowing and Special Transactions looks as if it will have to be swollen a lot this year because the net borrowing requirement is up from £740 million to £940 million, an increase of £200 million to be borrowed. This seems to take no account of the prospect of having to put on the market something like £500 million worth of Government paper in respect of financing the acquisition for the National Steel Corporation of equity and stock shares in steel companies. How will these feature?

Suppose the holders of this new Government stock want to off-load it immediately? How much do the Government then think that they will be able to borrow for other requirements? Do the Government consider that they will have to increase the floating debt? These questions are pertinent to the buoyancy of the gilt-edged market and inflationary tendencies. While the Budget is a miscellaneous Budget, we are entitled to clear answers to these questions.

Although difficult in a Budget of this type, one must try to speak on a broader theme. The only real congratulations I am inclined to offer the Chancellor this year is that he has made the balance of payments the central theme of his Budget, rather than the residual theme, which has been the case in the past. The National Institute's review used a nice phrase to describe an in-built error in the National Plan when it referred to the "strong target element" in the balance of payments, which is a rather formal way of saying that the Government were trying to get to the moon in a minicab.

The Chancellor has brought the balance of payments back to the centre of the picture, but it seems that although he has made it his central theme the prospects are not nearly as rosy as the apologists for the Government would claim. The whole justification for the squeeze and freeze and holding back of reflation—with the effects that this has had on constituencies represented by the hon. Member for Merioneth and other development areas—and the whole apologia for this is to strengthen the balance of payments. However, the record is a poor one if one considers what has been going on in the two years since the Labour Party came to power.

I note from the Government's Economic Report that total imports for the first nine months of 1966 were 5 per cent. higher than the average for 1965. Most striking of all is the fact that this is only 1 per cent. above the average for the past decade, during which time they were 4 per cent.—this in a year when the economy has been deliberately held back to strengthen the balance of payments.

It is not very famous, particularly when one reflects that imports were deliberately held back in the latter part of 1966 in prospect of the lifting of the surcharge—they would probably have been much higher otherwise—and there is little to crow about in this increase. Ministers may claim that the figures are better than 1964. But there was one factor in 1964 to which not enough attention has been paid, a factor that will recur. It is that there was a quite sensational increase in stock building in 1964. The figure for stock building, which went a long way to distort the current balance, was more than the total of stock building for 1963 and 1965 put together.

Although they made quite a lot of political capital out of the trade imbalance in 1964, there is no doubt the Government have been able to make a good deal of hard material capital out of 1964 in the shape of the very substantial volume of stock building, and they have lived off the fat of it in 1965. When they reflate, the stock building figure will increase again, and, if imports are already rising substantially, how much more serious will it be when reflation starts?

Another figure which is relevant to some of our broader economic problems is that in 1966, in which investment by private industry is down on the previous year, we find that imports of "mainly capital goods" have gone up by 13 per cent. How do the Government account for that? They have succeeded in depressing investment and, at the same time, there has been a massive rise in imports of mainly capital goods.

One explanation is that the public sector which has been expanding has been responsible. It is an interesting idea that the public sector goes shopping abroad on this scale, and no doubt the Government will pay attention to that. But the truth is that these imports of mainly manufactured goods have come in this year because they are competitive. The reason why they are competitive is that a lot of capital plant is operating below capacity, unit costs consequently rise, and the squeeze has the reverse effect to the Government's policy. It raises the costs of industry and makes its products less competitive, and imports are sucked in in that way.

Turning to exports, here again the picture is a very poor one overall. Again, one finds the staggering fact that in 1966, when everything is meant to be held back to make room for exports, exports of motor cars were 20 per cent. lower than in 1964, which was the year of maximum boom demand at home, and 17 per cent. below the average for the years between 1963 and 1965.

Here are the Government choking back demand at home and increasing unemployment on the broad excuse that they are strengthening the balance of payments for the future; yet we find a 20 per cent. drop in exports of British cars compared with 1964. That surely suggests that the squeeze and freeze by the Government and the shifting of the emphasis to public expenditure has the reverse effect. It raises unit costs in industry, making exports more difficult, and has the contrary outcome to that which the Government want.

The same is true of steel, which is another basic industry. In 1964, which was a year of great pressure on resources, steel exports went up steadily. In 1966, the year of squeeze and freeze to make room for exports, steel exports went down steadily. Again unit costs have risen due to under-utilisation of capacity resulting in fierce competition from abroad. This is the effect of a Government who are meant to understand how the economy works.

These may be mere details, but they add up to a picture which is far from rosy. Taking it in broad terms, the volume of exports this year has increased at 3¼ per cent. which, according to the Government's Red Book, is only a little above the average for the past decade. This is at a time when we have the highest level of deliberately contrived unemployment since the end of the war. It has produced this mouse of an increase in exports. It is quite laughable.

There are one or two other points which should be made about exports in the light of the way the economy is moving at present. One is the figure of exports to the United States, which should be a matter of concern to Ministers and particularly to some hon. Members on the back benches opposite.

One satisfactory feature of the performance in 1966 has been the rise in exports to America. They have not only gone up by 50 per cent.-odd, but represent one-eighth of all our exports. I wonder whether Ministers have pondered how vulnerable they are here. If the United States take one-eighth of our exports, it is ironic to reflect on the attitude of some hon. Members who sit below the Gangway opposite and whose hearts are more in Moscow than in Washington, because, if the United States Government pursue the same policy in respect of commercial activities as the Iron Curtain countries—