Orders of the Day — Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 7th November 1967.

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Photo of Mr James Dickens Mr James Dickens , Lewisham West 12:00 am, 7th November 1967

I entirely accept the proposition made by my hon. Friend that we all stand for a much fairer spread of employment throughout the country. We say in our Amendment that the Government's adherence to the traditional methods of deflation are undermining their regional policies.

Now, the third aspect of the matter is the rôle of the City of London in the British economy. The City of London—or certain unpatriotic elements in the City—have consistently, since 1964, been advising foreign holders of sterling that there is a general lack of confidence in financial circles in this country in the Labour Government. There can be no doubt that this was what was done in the late autumn of 1964, again in the summer of 1965, and again last year. The Bank of England played a rôle then, too.

Mr. Fred Hirsch, in a recent book, "Devaluation—a Polemic" says: If financial opinion is sensitive to disquiet voiced in the City of London generally it is hypersensitive to any suggestion that alarm over Government action and competence is shared by the Bank of England itself. Sir Leslie O'Brien has been the subject of criticism here tonight, and I do not want to use the privilege of speaking in this House to launch a personal attack upon him—[An HON. MEMBER: "Why not?"]—but I want to say this to him: we shall expect him to carry out fully in all his public utterances the policy for which we on this side of the House have secured an electoral mandate; and I give him this word of warning, that if he makes any public utterances which are significantly against Government policy he may expect to find, as he certainly will, a growing volume of criticism and hostility from my hon. Friends. Some of us think that a few sackings—I am not referring to Sir Leslie—in the Treasury and in the Bank of England would be salutary—manpower redeployment, as it were—or a shake-out, as one of my hon. Friends says.

So much, then, for our critique of the rôle of the Bank of England, of the City of London and of the Treasury.

I turn to what now confronts the Government. The position is in no way as optimistic or rosy as the Chancellor pretended earlier this afternoon. One of the basic reasons why we have such dull speeches from the two Front Benches is that, broadly, they are in agreement on the central economic strategy of the Government.

Since 20th July of last year, the Government have not succeeded with their policy of deflation. It has failed. I suggest that the country's economy is weaker in November, 1967, than it was then. We have lost at least £750 million of potential output. Private investment has fallen by at least 6 per cent. from the miserably low level of 1966, and it must be remembered that we have the lowest rate of new capital investment of any major industrial country. Moreover, we are living at a time of high and rising unemployment, the current figure of unemployed being 560,000. I was surprised that my right hon. Friend the Chancellor expressed no regret at the very high level of unemployment. His acceptance of it as a permanent feature of our society in years ahead is significant.

The Government hope to muddle through to 1970, and it seems to me that they have one of two prospects before them. At best, they can hope to walk the tightrope and maintain a level of economic growth which may reach 3 per cent. in 1968 and again in 1969. They may be able to avoid a balance of payments crisis. But for this side of the House and for the country, it will mean that many of our plans for social advance will be considerably delayed. Our country will be comparatively weaker vis-à-vis other industrial countries. At best, the whole prospect is unsatisfactory.

At worst, when the Government are faced with the need to reflate the economy, they cannot proceed seriously to do so when they are still in debt to the tune of £642 million to the I.M.F. and the other central banking institutions. The modest steps of reflation taken so far, unless other corrective measures are taken as well, will involve us in a balance of payments crisis in 1968.

In facing up to the situation, I want us to look at the alternatives contained in the Amendment standing in my name, for I do not think that any intelligent, fair-minded person can argue seriously that we have not tried to be constructive. We say, first, that we must break decisively with this played-out policy of deflating the economy, involving the country in credit restrictions, creating unemployment, cutting back on private investment, and so forth.

The first step which we have to take is to mobilise our immense resources abroad to gain freedom from the restrictionist attitudes of the I.M.F. and the central banking institutions. In the short term, that can be done not by trying to pay our way out of the deficit which we have incurred through a balance of payments surplus, but by liquidating part at least of our overseas portfolio investments which, in all, total £3,200 million, according to the Bank of England calculation at the end of 1966. We should liquidate as much of that sum as is necessary to repay the I.M.F. and our debt to the other central banks much earlier than the Government propose and, at the same time, buy up some of the more speculative sterling balances held in London. It is a tricky exercise, but it can be carried out with careful planning and timing.

Our second proposal is that there should be further restrictions on the outflow of private capital. The Chancellor has taken certain steps along those lines, but more must be done. In particular, we have to cut the outflow of direct private investment to advanced industrial countries. Under the present Government, unfortunately, the net outflow of this type of capital investment has gone up from £116 million in 1964 to £135 million in 1966, which was allegedly a crisis year. Much of this capital is not going to developing countries, but to countries like Australia and South Africa.

The Board of Trade Journal of 30th June last notes that the rate of increase of private capital investment in South Africa has been "quite remarkable". It may be asked why, under a Labour Government, we should continue to allows the export of private capital to build up what is, after all, a Fascist racialist system, at the expense, in part at least, of full employment and economic growth at home. I ask my right hon. Friend to take urgent action in this direction, because the present position is utterly inexcusable.

Thirdly, the Government should introduce import quotas. The steep increase in imports of manufactured and semi-manufactured goods this year must be cut back. They went up 10 per cent. in the first nine months of 1967, compared with the previous year, despite reduced demand at home. We suggest that a 10 per cent. cut would reduce them by something like £250 million.

Fourthly, we want to see the Government make a further attack on the high level of military spending at home and abroad. It is now well known that Great Britain spends more of her gross national product on defence—a figure of 6·5 per cent. per annum—than any other country in Europe outside Soviet Russia. The figure may be compared with the average of 4 per cent. per annum spent by our trading rivals in the E.E.C., and the 1·27 per cent. per annum incurred by Japan. As a first step, we say that the Government should cut back the figure from 6·5 to something like 4 per cent. by 1970. It would mean an end to the east of Suez policy and the British Army of the Rhine by 1970. It would mean serious cuts at home as well.

One of the heaviest burdens on British industry is the high proportion of research and development spending which goes on defence. In a year, the country spends a total of just over £500 million on research and development. Of that, just under half is spent on military research and development, compared with less than 5 per cent. in the case of Japan, which has the highest rate of economic growth of any advanced industrial country.

These are our four major proposals. We supplement them by urging the Government to establish a national investment board whose functions, among others, would be to channel for home consumption some of the frustrated investment going abroad. We urge the Government to produce a new national plan not based upon widely varying forecasts of the private sector of industry, but upon a realistic assessment of the country's needs and potentials and with certain declared social objectives; in short, as part of a general approach to moving the country towards a Socialist society in the 1970s, which is, after all, why we on this side of the House are in this business.

Over the past three years, after an initial endeavour to pursue different policies, the Government have been forced right back on to classical Tory deflation. There can be no getting away from that. There are marginal differences. The Government are trying to shield the regions from unemployment. They are also doing something about industrial retraining, and we are also expanding the social services. But all this has been completely undermined by the effects of deflation. If this is not ended, the prospects for the Government and for British social democracy will be grim in the rest of the 'sixties. I believe that the high ideals of Socialism are worth fighting for, and I will not stand idly by and watch the party and the Government needlessly humiliated at by-elections because of the surrender to the policies of the Treasury and the Bank of England.

I say to those forces in the Government that are for planned expansion, "Stand up and fight for it. Fight against deflation, and adopt at least some of our alternatives." To my hon. Friends who do not go all the way with me in what I say, I commend our alternatives for their consideration. I want the fullest discussion of the alternative policies here and in the country, because I think that our alternative policy is the only one that can rescue the Government. I say to the party membership and to our supporters in the country, "Do not despair. Rally to our alternative policies. Stand firm. Stay in, fight and win."