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.