We have been told that the Government have an import substitution programme. I say "we have been told", because unless we had been told it we would not gather it from any external evidence. A Question of mine a few months ago elicited the Answer that imports of temperate foodstuffs had actually increased. Half of the increase was attributed by the Minister to devaluation. This is not surprising. The reason the import substitution programme has failed entirely and the recommendation of the National Economic Development Council abandoned in practice, though not verbally, is that the capital necessary to finance it has not been forthcoming. There is a reason for everything, and that is the reason for the failure of the import substitution programme.
What was needed was £230 million right away and £110 million a year injection of capital. What we have instead is a monumental increase in costs directly attributable to Government action, quite apart from the natural disasters for which nobody, neither the Government nor anybody else, is to blame. The Government are directly to blame for the high interest rates and for the increase in S.E.T. These are definite, measurable increases in cost for agriculture.
Agricultural Mortgage Corporation loans, where available, are priced at 10¼ per cent. What crop must a farmer grow to be able to sustain an interest rate of 10¼ per cent.? Nobody has told us and, of course, it is not happening.
Successive Ministers have mouthed meaningless words about credit priorities for agriculture. They remind me of a station-master who tells the passengers, anxiously waiting for the last train, that they will have priority on the next one, well knowing that the lines have been taken up and that a train will never come.
What is the good of writing to hon. Members, making statements in the House, answering Questions and each time saying that within the global limit on bank lending the banks have been asked to give priority to agriculture, when the Minister making such a statement well knows that the amount of money that the banks are allowed to lend is being reduced? It is just like the station-master on the platform where the rails have been taken up. The train will not come. The reason it is not coming is that the Treasury has issued instructions that the money must not be lent. It is as simple as that.
If the Government were serious about their import substitution programme, they would give it the same priority that they give to export industries. They do not do this. Export industries can still get bank loans at a special, artificial rate of 5½ per cent. What the farmers have to pay, if they are exceptionally lucky, is 1 per cent. above Bank Rate, or 9 per cent. In many cases they have to pay 1½ per cent. above Bank Rate.
That means that agriculture is having to pour out between £45 and £50 million a year in interest. At the same time, it has to find extra working capital to lend money to the Government in the form of increased S.E.T. The best estimate that I have been able to get from the clearing banks is that of the increase in bank credit to farmers in the last year, at least one-third—this is important, and I ask the Minister of State, Treasury, to take it in—was not new capital formation but was accumulated interest on existing loans which the farmers are unable to pay.
I hope, therefore, that nobody will get up at the end of this debate and tell us that as loans to farmers have risen by £37 million during the last year, this is to be taken as a measure of the capital injection into agriculture from the banks, because it is nothing of the kind.
Moreover, that is not the whole story, because the bank squeeze has also applied fairly viciously to the agricultural merchants who supply farmers on credit. The farmer has, therefore, been forced into the bank, and part of the increase of £37 million in so-called loans to agriculture is merely a transfer of credit from the agricultural merchants to the farmers. When the ultimate recipient of the credit is the same person—the farmer—it does not represent any net increase in lending. This is at a time when, to carry out the programme to which the Government have given public acceptance in this House, an injection initially of £230 million and then of £110 million a year is needed. This is the measure of the complete failure of the Government's policy.
Of course, it is worse than that, because it is not only agriculture which is suffering: it is the nation as a whole. Every part of our economy is suffering from the balance of payments crisis and the panic measures which the Government have adopted following it. The one and only course of action open to the Government to break the back of the balance of payments problem is import substitution, and the only way to achieve import substitution is by a massive increase in agricultural output, and, as "Neddy" has pointed out, the only way that will be achieved is by a massive injection of capital into the industry.
There are, after all, two forms of prudent farming—high farming and low farming. We can either reduce our costs to the minimum by a low-farming policy so output per acre is right down; or our flexible costs or variable costs are minimised. We have no alternative to doing that if we run out of working capital, because the option of a high-farming policy, which is what the nation needs, and which even the Government see the nation needs, is an impossible option if we have not working capital to finance it. It is well known that a large number of improvement grants are not being claimed because the finance is not available to supplement with £3 every £1 the Government put on the table. If the £3 are not there for the £1 from the Government, the £1 might be a £1 million for all the use it is to the industry.
I say again, it is not only the postion of the individual farmer which is at stake; it is the position of our entire economy, which is dependent on the import substitution programme, and the linchpin of this is availability of new capital.
In the Price Review debate I endeavoured to draw to the Minister's attention—such a task is beyond many people's ability, including my own—but I endeavoured to draw to his attention, the fact that new capital formation within the agricultural industry depends upon the difference between receipts and total costs—not just the costs of Price Review commodities but total costs. My hon. Friend has just referred to the pea crop, which has been ravaged by the weather. This is a source of income to the farmer; equally, the cost of planting it is a cost to the farmer. We need to look at the rising total costs, not just the costs of Price Review commodities, because it is the difference between the cash flow in and total costs which constitutes the ability of the industry to finance its own capital development, and here we have a sorry tale, too.
The fact that the bad weather is not the Government's fault is neither here nor there. The result of it on capital formation is exactly the same whether it is the Government's fault or not, but when a natural disaster of this kind comes upon us, then, if the Government want to see their own policy of import substitution carried out, they must make further adjustments of their own policy.
What, then, do we need? First, we need a special Price Review, because major items of costs, S.E.T. and the cost of bank credit, have skyrocketed. Secondly, loans to agriculture need to be placed on the same footing as loans to the export industries. Agriculture should have the same credit terms available to it.
It is no good Ministers talking about giving priority to agriculture if they do not mean what they say. One cannot give priority to everybody or one ends up in the situation so graphically described by W. S. Gilbert. Priority means putting a given category ahead of other categories.
If priority is to be given to agriculture so that the selective expansion and import substitution programmes can be met, it can only be done by giving the same priority to agriculture as is given to the export industries. Unless and until the Government are prepared to give this priority, all their words count for nothing. The industry does not need words. It needs more capital at a price which can be serviced by the productivity in the industry.
My hon. Friend the Member for Torrington (Mr. Peter Mills) quoted hire purchase rates as being more than half the amount allowed by law to moneylenders—4 per cent. per month, or 48 per cent. per year. And the rate quoted by my hon. Friend was more than half of that. That is the situation which has now been reached. If the agricultural industry succeeds in borrowing money at these prodigious rates of interest, it will result in a round of inflation that will torpedo the Government's prices and incomes policy. It is, therefore, not even prudent to make money available at that price.
The Government must treat the agricultural industry in the same way as they treat the export industries, since it is the only way in which their own policy and the national interest can effectively be served. It is already far too late to meet the "Neddy" target for 1972–73, but it is not too late to start to carry out a policy which could lift us out of our balance of payments crisis. I appeal to the two Ministers who are present to get down to it and give the House action, not words.