Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 24th July 1967.

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Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West 12:00 am, 24th July 1967

I beg to move, That this House has no confidence in the economic policies of Her Majesty's Government. I start by treading on a piece of common ground between the Chancellor of the Exchequer and myself. I mention, only to reject, the solution of devaluation, because in my view it is no solution at all. It is idle to pretend that many, and perhaps the majority, of academic economists do not advocate this course. One listens carefully to what they say, but I do not think that devaluation offers us an easy way, or indeed any way, out of our present difficulties. I think, without labouring the point, that the signals of both interest and good faith alike are set against it. I believe this to be the genuine view of both the Treasury Front Bench and the Opposition Front Bench. I therefore state it at the beginning of the debate. No doubt the Chancellor will make some reference to it, when his categorical rejection will certainly be welcomed on this side of the House.

I turn to the Motion of censure. Each July since October, 1964, a debate of this sort has become necessary, because in each July we have seen the failure of the Chancellor's Budget judgment of the spring months. In 1965, he was warned by my right hon. Friend the Leader of the Opposition that he was being too optimistic. The Chancellor protested almost till the end, and then finally brought in a July packet. Last year he was warned by myself on the day after his Budget statement that he was taking a very serious risk with confidence, and even with our reserves, in bringing in his measures so late. In July, we had the most serious economic measures that we have had in peacetime.

This year the qualified euphoria of the Budget speech has been dissipated by events. If there are no July measures, that simply means, in my judgment, that the Chancellor has not yet won the battle that he must win, and which I hope he does win, against mounting Government expenditure.

The phrase "qualified euphoria" is not mine. The words I used on the day after the Budget this year, after analysing in particular the unemployment figures, which I shall do again in a moment, were these: In short—and, I believe, with good reason —I am less able than the Chancellor to take a cheerful or even passive view of the economy."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1216.] The phrase "qualified euphoria" was used a few days ago by Mr. Cecil King.

I quote from The Times:Criticising the failure of performance to live up to pre-election promises, Mr. King … declared: 'No industrial country has deflated so savagely as Britain as recently, since the Keynesian principles of economic management came into practice'.Mr. King felt unable to share the 'qualified euphoria' expressed by Mr. Callaghan in his Budget speech. So, whether one takes my judgment or that of Mr. King's, or that of events themselves, I think that for the third time running the Chancellor has to answer the charge in July that his judgment in April—I have conceded that it was a particularly difficult judgment to make this year—has gone wrong.

Let us start by seeing what the original plan was as mapped out by the Prime Minister—not before the election of 1964, although quotations from the speeches he made then are hair raising enough, but from something he said after he had won the election, after he had looked at the books, after he had made the statement of 26th October on the economic situation which said this: The Government have satisfied themselves that, with the facilities available, the strength of sterling can and will be maintained and that so far as the domestic economy in general is concerned there is no undue pressure on resources calling for action. The verdict that the Prime Minister announced in the debate on the Address, when he charted the path that his Government were to follow, was this: … we have learned the hard way that deflation and contraction, so far from making us more efficient and competitive, have the opposite effect—costs rise; essential investment is discouraged; restrictive attitudes on both sides of industry are discouraged; a policy which relates incomes to expanding production is made infinitely harder to achieve … we are not prepared to accept the unemployment and loss of production which economic defeatism of this kind entails."—[OFFICIAL REPORT, 3rd November, 1964; Vol. 70, c. 79.] That is the point from which every hon. Member opposite—each and every one of them—started. Each and every hon. Member who sits on the Government benches, whether he sits on the first or on the fifth bench, was elected to the House on a bonus prospectus.

I turn first, as I have done so often in the House—the House knows my deep interest in this matter and, indeed shares it with me—to the unemployment situation. I have not been, and I will not be today, alarmist about it, but I am deeply concerned that at least now we should have no further illusions about the present position. The papers have been splashing the fact recently that these are the highest figures for July since 1940. Indeed, this was true of June as well, but I do not think that it registered at that time. The trends have been apparent for a very long time. In this country the trends have been masked by the very mildness of the winter that we went through.

July, it is sad to remember, is the last of the good months. From August onwards the figures turn against us—partly for seasonal reasons, of course, but they turn against us from now on. so we should at this moment be at the very peak of the year.

Let us look at some of the figures as they came out a few days ago. The graph to look at is that of wholly unemployed, excluding school leavers. The increase, seasonally adjusted, for the last five months goes as follows: plus 13,000, plus 28,000, plus 10,000, plus 19,000, plus 19,000. These are seasonally adjusted figures. The fall last month in wholly unemployed was 51, but the seasonally adjusted fall should have been 18,500. The difference between those two figures is the measure of the deterioration in that one month.

It is not a question of unemployment alone. We must look at employment as well. We can get some indication of the Government's failure to redeploy labour by the fact that employment in manufacturing industry—it is an almost incredible figure—fell by 339,000 between July, 1966 and May, 1967. Unemployment increased by only 120,000, but employment dropped by 339,000. Compared with May, 1966, in May, 1967 66,000 fewer were employed in engineering and electrical goods, 47,000 fewer in vehicles, 58,000 fewer in textiles, and 71,000 fewer in construction. Among other things, what nonsense this makes of the Selective Employment Tax, which was introduced a year ago to help manufacturing industry.

Look—and this is what worries the House most—at the regions which are beginning to suffer most. The worst hit in July was the North-Western Region. The second was Scotland and the third Wales. Does that suggest nothing to hon. Members on both sides of the House? Does it not suggest that once more we are seeing, as we move into the second year of a cycle, that the older regions which one may have thought had escaped at the beginning are hit worst and that the bite is fiercer as time goes on there?

Let us look, finally, at the graph provided by the Minister of Labour over the years. I hope that every hon. Member will study this graph. It is the graph of wholly unemployed, giving both actual and seasonally-adjusted figures. Of course, the seasonally-adjusted figures are the ones which matter. The graph now, in July, 1967, is within a fraction of the peak reached in February, 1963, and it is climbing very steeply indeed.

I know that the House treats this subject with the utmost gravity, so let us realise where we are. In February, 1963, that peak was touched only for a matter of a few weeks—I think that by the accident of the time at which the count was taken it was for only a few days. Now one sees no break in this relentless climb up to and quite certainly beyond the peak. I do not say beyond the peak in actual numbers for that was the peak of the winter which was the worst for 100 years. We may be lucky again, but let us be quite clear for there is no doubt that we are at the mercy of the weather this winter. If the weather is remotely as bad as it was in 1963, the figures will outstrip those of that year. I do not think that anyone can find comfort from those figures.

I turn to analyse purely factually some other indices. First, the level of industrial production which fell last month is now at 131 points. It was 131 in December, 1964, and it was 131 in May when we had the latest figures for 1967. That is four points below the figure reached in July, 1966. There has been in this year a fall of four points compared with a fall of one point in the comparable cycle of 1961–1963.

The implications for the Government's promises or aims are very serious indeed, because the index needs to average 135 in 1967 indeed, 136 for the last quarter if it is to meet the Treasury's target of a 3 per cent. rise in output. The May figure needed to start at something like five points more than 131 to make this possible. I do not see, in face of that, how the Government can long pretend that their aim remains very much unaltered.

The Index of Retail Prices rose by half a point in June. That brings the increase to 12 points—or 11·1 per cent.—since October, 1964, an annual increase of 4·1 per cent. compared with 2½ per cent. average annual increase during the last six Tory years. The figure for last year was 2·8 per cent., which is much the same as, indeed rather worse than, the average.

During the last six years of Tory government the gross domestic product rose by 25·3 per cent. Her Majesty's Government's plans were for slightly less than that, in spite of their pre-election undertakings-25 per cent. The 25 per cent. is now dead and current estimates are that for these six years it may be 15 per cent. Even this, I think, is questionable. All public expenditure programmes—I shall return to this point and invite the Chancellor to explain it later—were calculated on the basis of 25 per cent. growth rate on which the National Plan was based. They should, therefore, be totally recast.

I have a string of quotations about the balance of payments showing how each year the optimism of the Government has waxed and waned. I give the House only one. The Chancellor of the Exchequer, speaking at the Labour Party conference at Blackpool on 30th September, 1965, said: I have given only one pledge, and that pledge has been made public. It is that we should get ourselves into balance by the end of 1966.… I gave that pledge and the whole Cabinet is, of course, responsible for the pledge too, and it is essential that we should bend and adjust our policies to achieve this end, and I believe the British people understand this and set it against all the Tory yelps about unfulfilled Election promises. The "Tory yelps" had it and they were right. When last we had a major debate on the Budget I acknowledged, and was glad to be able to do so, that sterling had touched parity that day. Recently, it has been rocketing around about 2.784 per cent. I was glad to see this morning that it was rather stronger.

With that analysis behind one, one comes to the question not why some of these things have happened because some were predictable and were planned, but why have all these things happened together? There is no comparable example I can find in modern economic history of all these indicators going wrong at the same time. Of course, we know that we cannot run an economy at 1·1 per cent. or 1·2 per cent. Of course, we know that a Government have to move to correct what is called over-heating, or whatever it may be, in the economy. I am pretty sure that almost every hon. Member on either side of the House loathes the action they have to take, even if—as I have been—one is a party to it.

We need not "kid" ourselves with words. When we talk about redeployment what we mean is that we must put a man out of work so as among other things, to strengthen the £ and to make our foreign balances come right, but why has this not happened? No one could fairly deny the courage of the Chancellor this last year. Whatever we may feel about the vacillations before July, 1966, he has remained absolutely steadfast, on course, since and he has been given a good deal of praise for it. Why, then—this, in many ways, is the central theme of this debate—if we have clobbered, as we have, our home economy have we not put swifty straight our account abroad?

I believe that there are two reasons. On the first, it may well be that I would find some common ground, although for different reasons, with some hon. Members opposite. I think that the Chancellor has been unsuccessful, because I do not think that he believes in the system which he is running. I do not believe that a Socialist Chancellor really understands that profits are the mainspring of the capitalist system. I do not think that he really appreciates what initiative, unhampered as far as may be by Government, can achieve.

About four months ago the C.B.I., in a memorandum, set out what it felt were the reasons for the low level of business confidence, which must worry the Treasury Bench as much as it does me. It referred to the Government's hostility to profits, to fears about nationalisation, to the Government's attitude to smaller businesses, to the prices and incomes policy, to the need for personal incentives, and to the complex burden of administration imposed on industry by the Government's tax and other policies.

Part of the Chancellor's answer was given in his Budget speech. This is a very inept phrase, I think: … I have no intention of killing the goose that lays the golden eggs. I think that it was Colbert who said that the object of fiscal policy should be to pluck the maximum of feathers with the minimum of hissing."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 989.] That is the attitude of the Chancellor towards businesses in this country. He wants as much taxation as he can get away with. He made that alsolutely clear. But business and industry do not look to a couple of soothing phrases in the Budget speech. They look to action and deeds by the Government.

What have they seen since then? They have seen the Budget which did little or nothing—a "lost opportunities Budget", as it was christened by my right hon. Friend the Leader of the Opposition. We have seen another instalment of compulsion on prices and incomes. We have had the Chancellor making it clear that public spending is to go ahead at a rate that was linked to the National Plan, although it has been acknowledged that the National Plan programmes are dead. We have seen the Minister of Transport busily preparing her plans for wholesale transport nationalisation. [HON. MEMBERS: "Hear, hear."] Hon. Members may welcome it, but it is the question of confidence in industry with which we are concerned at the moment. Now we have the Prime Minister telling us that he is preparing a Bill to give power to nationalise, or anyway to increase, State control in new and wide areas.

How can one expect confidence in the face of that record? How can the Government expect business to invest, in spite of the inducements which the Government give them, in a future which for them is so bleak? That is the first answer. I do not believe that the Socialist Government really understand the nature of the system which they are trying to operate.

The second answer is graver, and here I absolve the Chancellor. I believe it to be the responsibility of the Prime Minister. At first, as I showed in a phrase at the opening of my speech, there was no lack of confidence either at home or abroad—not during the election, not when the result of the election was known, not after the election, not indeed until for party political reasons it became convenient for the Prime Minister to emphasise the weakness of this country. It was from that moment that a crisis of confidence began from which we have not yet escaped.

The Prime Minister knew very well that £368 million of the deficit of 1964 was on capital account, and part of the longterm strength of our country. He boasted in New York, in April: It is about time the world realised that a well-run shop does not put all its wares in the window. … Like the United States, the United Kingdom is a country rich in overseas assets. In all, we estimate them conservatively to amount to something like £11,000 million. That was the boast of April. If that boast had been made in the previous November, we would have saved hundreds of millions of pounds for this country.

Again, at the time of the General Election all the talk was of the fourth quarter of 1965 and the current balance profit of £43 million. But, as he spoke, the Prime Minister knew something about the second quarter, did he not? The election was right at the end of March. He knew that he first quarter of 1966 would be seriously in deficit. But he used what was convenient to him and he forgot what was not.

Again, only a few weeks ago, in this year, when he was gibing at us on this side of the House for not feeling enthusiastic about paying our way in the first quarter of 1967, the answer by my right hon. Friend at Carshalton was that we knew very well that this surplus was largely fortuitous and purely temporary. We knew that on capital account it included the purchase of Pye by Philips and Chrysler's money flowing into Rootes. We knew the figures for two months on trading account, showing a deficit of no less than £66 million, and now we have the third, and the deficit is £107 million. The Prime Minister knew these things, too, when he was gibing just to make a small party point across the Floor of the House only a few weeks ago.

The net result has been that we have been on a switchback ride ever since between over confidence—qualified euphoria, if one likes—and gloom when some other figures came out. It was the Prime Minister who coined the phrase "selling Britain short". Well, the cap fits. I do not think that any man has done more to devalue the country's economy and himself than the Prime Minister.

I turn to the task which, I think, the Chancellor of the Exchequer should undertake—and I have paid my tribute to his steadfastness. I deal, first, with the question of taxation. Of course, it is true—this was, indeed, common ground in the many debates that we had on the Finance Bill—that in total we are not, or anything like, the most heavily taxed country in the world. We are not, or anywhere near, the most heavily taxed country so far as companies are concerned. But it is true that our personal direct taxation bites more quickly and more fiercely on some of the people on whom we have to rely most for our standard of living in this country, than in any other country except Sweden.

It is also true that our indirect taxes, being as selective as they are, reach saturation point far too quickly, and we therefore have had to rely on direct personal taxation where the combination of unpopularity and disincentive effect together make a formidable disadvantage. So the Chancellor has had no sea room at all.

Professor Merrett, speaking last week at a seminar over which I presided, said: Director level salaries, therefore, have to double every eight years to offset inflation and double every five years to obtain a 2 per cent. per annum net of tax increase in real income. I realise that many hon. Members opposite, in their pursuit of equality, do not mind that particularly. I think that they are gravely mistaken. Equality, to me, is a dead and disastrous creed. It is as dead as Karl Marx in Highgate Cemetery. We should turn our minds to an entirely different conception—the pursuit not of equality but of excellence.

This means that we should reward those who can contribute most. I am absolutely unmoved when people either in this House or outside it point out that a reduction in taxation is of greatest benefit to those who pay most tax. Of course it is, and so it should be. This is the way towards greater prosperity for all the people of this country. Therefore, I make it clear again, as I have always done—and I do not avoid these issues—that the level of personal direct taxation is too high, and that we intend to reduce it.

Neither am I impressed by the argument that it cannot be done, because during our 13 years tax rates were cut so that £2,000 million less was being collected by 1964 every year than if 1951 rates were still in force, and yet central and local government expenditure at constant prices increased by 39 per cent. in the same period. It can be done. One can have both reduced taxation and what is popularly called the social infrastructure which we all want to see. But much depends on the, level Government expenditure. I am sure that the Chancellor will have a piece about this in his speech, but I wish to put the dilemma squarely to him, as I see it.

First, I remind the right hon. Gentleman of his Budget speech on 6th April, 1965, when he said: The Government have decided that the growth of public expenditure between 1964–65 and 1969–70 will be related to the prospective increase in national production. In the Gov- ernment's present judgment, this means limiting the overall increase in public sector expenditure, excluding the investment of the nationalised industries, and taking one year with another, to 4¼ per cent. a year at constant prices."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 279.] Last Tuesday, at Question Time, the Chancellor made a similar comment, and I then asked him: Would the Chancellor clear up a most important statement …? He said that the Government's intention was that public expenditure should rise by about 4f per cent. per annum. But that was based on growth projections which have now been abandoned by the Government. Do we understand that it still remains?"—[OFFICIAL REPORT, 18th July, 1967; Vol. 750, c. 1690.] The Chancellor's answer, in effect, was "Yes, it does", and it is a matter of political philosophy—I acknowledge this as to how much public and how much personal expenditure there should be out of any given surplus in any given year.

With respect, that is not the point. The point is that, if the right hon. Gentleman planned, as he told us he did, public expenditure programmes on the basis of growth targets adding up to 25 per cent. over six years, or 3·8 per cent. a year, it is simply not possible by juggling between the years to keep those same targets when one's highest ambition now is a 3 per cent. growth rate, and that called seriously in question by almost every commentator.