The House always listens with interest to the hon. Member for Torquay (Sir F. Bennett) but I hope that he will forgive me if I do not comment on the points he made since I want to advance a radically different argument. Before I turn to the main content of my remarks I should like to refer to two points that were made by the right hon. Member for Enfield, West (Mr. lain Macleod) in the course of the poorest speech I have heard him make in this House since my election in 1966.
He said that the level of unemployment under a Labour Government was intolerable. He is right in saying that, but the criticism comes ill from him. We all remember that he was Minister of Labour in the winter of 1958–59 when unemployment topped 620,000. We remember, too, that he was a Tory Cabinet Minister in the winter of 1962–63 when the level of unemployment rose to over 900,000. Moreover, were he now Chancellor of the Exchequer he would be pursuing an economic policy which would result in the same level of unemployment as we have now.
He then made the point that there had been a loss of production since 1964 amounting to £12,000 million and this was the high cost of Socialism. I dispute that figure. The true figure is nothing like so high. There has been a loss of production because of deflation since 1966 of perhaps £5,000 million if one compares the result of a rate of economic growth of 4 per cent. per annum as against what has been achieved since 1966. But it is absolute nonsense to argue that the £12,000 million loss or any other loss is the consequence of Socialism. It is primarily due to the cost of defending for three years a sterling parity much above the country's resources. It is the cost of the heavy foreign exchange cost of overseas military expenditure plus the heavy outflow of private capital to advanced industrial countries abroad. Unlike the Opposition, I do not take an attitude of sour grapes on the achievement of a balance of payments surplus. I welcome that achievement which should give the Government much greater room for manoeuvre in economic policy in the 1970s. This may be the last debate on the economy that the House will have this year and it may therefore be useful to look back, however briefly, at some of the main economic trends in the 1960s and to try to diagnose the basic economic ills of the country in the recent past.
The balance of payments statistics show that in the four years 1965 to 1968, the basic balance, current account and long-term capital account, is an accumulated deficit of £1,124 million. The net foreign exchange costs of overseas military expenditure in the same period came to £1,082 million. This somewhat confirms the view expressed by the present Home Secretary when he was a very new Chancellor of the Exchequer, in November, 1964—that the country would not have had a balance of payments crisis were it not for the heavy cost of overseas military expenditure. To that must be added the net outflow of private capital of £503 million in those four years, and this makes due allowance for the reinvestment of locally earned profits abroad and the raising of currency on the Euro-dollar market.
If the country had not had these two enormous external burdens on its balance of payments, burdens which no other comparable country would contemplate shouldering for an instant, there would have been a basic balance of payments surplus in each year of about £100 million on average.
I am not suggesting that on taking office in 1964 we could have totally eliminated all overseas expenditure, or totally cut off the net outflow of private capital, but in the winter of 1964–65 we could have said that we would be out of east of Suez by, say, 1968, which would have meant that the tremendous savings in foreign exchange which will now accrue to us in 1971 would have been accruing to us now. Secondly, we could have taken much more stringent action much earlier to cut down on the export of private portfolio investment to advanced countries within the sterling area. I note with some concern that even in 1968, allegedly a crisis year, £124 million found its way to those countries.
For the first nine months of 1969 the country had a basic surplus of £48 million. But, judging by the most recent Treasury information for the second quarter of the year, overseas military expenditure is continuing to run at the same level as that of the preceding year, so that in the first six months of this year it would have cost about £130 million, while the net outflow of private capital is still at about £50 million a year. If the Government had taken radical steps in 1964, the basic balance in the first six months of this year would have been about £200 million to £250 million and not the £50 million for which the Chancellor of the Exchequer can claim credit.
But it is true that this balance of payments surplus has been bought at a cost, riot the notional £12,000 million mentioned by the right hon. Member for Enfield, West—I hope that whoever is to wind up for the Opposition will give chapter and verse to show how that figure was reached. The cost is rather £5,000 million, which I calculate the country has lost since deflation began seriously in the summer of 1966. This is equal to a total year's spending on the National Health Service, education and housing combined. Perhaps the figures can be more readily appreciated in those terms.
Secondly, it has meant for Britain, for the Labour Party and the Labour Government an acceptance of a much higher level of unemployment than has ever been the case since the war. The figures in this respect are striking. Taking the figures for the October of each year, and including Northern Ireland the level of unemployment rose from 344,000 in 1965 to 468,000 in 1966, immediately after the deflationary steps of July 1966, to 599,000 in 1967, to 586,000 in 1968, to 607,000 this year. It is a fact that the Labour Party has come to accept a figure of between 500,000 and 600,000 people out of work as a permanent feature of the British economy.
I say to my right hon. Friends on the Front Bench that for many of us on these benches that is a totally unsatisfactory position. We are not prepared to see the Labour Party abandoning the concept and practice of full employment. We are not prepared to see full employment as the option of last resort in the balance of payments equation.
I speak here not of prosperous Lewisham, but of the Merseyside, and industrial North, of the mining valleys of South Wales and of my native Scotland. Let us always remember when people are talking about how earnings-related benefits have cushioned unemployment under the Labour Government that unemployment is unemployment, and that when a man is out of work, it is not only gross social waste, but a needless human tragedy. Many of us on this side of the House simply will not accept this as a basic feature of British economic policy for the 1970s, and the sooner the Government say that they are returning to full employment, the better.
How can that be done? It cannot be argued that for the last five years the British people have been spending too much on themselves. I have often quoted statements to the contrary by distinguished men like Mr. Catherwood. This evening I use a source somewhat nearer the centre of power in Whitehall, my right hon. Friend the Paymaster-General speaking when a Treasury Minister. When he was at the Treasury, he always gave the impression, to misquote a Thurber aphorism, of being an expansionist struggling to get out. However, he said this before he got out when discussing the great load of short-term debt which the country had accrued since 1964. He said:
This great load of mainly short-term debts in no way represents the overspending of the British people, nor is it evidence that they have enjoyed a standard of living beyond what they have earned.
I wish to goodness that he would say that to the right hon. Member for Southwark (Mr. Gunter), a former Minister of Labour, who in his sermons and other outpourings from time to time referred regularly to the allegedly selfish nature of the British working man.
The present Paymaster-General continued,
Over the last 15 to 20 years, after meeting our heavy and always growing defence and aid commitments, we have earned a modest aggregate surplus on current account. The debts to the Central Bankers and I.M.F. originated in a conversion of privately held short-term debts accrued over a period of years to finance the balance of our export of capital.
In short, when hon. Members opposite are telling us about the marked increase in invisible earnings in the recent past, the House should remember that this has been gained by the export of capital from Britain, and this in large measure has been paid for by foreign borrowing.
I now turn to the sort of policy on which the Government could embark now at the end of the 1960s in order to sustain a much higher rate of economic growth in the 1970s. I begin by reminding the House of the heavy burden on the British economy caused by the foreign exchange costs of overseas military expenditure. I welcome the fact that we are to leave east of Suez and the Persian Gulf by 1971. But I want the Government to launch a new drive to cut the cost of British arms spending in Europe. This must mean making a more positive response to the new overtures for a European conference coming from the Warsaw Pact Powers. I note with concern the fact that in the current financial year we shall be spending £212 million on the so-called British Army of the Rhine, £90 million of it in foreign exchange.
Let no hon. Member be deceived by the ragbag of arrangements with the West Germans to offset this cost. For example, it is nonsense to argue that the Germans should be encouraged to give a loan to this country over a 10-year period so that we can finance the maintenance of 55,000 to 58,000 British troops in that country to carry out a fatuous open-ended commitment made by Lord Avon when he was Foreign Secretary in 1954 under the Tories. We must, therefore, first make further cuts in overseas military expenditure.
Secondly, we must recognise the fact that coming into surplus enables us to look again at our massive resources abroad. I do not apologise for again drawing attention to the fact that Britain is an immensely wealthy nation. Our international assets far exceed our liabilities. Thus, our portfolio investment at the end of 1968 was worth £5,800 million.
I have previously argued that rather than deflate the economy and reduce the rate of economic expansion we should—we should have done this before—mobilise these assets, take them into public ownership and use them for the benefit of the nation, paying fair compensation in sterling to the existing owners. I have never argued this as a short-term measure. But it could be done as part of a five-year programme designed to acquire for the Government as much of the overseas portfolio investment as the Government from time to time think it necessary to acquire to protect the balance of payments and to add to our reserves.
I am fortified in my advocacy of this course by the fact that organs of Centre and Left opinion in the country have come round to this way of thinking. I not only welcome the conversion of The Guardian newspaper to this view, but I note that the New Statesman has followed suit, for what that is worth. I also note that Mr. Peter Stephenson has advocated this course in the current issue of Socialist Commentary, a journal not normally distinguished for its advocacy of Left-wing policies.
Thirdly, I hope that the Government will not remove the import deposits scheme. We recall what happened in the winter of 1966 when the import surcharge was removed. During October of that year the President of the Board of Trade announced that it could be removed with safety and that our balance of payments were moving into surplus following the July measures.
There followed a massive upward surge of imports early in 1967 and this was a major factor causing the sterling crisis of that year. Let us ensure that the economy is much more efficient and productive before taking steps to remove the import deposits scheme. Indeed, I hope that it will not be removed between now and the winter of 1970–71.
Fortunately, I referred to the need to place further restrictions on the private outflow of capital. It is nonsense that we, with the lowest rate of capital formation of any advanced industrial country—and this position has pertained in Britain for many years—should persist in the idea that we are in some way responsible for building up other industrial countries abroad. This is particularly true of the heavy outflow of capital to Australia, a country which has a stable political democracy, and the prospect of speculative gains in gold-mining and ore production. I hope that we will apply at least the restrictions that we currently apply to North America. Such a policy could defend the balance of payments while we proceed to greater economic expansion.
I turn now to prices and incomes policy, I warn the Government that if they go ahead with reactivating the prices and incomes legislation of recent years they will meet with a predictable response not only from these benches but throughout the Labour movement. In short, they will meet strong, militant hostility. I issue this warning because we now recognise that the policy as it has operated has been damaging to many people, and particularly the lower paid in the public sector. Do not let anybody run away with the idea that the prices and incomes policy of recent years has protected the lower paid. The dustmen have given a dusty answer to that, London's firemen have something to say about it too, and the school teachers, some of whom have been taking home £13 a week net after three years' full-time training, have made it equally clear what they think of the policy by their wholly justifiable claim for an interim award of £135 a year.
My hon. Friend the Member for Middlesbrough, West (Dr. Bray) pointed out that the policy has not worked. The increase in money wages measured in terms of average weekly earnings year by year in the late 'sixties has been almost identical to the increase of the early 'sixties. In the first eight years of the 1960s, real average weekly earnings rose by 20 per cent. Productivity increased by about the same amount over the whole period.
Thus, the increase in money earnings has been almost exactly equal to the rise in the index of retail prices, plus the increase in gross domestic product per employee. This position is not exceptional to this country. One need only consider what has occurred in Scandinavia and other Western European countries to see that virtually the same position has prevailed.
The case for a prices and incomes policy has been seriously damaged by the fact that the Government introduced it initially as a voluntary policy but were pushed into operating it as a statutory one in a period of economic crisis. Such a policy on a statutory basis simply has no credibility in the British Trade Union Movement or among the British people.
We want to see, within the framework of sustained economic expansion, a voluntary prices and incomes policy discussed between the Trade Union movement and the Government, with the Government setting guidelines about the way in which the economy is moving or should move in, say, the following 12 months, or it could be taken over a longer period. By this means one might obtain a measure of response, given that the Government were willing to sustain a policy of expansion combined with a fiscal attack on the growing inequality which has been such a feature of British society in the 'sixties. Without this there can be no possibility of such a policy operating.
I warn the Government that if they return to a statutory prices and incomes policy or use the National Board for Prices and Incomes, any such policy will be doomed to failure. In my view, the Board's future role should be confined to, first, a consideration of the problems of export competitiveness and import substitution ; and, secondly, to conduct an efficiency audit in the public sector and large private corporations. It ought no longer to be concerned with agreements for increased wages by groups of workers, as has been the custom. If this approach is combined with a reform of collective bargaining on the lines proposed by the Donovan Commission, giving the Commission of Industrial Relations an opportunity to work, one might be able to operate a voluntary prices and incomes policy in a much more favourable climate.
Finally, I make a very brief reference to a remark made by the Chancellor of the Exchequer, speaking at the Labour Party conference, dealing with the conception of public expenditure. He said:
I draw the broad conclusion that in the seventies we should look forward to expanding public services. Certainly they are vitally necessary, but expanding them roughly in line with and not ahead of the growth in national income.
I state my total opposition to that view. It is a complete negation of Socialism, because it accepts as a fact that the present relationship between public expenditure and private consumption is satisfactory and unchangeable. That is not so. The Government's social achievements since 1964 could never have been attained if we had not been prepared to allow public expenditure to develop much more rapidly than the increase in national income that we have had in the last five years.
The Government now have the opportunity, with the present balance of payments surplus, of developing an economic policy on the lines I have suggested which could provide the country in the 1970s with a much higher rate of economic growth whilst protecting the balance of payments, and which could make possible a voluntary prices and incomes policy combined with a strong fiscal attack on social inequality and a rising total of public expenditure.