Budget Resolutions and Economic Situation

– in the House of Commons at 12:00 am on 17th April 1967.

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4.12 p.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

Whatever may be thought about the prices and incomes policy and this country's economic performance generally during recent years, I think that the Committee and the country, and, above all, British industry, can congratulate themselves on the export effort made since 1964. Between 1964 and 1966 the increase in exports actually exceeded the total cut in the overall balance of payments deficit. The deficit was cut by £572 million between the two years, and the increase in exports was £631 million. Incidentally, the Leader of the Opposition was quite wrong in suggesting in his speech immediately following the Chancellor last Tuesday that the recovery in the balance of payments was partly due to a decrease in imports. In fact, there was no decrease in imports in either 1965 or 1966, but a slight increase in both years.

Export promotion has been one of the main jobs of the Board of Trade during this period—one to which we have given top priority—and a new programme of export services and incentives was launched at the end of 1964 and in the early months of 1965, I said then that these measures were experimental, that we would intensify those which proved most successful, and adopt any further practical measures which could be devised or, indeed, were suggested by anyone.

Over the period, among many other schemes introduced, we have repeatedly extended E.C.G.D. facilities, with lower premium rates, wider and longer cover, and lower interest rates offered by the banks; we have introduced the Export Rebate; expanded the British National Export Council on a large scale; offered larger Government support of all kinds for a much more ambitious programme of Exhibitions, British Weeks and store promotions all over the world, and for a rising number of export missions; and greatly improved the services offered by our commercial officers abroad. Practical experience of these two years has shown that all these major advances have been successful, and are increasingly valued by a large number of our exporting firms.

On the export front, assistance, I believe, is much more valuable than exhortation and I think the House would rather have facts than exhortation today. The export rebate is now being paid to firms at a rate of £1¾ million a week. E.C.G.D., in the first 11 months of the last financial year, covered £1,507 million of export business, compared with £1,337 million in those months of the previous year. This £1,507 million included contracts such as a £28 million aluminium plant for Norway, and four projects for Russia together totalling over £13 million. In 1966, incidentally, British shipbuilders won 17 contracts worth more that £44 million for which E.C.G.D. financial guarantees were promised. Though there are still complaints, and always will be, a growing number of tributes have been reaching me from exporters to the help given by E.C.G.D. and also our commercial officers abroad, as well as our other export services at home.

There is general argeement, also, that the export mission programme, both inward and outward, has been one of the most effective forms of export promotion, since it gets buyers and sellers into direct contact and British salesmen into the countries and cities overseas where the goods have to be sold. Altogether, 191 missions and market research schemes overseas received grants in 1966, compared with 104 in 1965. We expect to organise many more in 1967. The still mounting programme of British Weeks and exhibitions has also, by common consent, proved effective. In 1966, altogether the Board of Trade supported 155 overseas trade shows and 188 store promotions. This was twice as many as in 1965; and, here again, we expect to support 200 trade shows and 270 store promotions in 1967.

We shall concentrate particularly on Canada this year, which is, of course, Canada's centenary year. Our trade deficit with her, though cut by £62 million in the last two years, is still too large; and we are planning three major commercial events, in addition to the British Pavilion for Expo '67 at Montreal. These three will be British exhibits in the Toronto National Production Show, and the British Columbia Trade Fair in Vancouver next month, and a full-scale British Week in Toronto in October.

We intend to continue steadily improving E.C.G.D. services to exporters. I can now announce two further improvements. First, E.C.G.D. expects shortly to introduce a scheme whereby the banks under cover of the E.C.G.D. guarantee will advance funds to exporters at Bank Rate, with a minimum of 4½ per cent., for the purpose of financing export transactions on short-term credit unsecured by buyers' bills or notes. With the addition of this scheme, E.C.G.D.'s system of guarantees to banks will be available to support almost all guaranteed short and medium term export credit.

Secondly, to encourage our exports to Israel, where there are special problems, I worked out a new arrangement with Mr. Sharef, the Israeli Minister of Commerce, in London last week. E.C.G.D. has guaranteed a credit of £5 million from a London bank to the Industrial Development Bank of Israel to be spent on British exports of capital plant and machinery of £¼ million or more each, on 10-year credit terms, or alternatively for project and bulk purchases of plant and machinery of not less than £100,000, on seven-year credit terms. This will be of great help in exporting to Israel's rapidly expanding market.

We have also, of course, greatly improved our arrangements for providing credit terms for the export of aircraft, and the recent £4 million sale of 10 HS748 aircraft to Brazil, with the help of E.C.G.D., shows that we can sell turboprop aircraft as well as jets in competition overseas.

One of the most encouraging export performances last year was that of the aircraft industry in reaching the all-time record figure for exports of £201 million—not yet as large as the £743 million exported last year by the motor vehicle industry, but a big improvement all the same. On aircraft, I may add that my noble Friend the Minister of State, Lord Brown, left London yesterday for New Zealand to discuss the sale of the already successful BAC111 to the New Zealand National Airways Corporation, in the face of some quite fierce competition.

Our exports of capital goods rose by £242 million between 1964 and 1966—an increase of 20 per cent. There are still, however, large potentialities for major capital projects in which several or many firms combine, often by organising a special consortium, to bid for overseas contracts—civil engineering, for instance. Some evidence suggests that we have not yet been as successful as our competitors in organising such consortia, whether of private or nationalised enterprise, or both, and in mobilising financial and consultancy services to work with them.

I am glad to be able to tell the Committee that Lord Cromer, at my request, has agreed to initiate a systematic inquiry into the best way of ensuring that we have the most effective organisation possible, both inside and outside the Government, to prospect for and execute these large important capital projects. I am also consulting other Government Departments and, through them, the nationalised industries, to ensure the maximum use of their knowledge and experience in carrying out such projects.

In all this export promotion campaign, quite apart from the responsibility of industry itself—which, clearly, must always be the mainspring—we have had invaluable help from many hundreds of business people who, through the British National Export Council and its area committees, and in other ways, have given their services voluntarily to the export campaign.

I know that the right hon. Member for Wolverhampton, South-West (Mr. Powell), who sits occasionally on the Opposition Front Bench, but is not there today, disapproves of these voluntary exertions, and has made at least two speeches in this sense, whose only effect—if any—would have been to hamper the national exporting effort. "The whole thing", he said, "is absurd". The results show that the right hon. Gentleman, happily, has had no success with this campaign. During the four months up to the end of March this year our exports were actually 19 per cent. higher than during the last four months of 1964. This 19 per cent. rise would mean an increase, at an annual rate, of nearly £900 million. As a result of all these efforts, the monthly trade deficit over the past four months averaged only £7 million, or less than one-quarter of the monthly deficit in 1964.

Another way to measure our success over the longer-term period is to point out that before 1939 we paid for about two-thirds of our visible imports with visible exports; in 1964, this proportion was about 90 per cent.; in 1966, it was 97 per cent.; and during the past three months, 99 per cent. We are now exporting nearly twice as much per head of population as the United States, and nearly four times as much as Japan.

The rise in our sales to the United States alone between 1964 and 1966, by 54 per cent., was a remarkable performance, although I am certain that there is still tremendous scope for exploiting the opportunities of this market. To Japan, our exports increased last year by 28 per cent., following the British Exhibition in Tokyo in the autumn of 1965—this will be of interest to people who talk so much about the imports that we take from Japan and sometimes forget our increasing exports—and to the Soviet Union and Eastern Europe by 29 per cent., in the one year, 1966.

I expect a further rise in sales in Russia and Eastern Europe this year, but we are still far from satisfied with the rate of Soviet purchases from the United Kingdom, which are a long way below our purchases from the Soviet Union. We very much welcome the increased orders placed for British consumer goods, including textiles—amounting altogether to over £9 million—by the Soviet authorities since Mr. Kosygin's visit in February, and this Friday I shall start a week's talks with the Soviet Trade Minister, Mr. Patolichev, here in London, designed to step up trade further and narrow the gap, and make progress towards a longer-term trade agreement. We have also established an Eastern European Trade Council this year to stimulate the expansion of our exports, to the Eastern bloc generally.

The Leader of the Opposition said on Budget day that the increase in exports over the last two years has been only slightly greater than the increase in the preceding two years"—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 1025.] The right hon. Gentleman admitted that it was greater. What he did not say, however, was that the rate of increase of world trade has itself slowed down since 1964. The facts are that in 1964 world exports of manufactures rose to a peak rate of increase of 15 per cent. and United Kingdom exports grew by only 5·6 per cent., but in 1965 world exports rose only 11½ per cent., whereas United Kingdom exports by 8·2 per cent—and last year, 1966, world exports rose by an estimated 12 per cent., and our exports by 6·9 per cent., even after some loss due to the seamen's strike.

Although our export performance during recent months has been so promising, nobody, I hope, will assume that we have overcome all our difficulties as easily as that. Every exporter knows that there are huge difficulties and constant changes of fortune. As the Chancellor said, the prospect for expanding world trade is good, but it is always uncertain, and although the present international movement towards lower interest rates should help any slackening of activity in the United States or Germany would mean harder going.

It should be at least one advantage to the United Kingdom that world imports of manufactured goods are growing faster than world trade generally. Over the 10 years up to 1965 the value of manufactured imports into West Germany, France, Italy and Japan—our main competitors—rose by more than 15 per cent. a year, which was a good deal faster than the rate of manufactured imports into either the United Kingdom or the United States. E.F.T.A. now also offers us a duty-free market of 100 million people with the highest purchasing power in the world outside North America.

Far the greatest break-through, however, from the point of view of ourselves and the world as a whole, would be a successful and substantial agreement in the Kennedy Round negotiations during the next few weeks. This is the most ambitious attempt ever made in the history of the world to reduce barriers to trade generally. The total imports of the countries taking part in the Kennedy Round negotiations are over £50,000 million a year, which is three times the total of all E.E.C. imports and four-and-a-half times those of E.F.T.A.

We, as a Government, are doing our utmost to secure a result on time in the Kennedy Round negotiations—that is to say, by May of this year. I am confident that with reasonable give and take all round a settlement that would be of enormous benefit to the trading world, in- cluding the developing countries, affecting industry and agriculture, is within our grasp. The next few weeks are likely to be crucial. World trade has nearly doubled in volume over the last 10 years—which fact is not always appreciated—and if the Kennedy Round succeeds it can grow even more quickly during the next 10 years.

Despite the growth of exports and world trade, two main anxieties have very naturally been expressed by hon. Members in the past few days in this debate; first, about unemployment in the development areas and second about the prospects for the general growth of our economy. Clearly the squeeze of the past year has affected the development areas and caused an absolute rise in unemployment. But, in judging the success of the special measures launched to help those areas over the past two years, hon. Members should remember two facts which sometimes get overlooked.

First, there has been a large and rapid decline in coalmining employment in these areas which we have had to compensate with new work in order even to maintain employment where it was. Second, the rise in unemployment over the past year has been markedly less in the development areas than in the country generally. Employment in the coal mines has declined by 11,230 in Scotland since April, 1964, by 24,000 in the North East, and by 18,380 in Wales. That is a total drop of 54,000 which it has been our policy to make good, and which we have largely succeeded in doing.

When the right hon. Member for Enfield, West (Mr. Iain Macleod) said last Wednesday that he could not see the slightest real evidence that development areas have been faring, or will fare, better this time."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1215.] this was, I am afraid, because he was not looking very carefully for it. At any rate, the figures—the right hon. Gentleman gave none—are as follows. From March, 1966 to March, 1967—I take the figures right up to now and not for the first period of the last 12 months—unemployment in Great Britain rose by 81 per cent., in London and the South-East by 90 per cent., and in the Midlands by nearly 200 per cent. But in the development areas it rose in the northern area only 55 per cent., in Merseyside 47 per cent., in Scotland 45 per cent., in Wales 40 per cent. and in the South-West 33 per cent. That is a marked difference. Employment in these development areas—the right hon. Gentleman did not fully recognise this—are, of course, being increasingly diversified with consumer as well as capital goods industries.

This Change for the better in the relative fortunes of the development areas has been eminently due, I think, to the far greater share of industrial development out of the national total which they have enjoyed in the past two years—

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

Is the right hon. Gentleman using figures of wholly unemployed, in which case his figures may have some meaning, or is he using figures of the total employed, which includes the temporarily stopped, which mould make his figures absolutely meaningless?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I am using the figures of total unemployed, which is the only fair way of judging the situation. If the right hon. Gentleman quotes the figures of temporarily unemployed, all his argument means is that there was a temporary rise in the Midlands, which has now happily been reduced, which is what we should like to see.

This change, I think, is due to the far greater share of industrial development—the right hon. Gentleman would not dispute this—which the development areas have enjoyed in the past few years. This is now taking effect and we intend to take it up. I give these figures because the right hon. Gentleman gave none.

The percentage going to development areas of new industrial building by square feet out of the national total rose from 24·4 per cent. in 1962 to 39·7 per cent. in 1965 and 41·4 per cent. in 1966. At the same time, the share going to London and the South-East fell from 32 per cent. in 1962 to 15 per cent. in 1966. Wales, which was particularly neglected because of the wholesale descheduling by the previous Government and where there is a longer leeway to make up, has enjoyed a particularly dramatic increase in its share from only 4 per cent. in 1963 to 13 per cent. in 1966. In 1966, Wales actually got a higher share than the West Mid- lands, though the population is far different.

Also, it is not fully realised how great the absolute increase has been in I.D.C. approvals for new industrial building in the development area regions in the last two years. If the right hon. Gentleman thinks that percentages are deceptive, I will give the absolute figures. The total new building in square feet. has risen in Scotland from 11,010,000 in the two and quarter years before October, 1964 to 20,852,000 in the two and a quarter years since, in Wales from 5,287,000 to 14,447,000 and in the northern region from 11,429,000 to 17,124,000. The total rise in the development areas between the two periods was 91 per cent. and only a small part of this increase is due to a change in the I.D.C. system and definitions—

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

In view of the time which elapses between a decision to invest in a new factory, with the application for an I.D.C., and building the factory, what proportion of this new factory building was decided upon when the incentives available were those installed by the previous Government?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I am giving the I.D.C. approvals under the present Government, and what is particularly notable here is that, because of the descheduling of most of South Wales by the previous Government, there was a greater time lag here than in the other areas.

This expansion is bound to tell in time, as these factories are completed and build up their labour force. In the greater part of Lancashire also, quite apart from the Merseyside development area, we follow a very easy I.D.C. policy. Those who imagine that Lancashire has been neglected will be interested, and, I hope, even pleased to hear that total I.D.C. approvals in square feet in the north-western region rose from 13,231,000 to 20,550,000 square feet between the same two periods.

The Board of Trade's own factory building programme in development areas is only a part, though a large part, of the total factory building effort, actually about a third in the development areas as a whole—

Photo of Mr Charles Fletcher-Cooke Mr Charles Fletcher-Cooke , Darwen

When the right hon. Gentleman speaks of Lancashire, as these figures include the Merseyside development area, could he break them down between the development area and the non-development part of the region?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

It makes little difference to the total figure, because employment in the Merseyside area is a small proportion of the total. I will give the hon. and learned Gentleman the figures and he will find that the unemployment percentage has moved favourably in the Merseyside development area in the last two years—almost more favourably than in any other part of the country—[Interruption.] The hon. Member for Ormskirk (Sir D. Glover) does not, I think, actually represent a cotton area.

I was saying that the Board of Trade's own factory building programme is only about a third of the volume of total factory building in the development areas and I am sure that hon. Members opposite will be glad to recognise that private enterprise plays a major part in the whole operation.

This total of Board of Trade building—the advance factory programme, which has attracted a great deal of notice—is again only about one-third that of private factory building. Therefore, it is only roughly one-ninth of the whole industrial development going on. The value of the advance factories, I think, has been the chance which they give the Government to locate them ourselves precisely where they are most needed, notably in the contracting coal mining areas.

Altogether, 94 advance factories have been included in the four programmes launched since 1964, of which 59 are in coal mining areas. Of those 94, so far 32 have been completed, another 36 are now building and 23 have already been allocated to firms. The demand from firms for these has not dried up in the last few months to the extent that some people feared. Indeed, there is some value in having a little unallocated space at any given moment because a firm which wants a factory immediately can then be accommodated, and this is one of the advantages of advance building. For example, Ford's went to Swansea and Plessey to South Shields because there were large modern factories immediately available.

Photo of Mr David Gibson-Watt Mr David Gibson-Watt , Hereford

Could the right hon. Gentleman give the Welsh figures of advance factories and say how many of these have been taken up and how many people are now employed in them?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I have given figures for factories for the whole of the country and I assure the hon. Gentleman that the Welsh figures are not dissimilar. A higher proportion of building exists than building completed, but that is because of the delay caused by the failure of the former Conservative Government to reschedule the area in good time. However, we are overcoming that difficulty and progress is going well.

As I was saying, it is desirable to have some factories immediately available. Nevertheless, at the moment as much as 98·5 per cent. of all Board of Trade owned factory space in development areas is occupied. We are also buying more land, clearing industrial sites and developing many new industrial estates—notably at Llantrisant, Tees-side, Kirkby and Bellshill. Capital expenditure on all this will be at record levels this year; and total industrial building—private and public in the development areas—is now going on in these areas at a greater rate than ever before.

I have also received increasing reports lately that the 45 per cent. investment grant is proving a powerful attraction for firms to extend in development areas, and I repeat today that both this and the 25 per cent. grant in the rest of the country are available only from 1967 to 1968 and will, after that, revert to 40 per cent. and 20 per cent. respectively. We have succeeded in organising the investment grant machinery quickly enough to handle the applications coming forward and we shall start making payments this month, instead of in July, as we promised both in development areas and outside. This meets a particularly pressing demand from industry to help in accelerating their investment plans.

Whichever way one looks at it, therefore, there is no doubt that a great deal has been done to strengthen the development areas. But certainly the whole effort must be both sustained and intensified before the acute unbalance inherited from the past is wholly overcome.

Anxieties have also been expressed in the debate about whether the economy as a whole will really expand this year as fast as the Chancellor forecast, or as fast as our capacity permits. The quicker exports expand, of course, the faster general growth will be possible. That is why the export effort must remain the first priority in all our policies. But I doubt if enough allowance is being made in current forecasts for the increase in public sector investment and public expenditure and its effect in expanding demand generally.

Fixed investment by the public sector is expected to rise by 8½ per cent. in real terms this year. It is true that public sector current spending on goods and services—after omitting American aircraft—will rise by only 2½ per cent. in real terms. But if current spending and fixed investment by the whole public sector are included—again, omitting American aircraft—the total rise is estimated at 5 per cent. in real terms—a very powerful upward pressure—additional to rising exports on production, employment and investment at home.

Some hon. Members seem to have forgotten that public investment and public expenditure generally, by sustaining demand, exert as much indirect effect as exports or consumer buying in stimulating private investment also, particularly in a year when there has been no increase in taxation. The right hon. Gentleman the Member for Leeds, North East (Sir K. Joseph), in his speech last week, did not seem to understand this at all.

The Chancellor's decision this year not to increase taxation to cover the rise in capital and current expenditure by the public sector must, in itself, tend towards expansion. In addition, two of the public industries which have the biggest investment programmes, electricity and gas, must themselves grow rapidly if manufacturing industry and exports are also to grow.

It is also true, as the Chancellor said—and this must be remembered in all our policies—that if we are to manage a mixed economy successfully and try to maintain private investment, a fair rate of profits must be preserved as well as fair rates of wages and salaries. This is accepted in our incomes and prices policy. My right hon. Friend the First Secretary said this this afternoon.

I hope that the present Companies Bill—which is making steady, if not notably rapid, progress in Committee—with its far-reaching proposals for greater disclosure—supported, I think, by virtually all hon. Members—will also encourage more discriminating private investment. It should also help competition which the right hon. Gentleman the Member for Leeds, North East is rightly keen to foster.

Anxieties have also been expressed at Question Time, at other times in the House and in the Press about the Government's powers to prevent company fraud. In the case of insurance companies, the present Bill includes drastic new powers. I have not been satisfied, however, with the rate at which the Government and the legal machine can at present cope with the most serious and complex cases of company fraud generally. Steps have already been taken to strengthen the expert staff needed to handle this and these will have to be intensified. After consultations with the Home Secretary and the Attorney General, it has also been decided to co-ordinate more closely the machinery of all the Departments responsible for handling fraud cases.

I now intend, in addition to this, to propose Amendments to the present Companies Bill so as to give the Board of Trade in future much more effective powers of investigation into suspected company fraud generally, and not just in the field of insurance and deposit taking. Essentially, under these powers—which I will not describe in detail today—Board of Trade investigators, wherever this seems necessary to the Department, would be able to require a company to produce for them any books or papers which they may demand and to require any person to give an explanation of these books and papers, After reviewing the matter, I believe this is the most practical method of getting quicker action. As this issue is, by common agreement, evidently urgent, I propose to put down new Clauses for this purpose during the Committee stage. The Board of Trade will, in the meantime, set out to secure the additional legal and investigating staff that will be required, but I cannot pretend that this will be done either easily or quickly, for expert staff of this type is in short supply.

Very few hon. Members have seriously argued, whatever their complaints, that the Chancellor should have made substantial net cuts in taxation before a balance of payments surplus had been achieved. Nor have they questioned the Government's policy of giving priority, in reflation, to exports, investment and the strengthening of the development areas. We have, when all is said and done, already reduced the external deficit by nearly £600 million since 1964; we have repaid substantial debts and restored the £ to parity. The path straight back to 1964 would certainly be easy, and paved, no doubt, both with primroses and good intentions. But on any farsighted view, nothing, in our judgment, could now be more foolish than to throw away the gains of the past year before a secure foundation for steady and sustainable growth has been built up.

4.50 p.m.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher , Finchley

The speeches of the President of the Board of Trade usually make better reading than they do listening, because he tends to obscure the issues by such a welter of statistics which I often think confuse the issue rather than clarify it. We note his remarks about exports. I think that the excellent export performance of British industry in 1965 was due to the excellent order intake for 1964. I am always a little wary when politicians tend to take too much credit for the export performance of industry. Frequently, what happens is that industry carries on despite the efforts of politicians and, in exports, makes an extremely good job of it.

I noted that the President of the Board of Trade did not refer to this month's trade figures which, on the face of it, were a little disappointing, though I agree that one should not draw too many conclusions from them at the present time. He said that world trade prospects were good, but uncertain. How they can be both good and uncertain at the same time, I am not quite sure, but this is one of the rigmaroles. I feel certain that the right hon. Gentleman looked with special interest at the economic articles in The Times, and that he noted that one Peter Jay said that the Treasury tends to overestimate the future export performance of British industry. Parents can learn so very much from their children these days, can they not?

I turn to one or two items in the speech of the Chancellor of the Exchequer. He described the British situation as now having come out of the "valley of gloom". We now know where we have been for the last two and a half years. But the point is that when we were going into this valley, the Chancellor of the Exchequer said that his steering wheel was the National Plan. In a television performance on 6th April, 1965, he said: It is a remarkable job. That is going to be the steering wheel of which my Budget is the cog, and the two things are going to operate together. At the same time the Leader of the House was describing this valley of gloom as a "dash for freedom." It can scarcely be everything at the same time. However, we now know where we are in a ship that the Chancellor of the Exchequer described. What it is doing coming out of a valley, I do not know, but, at the moment, it appears to be entirely without a rudder.

I should like now to turn my attention to one or two of the Chancellor of the Exchequer's references to incomes. One remark he made struck me as being very significant—significant in that it was remarkable that a Labour Chancellor of the Exchequer should make it at all, or make it in the phrases he used. He said: The Government are not proposing to make the ordinary worker worse off."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 988.] Gone are the days when the Government were promising things; today they have to assure workers that they will not make workers worse off.

In this connection, it was remarkable, too, that the President of the Board of Trade should think it a matter for boasting that the rate of unemployment had risen by only some 45 per cent. or 50 per cent. in the development areas in the last year, and that he should use as his reason for the boast that unemployment had risen by some 200 per cent. in some other areas. That did not seem to be a very appropriate use of percentages.

The remark of the Chancellor of the Exchequer that the Government are not proposing to make the workers worse off comes against a background of falling average earnings, but that was not the only message to the people who earn wages and salaries. The right hon. Gentleman also said: …If there is a general scramble for substantially higher wages…taxation will have to go up…"—[OFFICIAL, REPORT, 11th April, 1967; Vol 744, c. 987.] Couple that remark with the statement we heard earlier this afternoon it seems that people can get increased wages and salaries by permission only. If, nevertheless they do manage to get them, the message to all who work is, "If you make it, I'll take it". That is the message of the Chancellor of the Exchequer. We know, too, from what the Government have done that they will not hesitate to make a prices and incomes Order against even a small handful of workers if they think fit so to do.

I turn to the issue of growth. From about 1955 onwards we had an average growth rate under Conservative Governments of 3 per cent. This right hon. Gentlemen opposite bitterly derided at the time as economic stagnation. When the rate of growth increased towards the end of our period of office the present Chancellor of the Exchequer was giving the impression that the then 4 per cent. growth rate could be exceeded by just setting a few targets. On 20th July, 1964, he said: However, 4 per cent. should be to this nation a base camp and not a mountain peak. It should be the base from which we move forward, we should be aiming in the latter part of the 1960s for a 5 per cent. and then a 6 per cent. growth rate."—[OFFICIAL REPORT, 20th July, 1964; Vol. 699, c. 75.] Here we are in the latter half of the 1960s—and where are we? There has been virtually no growth, and between the end of 1966 and the end of 1967 we expect between 1 per cent. and 2 per cent, growth.

My right hon. Friends have earlier dealt with the rate of growth the right hon. Gentleman expects this year, and it is still not clear what exactly he meant, because he used two differing sets of figures from different places in different parts of his speech. In any event, the right hon. Gentleman has now set a new goal, and it is 3 per cent.—the very goal he was deriding under a Conservative Government. We must not strive too hard as men and women workers—there will be no merit increases in incomes because of our striving. To strive these days means "Do what the Government tell you—or else".

The Chancellor of the Exchequer used a new phrase about public expenditure. Public expenditure is no longer reduced, or cut down, or even rephased—it is reined back. The use of that word gives the impression that all one has to do is gently bring the reins towards one and expenditure will be reduced comparatively easily, but on 20th July last year the Prime Minister promised us that public investment programmes were to be cut by some £150 million a year during the year 1967–68. In that year, those programmes were to be cut, but the result is that this year there is the biggest increase ever in public expenditure. The reining back that was to operate this year does not appear to have been very effective.

We all know that there are difficulties in reducing public expenditure. The greatest hope for the future is to stop it from rising as fast as national income. That was one of the great achievements of Conservative Government during its period of office. We got the compliment from one of the surveys carried out by French employers that this country was one of the few countries that had not increased the burden of taxation on the people relative to the growth of national income. We know that public expenditure has been increasing extremely fast, and the Government have been busy finding reasonable retrospective explanations for the events that happened.

We were told by the Leader of the House on 23rd November, 1966, that the Government had decided that public expenditure should rise over the period 1964–70 by 4¼ per cent. a year, and that the Government's determination to make sure that the total expenditure rose faster than gross national income was a decision to plan. So we know now that everything that happens under Labour Governments must be the result of a decision to plan—rising unemployment included, presumably.

A final point about reining back public expenditure. I notice that on the current part of public expenditure, which, of course, is also rising this year, the Chancellor deliberately left out of account the money for the purchase of military aircraft because we are being loaned that money this year. This, of course, will have to be paid for in future. It is interesting to see that there is a built-in increase in current expenditure somewhere in the future, which does not augur very well for it being reined back next year or the year after that. The Chancellor will not look very wise if he has to pay for the aircraft in a year in which other current expenditure is also rising.

I turn to one or two comments about taxation, and first its relation to public expenditure. During the past year the Chancellor has talked a lot about fiscal and monetary mixes in tackling inflation. He has referred to this in relation to other countries as well as our own. We are the first to admit that the Chancellor has used the fiscal weapon to counter demand. Indeed, he has used it very extensively, but the implication of using taxation to reduce demand is that the money so taken in will not then be spent out by the Government. Yet this Government, having imposed increased taxation, have proceeded to spend it. Taxation has led to increasing public expenditure.

The weapon which the Chancellor chose to fight inflation has furthered it through rising public expenditure. Last year we had another bout of increased taxation. This year we have another bout of increased public expenditure. It looks as if this is what happens under Labour Governments—increased taxation, increased public expenditure, increased taxation, increased public expenditure once again. This year is supposed to be a mildly reflationary year, but in fact extra taxes are being taken, a fact which some seemed to have missed.

The Chief Secretary will remember the reason given last year for fixing Corporation Tax at 40 per cent. It was because the Chancellor would get only 11 months' tax in during the year and also because of the one-year surplus. The one-year surplus has terminated and this year he will get 12 months' tax in. If his reason was right last year, Corporation Tax ought to be reduced to 35 per cent. this year to take in the same amount but, not a bit of it; it is still 40 per cent. The figures are obscured by the changed methods of calculating investment grants, but the Chancellor has about £100 million extra Corporation Tax by this obscured increase in taxation.

He is also consolidating the regulator and transforming a temporary tax into a new permanent tax. I am aware that a similar measure—not quite the same, but similar—was taken before, but my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) did not merely add a tax. He altered the whole structure of Purchase Tax and simplified it so that we did not get awkward fractions. This year the Chancellor is consolidating the ordinary regulator and arriving at some very odd fractions which are very difficult for the retail trade to have as a permanent feature of its work. The fractions were 10 per cent., 15 per cent. and 25 per cent. but they are now 11 per cent., 16½ per cent. and 27½ per cent. —some advertisement for simplification.

If the Chancellor had exerted a good deal more mental discipline than he did over holding back public expenditure in the years when he was taking in extra taxation, it is interesting now to think of the amount of manoeuvring space and resources he would have available for stimulating the economy in future years and giving it that spurt and incentive which it needs for growth. Having denied himself this manoeuvring space he has denied the nation the growth it needs, not only this year but next year and the one after that.

Last year there were a large number of comments from this side of the House about the effect of the Budget on the social services and the lack of social service provision. We thought that after those comments we would have goaded the Chancellor into providing something this year beyond the very small, although welcome, provisions he has made. When the Financial Secretary to the Treasury was answering a point made by me during the debate last year, he pointed out that the reason why there was no social service provision in the last Budget was the option mortgage scheme which the gambling and betting tax were to provide for, but that is not being done this year. It is due to start in April, 1968. Here we have already another commitment for current expenditure next year. The measures for improvement chosen this year are very small but they are, nevertheless, an improvement.

Had I been asked to guess, I would have guessed that the one which the Chancellor would have included above all would have been an increased tax exemption for the elderly. We had a very good debate in Committee last year on this. I should have thought that he would have gone some way to meet us this year. There are a number of reasons why he could have done so. The first among them was mentioned at Question Time today. There has been an increase in retail prices in 1965. The figures I quote are from the Ministry of Labour Gazette of the March edition.

In 1966 the average level of retail prices rose by rather more than 3½ per cent. The Ministry of Labour Gazette says that food prices, which are a high component of old people's expenditure, were about 4 per cent. higher than in mid-January 1966. In the sub-group of components, such as bread, flour, cereals, biscuits and cakes—all used frequently by old people—there was a rise in price of rather more than 6½ per cent. over the year. Fuel, the other important component, rose by 4½ per cent. in price. Old folk have had to take these increases in price in the two main components of their expenditure, but they had no extra tax relief last year and apparently are not to have any this year.

There is another reason why the Chancellor should change his mind on this subject. If he is right about reining back public expenditure next year and the year after, he is going to forego an increase in the basic rate of National Insurance pensions. As he knows full well, although much of the expenditure in that regard is financed by the stamp—and, he has lost manoeuvring space for increasing the cost of the stamp because of the burden of Selective Employment Tax on many employers—there is also a substantial Exchequer contribution to the basic rate of National Insurance retirement pensions. If he is right about reining back public expenditure there seems likely to be no increase in the basic rate. If he is wrong, he is not being frank with the House or with his back-benchers.

We know that the purchasing power of the pension has already fallen by 10s. for the married couple and 6s. 1d. for the single person and, on normal expectations of the pensioners, one would have expected increases in about 1968, because, under the Conservatives, we had increases quite frequently, at approximately two and a half year intervals.

I am interested in whether the Chancellor is serious about reining back public expenditure. In any event, it is not really very surprising that we had a rather good testimonial from the Observer on 6th November, 1966, in an article by Mr. Brian Abel-Smith, who said: From figures now available it seems that the present government's social spending is going to fall some way short of that of its Conservative predecessors. I turn now to the effect of the Budget on the average citizen. First, the real incomes of the medium income groups were rising under the Conservative Government. They rose during the early stages of the present Government. Then we had an election and since then they have fallen. One must congratulate the Government on selecting the time for an election so carefully. Secondly, consumer expenditure was also rising under the Conservatives. It is now, of course, going down in the same way that average earnings are going down.

So the ordinary citizen has less to spend on his own home and on the things on which he wants to spend his money. Most people want to see an increase in the standard of living in their own homes. They want to be able to spend their own money on their wives and children. They do not wish to have the increased standard of living going entirely to the public sector at the expense of going where they want to see it most.

No doubt the right hon. Gentleman would regard as old-fashioned the idea that people believe that they can spend their own money as well if not better than he can. The right hon. Gentleman did not give any figures for his estimate of consumer expenditure, but one suspects that, in his future assessment, there is little room for increases in consumer expenditure. Perhaps the right hon. Gentleman will give us his forecast for up to 1970.

The ordinary citizen was used to both his income and his expenditure steadily growing at a rate of about 3 per cent. per annum from 1955 onwards and now, after the freeze on incomes, increased taxes, extra compulsion and more bureaucracy, he will not be any better off at the end of it.

This is slowly being realised and, of course, explains some of the reverses which the Government suffered last week. Ordinary people were led to believe that they had great expectations, but those expectations are now turning out to be pretty bleak. Let us consider the effect upon the managerial group, the group of people from whom growth usually comes. We must consider what incentives they have to provide the expansion we need and which we shall continue to need even with a modest 3 per cent. rate of growth.

If they want to expand their industry, they first have to get skilled labour. This is not easy to get when no increases are allowed for differentials or extra skill. Indeed, the Prices and Incomes Order we shall debate tonight is an Order about differentials. If they wish to build an extension to provide for another unit of expansion, they have to find the capital. We know that the amount of capital left for investment after Corporation Tax is less than it was before because of the need to keep up the distribution rate of dividends. They cannot find the capital out of their own money and have to borrow it. But the Chancellor will keep Bank Rate at 6 per cent. as long as he can because his borrowing commitment is high and it helps him to sell more gilt-edged securities that way.

If they still want to consider further expansion they will have to pay a development levy. If they install modern automation equipment the chances are that they will be liable to the Selective Employment Tax. If, in spite of all this, they go ahead, they know full well as individuals that the Government will not let them keep a just proportion of the increasing rewards which they earn. They will ask themselves, "Is it worth it?" The answer probably will be, "No." So the spirit of expansion which I believe is there tends to be stillborn.

There will always be some private investment and the Chancellor would be in trouble if he suddenly got a lot of it this year in view of the amount of public expenditure. But the only private investment we shall get is that which goes to the maintenance of machinery and some which goes towards improving worn-out machinery when it is replaced.

Members of the Government have talked about social justice. There are many ways in which one can be socially unjust. One of them is to take away too high a proportion of anyone's income. It is being unjust to them, and indirectly to the ordinary people whose only hope of betterment comes from the growth the managerial section of the community could provide. If the Government were more concerned to further the remarkable people, the ordinary pensioners and the ordinary people would do very much better.

I have come to the conclusion that the Government prefer theories of equality to practical progress. This, I believe, is one of the messages of the Budget. The Budget is one of a series and I believe that it is inevitable in the march of Wilsonian socialist theory. It is extremely dreary and offers very little hope of growth in future and very little hope of increasing prospects for the ordinary people—such hope as they may have had went with the statement made earlier today by the First Secretary. The Chancellor used a nautical metaphor, but we would say to him, in view of his Budget and the incomes statement today, that there is little wonder that his crew is in a state of mutiny.

5.17 p.m.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

It is always a pleasure to follow the hon. Lady the Member for Finchley (Mrs. Thatcher), first, because she is so charming; secondly, because she is witty; and thirdly because she is a quintessential representative of suburbia and always presenting views, especially those she has just presented, in conection with the furtherance of what she called "remarkable people", which are controversial. I shall say something about that later on.

First, however, I want to say something about my right hon. Friend the Chancellor of the Exchequer. I do not think that any Chancellor of the Exchequer has had a more difficult period of office. Even if one goes back over history—and I do not mention this for any covert reason—to the days of 1929 to 1931, I do not think that the problems that Philip Snowden had to contend with equalled the problems which my right hon. Friend has had to meet. He has undergone a constant, nerve racking strain.

I have read—and there may be some truth in it—that my right hon. Friend is a very orthodox man and is under the persuasion of orthodox advisers. That tends to be said from this side of the Committee. The Opposition tend to say that he is under the persuasion of unorthodox advisers. But one thing needs to be put right. It is often suggested that, in so far as the Government have had to do unpopular things and to be inflexible about them, it is somehow the Chancellor of the Exchequer's fault. The perfect answer to that was given by my hon. Friend the Member for Edmonton (Mr. Albu) last Wednesday and I quote what he said because it bears repetition.

He said: …it is not the Department of Economic Affairs any more than the Treasury which determines major economic policy. My right hon. Friend the Prime Minister said in a recent television interview that when it came to questions of major strategic decisions—major long-term financial decisions and even short-term ones, of course, because one cannot separate the long from the short—he was very much concerned, and it was of course, s Cabinet responsibility.Within the limits of constraint on policy in which he has to operate, the Chancellor is doing all that is possible, and I think that this is recognised on both sides of the Committee."—[OFFICIAL. REPORT, 12th April, 1967; Vol. 744, cc. 1248–49.] That expresses perfectly my view about the Chancellor and about the Cabinet.

If the Government have not been as radical as they should have been, if they have not made some of the choices which they should have made, I do not see why the Chancellor should be regarded as uniquely responsible. Be he as reactionary as Mr. Goschen, he is only one man among many. The responsibility, if there be a responsibility—if the case which I hope to make later be valid—is a general responsibility on the entire Cabinet.

The Committee will have gathered that I do not intend to forgo the privilege of the powerless, which is to give advice, though I shall bear in mind what President Kennedy said on that theme, that those who take bad advice are usually sacked, whereas those who give it simply go on to wreck the reputations of others. However, before I say something about what should be done. I must say a word about what should not be done.

The Chancellor has been bombarded from the benches opposite by a great deal of talk about incentives and by demands for reductions in taxation, personal taxation, and especially for what the hon. Lady, in what I thought a beautiful phrase, called the furtherance of remarkable people. One must not confuse reductions in personal taxation with reductions in company taxation. The two issues are quite different. But, on the issue of personal taxation, there are three things which need to be said.

First, despite considerable study, there has never yet been the kind of evidence which hon Members opposite regularly claim to have that there is this relation between incentive and effort. Second, if it is argued that we need to make reductions because of a possible brain drain to the United States, I reply that it is the gross level of salary offered rather than taxation rates in this country which are responsible, if they are responsible at all, for our loss of such people. Incidentally, I am not sure that hon. Members opposite know what the tax burdens are in the United States. Simply to take Federal Income Tax is ludicrous because it takes no account of State taxation, of taxation at local level, of sales taxes at local level, and so on. In fact, the tax burden in the United States is far higher than is shown by reference only to Federal taxes. In any case, the argument is nonsense. The United States is a rich economy. It can afford to pay much more for certain kinds of skills, and it does. This is why people go, not because they work out relative rates of taxation in this country and in the United States.

Finally, and most important, in my view, let us not forget that, whatever may have been the hardships on business men—I am not unsympathetic to them either as individuals or as a breed—and whatever may have been the sufferings of the professional classes, those who have borne the greatest burden in closing our deficit on the balance of payments are the ordinary working people of this country. It is they who have lost the majority of jobs which have been lost. It is they whose wages have been frozen while they have had to undergo certain price and rent increases. They had to undergo them as a result of the measures of 20th July, for which I voted in the Lobby, knowing that they were bound to entail a reduction in real income.

Figures are quoted to show that that is what has happened in fact. Of course it happened. It was the reason why it was done. I supported it then and I support it now, even though the going may be rough. Nevertheless, as I say, it has happened, and ordinary working people are worse off. To tell them now that what we ought to do is to further remarkable people and that there ought to be a redistribution of income adverse to them is as socially unjust as it is economically nonsensical. [HON. MEMBERS: "Hear, hear.]

I come now to what I regard as the Government's central problem. In one way, I am sorry to hear approving noises froth my Front Bench for what I have said so far because I am not altogether sure that some of my old friends and I will be on speaking terms by the time I sit down. However, one might as well bite into the sour apple, and the sour apple is this.

The Government have a range of commitments, some unavoidable but some certainly avoidable, which are out of line with their resources. As I said at the beginning, they are carrying them by choice of the Cabinet, not the Chancellor, but carrying them they are. Let us consider what we are trying to do and how thinly we are spreading ourselves.

We have to maintain sterling as a reserve currency. This is a factor highly conducive to instability. We have chosen to maintain the £ at its present level. We are pledged to secure increases in economic growth. Some of the taunts from the benches opposite about this are perfectly justified. It was a pledge which we made in 1964 and in 1966. We pledged also to see increases in personal consumption and in the general living standards of the people. We are pledged to see that levels of community provision are both improved and raised.

We choose to maintain forces east of Suez. We choose to carry a defence budget which, however carefuly costed it now is—without disrespect to the Secretary of State for Defence, I am deeply sceptical about how carefully costed defence budgets can be—is still a Great Power defence budget for a world rôle on the assumption that this country might have to fight at any time in order to honour one of its many commitments.

All this we have to do with the resources we have available. I do not hesitate to say that it is too much. The central dilemma and the Government's greatest single mistake lies in their refusal to make certain admittedly difficult but necessary radical decisions. We cannot carry all of this, and some of it must be cut drastically as soon as possible, not tapered gradually.

Let us take defence for a start. We cannot bear the burden east of Suez. My right hon. Friend the Chancellor knows that I have never argued that, simply by making savings on defence, many of which would be in the medium term anyway and would not give immediate benefit, we could solve our economic problems. None the less, I am disturbed by how slowly the Government are moving on this matter, and I am not in the least placated by hints that what I want will come in the long run. I have doubts about that, having a little knowledge of how these commitments are entered into, what our relationship is with the United States in respect of them, and how much general political considerations and considerations of prestige, apart from purely economic considerations, come into the matter.

A cut must be made here. This has become imperative, psychologically, if for no other reason. Certainly, it must be done for the purpose of making sense of the sacrifices which, rightly in some ways, we impose upon our people here at home.

But that, believe me, is not the half of it. Let us not concentrate too much on east of Suez. My right hon. Friend the Chancellor is often told to act like Gladstone. It is an oft repeated piece of advice that he should allow money to fructify in the pockets of the people, and so on. I wish him to act like Gladstone in another way, and not simply east of Suez. I want him to be ruthless, however splendid the arguments in terms of commitment and however splendid in terms of prestige, in not allowing expenditure on the Services to rise. I want him to act, as Gladstone did in another context, in withdrawing from Afghanistan and the Sudan, by advising the Cabinet to withdraw from areas of tension.

In other words, I want a general overall cut in our defence budget which reflects reality. The reality is that, if we withdraw from Asia, there is no Power which directly threatens us, and there is no possibility that we shall have to fight a European land war. It seems to me extraordinary to allow ourselves to be petrified by recent history into maintaining defence commitments which are out of line with current reality.

It is often said that our defence expenditure is not very much greater than that of other countries, but how many other countries must carry a reserve currency, and how many other countries are as dependent on imports as we are? Gladstone had a lot of sense, and the Chancellor will have a lot of sense if he realises that a defence budget of present size is wholly out of line with European realities, and it is beyond our ability to pay anyway.

I said that I did not think that defence was by any means the alpha and omega of the problem, and I do not. The hon. Lady talked about Government expenditure, and I do not want to see it rise consistently faster than the rate of growth, although I would be prepared to make exceptions in given years. But, at the same time, I do not want to see the present differentials between different categories of income earners solidified for ever; I want redistribution, which is one of the things that this party is about. I want to see a greater move towards equality and much more help given to poorer people. How can it be done without increasing Government expenditure? It is obvious; the message is clear—we must significantly reallocate our spending of existing revenue. I have already talked about defence, but it goes further than that. It goes to the question of selectivity in the social services.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

The hon. Member for Ormskirk (Sir D. Glover) must not be too quick. It is not his form of selectivity that I favour. I stand for the universal principle but, like Professor Titmuss in some of his recent speeches, I also stand for a very careful look to see that when we spend money for the alleviation of poverty, as I believe we shall, we make very sure that the money goes where it is most needed, and does not go simply across the board in a way that will merely increase consumption, put more pressure on the Chancellor and make his problems worse.

In addition to needing cuts in defence and selectivity in social services, we need to reallocate within the existing range of expenditure. That involves choices, and some of the choices will not be pleasant. It is foolish to maintain that the only unpopular thing to do is to restrain consumption, for it is not. There are plenty of other things that will effect people in all sorts of ways. They will probably be offended to discover that we are no longer a very great power. My hon. Friend the Member for Edmonton said bluntly that a lot of people in this country have not yet come to face reality, and I think that that is absolutely true. It is the Cabinet's job to see that they do, and that is what a radical Government should be doing. It should be destroying myths and illusions about our rôle in the world. That will not be popular but it very much needs to be done.

Any attempt to select within the social services will arouse a howl about a means test, but that should be faced, because no one suggests anything which corresponds to what was done in the 1930s. All that we suggest is a sensible look to see that valuable resources are put where they are most needed.

I now wish to say something about one or two other problems, the solution to which would help the Chancellor. First, there is growth. The hon. Member for Oswestry (Mr. Biffen) is not in his place, regrettably, but it is not his fault because I did not give him notice that I would say this. He asked the other day, "Where are the supporters of growth? Where have they hidden themselves?" I am not hidden. I still believe in growth and that it is obtainable, provided one looks at it sensibly and gets rid of a great deal of the loose thinking which, I must admit, existed in my party before the 1964 General Election.

It is true, as my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) said the other day, that one cannot find a Western economy that has been able to maintain a steady high rate of growth, except for the United States throughout part of the 1950s, and one must remember that the United States was carrying a rate of unemployment which would be unacceptable here. Therefore, the Chancellor has not done anything appalling by applying "stop-go" because I know of no economist on my side of the House who has any way of managing the economy at the moment with existing planning techniques which would not involve something which would look suspiciously like "stop-go".

The fault is not that occasionally we must put on the brakes. It is that not only do we do all the things of which I talked earlier in respect of how we spend Government money but we do not really put the emphasis on those things that could best sustain growth. How does one get it? I suspect that it is via expectations of markets. It is the old, old story that one can get investment where it is likely to be profitable and can get growth if people know that they have a guaranteed sale.

I am not as impressed as many hon. Members—not perhaps as impressed as my right hon. Friend the President of the Board of Trade—with our overseas marketing. I contrast how we sell with how the Japanese sell, our projections for the Asian area with the projections, for instance, of the Mitsubishi combine. I am not in the least persuaded that British management in general yet values the salesman at the level it should, that his promotion prospects within his company are as great as they should be, and that realism has yet gone home in this respect, for marketing is not a function of production. It is the other way round. If one can secure a market one will get increased production. In the real world business firms do not produce goods for which they do not have a guaranteed sale. That is an inhibiting factor on growth. I do not want to go into that in more detail although I could, but I hope that the Chancellor will have considerable regard to that in the coming year.

No suggestion like that has practical force unless one starts to consider how we can exercise a greater control over management in this country. Though the large corporations respond very markedly to the Chancellor's intentions and the general level of demand, many medium range firms are living in a world of their own. I am not being offensive to them in saying that, but in a sophisticated modern economy some of the pressures which should apparently bear upon them do not. I have come over to the particularist view of intervention in the economy. I am a convert on this, because I used to think otherwise. The view is not appropriate to the other side of the House, for it could use no such techniques, but we are talking of a Labour Government, a radical Government as it should be.

We must start interfering in the affairs of ordinary companies, though not by the creation of a large additional staff of civil servants. I have nothing but admiration for them, but I think that there is a simpler way to do it. Nearly all those companies depend on substantial private sources of finance. It is ridiculous that money should be disbursed to companies who cannot prove to the people disbursing it that their level of management efficiency justifies the money being given to them. The Chancellor, who has rightly been tough with the unions and rightly insisted that certain criteria be met by them, should also insist that capital should not be made available to firms which do not intend to improve their managements or give a greater priority to efficiency and do all they can to assist the export drive.

The last thing I want to talk about is the one that will be least popular and welcome with my friends on the Front Bench. It concerns devaluation, which I consider to be a very complex subject. Frequently, debates in the House give no valuable guide on that theme because they are not devised to meet subjects of this degree of technical complexity. Some people are for devaluation, some are against, but they can only deploy part of their case. I will not even try to deploy the case. However, I think that we should probably have devalued directly we came to power. That is an opportunity which we missed, but there were very strong reasons—there always are—for not devaluing.

Not having devalued, it was right to do all we could to support the £ at this level. After all, we had entered into a variety of commitments. We had given a series of pledges. To be forced into devaluation—that is how it would have been interpreted—is about the worst thing which could have happened to us.

Now the money is flowing in, I am not sure about what will happen in the autumn. In parenthesis I will say that I entirely disagree with the advice of hon. Members opposite about keeping Bank Rate at 6 per cent. It should come down to 5 per cent. as swiftly as possible so that in the autumn it can be put back to 6 per cent. This would prevent us from having to raise it to 7 per cent. A Bank Rate of 7 per cent. gives a bad impression of the economic operations of this country. So I say that we should bring it down as swiftly as we can. But I was speaking of the £ and there was an argument for trying to maintain the £ at its present exchange rate, until now. Now is the time to look at the matter again.

I do not see any factor which can break our current deadlock which will not put greater pressure on demand of the kind which the Chancellor does not want other than varying the exchange rate. The only sort of demand which this country can contain at the moment is a demand which pushes us into producing more exports and getting a greater return on our exports. I have come to the conclusion that the only way in which we shall do that is by changing the existing exchange rate.

I should like to say a final word on this matter. I know that it is very unwelcome for the Chancellor to have to discuss it. Indeed, he will not discuss it, and quite rightly. He will say bluntly, "We shall not vary the exchange rate. We shall save the £ at its present level." So he should, otherwise we shall not have much left in the till by tomorrow evening.

However, I should like to dispose of the idea that joining Europe is an alternative. Everybody knows, certainly Members on this side of the House know, that we are in a deadlock. The margin for manoeuvre is very slight. The possibilities of achieving the sort of growth rate which we need are minimal. Some of my hon. Friends see joining Europe as a way of getting out of the difficulty. I see great advantages in joining Europe; I have always been in favour of it. But I shall be astonished when we join if we do not have to devalue. There is, therefore, a very strong case for devaluation being given serious consideration.

We have had some bad local election results, and I read in the Press that, therefore, the question in the Parliamentary Labour Party is a question of morale. I am not put out by the fact that we are undergoing a period of unpopularity. I think that it is likely to be temporary. As the First Secretary of State said earlier today, it is axiomatic that in a period when wages outrun prices Governments are popular and that when the reverse happens they are unpopular. It would be wrong if either my right hon. Friend or the Cabinet thought that that was the real issue on these benches. It is not. Since nautical metaphors are very popular, may I say that we have no intention of manning the boats the first time we run into rough weather.

What will do the Government harm is if the belief spreads among my hon. Friends that they simply will not take certain decisions which they feel should be taken. In my view, the real trouble with the Government at the moment is that they give an appearance of drift. It may be an unjust appearance. It may be that there is a great deal in the pipeline. I hope that there is. If there is not, then that is something which will affect, not only the morale of those who sit behind the Chancellor of the Exchequer, but our long-term prospects in the country and, therefore, the long-term future of this country.

5.45 p.m.

Photo of Professor Esmond Wright Professor Esmond Wright , Glasgow Pollok

I rise to speak in this Committee with a mixture of pride, which I hope will not be too obvious, and of trepidation, which I fear will be very obvious indeed. I would crave the indulgence of the House since I am making a maiden speech.

I understand that on these occasions a peculiar indulgence to the speaker is exercised. Indeed, I recall that Mr. Speaker himself, when ushered into his Chair at the beginning of this Parliament, said, "When you make a maiden speech the House will lean over backwards to be kind to you. After that, it is war." May I say during the remaining nine or ten minutes of the peace which obtains how very honoured I am to be in this Chamber. Anyone who is given the suffrage of the people of any constituency in these islands—and not least, if I may say so, of Pollok, in Glasgow—is an honoured person.

The House has already lived up to the reputation which it has, in all the constitutional textbooks, of being not only the best but the kindliest club in Europe. That kindness has been shown to me by friends, on both sides of the House, and friends I may call them in no formal sense, since some of them are personal friends and indeed one of them is present today, the hon. Member for Berwick and East Lothian (Mr. Mackintosh). I am learning already that this is a many-sided House. Friendship was shown to me not only by members of the Government and of the Government party and, of course, by the Opposition, but by members of the Liberal Party and, indeed, by that member, single though he be, of a fourth party, the hon. Member for Carmarthen (Mr. Gwynfor Evans). Friendship has been shown to me by the many members of the many Labour Parties who are indicating their range of opinion in this debate. I am honoured to be here because for me Pollok marks a turning point in Parliamentary history.

I am obliged—but it is more than a matter of obligation—to pay tribute to the late Member for Pollok, Alex Garrow. I knew him very slightly, but I knew him to be a splendid constituency worker, very much concerned with the plight of old-age pensioners in his constituency and beyond, and who was personally and, indeed, conspicuously generous to them. He was very concerned about the transport problems of the west of Scotland. We all deeply regret his death. I regret very much the circumstances which have led to my being here.

Having said that, may I pay tribute to Alex Garrow's predecessors, who were men of unusual distinction. Sir John George represented Pollok for nine years. He began working life at the coal face in Fife at the age of 14. He moved up, or perhaps down, to the chairmanship of the Unionist Party in Scotland. Throughout his days in this House he was a very gallant and kindly person. Now he is in well-merited retirement.

He was preceded by Commander Galbraith, the present Lord Strathclyde. I am very honoured that his son, the hon. Member for Glasgow, Hillhead (Mr. Galbraith), is a colleague of mine. Lord Strathclyde was in his turn preceded by Sir John Gilmour, a former Secretary of State, whose son is also a colleague of mine on these benches, the hon. Member for Fife, East (Sir J. Gilmour). I suppose that in this sense it is possible to say that Pollok is the nursery, not only of statesmen, but of generations of statesmen.

May I address myself for a few moments to the subject before the Committee in the knowledge that I am likely to be treated with unusual gentleness. May I bring the sights down from the high level to which they were raised by the hon. Member for Birmingham, All Saints (Mr. Walden) and look at the Budget, and, indeed, the condition of this country, with an eye on Pollok and see what seem to me to be the central problems before us; for it may, after all, be possible to say—may it not?—that what Pollok says and does in March, London will say and do in April.

There are, it seems to me, three basic problems before my own constituency and, therefore, in some measure, before this country; because Pollok is not only marginal. It is representative. Old Pollok, Pollokshields, and much of Pollokshaws, is an area which regards itself—dare I say it?—as true-blue Tory. But in the constituency are some 16,000 council house dwellers in Househillwood, Priest-hill and Nitshill who would not, I think, be likely to regard themselves as true-blue Tories at all. It is, I think, proper to say that the attitude, the problems, the viewpoints of that constituency—hardly anything but residential, on the south side of Glasgow—are fairly characteristic and typical of Scotland, and, I would think, in some measure typical of the United Kingdom as a whole.

I identify three problems in particular, and they are three problems on which in some measure I would hold the Chancellor culpable. The first of these is the Selective Employment Tax. This, had it not been brought up by myself in the course of the by-election campaign, would have been brought forward for him, because in fact—and these are not my own figures but are the figures of the National Opinion Poll—the issues which concerned the people of Pollok were, taxation 49 per cent., the wage freeze 41 per cent. and housing—not, the Committee will notice, unemployment, and hardly at all, it will notice, Scottish nationalism.

The issues of taxation are central not only to Pollok, because it is characteristic, but to this country, and they are central because, it seems to me, we need three immediate steps. We need, in my judgment, the abolition of the Selective Employment Tax and not merely the tinkering with it which was indeed almost all that there was in that marathon Budget speech an hour and half long. We all listened with great respect to the skill of its delivery, but it was a Budget singularly empty of content. It seems to me that the Selective Employment Tax is open to a host of criticisms which have been referred to in this Committee ad nauseam and I am not going to re-emphasise them. But I do want in particular to stress that there is, in the Chancellor's view, what seems to me a totally false and artificial distinction between manufacturing and service industries. This was, indeed, driven home to him—was it not?—by the hon. Member for Dunbartonshire, East (Mr. Bence), whom I am glad to see in this Committee. But it goes beyond this. It seems to me that S.E.T. by this time is being built up on anomalies, and it is very dangerous indeed when we are being governed by a Government whose policy framework seems to be built on anomalies.

May I mention one of these in the Green Paper, which proposes a regional employment premium. This is designed apparently to give some 30s. a week to workers in the manufacturing industries in development areas, although it clearly cannot be introduced for another 12 months.

For Scotland, this Green Paper is virtually a valueless document. It is a valueless document because the north of Scotland, as the Chancellor well knows, is dependent on tourism and on hotels far more than it is dependent on manufacturing industry. In Scotland 59 per cent. of the labour force is employed in service industries; in the Highlands and Islands it is 76 per cent. May I point out, in the presence of the hon. Member for Edinburgh, West (Mr. Stodart)—and perhaps any reference to Edinburgh by a Glasgow man is always unnecessary and certainly inadvisable—that Edinburgh, Portobello and Leith are excluded from the development area of the rest of Scotland and that there is already a hue and cry being raised from Edinburgh to Westminster. For me, of course, culture ends somewhere near Bathgate. It only exists in Edinburgh for three weeks in the year!

The point I am making is that S.E.T. is a curious piece of fantasy, highly expen- sive in its administration, taken by one Ministry and redistributed by another seven. The only policy for growth—to refer to what the hon. Member for Birmingham, All Saints said—must be a policy keyed to incentives.

The second point I would make is that Scotland is suffering acutely not only from the tax policies of this Government but from the failure to develop what was begun between 1961 and 1963, the infrastructure programme of roads and schools and hospitals. Scotland is, in this sense, certainly, yet an undeveloped area, and I would urge upon the Chancellor, in so far as anything said at this stage of the debate is listened to by him, to pay attention in the next few months—who knows when the next Budget is coming? There is a sort of unpredictability about it these days—to the infrastructure programme as outlined in the Toothill Report.

My third plea is one that it is incumbent upon him, because it came up time and again in the Pollok by-election. That is the request for this Government not to listen, as they are now being instructed to, to the message of William Ewart Gladstone, and not to have portraits on the walls, as I understand one Minister has, of Palmerston, but to think in terms of tax reform such as Robert Peel alone ever thoroughly carried out in this country. We need a tax simplification, a tax clarification of a fundamental sort. We need to link our tax policies to incentives. We need to encourage savings, not spending. I would have expected not a Green Paper on development areas but a Green Paper or a Pink Paper—its colour makes no matter—of what our tax system is to be if and when we go into Europe. We need a statement on a value-added tax, about which there is a great deal of public discussion but all too little knowledge, and certainly, as yet, no direction from the Government.

So my plea to this Committee in its deliberations on the Budget would be not to favour too many budgets too hurriedly arrived at, ill conceived as S.E.T. was, ill digested as the Corporation Tax proposals patently were, but to have a financial policy which is sustained over the years; which is clear to taxpayers whether companies or individuals; which is simple to understand; which is keyed to incentives and growth; and which encourages the people of this country not merely in the sense of financial rewards but in the sense of imagination—which gives them in other words a sense of purpose and which renews their faith in their own destiny.

6.0 p.m.

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

I am sure that the whole of the Committee agrees that the maiden speech of the hon. Member for Glasgow, Pollok (Mr. Wright) was not only very well delivered, extremely fluent and very well argued, but contained just the right amount of humour and sincerity, on which all maiden speeches should be modelled.

If the hon. Member went into controversial issues towards the end of his speech, I am, nevertheless, sure that we all look forward to the contributions which he will undoubtedly be able to make at the various stages of this Budget and the Finance Bill and on other occasions. I will leave his comments on the Budget. It is only fair to leave it to Edinburgh to answer some of the accusations made from Glasgow.

But I was very grateful that the hon. Member referred to his predecessor, Alex Garrow, who was well known to all hon. Members on this side and who had many friends on both sides of the Committee. I remember a trip which I once made with Alex Garrow and other hon. Members from both sides of the House to Iceland, in 1965. During that night, incidentally, the Government were defeated three times. I do not know what conclusion we can draw from that. But as we stepped off the plane in Reykjavik, the hon. Member for Peterborough (Sir Harmar Nicholls) remarked, "Thank goodness this is one country that has not nationalised steel". That is quite true. If you have not got it, you can do nothing with it.

That is precisely the moral of the Budget. The lesson perhaps of Pollok, of London and of the other county councils is that no Government can be popular with the people all the time if they are seeking to work on behalf of the nation as a whole and not on behalf of one narrow section. It would be easy to influence votes and friends by having a give-away Budget, such as we had from the Conservative Government on many occasions before elections. In 1964, we rightly started to act as a Government who were responsible and who had their priorities and targets broadly right, although in many instances the Government have been wrong in timing, tactics and content. Broadly however, they were heading in the right direction and, irrespective of seeking popularity they have been intent on pursuing the right course.

As a result, many hon. Members have rightly called the Budget dull, uninteresting and certainly lacking in the high drama of the Budget which we had in 1966. I agree that it was not a great springboard from which the country would jump into the competitive markets of the world, but it must be remembered that this was the only kind of Budget that we had the right to expect at a time when we were emerging from a period of severe restraint and trying to bring about a much more stable economy. Nevertheless, I agree with some of the critics of the Budget. I feel that the Chancellor had the opportunity of pressing down the accelerator a little, putting a little more into the economy and easing a little off the brake. He could have reflated slightly more.

We must, however, be grateful for some of the things which were done. Selective Employment Tax has at least been partially reformed. It is worth while considering—I do not know whether it is possible—whether the classification list that allows manufacturing industries to obtain the premium should be looked at again very closely to try to differentiate between, on the one hand, the manufacturing industries which are the candy-floss industries and which I do not think should have the premium and, on the other hand, the manufacturing industries which are playing a vital rôle in the economy and the export drive. That is one way in which we could be more selective in this form of tax.

As the Chancellor reminded us, as a nation we should be grateful that our balance of payments situation is in a much better state of health than it ever has been before, that in the last few years there has been an improvement of no less than £633 million, that our exports have risen over the last two years by about 14 per cent., that we increased our exports to the United States by 50 per cent. in 1965 and 1966 and that we have managed to restrict the inflow of goods into the country to well below the average rate of increase, to about 3½ per cent.

To survive, we have had to borrow money from the International Monetary Fund, and this has to be paid back. When this point is made by the Opposition, they should recognise that the money which we borrowed was not to pay for debts incurred by this Government, but to pay for debts which the Conservative Government incurred and which resulted in the appalling balance of payments deficit they left us in 1964. A target has been set by the Chancellor of the Exchequer for a steady and sustained growth of 3 per cent. whereby it is hoped that we shall have a gain of £1,000 million a year.

But this can be achieved only if there is a change in our attitudes—a change in the attitude of management in how they produce and where they produce, a change on the part of the workers on the shop floor in what they do and how they do it. Unless we change our present out-dated and out-moded attitudes, we shall get nowhere. We must be prepared to use modern techniques, modern technological "know how" and modern methods. The Luddite mentality which has applied at both management and shop-floor level must go if we are to succeed as a nation in paying our way.

But if we are to change the economy and get it going, and if we want to see movement of labour from one section of the economy to another so that production can increase, we must be prepared to face the consequences of change. This is where I differ in part from some of my hon. Friends when they raise the question of unemployment. No one wants unemployment, but it must be recognised that if we intend to move people from the service industries or the nonproductive industries, by inducement or any other kind of Government persuasion, into manufacturing industries, there must be a redeployment of labour to make the economy stronger. We must have a movement of labour.

For a period of time we are bound to have a degree of temporary unemployment. But when we speak of a tolerable limit of unemployment, this does not mean a hard core of unemployed. What is far more important, we must concentrate not so much on the volume of unemployment at any given time, but on the hard core of the unemployed. This is a problem with which we must deal. If we want change, this is one of the prices which we must be prepared to pay—it is the price of solving our economic problems.

The two lessons which we have learned as a Government—and I hope that right hon. and hon. Gentlemen on the Front Bench recognise it—are that we cannot get out of debt by further borrowing and that we cannot continue to shoulder burdens which will cripple or stunt the growth of the economy. As my hon. Friend the Member for Birmingham, All Saints (Mr. Walden) said, in a very eloquent speech, it is in the question of defence expenditure that the great majority of us on this side of the Committee say, "Enough is more than enough". When we are spending over £2,000 million a year on defence—£65 a second—that is the moment to decide whether we can continue to pose as a great world Power or whether we should not see how we can economise on our defence expenditure, wherever it might be incurred.

The Government have already, during their period of office, sought through their Budgets and their legislation to alleviate the hardship and poverty which existed when we came to power. They have sought to do this and to provide the revenue with which to do it. Sometimes, hon. Members opposite seem to imagine that the Government can manufacture money, that they have simply to ask for it and it can be produced. It has to be obtained from some source, either a growth of wealth or increased taxation.

We have tried to create and redistribute the wealth in our society not only through the Corporation Tax, the Capital Gains Tax and the curb on the expense account "racket", but in terms of social legislation which, as people should recognise, is quite unique in 2½ years. Among the obvious things which come to mind are the Rent Act, rate rebates, the rate support grant, redundancy payments, earnings-related benefits, increased pensions and the like. If the party opposite are constantly demanding more, either in the social services or in defence, we have the right to ask where they would get the money with which to do it. What taxes would they increase, or what is their solution to the economic crisis? It ill becomes many of my hon. Friends on this side constantly to find fault with what has gone wrong—I agree that many things have gone wrong—and to omit all the great progressive legislation that the Government have introduced and the budgetary measures which they have taken to do it with.

Even so, have we done all that we could and should in the Budget to alleviate poverty and hardship? In a Question, a week or so ago, I asked how much it would cost to restore the purchasing power of family allowances. The 8s. family allowance which was introduced in 1952 would have to be increased by 4s. to give the same purchasing power today. The 10s. allowance, introduced in 1956, would have to be increased by 3s. 7d. to have the same purchasing power today.

I believe that my right hon. Friend the Chancellor should have increased the family allowances in his Budget. This was an opportunity which was staring him in the face, at a time when we were to have a continuance of the prices and incomes policy after 30th June, to help to create a prices and incomes policy based on social justice and, at the same time, give him the right to continue to ask for the co-operation of the trade union movement.

We have talked of the lower-paid workers many times in this debate. During the period ahead, the lower-paid worker with three or four dependent children will, quite rightly, demand an increase in his wage rates. I believe that if we could have increased the family allowances in the Budget and put into the pocket of the lower-paid worker with three or four dependent children a further 7s. 6d. to 11s a week, we could have stood a much better chance of getting his co-operation for some kind of wage restraint in the period following 30th June.

We simply cannot let the dam burst and the full flood of wage claims and everything else go bursting through. We must first have a trickle, then a flow and then the flood. This means that the Government must have reserve powers to control the recalcitrant rebels, either in the trade union movement or at management level. When people speak of the voluntary system in 1967, let them remember that the voluntary system means a free-for-all, in which the lower paid worker has in the past suffered the most. The lower-paid worker stands a chance of a fair crack of the whip under a proper prices and incomes policy. I believe, therefore, that fringe benefits would have been one of the ways in which, in the Budget, the Government could have helped to create the climate for the correct kind of prices and incomes policy.

It must be recognised that as a country we are spending more on cash social security benefits than at any other time in the history of Britain. Some 7·6 per cent. of the gross national product is devoted to cash social security benefits. When the hon. Lady the Member for Finchley (Mrs. Thatcher), from the Opposition Front Bench, drew attention to this today, she should have borne in mind that on 10th April, in a Written Answer, I was informed that the amount of the gross national product which is devoted to cash social security benefits is today 7·6 per cent. and that in 1955 it was only 5·5 per cent. In 1964, it was only 6·8 per cent. In other words, in contrast to what the hon. Lady said this afternoon, we have continued to increase the percentage.

Equally, if we take social security benefits as a percentage of average weekly earnings for every year from 1955 onwards, we find that in every single instance the percentage of social security benefit to the average wage is higher today than ever before. This is a clear recognition that the Government are seeking to alleviate hardship and poverty and to create some kind of social justice.

Thus, the dilemma of the Labour Government and of my right hon. Friend the Chancellor of the Exchequer was the simple one of how to put right the neglect of the past and to find the money with which to do it. If we want more roads, schools and hospitals, as we say we do, we have to find the money from somewhere to pay for them. I have no greater wish than anyone else to have increased taxation on individuals, but I recognise the overriding necessity for these measures so that we can do all the things that we want to do in the future.

Surely, the only way is to work together and try to increase our production by using all the modern methods which are at our command. If I might end with another nautical peroration, it is that we are all in this as one nation. We sink or we swim together. We either go under—and that would be the end of Britain as a competing nation—or we work together, management, unions, workers and the Government, to try to create a society of which we can all be proud, a society based on social justice and on which we can build for the future something better and fairer than we have had in the past.

6.18 p.m.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

I am honoured to be the first hon. Member from this side of the Committee to congratulate my hon. Friend the Member for Glasgow, Pollok (Mr. Wright) on his very human and eloquent maiden speech. He referred to Sir John Peel and to Pollok being the birthplace of and a school for statesmen. I only hope that it will not be long before my hon. Friend is on a Conservative Government Front Bench, where he will be able to bring about repeal and reform of the many taxes with which we are being afflicted from the Government, and especially, above all, the Selective Employment Tax, which my hon. Friend mentioned so wisely.

It is difficult at this stage of the debate to say anything new, but I have listened to it for several days. I hoped to be able to intervene after the First Secretary had made his speech about growth. I found it as difficult to penetrate as a November fog in his Fulham constituency. The First Secretary was right to point out the value to growth of industrial efficiency, planning regional policy and skilled labour. Why, however, have the Government been so complacent about the brake on industrial growth that excessive direct taxation on the individual acts as a deterrent to growth?

Have the Government paid attention to the way Germany and Japan have been able to get an effective growth rate? The post-war recovery must play a part in both those countries, of course, and another important factor, particularly in Japan, has been an abundant supply of labour. However, during the course of the speech of the hon. Member for Birmingham, All Saints (Mr. Walden), I could not help thinking about the low rate of military spending in both Japan and Germany.

One factor which I am sure that the Government and many people in the country have ignored is individual savings and how much those savings in Germany and Japan have been ploughed back into industrialised investment. It is that factor possibly more than any other which has caused the higher rate of growth in both Germany and Japan. It is because of it that Japan's growth rate over the last 10 years has been at about 10 per cent. a year. West German exports in 1965 reached a figure which was £1,000 million above ours. That has been done without devaluation, and I have been disturbed to find so many Members on both sides of the Committee advocating the use of devaluation as a means of increasing our growth rate.

Last year, Japan's rate of investment was 35 per cent. of her gross national product. I ask the Government what has been our rate of investment in the last few years, and what is our present rate. What is Germany's rate of investment, and how does it compare with ours?

When I look at the figures of the gross national product of Japan, it is surprising to find that in 1963 it was £22·5 million. The figure for 1965 was £30·8 million, and I am told that, in a period of four years, the gross national product of Japan is likely to have expanded by as much as half of our gross national product at today's rate. That is something about which we cannot be complacent, and to which we must pay attention, particularly the rate of incentive for investment which will go into industrial production.

During the course of the debate, I have been struck particularly by the number of Government speakers who have tried to say that Conservative policy is to hit the poorer people and only help those who are better off. I should like some of them to go round my constituency and see how recently pensioners have had to dip into their savings, and hear the grumbles of lower-paid workers. Since 1964, because of the rise of the cost of living, a man earning £500 a year has had the equivalent of £50 a year knocked off it. The only way to help the lower-paid worker and the pensioner is to create more wealth and increase the national cake, and then pay increases in pensions and increased social benefits to the lower-paid workers. When that is done, I hope only that the Government this time will write a cheque on the Bank of England and not on a foreign bank.

The only way we can get an increase in the national cake is to give more incentives to all who want to get on and improve their standard of living, and who, at present, are penalised by high taxation. Do the Government realise how much high taxes are acting as a disincentive to extra effort and are the cause of extra wage claims? To work for seven days a week, as farm workers, railwaymen and seamen have to in my constituency, and then to have £5 knocked off for Income Tax does not seem justice to the ordinary man who has had to make that extra effort. I am certain that high taxation is a disincentive to extra effort throughout the country.

At the moment, we have high direct personal taxation. What we want to do is to shift the burden fairly from direct taxation to indirect taxation. However, certainly we are over-taxed, and we are over-governed. We all know the different number of taxes which we have had to bear since 1964. All have hit incentive and lessened confidence in the country. It must be faced, too, that although the President of the Board of Trade has boasted today that we have been able to increase exports by 14 per cent. in the last two years, a lot has been due to the fact that during 1963–64 my right hon. Friend the Member for Barnet (Mr. Maudling) was able to get more investment into industrial production—

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

Even more because everyone else's have been increasing by 28 per cent.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

Other countries have expanded their exports even more than we have, I agree.

However, when we talk about the growth in the rate of Government spending, it is right for us on our side to ask where the growth in spending should be restrained. What has disturbed me more than anything else is to see that a period of expansion under a Labour Government has not seen any expansion in industrial production but an expansion firstly in the Civil Service, with 42,000 extra civil servants and 162,000 extra employees in local government. On a conservative estimate, the cost of each of those employees is £1,000, which means that the extra cost of Government officials in the last two and a half years has been £200 million. Surely some saving could be made there.

If governing by example is of any significance, this Administration costs twice as much as the previous Conservative Administration. I know that there are 20 extra Ministers and five new Ministries, but is it really necessary to have both the Department of Economic Affairs and the Treasury looking after the economic fortunes of the country? All mean extra laws and regulations and lend weight to the plea of my hon. Friend the Member for Pollok to get some repeal and reform into our system.

Why not have more indirect taxation? By so doing, I am certain that we should be able to save at least a bit of the £100 million in extra taxation which results from the cost of collecting taxes. Is it really necessary to pay out £100 million to see that drugs go to those people who really need them? Is it right to pay a tax on property for the huge £2,000 million education bill which we have to face today? In welfare, why not see that welfare goes to those who need it, rather than the blanket form of help which is given today? I will not speak about the extra expense which has been caused by the F111, or the extra expense being caused by the faults in the Government's Rhodesia policy. These, again, are costing the country over £100 million.

If one adds up some of the figures which I have given, one arrives at a figure between £500 million and £1,000 million of Government spending where the growth could be restrained. If it was restrained, we should not have to budget for a surplus of £700 million, as we are today. In other words, if a Conservative Government were in power, confidence would be restored. If we were able to restrain the growth in Government spending, we should be able to cut Income Tax by at least 1s., we could abolish the Selective Employment Tax, help the elderly and the lower-paid workers, and get the country going again. I am convinced that the only way in which we can get the country going again is to do what the hon. Member or Birmingham, All Saints said in what I thought was an eloquent speech, namely, to get money to fructify in the pockets of the people, rather than in the coffers of the State.

I have said that many times in the House, and I have been accused of being a Gladstonian Liberal for saying it, but when one sees the net return on investments in the nationalised industries and compares it with the kind of net return that one gets in private industry, one gets some idea of what I mean. In many nationalised industries one gets a return of about 6 per cent. net. In the Post Office last year we got a net return of 0·3 per cent. It is no wonder that this country's performance is so miserable. In private industry one expects a net return of about 20 per cent. on average. I know that it is sometimes higher, and sometimes lower, but—

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Is the hon. Gentleman suggesting that the return in the nationalised industries, in gas, electricity and the Post Office, should be brought nearer to that which he has quoted for the private sector by increasing charges for gas, electricity and Post Office services?

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

No, I am saying that we can get a better return by increasing efficiency. I am not satisfied that we are getting value for the huge amounts of money which have been invested in the nationalised industries during the last five years and it is value for money in capital investment that the country must have to get going again.

One expects private industry to provide a net return of about 20 per cent., and this is in spite of the fact that the Government are taking a 50 per cent. increase in profits, that 30 per cent. is being retained in the companies, and that only 17 per cent. is being distributed to shareholders. Why are the Government so much against distributed profits? They are the hardest earned earnings of all.

The hon. Member for Birmingham, All Saints said that he had been taken away from his rather more Liberal and Gladstonian views to be an interventionist in British industry because he thought that it was only the Government who could invest money properly. Let him realise that the individual person, with the advice of investment experts, is a far better judge of investment than any man in Whitehall.

What has happened to the National Plan? What has happened to the Government's fuel policy, which has been proved so hopelessly wrong over the last few years? Did not the Government sell American securities too soon? What reason is there for believing that the Government can judge things better than the individual who is investing his own money?

I do not want to detain the Committee any longer, but I underline the fact that if the Chancellor wants to get growth in the economy, and wants to provide himself with room for manoeuvre, he must restrain the growth in Government spending and see that the savings made thereby go back to individuals, and that individuals are then given the incentive to save. If that is done, we will get a growth rate perhaps comparable to that achieved by the Germans. We must appreciate the momentum behind the Japanese rate of growth. Above all, we must realise that we cannot rely on money growing in the coffers of the State, but see that it fructifies in the pockets of the people.

6.35 p.m.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

I am sure that the hon. Member for Harwich (Mr. Ridsdale) will forgive me if I do not follow him in his speech. I could not possibly agree with almost any one of the points that he made. Indeed, his speech reminded me of the small boy's description of a net, which, he said, was a collection of holes tied together.

I think that it is obvious from the speeches of hon. Gentlemen opposite that there is a fair degree of agreement on the contention that the Government and the Chancellor had very little room for manoeuvre in this Budget. The point was put with absolute clarity and fairness by the right hon. Member for Enfield, West (Mr. Iain Macleod), when he said: But now I believe that very moderate reflation is the right action to take."—[OFFICIAL REPORT, 12th April, 1967; Vol 744, c. 1216.] I think that that sums up the narrow width of the difference between the Government and the Opposition on this matter. Collectively, during this debate on the Budget statement over the last four and a half days, the performance of the Opposition has been very much like that of the broken-down actress who was described rather cruelly by a critic as "running through the whole gamut of emotions from A to B." In a leading article in the Economist of 15th April, in a mixture of the now famous seafaring metaphors, it was said: If the economy is on course there is no point in tinkering for tinkering's sake. I think that that contention is reasonable if two assumptions can be made: first, if we accept that devaluation is not a wholesome alternative to recurrent pressures on the £ and the indigenous tendencies of international trade to drive us into adverse balances; secondly, that short of an unscientific prognostication it will not for some months be possible to know to a reasonable degree of certainty whether we can reflate without committing ourselves to a miserable cycle of recession and boom. Even granted that those two postulates are conceded, I still think that we are entitled to look to the Budget for economic and social decisions which fall short of substantial structural economic changes.

Although the Budget is naturally primarily a fiscal and economic review, nevertheless it is inevitable that people in Britain and elsewhere should look to the Budget to find some clue to the values and the priorities of the Government. I notice that one or two hon. Gentlemen opposite are showing certain signs of assent to that contention, but I fear that their record does not justify that. I remember reading the Budget speeches of 1961. Shortly before the Budget of that year the then Labour Opposition had demanded that the Government should substantially increase old-age pensions, and that demand had been peremptorily refused.

In the 1961 Budget the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), who was then the Chancellor, made a gift of some £83 million to Surtax payers. He justified that in a moving and near-lachrymose speech when he said: A man who is earning £5,000 gross today is not rich unless he has large private means as well. No doubt forty or fifty years ago, on that sort of income, one could have had a house in London, a house in the country, a large domestic staff and still have been able to save. But today a man earning £5,000 gross, unless he has private means, has the greatest difficulty in providing out of his income…for the education of his family and for saving."—[OFFICIAL REPORT, 20th April, 1961; Vol. 638, cc. 1516–17.] Very much the same plea in one form or another has been made by many right hon. and hon. Gentlemen opposite on behalf of what we might call the new destitute rich.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

Does not the hon. Gentleman agree that at least in that Budget the Chancellor did something for the elderly, which is more than the Chancellor did in this one?

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

I am not sure that he did it in that Budget, but, obviously, in that Budget of 1961—and that is why I was quoting him—he gave a clue to the social and economic standards of the Tory Government of that time. In the same way, we are entitled to look to this Budget to find whether there is some clue as to the standards held by Her Majesty's Government.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

The hon. Member read a part of my right hon. and learned Friend's Budget speech. If a man with two children has provided for them and paid for their education and for other services, does the hon. Member think that he is well off with £5,000 a year?

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

It is all a question of relativity. Even as a debating counter, I would be justified in accepting the argument of the hon. Member for Harwich as it applied to the lower-paid workers. He thought that the answer to the situation was for them to increase their income, and not for the Chancellor to act as a sugar daddy to assist them. He thought that their salvation lay in their own hands. Is there any good reason why that logic should not be applied to people earning £5,000 a year plus?

In this year's Budget there are a few reforms which show the direction in which the Government's sympathies lie. I am sure that we welcome the allowances made to widows and single women with dependants, and the concession to house purchasers. It is proper, however, to make a small point about Stamp Duty on mortgages. I can find no justification for not completely abolishing Stamp Duty on mortgages up to £5,500. If a person can afford to buy a house for £5,000 without having to raise a mortgage he is not penalised by the revenue, but if a person's circumstances are such that he has to obtain a mortgage of £4,000 he has to pay a substantial sum in Stamp Duty.

I put down a Question on this point some months ago, and the Treasury Minister concerned replied with the quite proper defence that it was not for him to anticipate the contents of the Budget. I also know from another reply that he gave me that the loss to the Exchequer and the saving to the house purchasers would have been about £4 million. Is there any reason why a mortgagor should not be exempted in exactly the same way as is the person affluent enough not to have to seek a mortgage? Putting it another way, is there anything sacrosanct about the instrument of a conveyance which is not equally applicable to a deed of mortgage or a legal charge?

Like many other hon. Members, I would have wished to see some bold and substantial measures to alleviate the problem of poverty suffered by nearly 500,000 children in Britain today. I appreciate that the problem is an extremely complex one, in that it poses the conundrum of avoiding a blanket scheme which would benefit the needy and the affluent alike while at the same time avoiding a rigorous means test which in many circumstances erodes human dignity.

It may be argued that the creation of such a scheme is outside the classical scope of the Budget, but the aspiration may be cherished that the Government are contemplating the introduction of such a scheme elsewhere. I trust that the words of the Chancellor, when he said, We intend to find the best measures to relieve this hardship "—[OFFICIAL REPORT, 11th April, 1967; Vol. 720, c. 1009.] constitute a strict undertaking rather than a general declaration, of hope.

Another point I want to raise concerns aspects of the Selective Employment Tax. I am glad that the rigour of this new tax has to some extent been alleviated for part-time employees. I am sure that this will be of considerable benefit to those who derive their living from the tourist trade. I concede that S.E.T. has many general virtues to commend it. It broadens the base of the taxation system, as the Chancellor has so often argued—or, put more crudely, it affords an extra cupboard for him to plunder. It gives indirect assistance to exports and in the long-term I am sure that it will deploy some labour from service occupations to manufacturing industries.

My quarrel is not with its general purposes, but with its specific results. Within certain regions there are consequences which I am sure the Chancellor neither contemplated nor desired. On many occasions the House has listened patiently to me dissertating on the economy of my constituency of Cardigan. There is no doubt that it has one of the lowest percentages, if not the lowest, of manufacturing industry in the whole of Britain. The one thing that is certain is that it has the lowest proportion of manufacturing industry as compared to service industry in the kingdom. I calculate that manufacturing industry in Cardiganshire is one-thirteenth the size of the service industry, or about 6 per cent. manufacturing as opposed to 83 per cent. service.

My county is a poor one, showing all the symptoms of an economy which has not the power of self-regeneration. There is the natural decrease of population, the high rate of migration, the low level of personal incomes, and the low dependence on Exchequer support. Yet in this area 13 times as many persons pay S.E.T. as receive a refund.

The irony of the situation is that if the county were richer in economic resources—if it had 25 per cent. manufacturing industry—not only would the tax burden be lighter but the refund benefit would be much more substantial. I am sure that Lewis Carroll would have made much use of such an ironic principle. In this case the Chancellor seems unwittingly to have followed the very words of the verse: For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath. If the Selective Employment Tax is to live up to its title it must be more sophisticated in its selectivity. It should not be an instrument to rob those localities which the Government have sworn to succour. I believe that the only proper and equitable course for the Government to take is to abolish S.E.T. for such areas as labour under special disadvantages, such as my constituency. Yet the abolition of S.E.T. for such places would not cure the evils complained of. The situation would then revert to that which preceded the imposition of the tax.

Turning to the positive side, there is the regional premium which the Department of Economic Affairs announced the week before last. There is no doubt that if it is accepted by local bodies and adopted by the Government, as I trust it will be, it can be of immense assistance to the general economy of the regions. I am sure that Wales will derive considerable benefit therefrom, particularly since the proportion of manufacturing industry to service industry in Wales is very much higher than it is in England. I should like the Committee, however, to reflect not only on the total effect of the premium on a region generally, but also on its effect on certain parts of that region.

This is where the real danger lies. Let us take Wales as the example. If a premium of 30s. a week per employee in manufacturing industry were adopted and the whole of my country were eligible, why should a developer go to Mid-Wales when he could receive the same premium in a boom area like Wrexham? Why should an industrialist be interested in Rhondda when has has Neath, Llanelli, Swansea and Pontypool to choose from? Developers, being human, will go to the areas of greatest promise and shun the localities with indigenous economic difficulty.

In such a way, the effect of a regional premium will be to create further imbalance and inequity between one locality and another within a region. Although it will go a long way towards reviving the fortunes of a region generally, the real problem localities will still be untouched in their misery.

Judged from such a viewpoint, therefore, there would be a great weakness in a scheme which, although conductive to better balance between one region and another, yet left, behind a facade of general regional progress, a litter of derelict and decaying localities. Obviously, there are radical and dynamic developments to be considered, which are outside the classical scope of a Budget. But when the Chancellor introduced S.E.T. a year ago he declared the possibility of regional differentiation. I am certain that all that has happened in the past twelve months has borne out that necessity.

There must be differentiation not only between one region and another, but also between one locality and another within the same region. How long will we have to wait? How inevitable is gradualness? How gradual is inevitability? How eternal is the patience of those living in communities whose economic and social life is inexorably draining away?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

My hon. Friend will realise, of course, that it is possible now to discriminate in terms of I.D.C.s within region as well as between them.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

I readily accept, that in a negative way, I.D.C.s, which the Tory Party was willing to fling around like confetti, are now being used intelligently. However, side by side with that, I plead that there must be positive developments—bold, dynamic, radical policies to enable development to be channelled into these areas of indigenous difficulties.

In short, I plead for two things in the short-term for areas of economic decline and poor areas with a high disproportion of service occupation to manufacturing industry. First, Selective Employment Tax should be wholly abolished; secondly, the regional premium should be paid not only on manufacturing industry, but also, perhaps at a reduced rate, on all other industry thus inspiring growth in employment.

6.54 p.m.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I begin with what is becoming an annual plea from one side of the Committee or another—for personal savings, small savers and the new investor. In a period when the Chancellor seems to have been looking to an increase in personal spending some time later in the year, with Government spending continuing unchecked, with increased private investment hoped for next year, surely he could have given a little more encouragement for private savings, other than the increases in the limit of Premium Bonds and National Savings Certificates allowed, and—very welcome indeed to many of us who have been pressing for it for some time—allowing the Trustee Savings Banks to hold equities and run their own unit trust.

It is a great pleasure for me, both as an expatriate Scot and the publisher of my hon. Friend the Member for Glasgow, Pollok (Mr. Wright) to congratulate him on a fluent, able and entertaining maiden speech. The fact that he is not here in no way detracts from the sincerity of my congratulations; indeed, I hope that he is enjoying a well-earned rest after what is always a nerve-racking experience.

It is some time since the cartoonists and commentators invented the legendary figure, "Mr. Butskell", but the Chancellor seems to be doing his best to create a similar figure, that of "Mr. Callalloyd". I felt somewhat nostalgic, listening to the hon. Member for Birmingham, All Saints (Mr. Walden), agreeing with almost every word he said, and thinking what a long time ago it seemed that I was making virtually the same speech from almost the same place in the Committee on the 1961 and 1962 Budgets. The only slight difference is that I was, unfortunately, unable to defend my right hon. and learned Friend's version of stop-go with quite the vigour that the hon. Member defended the Chancellor's.

The 1967 and 1962 situations are remarkably alike—the axe and the stern measures from the previous July, followed by a neutral Budget which consolidated the regulator. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) expected a 4 per cent. rise in consumer spending, thus achieving the necessary reflation automatically. He was disappointed. In fact, unemployment rose and continued to rise, despite what the Treasury had told him. In the circumstances, one could call the Chancellor's optimism over the chances of a 3 per cent. increase—presumably automatic in consumer spending—a triumph of hope over experience, or, more accurately, of Paish over Kaldor.

It is in some ways a depressing comment on the apparatus and machinery that both parties have developed for managing the economy to think that, five years after, here we are again in very much the same situation—with one big difference, that the measures of deflation, the degree of convention, that a Labour Chancellor has chosen are more severe, mere conventional, less imaginative and even less dedicated to the concept of growth Clan those of successive Tory Chancellors. It is no good right hon. and hon. Gentlemen opposite seeking to defend their conduct; the whole ethos of their party is betrayed by the measures which they are taking.

I hope that, when he answers, the Chancellor will show that he has a slightly wider interest than simply the cash flow element in our balance of payments, which seems his main concern nowadays; though it was less so in the old days when he spoke from the Opposition benches. I hope that he will be less willing to sacrifice the long and medium term to short-term gain, and especially resist the temptation to reduce further the opportunities for investment, particularly overseas.

I found the right hon. Gentleman's language in opening his Budget extremely disturbing. The Chancellor said: With the help of the steps I have taken to moderate private investment abroad, the net outflow of private capital was small, and the deficit on long-term capital as a whole was reduced to £128 million. In 1964 the corresponding deficit was £368 million. So this is an improvement of £240 million in two years."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 975.] I was disturbed by that statement because of its tone in describing this change as an improvement—as if it were a saving in spending rather than showing an inability to make worth-while investments. Like other Treasury Ministers, the Chancellor has the habit of speaking as if spending and investment are precisely the same. This indicates a somewhat narrow point of view on the part of the right hon. Gentleman—a point of view more suitable to a cashier than to an investment consultant or financial director.

During the period the Chancellor quoted with such pride, inward investment into the overseas sterling area went up from £357 million in 1964 to £546 million in 1965. I regret that figures for 1966 are not available. At the same time, however, the balance of the overseas sterling area with the non-sterling area on current account rose to a deficit of £1,000 million.

That, briefly, is the sum of the argument which I put forward in great detail last year and which I do not propose to repeat tonight. It is simply that, very largely, overseas investments from the United Kingdom are largely financed by inward investment into the overseas sterling area; that this overseas investment from the United Kingdom is needed to produce the interest, profits and dividends required to balance what we have to pay out from the United Kingdom and the sterling area as a whole.

The figures published since I put forward that argument to the Committee last year tend to support my case, although the Chancellor and the Chief Secretary seem totally unrepentant. But before I come to the curious arithmetic which the Chief Secretary developed when he spoke to the Committee last week, there is a question that I must put to the Chancellor. I hope that he will answer it in detail because he inadvertently—I am sure that it was done inadvertently—misled the Committee when he said: Net invisible earnings last year were abnormally low at £77 million. They were depressed by a number of factors. Outgoings increased because we resumed payments on the North American loans".—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 975.] That clearly implied either that we were repaying part of the American loans or that the heavy charge of interest due on them came into the figures, ending in an abnormally low balance of only £77 million on invisible account. However, the balance is contained in the summary Table No. 14 in Part II of Cmnd. 3244. I cannot find any reference to the payment of any loan in the tables which go to make up that summary table—that is, tables 15, 16 and 17, although the £77 million is accounted for entirely and wholly by the figures quoted in those tables. It is, therefore, of some interest to know what the right hon. Gentleman meant when he said that invisible earnings last year were depressed to £77 because of payments on the American loans.

If the right hon. Gentleman was referring to principal, there is no element of repayment of principal in the figure £77 million of the balance in the summary or in any of the details that make it up. If it is interest, where does it come? I do not believe that it comes in Table 17, which refers to private services and transfers; I cannot find it in Table 15, unless it comes under the somewhat mysterious heading of, "other transfers", which accounts for only £10 million; or in any of the other tables concerned with interest, profits and dividends and which, I have understood, were concerned with private account alone. I hope that we will be given a definite answer to what the right hon. Gentleman meant when he tried to excuse the very low figure on invisible account by implying that there had been a heavy repayment of American debt.

The reason why this figure is so abnormally low this year goes to the crux of my argument. We have the £23 million by which Government spending overseas has gone up. On private account there is a small saving, of £11 million, for travel; shipping is £8 million better off, although aviation is £2 million worse off. The earnings listed under "other services" are worth £14 million less and there is an increase in private transfer overseas of about £29 million—a pattern of developing lack of confidence in the Labour Government and the future of this country under them. Net interest, profits and dividends show a decrease of about £34 million.

This all indicates a different interpretation from the arithmetic advanced by the Chief Secretary, for it shows that already, in such a short period, earnings on our investments overseas are beginning to fall off while the interest, profits and dividends which we pay out on money invested here and in the overseas sterling area are rising. During the past year the debits on this side of the invisible account went down by £5 million, but the credits—what we earn overseas—went down by £39 million. If we are being selective about investments, the Chief Secretary and the Chancellor have been curiously selective in doing their sums. In some ways the Chancellor gets more like Humpty-Dumpty every day—in his use of words, rather than in his physical appearance.

The Chief Secretary taunted the former Conservative Administration when he said: It was their laxity which contributed substantially to the deficit of £800 million with which we are still having to cope … We do not propose in this respect to repeat the irresponsible conduct of our predecessors."—[OFFICIAL REPORT, 13th April, 1967; Vol. 744, c. 1399–1400.] Was it irresponsible of the Conservatives to build up our foreign investments overseas so that the earnings from them, which were £500 million a year in 1955, had, 10 years later, in 1965, increased to £1,000 million a year? Now, after a relatively short period of Labour Government, this trend has, for the first time since the war, been reversed and our earnings from foreign investments are going down, although Government spending in the same period is continuing to rise. At the same time, the situation is made worse because there is a mounting deficit in the overseas sterling area on invisible account arising out of interest, profits and dividends flowing out.

The value of overseas investments, leaving aside the indirect effects, which the Chief Secretary scorned, are obvious. They may not bring as big a return on capital as some investments in the United Kingdom, although the average return in the 10 years I quoted, of 8 per cent. net on capital invested, seems a reasonably adequate return across the exchanges. As for the Chief Secretary's absurd argument that the taxes paid there go to pay for the welfare services in those other countries, he omitted to refer to the other side of the argument, which is that the taxes paid on foreign investments here and in the overseas sterling area go to pay for our welfare services in this country in exactly the same way, and save us payments across the exchanges.

When we get down to the problem of hew best to invest overseas the capital of the United Kingdom, when we consider the question of selectivity, it is all very well for the Chancellor of the Exchequer and the Chief Secretary to talk glibly about doing it where it is most needed. What needs are they talking about—the economic or the political needs? I am prepared to accept that the Government are as good a judge as any of where to place investment overseas for political or even social reasons, in the form of aid to developing countries, but that is not what the right hon. Gentlemen were talking about. They were talking of the economic effectiveness of overseas investment. Here, I believe that this judgment is less likely to be exercised effectively by a few people within the Government's service than by a relatively large number of industrialists, financiers and others who make these decisions.

It is only too easy to go for the safe return—the investment that brings a moderate return fairly quickly, but which is probably only marginally worth doing, if it is worth doing at all—and to leave out those investments which, made in the past, have contributed to these large overseas earnings that our capital now brings in, but which, at the time, may have seemed, must have seemed, rather risky, and perhaps even dangerous.

I can only think that it is quite wrong to argue that it is economically sound to restrain United Kingdom investment in Australia, where it brings in a good return—incidentally, allowing a greater American investment there and building up again charges for interest, profits and dividends which the pooling arrangements reflect in the balance of payments situation of the United Kingdom. It seems absurd to argue that this is less profitable for us than investment in the developing countries of the Commonwealth. I do not suggest that investments should not be made in these other territories. I say that the arguments that favour investing there are more often political than economic.

In this and in other matters it is not the Conservative Party that is being irresponsible, but the Government. Every time, and in every danger they get into, the Government are willing to take the short-term way out and risk great damage in the long term, especially in investment at home and overseas which, once lost, can never be effectively regained, simply because it is politically easier to restrain investment than to deal effectively with expenditure or to face the other possible solution of devaluation

I agree with hon. Members who have said that forced devaluation is in all circumstances disastrous, but there comes a time when it may be considered as possibly the correct line of policy, not forced on the Government but taken deliberately on the ground that our currency is relatively overvalued, which, in itself, is no necessary disgrace to the country or condemnation of its economic policy. I suggest that this is particularly so as regards the United Kingdom, when there is not only the question of whether our currency is over-valued in relation to ourselves but whether it is over-valued in relation to the overseas sterling area, which can, in itself, be an unnecessary drag on our balance of payments.

Reflecting on the proud claim of the President of the Board of Trade that we are exporting enough to pay for over 99 per cent.—or whatever the percentage was—of the import bill, I believe that we are putting far too heavy a burden and far too big a demand on our export trade, and that this in itself is one of the factors in inhibiting growth. Like the hon. Gentleman the Member for Birmingham, All Saints (Mr. Walden) opposite, I believe that it is the market that produces the product, rather than the other way round. This Budget, and the Chancellor of the Exchequer by means of it, has chosen to perpetuate by inaction as it were, a pattern of policy that I should find deplorable in a Tory Chancellor of the Exchequer I find it incomprehensible in a Socialist Chancellor of the Exchequer.

I deeply regret that this pattern is still being continued in spite of all the election promises that came from the benches opposite—promises now shown to be empty.

7.15 p.m.

Photo of Mr Benjamin Whitaker Mr Benjamin Whitaker , Hampstead

I will speak very briefly, all the more so because on Wednesday I will be supporting a proposal to limit the length of speeches.

The Chancellor of the Exchequer's Budget judgment is that he has no room to manoeuvre. I would, therefore, ask him to tell us what his plans are and what the prospects are for the long term reform necessary to escape from this straitjacket. What the country and the House of Commons wants to know is how soon my right hon. Friend has any real hope of being able to effect a reform of the international monetary and liquidity system.

As long as we in Britain have to maintain sterling as a world currency, our entire economy and all our hopes and plans for social progress will be at the mercy of the pressures which that entails. Like certain finance companies whose difficulties have been in the news recently, we in this country are having to borrow short and lend long, and are, therefore, compelled to deflate as soon as our growth rate approaches 3 per cent., with all the unhappy human consequences which result.

Even within the terms of the overall limitation, many people find it very disturbing that there is no social content discernible in the Budget. I believe that redistribution is necessary as a solution to our internal difficulties—redistribution not so much of wealth as of opportunity. For reasons equally of growth and of social justice, I believe that we should reduce the rates of taxation on earned income—coupled with providing equal opportunity for people to earn—and to do this by taxing unearned and inherited wealth more. The effect would be to ensure that the rewards go to those who actually do the work and earn the wealth in this country rather than to those who at present are able to enjoy the wealth.

I believe that the existing scale of inequality which was faced by the Government when they took office, is still insufficiently recognised in Britain. The figures show that in 1964 2 per cent. of our adults possess over 40 per cent. of our assets; that 7·6 per cent. of them enjoy 61·3 per cent. of the wealth; while, at the other end of the scale, 71 per cent. of our adults have assets of less than £1,000 each and are, therefore, quite unable to change the quality of their own and their children's lives.

What I find impossible to defend in our present fiscal system is that the highest child reliefs—in the same way as the highest educational and mortgage allowances—are going to the richest families, who, in fact, need them least. Let me contrast two families, each possessing four children. To the family whose earnings are only £10 a week the State gives an allowance of £86 a year, but to a similar family, with earnings of £30, the taxpayers give allowances amounting to £240 a year. This makes neither social nor economic sense.

The lack of social content in this Budget was criticised in a leading article in The Times. This Government were elected to change the country internally, and if they stand still they are failing the mandate that was given to them. What is the point of having a Labour Government if they act only to fossilise the existing inequalities?

Conservatives are incredulous that the Budget has failed to implement a gifts tax when almost every financial newspaper had been expecting it—indeed, advising it. It has been said that anyone whose estate pays duty to the State under the present law is either malicious to his heirs or has been badly advised. Let us have a simplified taxation system and at the same time, plug the indefensible number of anomalies which have been well known for many years. The proceeds could then be used for the relief of child poverty or to help pensioners, without any reflation being necessary.

The Chancellor spoke of another searching review of tax avoidance. This is an annual refrain in every Budget. To cite a specific criticism, the Chancellor proposes only 4 per cent. interest on arrears unpaid by laggards. But this will still be cheaper than having an overdraft at the bank. Why not make it 8 per cent.? The present opportunities for tax avoidance bring the whole fabric of the law into disrespect.

This year in particular, when there is no overall inflation or deflation, is a chance for the Chancellor to deal with those anomalies and reform the taxation system to increase its social purpose. I ask that the House of Commons might consider having a Select Committee on taxation so that there could be an all-party examination of the most effective arid simple forms of taxation. Then the direction in which they are implemented could be a question of relative social values on either side of the Committee.

Finally, I would like to make a specific suggestion for painlessly raising money, which, I think we all recognise, is an unenviable and thankless task for the Chancellor. Last year, there was a welcome on all sides for a tax on gambling. This was many years overdue. The Government should not stop here, but should make an even more radical and beneficial reform in this direction. Hon. Members on both sides of the Committee would like to see a national lottery such as that by which Ireland and other countries finance constructive projects.

Gambling, for better or worse, is undeniably ingrained deep in our national character. We are not able to change that by any amount of legislation. We must recognise that it is probably one of the fastest, if not the fastest, growing and most profitable industries in Britain at present, whether we like it or not. So why not harness this force and take it into State ownership for the benefit of the public?

With the proceeds we might achieve many projects—for example, in medical research or cultural research—about which hon. Members on both sides of the Committee know and for which there is often a general demand, but which at present we cannot afford. I hope that the Chancellor will very seriously consider a radical and I believe generally acceptable reform along these lines when he prepares future Budgets.

7.24 p.m.

Photo of Mr Ronald Russell Mr Ronald Russell , Wembley South

I hope that the hon. Member for Hampstead (Mr. Whitaker), in whose constituency I very nearly live, will forgive me if I do not follow his remarks on general taxation, but confine myself to a particular tax mentioned by various hon. Members in this debate over the last four days—what my right hon. Friend the Member for Barnet (Mr. Maudling) calls "fiscal lunacy". I mean, of course, Selective Employment Tax.

In what I say I shall require to re-echo some of the speech made by the hon. Member for Willesden, West (Mr. Pavitt) last Tuesday. He is one of my colleagues in the representation of the new London Borough of Brent. I did not hear his speech, because I was listening to my right hon. Friend the Member for Barnet making speeches in Wembley and Willesden during the G.L.C. election campaign, but I have read the hon. Member's speech.

The hon. Member dealt partly with the effect of Selective Employment Tax on the Co-operative movement, coffin makers and undertakers, sausage manufacturers and one or two other industries with which I am not very much concerned. I want to speak about its effect on other kinds of business.

During the last two or three months I have made inquiries about the effect of S.E.T. on 50 or 60 industrial firms and businesses in my constituency. All except two condemned the tax in a way which varied from mere mocking laughter to, "Well, I get it back plus premium, but there could not be a more stupid tax." That came from a printer. Of the two in favour, one was not surprising because it came from the firm whose former chairman is a member of the Government, Lord Brown, but some of the employees of the firm came to see me a few weeks ago to protest against the compulsory wage freeze as other employees have gone to see other hon. Members. Usually, one gets a volley of questions and interruptions when one goes to works meetings at election-time, but when they came to me a few weeks ago their attitude was very much more friendly and they were far from enthusiastic about S.E.T.

I want to give three examples of some of the bad effects of this tax among the firms to whose chairmen or accountants I have spoken. A firm of motor engineers in Wembley, South said that the effect had been to put up its workshop prices 2s. 6d. an hour and made a difference of 2½ per cent. increase in the cost of supplies of articles for making motor cars. Its sales have dropped in the past year and it had no option but to pass on the cost of the tax to its customers. Another motor firm laid off 20 per cent. of its staff. They were mainly part-time workers. I am glad that the Chancellor has remedied that anomaly, but there are still many more anomalies left in regard to the tax.

There is a firm of chemical manufacturers which has a factory in Plymouth which qualifies for the premium, but its distribution centre in Wembley pays and gets nothing back although much of its distribution is for export which the Chancellor should not want to penalise. It seems very unfair that one of the firm's factories should pay the tax and get it back plus premium and that the other should pay it and not get anything back.

Then there is the famous organisation of which most hon. Members know, Wembley Stadium Limited, which owns the Empire Stadium, where there are football and greyhound racing, the Empire Pool, where there are various kinds of entertainment such as ice shows, swimming, table tennis championships, the Horse of the Year show and Christmas pantomimes, and Wembley Bowl, where there is bowling and a restaurant. This tax is a great burden and a nuisance to Wembley Stadium. The company cannot pass it on to its customers, or put up the prices of seats, because if people do not think that a show is worth seeing at the price they just will not come to it. This applies to all three places, the stadium, the pool and the bowl. In any case, the stadium could not increase prices of seats for the Cup Final and other great events without consulting the Football Association.

S.E.T. has a bad effect on the company's trading as one of the country's great entertainment enterprises. The stadium comprises an invisible export. The World Cup matches brought great crowds to London entirely because of the facilities provided at the stadium.

Printers who set up type get the premium, but builders who set up bricks or concrete do not. The creation of type for people to read is rewarded by a premium. I am not saying that is wrong, but the creation of buildings for people to live in and work where they do most of their reading is not and this cannot make sense. To leave out the sales staff of a manufacturing industry is equally unintelligible. If the sales staff ceased to function, all work on the manufacturing side would be wasted.

Was there ever anything more Gilbertian than to collect £1,100 million from the country and then pay back £924 million, as is shown in the Financial Statement, including the premium, thus making a yield of 16 per cent.? I wonder exactly what the cost is of collecting the tax and then paying so much of it back again with the premium. It is as if one of the statutory undertakers were to dig a series of holes in the road, leave them for three months and then return and nearly fill them up but not quite, thereby leaving a series of bumps over which every vehicle has to run.

I will not discredit the Chancellor of the Exchequer by accusing him of the authorship of this obnoxious tax. It savours far more of the Danube than the Thames or even the Taff, on the banks of which the Chancellor's constituency lies. It is full of anomalies. Indeed, it is in itself the biggest anomaly ever joined together in two pieces of legislation. The only way to remove all the anomalies is to abolish the tax altogether and replace it by a non-discriminatory tax, such as a value-added tax, for example. I hope that, in the course of time, the Government will realise this and do something about it.

7.31 p.m.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

As a farmer I have always felt that there was a lot to be said for a payroll tax. I say that largely because I have seen the efficiency of farming improve more than that of any other industry in this country, and the cause of the improvement has been the huge increase in its labour costs. It was only when farmers began really to have to pay for their labour that they began to use it efficiently. I have felt that there was a lot to be said for making labour more expensive if one is to begin to use it as efficiently as, say, the Americans do. But then I find a payroll tax in which the money is returned just at the point where I think it should apply. It is rather difficult to follow the logic. But that is not the main subject with which I want to deal.

My right hon. Friend the Chancellor of the Exchequer expressed his ambition that Britain should pay her debts, that she should balance her payments and that she should increase her production by 3 per cent. That has been the ambition of successive Chancellors throughout what I think must now be added up to 15 wasted years. These are years of world expansion in which our increase has been less than that of any of our major rivals; years of expanding trade when our share in world trade has become ever smaller; years during which our investment, the building up of our means to produce, has lagged behind our rivals; years of relative decline; years of decadence. Even the inadequate objective of a 3 per cent. increase in production has not on average been achieved.

Now we are faced again with what seems to me a very familiar situation. Unemployment has again failed to provide redeployment. On the whole, it has hit our export industries hardest. The slack in the economy has been felt in the investment industries more than in the consumer goods industries. We have lost investment and, above all, we have lost industrial morale.

Our greatest need is productivity. I entirely agree that productivity is primarily an employer's function. It is a function of management. But, none the less, a factor in it is the morale of the labour force. That morale has always been affected by fear of unemployment. All the restrictive practices of labour are labour's defence against unemployment—labour's means of not working oneself out of a job.

Gradually, we had begun to overcome that fear. Now it has been restored. There is again the fear of unemployment. There is again this rejustification of every restrictive practice. I do not know how long it will take to work ourselves out of that situation. So we stand, and I can see no earthly reason to believe that our economy today is in any better shape to afford expansion than it has been before.

If we are to escape from this circle, I believe we have got to come to terms with reality, with our new place in the world. I will deal with what seem to me the three vanities of our day. The first is the "top table" vanity; the second is the "new Commonwealth" vanity; the third is the sterling vanity.

The first, the "top table" vanity, is the idea that we have a sort of special influence in the world because we maintain an independent nuclear deterrent. It impresses no one but ourselves. It did not impress Sukarno and it does not impress Nasser. Heaven knows, it does not impress the Russians. Least of all does it impress our allies. That vanity includes the maintenance of an oceanic capacity—a pretended capacity to maintain oceanic interests which are now dead.

How unreal that capacity is, is well illustrated by the situation in Aden, in which we are being bullied by the Egyptians with an army of invasion in the Yemen. When I suggested the other day that we might cut the communications of the Egyptian Army in the Yemen, which seems to be at our mercy, I got exactly the same answer as I got for the same proposal at the first election I ever fought, when I urged that we should cut the communications of Mussolini's Army in Abyssinia. I was told then and lately that such a deed would be an act of war.

If, when right is on our side, when our interest is there and when the strategic situation is supremely to our advantage, we refrain from an act of war because it is an act of war, why on earth sweat our economy with the enormous expense of putting ourselves in a position to take action which we can never take? So far as we are concerned, we are impotent in these oceans—impotent largely because of our needs and even more so because of our words. Let us face our real position.

The second vanity is the "new Commonwealth". We have told ourselves that we have lost an empire but gained a new Commonwealth. What do we mean by that? The Prime Minister described it as a great experiment in multiracialism. What does he mean by that? Is it to be found among individuals? If he thinks that, he should go and look at Brazil or, perhaps, at the Portuguese colonies. Where is the multiracialism? There is no more mixing of the races in, say, Kenya than there is in Rhodesia. I was in Kenya a short time ago, and I asked how many black-white marriages there were. I was told none—

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

Order. I hope that the hon and learned Gentleman will relate his remarks to the Budget statement.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

I am saying that this is a vanity which is proving exceedingly expensive, Mr. Godman Irvine. I am first indicating that it is an unreality, and I shall very shortly point out how much this unreality costs us. This multiracialism is contrary to our instinct. It is only less contrary to our instinct than it is to the other great member of the Aryan race, the people of India. Our Commonwealth in fact illustrates that multiracialism is not our talent.

As a power grouping, we know that other members of the Commonwealth are nearly always against us. Some of them do not even recognise us. It is simply a balm to our wounded vanity in having lost an Empire, and it is terribly expensive. It has, for instance, pushed us into a policy regarding Rhodesia which is costing our balance of payments, taking copper into account, not less than £150 million a year, for no interest of ours and simply to maintain a fiction. That seems to me to be the second vanity which we must put away, realising that whatever happens in Rhodesia or, indeed, in South Africa we are utterly impotent to interfere.

The third and, perhaps, the most expensive of our vanities is the sterling vanity, the idea that we gain a special position in the world by maintaining our currency as an international reserve currency. Harvard did a research study on the effect on the American economy of maintaining the dollar as a world reserve currency and found that it was a considerable expense and cause of deficit to the American economy. Yet the American economy has, on average, been able to maintain that position at about 2 per cent. less than we have; we have had to pay, on average, about 2 per cent. more than the Americans in order to attract here the money necessary to support our currency as an international reserve.

Not only have we had to pay these considerable sums, but we have had to maintain our internal borrowing rate at about 6 or 7 per cent. Basically, this is an intolerable charge to put on the user. It is rendered tolerable only by inflation; one pays out in interest and writes off in depreciation of value. What a way to conduct an economy! Interest rates of this kind impose inflation. One cannot do without inflation in such circumstances. This is the cost of keeping our currency as an international reserve.

We must look for a new policy, a policy such as was expressed by my hon. Friend the Member for Ashfield (Mr. Marquand) in a very fine speech last Thursday. There have been many good speeches in this debate, for example, the speech we had a short time ago from my hon. Friend the Member for Birmingham, All Saints (Mr. Walden) and the speech of my hon. Friend the Member for Edmonton (Mr. Albu). All agreed on the need to find a new policy. But I thought the speech of my hon. Friend the Member for Ashfield the best essay on economics, if I may call it that, that I have heard since there has been a Labour Government. In admirable and felicitous phrase, he picked on every real issue. I shall quote one sentence: That fundamental assumption"— that is, the fundamental assumption of a Labour Government— was that it would be possible and desirable to run the economy at capacity, and that if balance of payments difficulties appeared"—

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

Order. The hon. and learned Gentleman must not quote directly from a speech already made in this debate.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

Then I shall try to paraphrase it. My hon. Friend went on to say that if balance of payments difficulties appeared, we would correct those difficulties by other than deflationary methods, which would bring growth to a halt.

That seems to me to be the whole basis and justification of a Labour Government. If we are merely to follow the method of our predecessors, which we have called the stop-go policy, we shall inevitably do it rather worse, for the simple reason that it is a method which depends for its success on the confidence of foreign bankers and the financial advisers of foreign Governments, and those bankers and advisers, from their nature, are inclined to have more confidence in Conservative Governments than in progressive Governments. Therefore, the maintenance of our currency, if that be our basic objective, will always be more expensive for a Government of the Left than for a Government of the Right.

If that be our policy, therefore, we have no business to be a Government at all. It is not to the benefit of the country that we should be. Our whole raison d'être is to have another policy. That policy is the policy of a planned economy, and the basis of all planning must be currency control. We have learned this perfectly well. When planning has really mattered, as it did in two wars, the first thing we did was to put on currency controls. When planning was essential to us, during the Attlee Government, in the recovery from war, we put on currency controls. This must be the basis of any planned advance.

Currency controls mean freezing sterling balances or, as put more politely by the right hon. Member for Barnet (Mr. Maudling) funding sterling balances. Call it what one will, it means introducing regulations to the effect that sterling balances can be used for trade purposes only against trade payments and not for speculative reasons. It means that our industrial activities do not have to be adjusted in order to suit the confidence of alien bankers. It means that we do not have to direct our Budget to them instead of to our real needs, and it means that we can look to the needs of our own economy instead of to the nerves of our creditors. It means many other things. One can get interest rates at a reasonable level, which I would put at about 3 per cent. for a healthy economy. That was the kind of level at which we kept them during two wars when we had currency controls. Of course, it does not mean that one does not have ultimately to balance one's payments; one must do that. But it means that one cannot be placed under constant pressure, that when one must make the necessary balancing payments one has adequate time to draw on reserves and investments. It is the basis of planning if one is to have a steady advance.

The second thing which I believe we need above all is a real Minister of Economics. Some years ago I was very close to my right hon. Friend the Member for Belper (Mr. George Brown), now the Foreign Secretary. We worked closely for many years on defence policy, and I recall telling him when he was taken out of that sphere on the suggestion that he should become what was then called Shadow Economics Minister, "Don't touch it unless you have a complete guarantee that the Chancellor of the Exchequer will not be in the Cabinet. If the Chancellor is in the Cabinet, you will be a dead duck. With the seniority and power and quality of the Treasury personnel, of the City and of the banks the financial interest will always be dominant in a conflict over the industrial interests". That is exactly what has happened. What we need is a Minister of Finance to whom the Chancellor is one of several subordinates. The Minister can take them to the Cabinet when he chooses, but they will be subordinates because only then will there he a balance of the various interests in the economy and not the financial dominance which we have seen for so long. No healthy business is run by its accountant.

Lastly, we should plan for at least a 4 per cent. growth in the economy, and that can be done if the priorities are right. In wartime we maintained an expansion of, I think, better than 12 per cent. for over five years, in spite of putting 4 million men into the forces. The Iron Curtain countries—the countries of Eastern Europe—averaged better than 10 per cent. in the decade from 1950 to 1960 and are even now still averaging over 6 per cent. I am not saying that we should put our priorities at the level of the Eastern European countries, but if we make our priorities right it is within our capacity to achieve the sort of growth which I suggest. But if we are to do it we must fit the means of exchange, the money, to the plan to expand rather than tailoring expansion to the needs of sterling, which is what we have been doing.

The next thing we should do is quite different from currency control. When we had currency control in both wars we did not devalue, but controlled the currency at the rate we had chosen. But, at any rate at this stage, we should devalue. I have on balance thought right along that we should devalue, but the argument against devaluing earlier was that there were not the unemployed resources available to be redeployed. If the squeeze has given us anything, it has given us a capacity for redeployment, and I believe that devaluation is the one way in which we shall get the redeployment we need.

Basically the only effect of devaluation is to raise the profit margin on exports. That is really all it does; it does not lower their price, because at least ninetenths of export contracts are in the buyer's currency. If one can get five dollars for a bottle of whisky one will go on getting five dollars for it, even if that five dollars enables one to buy more sterling. One's profit margin goes up, and if one increases that profit margin in exports and by doing so widens the scope of things which it is profitable to export, one will attract to those industries the "slack" which has been created. At the same time one puts a deterrent on importing by increasing the price of imports. But it is a selective deterrent. It is no deterrent upon the import of raw materials required for export industries, because the additional cost there would immediately be absorbed by the larger increase of profit made available by the devaluation. It therefore seems to me that it gives us just what we want both as regards exports and imports.

The effect of devaluation on prices has again been greatly exaggerated. A 10 per cent. depreciation of the currency would mean that the cost of one-fifth of our goods—the amount which we import—would go up by 10 per cent. The overall effect on the cost of living would therefore be 2 per cent. But in practice it would be a good deal less because a good many other countries in the sterling area would devalue with us. It is not the countries to whom one exports that have an inclination to devalue. It is the people from whom one buys who devalue with one because they do not want to be priced out of one's market. Sterling area suppliers of about half our imports would probably devalue with us. I therefore reckon that the direct effect of a 10 per cent. devaluation on internal prices would be about 1 per cent., which is very insignificant compared with the cost of joining the Common Market, for instance.

When one has a planned increase in productivity, one can begin to have an incomes and prices policy that makes sense. I do not think that it is practical on a national scale to divide income without knowing what it will be. Once the size of one's income is not one's own decision but the decision of foreign bankers as to their confidence in sterling—the decision which throughout the lifetime of our Government and for the past 15 years has always been taken abroad by our creditors—one cannot have an effective plan for dividing it. But when one has an effective decision as to the size of the national product one can begin to have a real incomes plan instead of one which is felt to be, and very often is, merely a polite device for trying to keep wages down. That is what is looks like at the moment.

So far, it seems to me that we have simply followed the Conservative road. We have geared our economy to the pound. This has had the same effect under a Labour Government as it had under a Conservative Government. I believe that we have to find a new policy and that that new policy must be expansion without deflation. This involves the first basic planning decision—currency control.

8.0 p.m.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I hope that the hon. and learned Member for Northampton (Mr. Paget) will forgive me if I do not refer straight away to his speech. I intend to return to it later. It reminded me of the opening speech in this debate by the Chancellor of the Exchequer. I am sure that the hon. and learned Gentleman would be the first to recognise that the weaker one's case is the longer one takes in making it. The hour is late and several hon. Members have sat here throughout the debate. Therefore, I intend to keep my remarks as brief as I can.

I am not surprised at the country's verdict on this Budget. It is a barren Budget. It is a surprise not only to the Committee, but to people throughout the country after the extravagant election promises made by the Labour Party in 1964 and 1966. It is surprising that after two and a half years in power the Government should be so short of ideas as to bring in this kind of Budget, which does not have one new suggestion in it.

The Labour Government have produced the situation which the country faces today, and it would be wrong of me not to commiserate a little with the Chancellor of the Exchequer. All those who have spoken, particularly his hon. Friends, have been quick to criticise him. But, in the situation produced by the Government, he has shown quite a lot of courage in standing still against the pressure of the trade unions and the imminence of the local authority elections in a way which he felt was right for the good of the country in the mess which the Labour Government have created.

The Minister had the quick will to produce the Green Paper. It does not do anything immediately. It promises that things will be done after it has been properly debated and considered. I wonder how sincere this procedure with the Green Paper is. Is it likely that anyone will say that he is not going to take a refund of £1 or £2 per person employed in productive industry? Why was it necessary to produce this Green Paper? Why could not the ideas in it have been put in the Budget, debated by hon. Members and in the country, and then incorporated in the Finance Bill? To save the face of the Government and to play for time, it was, perhaps, easier to put them in a Green Paper and make great play of having them discussed in the country so that they need not do anything for a further six months.

The President of the Board of Trade, in opening the debate today, referred to the great unemployment that there was in the country. He said that unemployment in the South-East of England and in other parts had increased by 80 or 90 per cent. It was admitted that in some cases it had increased by 200 per cent. It seems that the areas in white in the Green Paper are quickly catching up with the development areas. If unemployment in the Midlands has increased by as much as 200 per cent., why is it net being scheduled as a development area? I assume that it will be soon.

This is the mess which the Government candidly admit they have created. The President of the Board of Trade said that unemployment in the development areas had gone up by only 20 or 30 per cent. What is the use of this plan if the whole country becomes a development area? I am sure that the right hon. Gentleman was sincere when he pointed out the serious situation in the Midlands and the effect of a 200 per cent. increase in unemployment within a year or two.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I am sure that the hon. Gentleman is aware that since November unemployment among those temporarily stopped in the West Midlands has fallen by 90 per cent.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I am grateful for that correction. But that still means that unemployment is up by over 100 per cent. on the right hon. Gentleman's own figures, which is a shocking indictment of the Government. The way in which unemployment is fluctuating cannot speak well of the way in which the Government are managing the country.

Why do we need this standstill Budget? Many hon. Members opposite, led by the hon. Member for Edmonton (Mr. Albu), who recently left the Government, have suggested that the £ should be devalued. The hon. and learned Member for Northampton suggested that. Here is more evidence of the defeatist attitude of hon. Members opposite. What would be worse than to devalue the £? We are a trading nation, with most of our debts with a gold clause attached to them, owing millions of pounds abroad. Yet it is suggested that the £ should be devalued so that we have to export more in goods and services to repay those debts. This is a doctrine of defeat if ever there was one.

What the country needs is more rapid growth. Surely it is reflation which we need. We want to get rid of this "Stop-go with Labour". We want to get rid of this restrictive incomes policy, this economic planning which makes a nonsense. The First Secretary of State said very firmly that the stop on wage increases would continue for another six months after July this year. Taken with the year during which there has been wage restraint, this means that there will be an 18 months' delay on wage increases. Then, says the First Secretary of State, we shall be finished with the control of wages, prices and incomes. But how can he be sure that we shall be rid of control of prices, incomes and wages? How can he say, as he said at the end of his speech, that the period would be strictly limited unless it was based on a forecast?

We know what the forecasts of the Department of Economic Affairs are like. We read its forecasts two years ago when it introduced the National Plan. We know what happened to those forecasts. The Government will find, before the 18 months have run out, that the country is in such a fix that they need to continue with their restrictions and control. The National Plan has been buried, but I do not think that the incomes policy has been buried by the Government.

Many hon. Members opposite have spoken of the mixed economy. Yet, when my hon. Friend the Member for Louth (Sir C. Osborne) was speaking, they could hardly conceal their scorn of the private sector. I am worried by the open antagonism of many hon. Members opposite to the small businesses which have made this country a great country. If they believe in a mixed economy, why should they criticise hon. Members on this side of the Committee when we suggest that taxes are too high? Why should they groan and grumble in their seats and protest? Is deflation the only answer to this country's problems?

The President of the Board of Trade referred favourably to our exports. I know that exports from Northern Ireland are not doing as well as they should. For instance, the ropemakers are facing competition from imports from Portugal, where wage rates are less than half those in this country and children of 14 years of age are employed. These goods are not only taking our markets abroad, but even coming into this country under E.F.T.A. agreements without restriction and it is this type of policy which has produced unemployment in this country. There is a great deal of concealed as well as visible unemployment. Many of our industries are working under par. Many bankruptcies have occurred during the past winter and more are threatened unless immediate steps are taken to reflate the economy.

We have in Northern Ireland found a terrible run-down of our traditional industries. People have moved out of agriculture into the towns. Shipbuilding, in the short period I have been a Member of the House of Commons, has lost more than half of its workers in Northern Ireland, where about 24,000 people were employed in 1959–60. Now there are 12,000, and 12,000 extra men are seeking work elsewhere. The same applies to the linen industry.

These are our three great traditional industries, shipbuilding, agriculture and linen, our traditional productive industries. They have been augmented by new industries moving into Northern Ireland, and which we hoped would have taken up the slack, but not only Short Brothers and Harland but Birmingham Sound Recordings and other small firms have all suffered as a result of Government policies. Some have closed down, others have reduced their staffs. This is a problem which we face in Northern Ireland, and there is no hope of overcoming it unless expansion starts soon.

Why cannot we help to satisfy the demand not only in this country, but elsewhere in the world for the type of consumer goods which are produced by these industries? Why should we not have, first of all, lower interest rates, which would help us to lower the prices of our goods which we export against competition from other countries where interest rates are lower? Why cannot we reduce unit costs by expanding the run of our factories by producing more and by reinflating? The policy of the Government increases unit costs because it decreases production and the total amount produced in our factories.

The President of the Board of Trade made great play with how the development areas would benefit from the Government's plans. We in Northern Ireland had at the end of April, over 8 per cent. unemployed, and that after a comparatively mild winter. I ask hon. Members opposite to consider what it would have been like if we had had a hard winter. We would probably have had over 10 per cent. unemployed. I greatly fear that, unless the Government reverse thir plans, very soon this will be the figure for unemployment in Northern Ireland. I must make it clear that I do not accept the argument of Paish which has been quoted often during this debate today.

The way out of the troubles of the country are not the ways suggested by the Labour Party, which are totally unproductive. One does not take a 3 per cent. total growth, meaning growth in the gross national product, meaning the sum total of the incomes earned in this country. This does not help. It is by increasing manufacture and output that the country will thrive, by increasing our exports, not just by increasing the gross national product, a meaningless figure, I would suggest. It is not done by increasing the number of unemployed in Northern Ireland and elsewhere so dramatically against the trend in the rest of the country.

I would say, in conclusion, that the sooner the party opposite abandons its policies of deflation and looks for ways of increasing national liquidity, looks for ways of meeting the consumer needs throughout the world for the goods we produce—cars, washing machines, and other durable and non-durable consumer goods—the better. This is a poor Budget. I have not time to develop my reasons, but it gives no help to those with large families and no relief to the unemployed. The Green Paper, whenever it is operated, is not a part of the Budget. I cannot support the Budget, and I hope that when the Finance Bill is introduced the Chancellor will accept some of the Amendments which will be introduced by my right hon. and hon. Friends to correct its omissions.

8.25 p.m.

Photo of Mr John Mackintosh Mr John Mackintosh , Berwickshire and East Lothian

Having listened to the speech by the hon. Member for Belfast, East (Mr. McMaster) and thinking of the speeches of my hon. Friend the Member for Belfast, West (Mr. Fitt), I cannot help wondering what this House would be like if we still had a hundred Irish Members! I was rather impressed by the capacity of the hon. Member for Belfast, East for demanding assurances for encouragement of industry and then spurning the Green Paper proposals which would provide financial encouragement for industry in areas such as that he represents.

However, before I go on to comment on his speech and the speeches of other hon. Members I must first of all say what a privilege it is to take part in a debate which has been graced by the maiden speech of the hon. Member for Glasgow, Pollok (Mr. Wright), my old friend and academic colleague. I was particularly glad to be here and to listen to what I knew would be an eloquent speech, and I was glad that he broke with the tradition of this Committee that there should be nothing controversial in a maiden speech. I look forward to engaging in controversy with him at other times both here and in the Scottish Committee. In reply to him as an Edinburgh man I remember a newspaper competition in Scotland which offered a first prize of a week's holiday in Glasgow and a second prize of a fortnight's holiday in Glasgow. Nevertheless, the hon. Member overcame these difficulties and I look forward to subsequent arguments with him.

Now I wish to get down to the Budget and the subject of this debate. I am very glad that hon. Members, certainly on this side, have congratulated the Chancellor of the Exchequer on his courage, on the clarity with which he introduced his Budget and the way in which he has been willing to withstand the pressures from all sides. Those of us who, like myself, have been members of the Labour Party for 20 years now, and have followed the career of the Chancellor—albeit from a greater distance away—have no need to be told about his courage and forthrightness in these matters. He is quite prepared, I am sure, to enter into what I think has rightly been a more meaningful debate than these debates have sometimes been, because it has not been a discussion of small tax items, but we have had the chance of looking at the real issues and have been able to spend time looking at the broad strategy of British economic development.

It seem to me that until July, 1966, we had a coherent economic strategy in this country. It was coherent from one Government to another. It was as much the responsibility of the right hon. Member for Barnet (Mr. Maudling) as it was of the Chancellor now on this side of the Committee. We assumed we could run the British economy at capacity; there had to be growth, and we intended to keep up our exports by the process of increasing industrial modernisation and by becoming more productive. We aimed at ending regional divergences by pushing industry out of the capacity areas, the over-heated areas, into the regions. We felt if there was particular tension in the foreign exchanges we could borrow to get over those immediate difficulties. We had what the Chancellor described as a bonus to this policy in the form of the prices and incomes policy which was to keep down demand to a reasonable level.

It seems to me that at that time there was a coherent policy, and I think everybody in the Committee wishes we had succeeded. We were just very narrowly driven off course in the summer of last year. I have often felt very unhappy on looking back and seeing how very narrow the difference was, how, perhaps, if S.E.T. had had a deflationary effect in April rather than in September, if there had not been a seamen's strike—but for one or two things like that—we should have succeeded.

However, we were forced to take the measures of 20th July last year, and having done this it seems to me the Chancellor's speech now is revealing a new coherence and a new economic strategy, but what bothers me is that it seems to be somewhat obscured by sections of the old strategy, and I am not quite sure that they are compatible. We should have some expansion, but it seems to me clear now that the strategy is first to watch over the balance of payments. Growth comes second. I have heard these noises coming out of the Treasury over the past six months, that we have been trying to grow at too high a rate and that now we must be content to lower the rate of growth. I feel we are also heading towards the assumption that expansion, the slow expansion which the Chancellor has forecast, is to be managed by increasing capacity in such a fashion that it will not cut into a steady level of some 2 per cent. to 2½ per cent. unemployment, an unemployment level which will bolster the otherwise rather limp prices and incomes policy. When this was said, in a brilliant speech, by my hon. Friend the Member for Ashfield (Mr. Marquand), the Chief Secretary to the Treasury said that this was unfair and that the Chancellor had not said precisely that. The Chancellor, in fact, said that the message was clear as regards unemployment—that such a policy as he was describing in isolation would have no material effect on present employment levels. But he went on to outline four additional points which he felt would reduce unemployment without leading to overheating. What concerns me is that those points seem to be drawn from the old, coherent pre-July 1966 policy, and I am not sure that they will fit into the present strategy.

May I give my reasons? First, it is an assumption of this argument that if we modernise the British economy we shall get growth despite the slow level of expansion—that this can be done by the Prime Minister's productivity conferences, "Little Neddies" and all the other methods which have been tried to bring about modernisation, including special financial incentives to British industry. But can we modernise industry when private investment is down by 10 per cent. and when demand is low? I cannot see this happening.

My impression is that British industry does not invest and modernise at the top of a boom period because profits are then great, industry is producing all out, it has long order books and manufacturers say, "We have no time to stop and re-equip." Equally I do not get the impression that British industry modernises at the bottom of a depression when its confidence is shaken—and the figures of private investment tend to suggest that I am right. We shall not get the modernisation that we want until we have an element of positive growth and expansion, till the upswing has begun and there is much greater confidence than we have at the moment.

Let us take the second point made by the Chancellor which, as a Scottish Member, I welcome—the admirable, exciting idea contained in the Green Paper of a premium for industrial employment in the regions. I wish that I could use my speech to discuss this, because it is one of the best ideas which have been put forward. What troubles me, again, is that those of us in the regions—and I certainly—feel that there is evidence that this regional policy fitted into an economy which was running all out. Then people in Birmingham and London, with a tight labour force and wishing to expand, looked at the regions and contemplated going there.

But if we have slack in the economy overall, who will move into the regions when there is slack in the economy in places where the industries are already established? That seems to me to be the second example of trying to import into the new set of policies, which puts the balance of payments before growth, principles and policies which work well only in the pre-July policy of the previous Chancellor of the Exchequer and my right hon. Friend.

I could give other examples, particularly about the success in the long term of the prices and incomes policy. It seems to me that this success is muted in the sense that it is assisted by the level of unemployment which we are running. I cannot see how we shall get this increasing employment with the policies and the strategy outlined by my right hon. Friend.

May I turn to his own forecast and his own estimates of the short-term and the long-term future? My right hon. Friend's first short-term forecast was that he hoped for 3 per cent. growth this year. Frankly, I was a little puzzled by this. I noticed that my hon. Friend the Member for Edmonton (Mr. Albu) thought that he meant 3 per cent. between now and 1970. Other hon. Members have been quite clear that he meant 3 per cent. this year. But this is taking the last month of last year and the last month of this year, which is not quite right, because growth is normally interpreted by the man in the street as a year-by-year figure, and, in fact, one year following the next, we are not getting a 3 per cent. growth this year. In fact, it will be difficult to get 3 per cent. next year on the assumptions on which we are working.

I appreciate the desire for slow, steady growth in the new situation, but we might not fully achieve even this. There are difficulties about it, because in part it depends on an export-led boom. We can see public investment going up. The Chancellor said that he will rein it in. But there is no evidence that private investment will go up. It seems clear that we are relying for a 3 per cent. growth on an export-led boom which depends on foreign trade which, as several hon. Members have said, depends on conditions outwith our control and which may no longer be favourable. It would be safer if we had some indication that the Chancellor was prepared to keep in close reserve a possibility of expansion in private investment. This is the key to modernisation and growth, as well as a help to achieving the 3 per cent. growth rate which he has indicated.

May I suggest two possibilities which he might consider? One would be to move forward the date of payment of investment grants. This was suggested by my hon. Friend the Member for Heywood and Royton (Mr. Barnett) and is an entirely admirable idea. At the moment it takes about 15 months between the application for an investment grant and the payment of the grant, and this delay is disastrous to many firms, because they are short of immediate capital. If we move this forward it will cost the Chancellor money, but it would do more than anything else to achieve the investment and modernisation objective. What I should like to see, particularly in the regions, is a position in which the cash investment grant meant what many people thought it would mean—that the price of the machine they bought was 40 or 45 per cent. less, not that they had to pay the full price and then to wait for months, in the most difficult demand conditions and financial conditions, before they received their payment.

Secondly—and I hope that we might get this—we need a firm declaration that we shall join the Common Market. I know that hon Members on both sides of the Committee have argued that this need not produce an immediate rise in demand, but there is a great deal of evidence that industrialists think that this will produce an expanding market. We are dealing in part with psychology. I have said again and again to small industrialists in my constituency, "Britain, under one party or the other, must grow. The public nowadays will not tolerate lack of growth. Any investment you make will pay off. You cannot lose." But they have doubted me. I think that a positive suggestion that we should enter the Common Market would be a great help and encouragement to them in the short term.

Let us assume that, with these extra little assistances, we can achieve the 3 per cent. growth rate which the Chancellor forecast for next year and the year after that. I then turn to a point which bothers many hon. Members on both sides of the Committee—the long-term situation. I particularly dislike the notion that over the period to 1970, as my hon. Friend the Member for Ashfield said, we can and should run the economy at 2 to 2½ per cent. below capacity. I do not think that the arguments which have been produced suggest that we shall do anything else on the present assumptions. Such a level of unemployment is politically unacceptable. The recent elections showed that. From my point of view it is also socially and morally unacceptable.

We therefore ask how we can get back to capacity growth without bumping up against the balance-of-payments problem right away, without being back in a sterling crisis. It seems to me that in the four days debate we have cut down the alternatives quite clearly. First, we could put on export subsidies to solve the situation. That, however, is prohibited by G.A.T.T. We could impose import quotas, but this would be a hard thing to do just when we are talking about joining the Common Market and liberalising trade. It would shake foreign confidence, lead to rigidity and be heavy in costs of administration. Import quotas are a difficult solution, although they have been considered by right hon. Members opposite at different times in previous stop-go cycles.

We come, therefore, to the remaining possibility of a change in the exchange rate. I have noticed how speaker after speaker, in trying to pursue long-term policies, has been driven in this direction. I do not wish to deploy my arguments on it at the moment. I know that it would increase our debts by £500 million and I know the difficulties involved. Nevertheless, nothing would do so much at this juncture to keep the export-led boom going and enable us to expand to capacity without a balance of payments crisis.

Photo of Mr John Mackintosh Mr John Mackintosh , Berwickshire and East Lothian

I appreciate that it would shake foreign confidence. There are a lot of arguments, as my right hon. Friend knows only too well. Nevertheless, politics is a question of choice. My right hon. Friend has chosen one thing. I am suggesting that there are other possibilities which may be more desirable for the long-term objectives of this party.

I agree that many people see the defence of the present exchange rate as going with Britain's policy east of Suez, as going with our special relationship with the United States and the close association between the £ and the dollar and the maintenance of sterling as a reserve currency. I value these things in certain cases but, on the whole, they are far less important to me than maintaining full employment, eradicating regional differences and having sufficient growth to carry through the social programme on which we as a party were elected.

I would much prefer at the end of the five years, whether I am in Parliament or not, to be able to say that we had done something to cut down class barriers and to remove inequality and poverty. In that event, we would have done something more than merely maintaining the £ at its present parity with resulting stagnation and miserable growth in future years. I hope that my right hon. Friend the Chancellor will reconsider his long-term strategy.

8.31 p.m.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

The debate has been marked by two excellent maiden speeches. The first was from the hon. Member for Rhondda, West (Mr. Alec Jones), whose speech, I am sorry to say, I did not hear. I have, however, read it and I was impressed by the clarity of his argument and his obviously close understanding of the needs and interests of his constituents.

I had the pleasure today of listening to my hon. Friend the Member for Glasgow, Pollok (Mr. Wright), who spoke with the lucidity and grace which we all expected from him. I can, I am sure, say of both hon. Members with confidence that we look forward to hearing from them again often. Their Budget speeches will, I suppose, have to be in the House and not in Committee in future. Whether it be in Committee of Ways and Means or in the House, we very much welcome these two new hon. Members and we respect their maiden speeches.

There has been a series of interesting speeches in the debate. I hope, in particular, that the Chancellor of the Exchequer, in winding up, will reply both to the closely reasoned speech of my hon. Friend the Member for Farnham (Mr. Maurice Macmillan), concerning the invisible income, and also the perceptive speech which we have just heard from the hon. Member for Berwick and East Lothian (Mr. Mackintosh). Apart from that, we cannot claim that this has been an exciting Budget debate. For that the Chancellor must take a certain amount of credit from his opening speech, which was of a rather soporific character.

I know very well that on these occasions it is not easy for a Chancellor of the Exchequer. I remember listening, in 1964, to my own Budget speech and thinking that it was very long and dull. I must confess that the Chancellor this year was both longer and duller. There it is. That may be progress. The speeches made by the right hon. Gentleman's Cabinet colleagues on more than one occasion have not exactly added to the gaiety. I remember hearing the late Oliver Stanley once say that boredom was a Parliamentary weapon which should be sparingly employed. I suggest to Members opposite that they might remember that maxim in future.

I think that much of the criticism of the Chancellor on one point is misplaced. It is unfair of people to blame him for the debacle of last week's municipal elections. The turn in the tide had already started and was reflected clearly in the election results before Budget day. It is also clearly unfair to deprive the Prime Minister of the full credit which he alone deserves for the magnitude of the defeat which his party has suffered.

On the general Budget judgment, it is, I think, agreed that it is difficult to depart far from the view expressed by the Chancellor that something like a neutral Budget in terms of total demand was required. There was a case, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) pointed out, for a degree of reflation. Our criticism of the Budget, however, rests not so much upon the net addition to spending power as on the way in which the Chancellor went about handling the situation in which he found himself.

A neutral Budget is one thing, but a non-existent Budget is a quite different thing and is totally unjustified, for three reasons: first, because of the level of taxes already reached and the many hun- dreds of millions of pounds of additional taxation already imposed during the lifetime of the Government. At this level of taxation, any neutral Budget is a severe Budget.

I was surprised to hear the Chancellor in his Budget broadcast say to his interviewer that for the taxpayer this was a good and pleasant Budget. No news was good news, said the Chancellor, for the taxpayer. Is it the Labour Party's point of view that for the taxpayer it is a good thing to have a neutral Budget and that the taxpayer can never look forward to tax reductions after all the additional impost which he is at present facing? The complacency of the Chancellor about the level of taxation is rather remarkable.

The same thing applies to his attitude to the complexity of the tax system which we are now facing. If I make make another quotation from his Budget broadcast, he said: It is this passion for novelty which has been the cause of a lot of our problems in the past. The right hon. Gentleman can say that again, with the Corporation Tax, the Capital Gains Tax and the Selective Employment Tax. He has woven round industry a mesh of new, complicated and often absurd taxes on a scale which I should not have thought possible in the short time for which he has been responsible.

The third reason why a non-existent Budget is not acceptable is because he has made no effort to tackle the two great problems which every commentator and every hon. Member recognises as being the most urgent—on the one hand, greater incentives to effort to flagging private investment and the economy generally; on the other, to take care of the problem of family poverty, which weighs in the minds of all hon. Members and which we shall have an opportunity of debating later this week.

So we say that this Budget which makes no changes is, as my right hon. Friend the Member for Bexley (Mr. Heath) said in his first reaction, a Budget of lost opportunity.

Let us look first at the actual Budget judgment and, in particular, at the amount of growth on which the Chancellor bargains. He talks about 3 per cent., but that, apparently, is from end-1966 to end-1967. It is a well known fact that, if one chooses a low starting point, it is not difficult to make an upward movement. As far as I can see, the actual increase in output between 1966 as a whole and 1967 as a whole on this basis is likely to be less than 1 per cent. For the Chancellor to say that, after two years of virtual stagnation and practically no increase in the gross national product, this 3 per cent. end-year to end-year is all that we can achieve, is a sorry story.

Even this 3 per cent. is difficult to analyse. No doubt the Chancellor has seen the very interesting leading article in the Economist this week pointing out that the figures he quoted about public investment, exports, and so on, account for only £300 to £400 million of additional demand, as against his figure of £1,000 million. Where does the rest come from? Stock building cannot be significant. It must come from increased consumer expenditure.

Hon. Members opposite have been saying, "We are not going to return to another consumer-led boom." But what do the Government anticipate about the growth of consumption this financial year? What do they anticipate about the growth of incomes after July this year? In many ways, it is difficult for Ministers opposite to give concrete figures, but, unless they do, the picture is wholly incomplete. It is no good quoting a figure of 3 per cent. growth over this period and giving some of the factors which will lead to it while ignoring others.

I ask the Chancellor to explain what he meant by this rate of growth, what it meant in total rate of growth between 1966 and 1967, and what proportion he attributes to growth in consumer expenditure.

The real problem of the Chancellor is that he is entering the most difficult phase of the economic cycle, as he must know. The problem of re-expansion is the most difficult one. It is relatively easy in economic terms to improve the balance of payments dramatically by clobbering the home economy. It happened in the past, and was called "stop-go" by right hon. and hon. Members opposite when they were on this side of the House. Now that they are in office, they call it "planning". However, it is the same process. The difficulty is how to start expansion again without a return to inflation.

The Chancellor is relying on an expansion led by exports and investment, but I doubt whether that is possible on the lines which he envisages. His hon. Friend the Member for Berwick and East Lothian referred, quite rightly, to the slackening in private investment. One cannot expect to see the very necessary and essential growth of private investment unless one sees better market prospects than are available at present.

As the Prime Minister has said often in his moments of illumination, "You can pull a piece of string, but you cannot push it." That is one of his graphic metaphors. This is true of private investment. However much encouragement is given by way of tax incentives, we cannot expect further investment unless there is, first, confidence in the economic management of the country, which is singularly lacking at the moment, and, secondly, the prospect of a reasonably assured market for the fruits of that investment.

I do not see much prospect of the Chancellor realising his growth target this year. In these difficulties, the Government are returning to the old issues about 1964, and the argument that the measures introduced last July were merely dealing with what they called a consumer-led boom in 1964. But the measures last year came about after nearly two years of Labour Government. They came about as a result of the total collapse of the Government's previous incomes policy. To talk about a consumer-led boom in 1964, to talk about an excessive demand in the home market in 1964, is to fly in the face of the facts.

At the time of the 1964 General Election there was no general undue pressure of demand on the economy. Indeed, in their first White Paper the Government said that there was no undue pressure on resources calling for action, and they went on to say, for good measure: Moreover, the Government reject any policy based on a return to stop-go economics", but that is probably a little out of date at the moment.

The Government's difficulty, and, of course, the Chancellor's, is partly external, and partly internal, how to get expansion going again at a more satisfactory rate than the wholly unsatisfactory prospects for 1967 without a return to the balance of payments difficulties of the past. Of course, they need more elbow room in the balance of payments. This means the development of international liquidity policy. The Government need some means of preventing excessive demand outstripping productivity, and it is here that incomes are by far the most important factor, because of the sheer volume of additional purchasing power created by a 1 per cent. increase in the total level of incomes. Finally, and possibly most important, the underlying rate of growth of productivity is a matter on which the Government must keep their minds fixed the entire time, and not let themselves be diverted by short-term considerations.

One of the features of this debate which has struck me most, and disturbed me most, is the constant argument from the other side of the Committee for devaluation. I ask the Chancellor most firmly to reject this prospect and this argument because I believe that the argument for devaluation is based on wholly false premises. I have said in the past that I think there are attractions in the idea of a floating rate as a long-term policy. It enables adjustments to be made in a way that cannot be made now, but that is totally different from the concept of devaluation.

The argument for devaluation is wrong for three reasons. First, devaluation does not allow a higher level of inflation at home, which is what some hon. Gentlemen opposite are asking for. Secondly, we cannot allow spending to exceed earnings, either as a nation or as a Government. Thirdly, I do not believe that it is necessary, as some hon. Members have said, to enable us to join the E.E.C., because I do not believe that there is any evidence that our prices are out of line with those of our competitors, nor is there evidence of a fundamental disequilibrium which alone can justify a devaluation.

On the other hand, if there were a devaluation it would be bound to lead to a great capital loss for this country, a matter which cannot easily be shrugged off. We have to consider the loss which would be involved not only in the gold guaranteed obligations, of which we have many, but also the obligations which, although not guaranteed, are, to my mind, and, I think, to the Chancellor's mind, too, solemn obligations as well. Secondly, devaluation simply means in terms of exports that although exporting may be easier temporarily, it means exporting more in terms of real resources to get the same amount of foreign exchange.

Thirdly, devaluation is almost certain to set off competitive pressures which mean that the benefits of devaluation when finally realised may be much less than expected, and in the meantime the whole international confidence in currencies may be undermined. From this country's point of view confidence in international currencies remains immensely important, not for any reason of pride or prestige, not because we want the £ to look the dollar in the face, but because we want to see the level of international trade continuing to grow, and because this cannot go on growing unless there is an adequate international monetary system. This means continuing to strengthen the reserve currencies—dollar and sterling. My last argument against devaluation, which appears to be supported by some hon. Members opposite, is that it draws attention away from the real problems by appearing to pose an easy solution.

In the absence of devaluation a number of steps need to be taken, both overseas and at home. I hope that the Chancellor will press on with international liquidity problems. Progress has been made—more than is often recognised—in the enlargement of I.M.F. quotas and the network of swaps, developed from our first swap arrangement with the United States, which is immensely valuable, and the system of offsetting sterling balances withdrawals against help from other countries. These represent a big increase in the available facilities for the financing of international trade and the strengthening of the position of the United Kingdom.

But, alone, they will not be satisfactory, unless we get an overall solution to the international liquidity problem. I hope the Chancellor will not be deterred by the argument that it is impossible to proceed with a new system of liquidity until the deficits of the United States and the United Kingdom have been cured. The argument should run the other way. We must have a new system available against the time when the American deficit no longer continues to pump spending power into the world market.

As for our position in terms of the overseas account, the Government would be wise to consider other methods temporarily of protecting our economy on our balance of payments. It is clear from our experience that any vigorous expansion is liable to put a short-term drain on the balance of payments, and to deal with that we need reserves to call on. Working capital is a perfectly adequate analogy. We need temporary measures to protect ourselves in the early days of expansion.

Quotas have been mentioned, as have import surcharges, but both have proved wholly unsatisfactory. Quotas are slow in operation and clumsy, and the import surcharge runs into all the difficulties which are now so familiar. I ask the Government once again to look more closely at the system used by the Italians, which is to restrict imports by restricting the volume of import credit permissible in the economy. The Italians have employed this method entirely in accordance with G.A.T.T., and it is also entirely consistent with our system of exchange control. I hope that the Government and the Chancellor will concentrate on these means of fortifying our external position and openly reject the argument of their supporters who speak about the need for devaluation.

I now turn to the question of the home economy. In a phase of re-expansion, the Chancellor will have the problem of keeping incomes in line with the growth of productivity. Any policy for a modern economy must have a means of dealing with this problem. What is misunderstood about the concept of an incomes policy is the reason for it, on one hand, and the limitations on it, on the other. The need for an incomes policy arises from the monopoly position of the trade unions. This is a problem in monopoly. Just as a free economy cannot function properly without some policy on restraint of trade, so it cannot function properly without some policy for incomes.

But this does not mean a policy of statutory control of wages and prices. We have said time and time again that the Government have made the mistakes, first, of trying to control things in too much detail; secondly, of taking too little responsibility themselves and putting too much responsibility on Mr. Aubrey Jones and his Board; thirdly, of concentrating on prices while costs were rising; and, fourthly—probably the greatest mistake of all—by embarking upon a process of compulsion they were undermining the possibilities of temporary co-operation which are of fundamental importance to the health of this economy.

So we say that the Government's incomes policy has been misguided and ineffective in the past. The mathematics of our economy show that the vast additional taxes which the Chancellor has had to impose in these years have been caused solely by the failure of his own colleagues' incomes policy of that period.

The other thing to remember about an incomes policy is that it cannot work against a background of excess demand, and certainly not against a background of excessively rising Government expenditure. One of the greatest failures of the Budget is the failure to tackle at this stage, when it is necessary and obvious, the problem of the rapid rise in Government expenditure.

Many examples have been given in this debate, for instance, by my hon. Friend the Member for Harwich (Mr. Ridsdale) about the enormous growth of the public services, with the vast expense involved in the additional civil servants and general public servants, which is a matter which, I hope, the Chancellor will not shrug off lightly. About £50 million or £60 million of additional taxes has to pay the salaries of those public servants, although they are no doubt admirable people, which is a formidable matter for any Chancellor to contemplate.

We say that the Government are mistaken in persisting with the indiscriminate distribution of benefits regardless of need. In this way, they have imposed upon the taxpayer an excessive burden or mortgaged money which could be better used for other purposes. Take the example of prescription charges. I imagine that the Chancellor would like that decision to be reversed now. The tens of millions of pounds now being spent on providing free prescriptions for people who could afford to pay could be devoted either to reducing taxation or to providing a better hospital service.

This is one of the foremost issues on which we fought the elections last week and the verdict of the people on this has been clear and definite and decisive—[HON. MEMBERS: "Rubbish."] Well, a more decisive verdict than that would be very hard to find.

The other opportunity which the Chancellor has missed is that of moving more in the direction of reducing taxation on the profits of industry; in other words, from taxation of profits to taxation of costs. It is generally accepted that what is needed in this country, comparing our tax system with that of our competitors, is a rate of taxation which does not fall so steeply on additional enterprise by companies or additional effort by individuals. The taxation which the present Chancellor has introduced—particularly S.E.T.—does precisely the opposite. It falls irrespective of the efficiency of the company. Indeed, the premium given to manufacturers encourages waste of labour rather than efficiency.

Surely the time has come to try to shift some of the burden of industrial taxation so as to differentiate not between production and distribution, which is nonsense, but between efficiency and inefficiency. As the Joint Under Secretary of State for Economic Affairs said the other day, profit will remain the main yardstick for testing efficiency and the use of capital resources in almost all manufacturing and trading concerns. Surely we should have a system of industrial taxation which rewards efficiency rather than discriminating on a wholly arbitrary basis.

I should have thought that the Committee would agree with the pundit who said: I have long had the notion that we might be a richer nation if we were able to concentrate our taxation less on industrial profits and more on industrial costs. That was said by the Prime Minister in July last year, but, although he introduced these admirable sentiments, I see no tendency by the Chancellor to follow them.

One possibility is the T.V.A.—the tax on value added—of which we have heard very little in this discussion, apart from a passing reference by the Financial Secretary. I know that, at the time of the Richardson Committee, I turned down this idea, because it was then advanced mainly as an export incentive and I still doubt whether it is an effective export incentive.

In view of the rising volume of taxation and Government expenditure in this country, and particularly the prospects of our joining the E.E.C., the time has certainly come to re-examine—and reexamine very urgently indeed—the concept of the T.V.A., not as an export incentive but as a way of readjusting our total tax burden so as to give more encouragement to the more efficient industries and more enterprising individuals.

These are two of the main lines of thought which the Chancellor has neglected in his Budget. He has not made the progress I had hoped he would make in the external sphere and he has not made, within the tax structure at home, those movements which are necessary to encourage greater efficiency and investment in private industry and those movements which are necessary to provide for the cases of family poverty of which hon. Members on both sides of the House are aware and for whom the right hon. Gentleman has as yet been unable to make any additional provision whatever. The problem remains that of the longterm growth of efficiency—the longterm growth of the rate of productivity—and I regret to say that I cannot see any attempt being made by the right hon. Gentleman to tackle this problem.

To briefly sum up, the difficulty lies in the difference between productivity in this country and in the United States. This springs from three causes; first, the wider market enjoyed by American firms; secondly, their greater capital equipment; and, thirdly, their totally different attitude towards management responsibilities. On the first, the wider market, this can come most easily to this country from our joining the E.E.C., and we still await as a matter of urgency, as all industry does, the next step to be taken by the Government in this matter. On the second, the provision of more tools for the individual worker, this depends on there being more encouragement for saving, more encouragement for investment and more recognition of the value and right of the investor to an adequate and continuing return on his investment.

The third is, perhaps, the most important of all. In considering the position of management, we could make an enormous advance in British productivity simply by improving the quality of our management. This is not to blame management. It is to blame the situation in which management must operate. They have inadequate trained people because although our educational system provides people of the highest quality, it does not provide them in adequate quantity. Nor, under the present Administration, is there any sign of the problem being tackled. Management is hampered all the way along the line by the restrictive attitude of the trade unions, but one cannot see this Government tackling the problem of trade union restrictive practices.

Management is further hampered because in this country success is not applauded, but handicapped. We do not give incentives, opportunities and encouragement to those who provide the leadership in industry. It is not so much the level of taxation itself—which, as we know, is penal—but the attitude of mind that believes it right to impose on leading people in industry penal levels of taxation which are wholly unexampled throughout the Western world.

Unless these problems are tackled vigorously by the Chancellor there will be no possibility of the right hon. Gentleman producing at any time anything but the non-existent Budget which he has produced this year.

8.59 p.m.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

We welcome back the right hon. Member for Barnet (Mr. Maudling) to our economic debates after two years' absence. No doubt, the tissue has grown over the scars, but the memory still remains; and I shall refer to that during my remarks.

We have had an excellent debate and I have enjoyed it. It has highlighted, in the last four days, the economic problems on which many of us must focus our thoughts every day of the year and every hour. I genuinely welcome the reflection of hon. Members on the kind of problems with which we find ourselves having to deal. There is no doubt that there is very great value indeed in a debate of this sort, both to expose new ideas and, if I may say so, to explode some fashionable fallacies.

The hon. Member for Glasgow, Pollok (Mr. Wright) and my hon. Friend the Member for Rhondda, West (Mr. Alec Jones) both made maiden speeches of very great distinction. The hon. Member for Pollok, with his great by-election victory, can no doubt be forgiven for believing that it marks a turning point in Parliamentary history; I think that most of us thought that of our victories in the past. Although he said that he approached the House with temerity, I must say that I have rarely seen it better disguised with the very considerable artless grace and distinction with which he clothed what he had to say.

The hon. Member for Rhondda, West, is an old friend of mine. We were delighted when he was nominated. We thought that he would get in—[Interruption.] We were shocked at the result. But I think that I can say that the Rhondda and he will be inseparably united for many years to come. He spoke from the depths of a very considerable knowledge of his own valley, and I should like to welcome him to the House tonight.

Let me now come straight to the Budget judgment. The right hon. Member for Barnet, with his usual candour and forthrightness, said that he did not broadly challenge it, and I think that that is generally true throughout the Committee. There has been no general challenge of the nature of the judgment I presented to the Committee last Tuesday. This is also true of the right hon. Member for Enfield, West (Mr. Iain Macleod)—although, because of certain arithmetical discrepancies, it did not quite appear that way in the article he wrote in the newspaper. But, whatever the deficiencies of arithmetic, neither he nor anyone else believes that this is a year in which there should be much change from the general proposition I put to the Committee.

I do want to emphasise, however, what my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) said, because more and more people are coming to recognise the truth of his statement that economic management is a continuous process. One does not set the automatic pilot on 11th April and then leave the ship to steer itself during the remainder of the year. We must make changes, not according to the calendar—or even according to elections—but according to the needs of the situation.

I would remind the Committee that there has been a continuing process over the last four or five months. In December, there was the two-year increase in investment grants, ending in December, 1968, with the specific intention of encouraging firms to invest straight away. In January, there was a reduction in Bank Rate. In March, there was another reduction in Bank Rate. In February, public expenditure figures were published, and in April the basic decisions on the Budget — one that is not a negative but a very positive decision is not to neutralise rising expenditure by raising taxation. All these are examples of continuing economic management. This Budget takes its place in the development of the economy, and during the coming year I shall make adjustments in fiscal and credit policy, if and when they are required. By their nature, they are not matters of which advance notice can be given.

But the economic result and intention of our policy is a surplus on our balance of payments and a steady run up to a hither rate of growth that we can sustain for a long period. That is the strategy that lies behind what we are doing. It is the Government strategy for the medium term. No one can look too far ahead, with possible changes in relationship with the community or in other ways. It is not possible to do that, but it is possible to look up to 1970, because entry into the Common Market, with transitional arrangements, would mean that there would be no great changes, I would trust, between now and then whatever the date of entry, if it came about.

So it is possible to ask what it is likely to look like between now and 1970, and I agree with my hon. Friends the Members for Ashton-under-Lyne (Mr. Sheldon) and Berwick and East Lothian (Mr. Mackintosh) that the strategy is clear. Anyone can see it, and can understand what we are about or trying to get here. The strategy offers more solid grounds for real expansion than any other policy that has been put forward. The alternatives are, if I may say so, a rag-bag.

We had a very clear statement by the right hon. Member for Barnet on the subject of devaluation. He gave the reasons. I do not propose to spend any time on it because devaluation does not enter into Government thinking as a policy. Therefore, I would be only elevating it to levels which it does not deserve if I were to deal with it in this debate. In my view, it is a flight into escapism. It is something which enables the country temporarily to avoid dealing with the fundamental problems with which the Government, indeed all of us, are struggling.

My hon. Friend the Member for Berwick and East Lothian, in an otherwise remarkable speech, ruled out half a dozen alternatives which he said would interfere with foreign confidence in relation to our entering the Common Market. What does he think this would do to foreign confidence? It is a policy which has no relationship to the kind of approach this country should make, quite apart from whether we would break faith with our creditors. We would still need to take the measures we have taken and to follow them through.

The only thing I am concerned about is that my party, the Committee and the country will get tired of these measures and try to push us into quick-term solutions which will return us to the troubles we have had and turn us from the course we are on. So long as I can, I shall fight for the policies we have laid down.

The growth rate itself can be sustained at 3 per cent., although I say to my hon. Friend the Member for Berwick and East Lothian that is not to say that I am satisfied with a growth rate of 3 per cent. and I hope that no one will be. This is not a figure just plucked out of the air but a careful provisional view of what we can do. I emphasise "provisional" because during the coming months the N.E.D.C. will be examining, in conjunction with the Government, future prospects for growth and the kind of policies we should follow. I do not wish to preempt its final conclusions which will be of great value to the Government.

What this does is to offer a base-line from which we can move. No one will be more delighted than I if we can get a faster rate of growth coupled with a continued and growing balance of payments surplus. I have been asked how we reached this rate of growth. I was accused last time of reading a very dull economic lecture. This is backed by the best forecast which can be made. It is not based on any increase in the working population. The growth we hope to have will have to come from productivity itself because there will be little increase in the working population between now and 1970. It will have to come from increased output per head.

We have considered the prospects for exports. The trade figures were published after the Budget. The March export figure was a little below that for the first two months but, taking the first quarter as a whole, exports were 7 per cent. higher than the average for the whole of 1966. In the growth figure I have taken 6 per cent. as the increase for exports during the whole of the year. This, as we have secured 7 per cent. in the first quarter, is a pretty realistic figure to start on if we take account of the prospect of an increase in world trade.

We have taken action to reduce Government overseas expenditure. I have taken note of what the effects are likely to be on the balance of payments. Every £1 million saved on overseas Government expenditure enables a greater rate of growth to be achieved in this country. I have taken a view on the flows of outward and inward investment, including North Sea gas. All this is consistent with meeting our obligations and getting a 3 per cent. growth rate.

Now I turn to private investment. Once the economy is on the path of expansion, we calculate that, although private investment will fall this year, it will quickly recover and will be stimulated by the very knowledge of the prospects of a reasonable and sustainable rate of growth.

I say to some of my hon. Friends and to hon. Members opposite that I do not think they have taken enough account of the encouragement given by productive public investment to growth. Fifty per cent. of all investment is in the public sector and a large part of it is productive investment. Manufacturing investment accounts for between 25 and 30 per cent. of total investment. So the very increase in productive public investment itself will be self-generating in other directions.

I doubt very much whether shortage of liquidity is holding up investment now. One of the reasons why I have stimulated savings through the new tax reserve certificate is that I believe companies are likely to be quite liquid during the latter part of this year.

Now I want to deal with keeping the growth rate going. I would not want to neglect any proposals that the right hon. Member for Barnet or anyone else puts forward, but the proposal for prior deposits, which is being run pretty hard, has been tried in a number of countries and eventually abandoned because, although one can control the amount of bank credit that is given to a home importer, what one cannot control is what is put down by the man who is selling import goods in terms of a deposit.

All sorts of arrangements can be made—we have people here who know the City of London very well—and, without going outside the law and the general conditions, I assure the Committee that I have no faith in prior deposits as a system for regulating the growth of imports.

Then there is the increase in incomes as another factor in growth. We have been pressed to say what we think the increase in incomes will be and I will give the figure. It is a difficult thing to do and when hon. Members opposite are so zealous in their pursuit of these forecasts, they should remember that. One of the difficulties of giving a figure is that everyone will assume that they will be entitled to it. Nevertheless, the Committee has pressed for it and the Committee can have it. I will give it as far as I can.

As far as we can see, our estimate is that if we take account of the deferred settlements that have been held up and are likely to come into force, taking a period of 18 months from last July to next December, the increase in wage rates may be about 6 per cent. That is not to say that everyone is entitled to a 6 per cent. increase but that is what we expect it will be under the deferred settlements which are coming about—and millions will benefit from them, which is frequently overlooked. This will be about the increase, overall. This will affect consumer spending because personal incomes will increase.

By taking account of the natural revival that I expect in hire purchase, the expected increase in savings and some rise in imports, I hazard the view that total output will rise by 3 per cent. during the course of the year. That implies a somewhat smaller increase between 1966 and 1957. But, as I said in my sound broadcast, which was said to be wrong but was actually right, we do not measure these things except year by year. Over the next 12 months—say, April to April —I would expect output to grow by 3 per cent. on the previous year, or, taking December, 1967, over December, 1966, I would expect it to have risen by 3 per cent. and for that to be maintained in Vie succeeding years up to 1970.

I hope that that is clear because it is the rate of increase that matters. The point at which one starts is important but it is the rate of increase that matters and, as from this January, I can see it beginning over the year as a whole to increase at the rate of 3 per cent. a year, continuing into later years, and we can get a steady increase along these lines.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I hope the hon. Gentleman will excuse me, but I have a lot tc get through.

Whether we can get higher rates depends on making structural changes in the economy, removing the bottlenecks on skilled labour—remembering that the labour force itself will not increase—developing the regions and stimulating productivity. That is work enough to be done.

The Government have offered the basis. We have said that this is what we believe can be done realistically, with a steady rate of growth. As my hon. Friend the Member for Heywood and Royton (Mr. Barnett) said, for people to know that there is likely to be a steady rate of growth is in itself an encouragement to industry, even though people would prefer it to be higher than it is.

We are talking now about the base line of 3 per cent., which means roughly an extra £1,000 million a year in real resources, and when I hear some of the wilder comments which are made I sometimes wonder why it is that 3 per cent. growth means deflation and despair and that 4 per cent. growth means expansion and exaltation. It is a queer sort of arithmetic which says that we are doing terribly badly if we get 3 per cent. and work for something more, but we are doing very well, and this is in accordance with what right hon. and hon. Gentlemen opposite have said, if we have 4 per cent.

To press the economy forward at a higher rate than its current potential would lead again to a crisis in the balance of payments. To increase the rate of growth beyond what I have laid down as a base line, we must increase the growth potential. There is no way out of that and no short cut. This brings me to the waste of manpower and resources in the regions, and the question I am asked about what we are doing there.

There is a waste of manpower and resources in the regions, in terms of unemployment. I am not very happy about the way in which we focus on a national average rate, whether it be 1 per cent., 1½ per cent., or 2 per cent., because it is misleading without closer examination. It can, and does, conceal, at whatever level the national average rate of unemployment is, great disparities between the regions. These disparities have been and can be disguised by a general reflation for a time until the balance of payments catches up with us again. What we need are structural changes in the economy and in the regions. My hon. Friend the Member for Rhondda, West referred in his maiden speech to the way in which South Wales has been badly hit by the rundown in coal mining, with pit closures, and, of course, there has been redundancy in the steel industry. This is true of Scotland, too.

This need for structural change in the economy of the regions can be papered over for a short time by a general reflation, but the real way in which it must be dealt with is by long-term measures and a combination of measures covering such things as roads, communications, bringing new industries in, and, as my right hon. Friend the President of the Board of Trade pointed out today, help to local authorities and more skilled training.

I invite my hon. Friends who come from these areas to pause and consider. Do they not see evidence of these things being undertaken already? They are happening. They have not yet resulted in a substantial increase towards full employment in those areas, but these things must be done before the employment will come along. Furthermore, there is the added proposal to make a large subsidy to wages through the selective employment premium. That will have to be discussed, and I shall spend no time on it now. No doubt, we shall have separate discussions. But this is the way to tackle the problem of the overall level of unemployment, not by a general consumer reflation but by dealing with the problems of the regions and making them strong, not by papering over the cracks but by getting down to the fundamental issues.

I must now spend a few moments on the subject of public expenditure and taxation, both of which go together. We have undertaken a further review following that of last summer. It covers all fields of expenditure, and it covers our existing priorities. The hon. Lady the Member for Finchley (Mrs. Thatcher) seemed not to understand what reining back expenditure meant, so I shall explain it to her, if I may.

Public expenditure in all countries, at all times, increases every year. It never declines but always goes ahead, and the only question is the rate at which it increases. By reining back—I take hypothetical figures—I mean this: if it should have been estimated that public expenditure might increase by 10 per cent., reining back would mean that it would increase by something less than 10 per cent.

It does not mean an over-all cut. It means that the rate of growth is not as fast as before. In this process, all expenditure is under review, including home, defence and overseas expenditure. The review will have to take place in time to influence next year's estimates and to ensure that the review's results are reflected in expenditure for next year.

We said that economic recovery would take first place in relation to public expenditure, and if hon. Members have refreshed their minds with Table 12 in the Financial Statement they will have seen the tremendous growth in economic expenditure by this Government, expenditure designed to strengthen our economy.

But let us not overlook the great expansion that has taken place in our social services. I am proud of that, whatever hon. Members opposite may say.

I was a little astonished to hear the hon. Member for Pollok speaking of housing, schools and roads not developing. That is quite untrue, both in Scotland and in England. Housing has increased by 8·5 per cent. per annum every year, including the coming year, and in Scotland the increase is 10·9 per cent. Therefore, it is not housing that has failed to develop in Scotland. Education expenditure has increased by 9·5 per cent. every year from 1964–65 to 1967–68, and in Scotland it has increased by 8·1 per cent. I hope that the electors of Glasgow, Pollok did not elect the hon. Gentleman on the ground that education had not been developing. Health and welfare, including children's services, have expanded by 9·7 per cent. per annum, and in Scotland by 9·8 per cent. That is an increase of nearly 10 per cent. a year, and I hope that some of my hon. Friends take credit for that when they are being attacked by hon. Members opposite.

There is little doubt that in the current wave of feeling sweeping through the country people feel—[HON. MEMBERS: "Oh."]—should we not recognise it and face it? The only thing that we do not intend to do is to be pushed off our course by it. When I am asked about the standard of life of our people, and people feel that it is not improving, let me put this point for consideration. An average increase of 30 per cent. in social expenditure on schools, education, social security, health and welfare and housing must represent an improvement in the standard of life of the people.

The Conservative Party today called for more social benefits and more expenditure at the same time. The hon. Member for Finchley did it.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

The hon. Lady called for more social benefits and lower expenditure. That is all she wanted. But what a brass neck from a party which wants to increase expenditure all the time—Aden, Malta, the TSR2, and what about that £500 million aircraft carrier the right hon. Gentleman was going to give us? It is a little absurd to pretend that in this world today one can talk about both increasing expenditure and cutting taxation, but the Conservative Party manage to have it both ways all the time.

I want to say something about rates of taxation, because they have come up more than once. A society must recognise its exceptional people, but they do not work only because of income. If rates of taxation are crippling incentive at the moment it is a little odd that they are now 91 per cent. at the top level, that when the right hon. Gentleman opposite left office they were 89 per cent., and that that has apparently made all the difference between incentive and being crippled.

What is more important is that it is not the marginal rate but the effective rate which matters. We are asking people to accept restraint on their wages at £10 and 12 a week. When we remember that the effective rate of tax on a £15,000 a year man is 53 per cent., this is vastly different from the picture painted so often in this Committee.

The Budget measures have been generally well received in so far as they relate to widows, single women with dependants and relief from the Selective Employment Tax. There is great and general concern about children living in poverty. This arouses very strong emotions. A survey has been conducted by my right hon. Friend the Minister of Social Security. There will be a debate on this topic on Thursday. Poverty among children covers a great many aspects. Those in this group need to be cared for.

There are many groups in this country who need to be cared for. I am very conscious of this. The elderly are writing to me and asking that they should be cared for. We have undertaken a review of priorities which will have to be concluded, and both groups will have to be taken into account in our future financial arrangements. As far as a general increase in family allowances is concerned, to give another 10s. a week would cost £160 million net. That is why it is important that we should be able to deal with poverty where it really exists.

So that Members are not debarred by the terms of the Money Resolution from proposing reliefs from the Selective Employment Tax through refund from Votes, the Government will move a Money Resolution wide enough to cover refunds of the tax. It follows that it will be unnecessary for Members to propose selective reductions in the rate of the stamp and the general Amendment of the Law Resolution has been drawn to exclude this and certain other types of amendments which can be achieved in other ways.

I conclude by returning to our general strategy. The greatest burden in putting the country right has been borne by the ordinary worker: let there be no doubt about that. The question now is: shall we give a powerful and indiscriminate thrust to demand? This is what the right hon. Member for Barnet did last time. He went to the Conservative Party Conference when he was proceeding on a pretty cautious path and there was a rather ageing Young Conservative there who invented a terrible slogan—"Stop dawdling, Maudling". He is now the hon. Member for Bromley (Mr. Hunt). In my view, that slogan brought its retribution. It was one of the worst which could have been invented.

What did the right hon. Gentleman do? Between that conference and the next Budget he pumped between £500 and £600 million net into the economy. [Interruption.] If I am challenged on that, I will tell the right hon. Gentleman what I said on 14th November, 1963, when I told him of the difficulties which he would be in. I stated: His answer to all these difficulties is that he hopes that sterling will not be an embarrassment. So do I."—[OFFICIAL REPORT, 14th November, 1963; Vol. 684, c. 362.] With afterthought, I wish that I had put it even stronger. But he put in post-war credits, higher tax allowances, free depreciation, lower Purchase Tax, social benefits, the lot. Two years later we had a record balance of payments deficit, and we had to clear up the mess. The right hon. Gentleman had an ambitious growth target, but he did not strengthen the industrial structure to support it, nor did he act on our overseas position. Indeed, he allowed capital to flow out of the country.

The Government aim not simply at getting the economy on a satisfactory growth path but at keeping it there. Then, as our long-term policies for strengthening the industrial structure bear fruit, we shall raise it. That is the policy we offer. No other has been put on view.

Question put and agreed to.

Resolution to be reported.

Report to be received Tomorrow; Committee to sit again Tomorrow.