Orders of the Day — Customs (Import Deposits) Bill

– in the House of Commons at 12:00 am on 17th November 1969.

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Order for Second Reading read.

4.21 p.m.

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

I beg to move, That the Bill be now read a second time.

There are three reasons why I am asking the House to review the import deposits scheme. First, because it plays an important part in our present policy for the control of credit expansion; secondly, because its continuance avoids an adverse effect in the next six months on our reserves; and, thirdly, because the scheme would appear to have to useful direct effect on imports. All these are good reasons, I suggest, for its continuance in present circumstances.

Before, I come to these arguments, however, I would like at the outset to say a word about the duration of the scheme. It is quite true that last year we stressed its temporary character. I have already been reminded of htat by the hon. Member for Worthing (Mr. Higgins) last Monday, and no doubt shall be again. It was not anticipated this time last year that the scheme would not be. Not only did we stress in this House, but my right hon. Friend the Chancellor of the Exchequer repeated this statement in the Letter of Intent last May, when he made it clear that the Government intended to abolish this scheme as soon as they were satisfied that the circumstances so perimitted.

The Pledge has, therefore, been given, both here and aborad, that the scheme is a temporary and not a permanent one. This pledge remains valid, and, indeed, it is possible, Under the terms of the Bill, to modifiy the scheme by reducing the deposit yet further or to terminate it before 5th December, 1970.

Let me, however, make one thing quite clear to the House. I am not seeking by any hint or suggestion to indicate when or how or whether it may be possible to modify or terminate the scheme before that date. It would be quite wrong, whatever our present hopes, to give rise to any particular expectation, either gloomy or optimistic, when at this stage I simply do not know, but I am sure that hon. Members will agree with me that it would be better for those who are unfortunately affected by this scheme to be pleasantly surprised during the course of the next year rather than unpleasantly disappointed. But the reduction of the deposit from 50 per cent. to 40 per cent. is in itself a firm indication that this is not intended to be a permanent feature of our trade policy.

I come now to the reasons for its renewal. First, as I have said, comes its contribution to the successful policy of credit restraint. Now, clearly, there is no one who can dispute that the scheme has played a considerable part in this policy. Indeed, its effect on the liquidity of importers gave rise to the strongest criticisms and fears which were expressed last year, and, as I understand, is the main ground why there is opposition to our present proposals for its renewal, and certainly, with about £550 million at present held by Customs, and with monthly repayments after December now reduced from a prospective £90 million to £100 million net to about £20 million net, it is obvious that the force on the credit squeeze is materially effected by the Bill we are now debating. This is true even after some allowance is made to financing of the deposits from abroad, a point which I shall come to presently.

So to make good my first main argument I have to persuade the House of two things: first, that the policy of credit restraint has so far helped our economic recovery; and, secondly, that its continued tight application as a result of this Bill will not do more harm than good.

The first proposition cannot, of course, be demonstrated beyond all doubt, but recent experience strongly suggests that fiscal measures are to some extent offset if the monetary policy is working in an opposite direction. To some degree this was the case in 1968, when we made substantial progress, but when, nevertheless, the rate at which we made progress, the rate of improvement, was disappointing. In 1969, fiscal and monetary policy have worked in the closest harmony and the results on the balance of payments have certainly been excellent.

We are not, of course, in a position to point to the precise relationship between a given level of credit expansion and its effect on the external account, but clearly, restraint on credit has a considerable effect on personal consumption. One can reasonably expect it to have a salutary effect on stock-building which has added to the strains on our balance of payments in the past. It may be a useful incentive to companies to get their hands quickly on money earned by exports or overseas investments, and there are a number of ways in which one would expect it to operate to the advantage of the reserves and balance of payments. But, in the end, my first proposition rests on pragmatic rather than theoretical grounds, the simple fact that so far it has worked.

The more controversial question concerns the second leg of the argument, and that is this. Having achieved good results, has the time not come to ease off, and would a continuation of the tight squeeze not do more harm than good? I say to the House that there is at present no good reason to suppose that the overall credit squeeze is proving harmful.

In the first place, it may be pertinent to recall for a moment the dire predictions made by many hon. and right hon. Gentlemen opposite last year. There was widespread prediction of a devastating effect on the company sector, driving large firms into liquidation and leading to a surge of bankruptcies. In the event, this has not happened. It is true that during the last month or two there has been a slight upturn in the monthly figures relating to bankruptcies and liquidations, but the increases have not so far been dramatic as predicted, and certainly, in the first three-quarters of this year, they are not greatly in excess of the number of bankruptcies in 1968 and they do not significantly differ from the figure in 1967.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

Is it possible to obtain figures of receiverships as well as of liquidations, because I believe there is a much wider increase than in liquidations?

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

I do not think that the hon. Member can divide it up in that way. One has to look at the figures overall. In the first three-quarters of this year there was no appreciable difference between this year and last, and not since 1967. In any event, I would say to the hon. Member that it has not been possible in any way to link the number of bankruptcies that have occurred—and there has not been an unusual number —with the effects of the import deposits scheme.

We were also told last year by hon. and right hon. Gentlemen opposite that the scheme would disrupt trade, that it would disrupt exports, and that it would prevent any chance of moving into an export boom. I think that the hon. Member for St. Ives (Mr. Nott) made this point. I have the greatest respect for him, but on this occasion his forecast was a little inaccurate, as forecasts tend to be. He told us that it would move production capacity away from exporting into domestic production. In fact, there has been no disruption to trade, and exports have soared. Anxieties were expressed about the administration of the scheme, but many compliments have been paid by all sections of industry to the Customs for the way in which the scheme has been administered, Lnd the 200 staff involved has proved to be less than the number we anticipated.

More importantly, if one looks at the future plans in the all-important fields of manufacturing investment the latest reports suggest that investment here is expanding healthily at a steady underlying annual rate of about 10 per cent. for 1969, with similar prospects for 1970. Of course, if we relaxed credit restraint, for example, if we allowed the present scheme to run down, it might well be that industrial investment would go ahead faster. I concede that, but what would happen then? In all probability, the result would be that the balance of payments would suffer, and we might then find that a sharper burst of investment than at present would in due course be followed by an investment slump. We would be far better off with a steady and sustained rate of investment based on a balance of payments surplus than with sharp ups and downs as we have experienced in the past.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

In referring to the manufacturing investment intention, I think that the Financial Secretary was referring to the Board of Trade survey. What are the months of investigation to which the result of that survey applied, and what was the date on which the Chancellor of the Exchequer announced that the import deposits scheme was to be renewed?

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

The survey was about what investment intentions looked like for the years 1969 to 1970. There was no evidence whatsoever of the kind which has been suggested to us many times by hon. Members opposite and by other quarters that the investment intentions of manufacturing industry were about to face a down turn. The choice which one faces is between the possibility of a higher degree of investment intentions coupled with a down turn in the balance of payments, and an investment increase which is firmly based on a healthy balance of payments position.

There will be pressures on the liquidity of companies in the tax quarter, but, on the best estimates which we can make at the moment, the amount that the central Government will take out of the system in the next revenue quarter will be of the same order of magnitude as last year; and the position certainly did not become intolerably tight last year. We also know that the company sector added substantially, by about £300 million, to its net financial assets in the June quarter.

In general, at the moment all the indicators point to a healthy growth in industrial production, based on exports and investment, not on a rapid rise in consumption, and this is exactly the position which we are hoping to achieve. It would, therefore, seem far more risky to relax than to keep credit on a tight rein, although we shall certainly watch most carefully how the situation develops in the months ahead.

Photo of Sir John Hall Sir John Hall , Wycombe

I realise that it is difficult to make a speech while being constantly interrupted, but has the Financial Secretary any evidence of the effect of the import deposits scheme on the cash growth of companies? This is a very important matter.

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

I think that the hon. Gentleman must see this in proportion. What it amounts to is that, during the course of the next tax quarter, about £300 million would normally be repaid, but some allowance has to be made for part of this to be financed by credit from overseas. If something like one-third of this is being financed from overseas, it is a flow which is not going back to industry of four-fifths of £200 million. Having regard to the liquidity position of companies, there is no reason at present to suppose that this will have an adverse effect on the industrial investment plans which are in evidence. So that, as I say, the balance of risk is against relaxation and in favour of keeping credit on a tight rein.

May I come now to my second main reason for renewing the scheme; the effect on the reserves. I can deal with this quite briefly. Our best estimates, as I have just mentioned to the hon. Member for Wycombe (Mr. John Hall), and as I revealed in a Written Answer some time ago, are that 30 to 40 per cent. of the deposits have been effectively financed from abroad, either by loans or by credit to importers from foreign suppliers. This very useful benefit to the reserves is, of course, purely temporary, though it provided help at a time when it was sorely needed.

I suggest to the House that, from this point of view, the renewal of the scheme is essentially a matter of common sense. It is true that we have had an excellent surplus so far this year, but our recovery is still very recent, and I am sure that everyone in the House will realise the need for this happy state of affairs to be more firmly established for a longer period before we can afford to take any avoidable measures that will weaken the reserves.

It is clearly, therefore, a matter of common sense to avoid at this particular time, in the next half-year, a monthly outflow from the reserves of £30 to £40 million which this foreign credit has represented. By means of the Bill it will be possible to phase out these payments more gradually over a longer period than the next six months.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

How does the Financial Secretary expect this to be phased out if 40 per cent. is to be carried through for the whole of the year?

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

I said earlier that it is possible under the Bill to terminate the scheme earlier or to modify the proportion. I am not making any promises whatever, but it is possible for this to be phased out, whereas, if we had not continued the scheme, automatically it would have been repaid within the next six months.

I come now to the third main argument, the direct effect of the scheme on the level of imports. Last year my right hon. Friend, my predecessor, was very careful to avoid a specific forecast, and so was I. We said, time after time in our debates, that the direct effects of the scheme would be marginal but useful, and, as it turns out, this would appear to have been the case. I cannot, however, give the House an exact figure now any more than I could last year. Such a figure is no easier to arrive at in retrospect than it was in anticipation.

Since the scheme was introduced, the level of imports has shown only a comparatively slight upward trend of about 4½ per cent., and this has been almost entirely attributable to higher import prices. Recently, imports have been flat, and the average for the last three months is little different from the average for the three months of May to July. I concede straight away that it would be quite wrong to ascribe all this improvement to the direct impact of the import deposits scheme. The other major measures taken to restrain consumption have clearly been the major factor, and, indeed, the slow growth of imports this year is as true of goods exempt from the scheme as it is of goods which are covered.

Probably, the best indicator which I can give to the House can be found from comparing the annual rate of increase, on the one hand, of goods subject to the scheme before and after its introduction with the comparable rates, on the other, over a similar period for exempt goods. Before giving the House the figures, I must re-emphasise the extreme difficulty of assessing what would have happened if the scheme had not been in existence and the difficulty of isolating the impact of the scheme from other measures.

Over the five-year period before the scheme, from 1964 to 1968, imports of goods now covered by it rose from an average of £135 million a month in 1964 to £225 million a month in 1968; a rise of 66 per cent. or an annual rate of just over 13 per cent. I have taken this rather longer period in order to excuse the distorting effects of the temporary import charge. In the same period, imports of exempted goods grew from £338 million a month in 1964 to £422 million a month in 1968; an increase of just under 25 per cent., or an annual rate of about 5 per cent. Non-exempt goods were, therefore, growing at a rate approaching three times that of exempted goods.

Since the scheme, imports of exempted goods have grown by about 3 per cent. and those of non-exempted goods have grown by about 6½ per cent. That is just over twice as fast. So the difference between the rate of increase in nonexempt and exempt goods has dropped from nearly three times to just over twice. These figures would, therefore, suggest that the scheme has had a valuable slowing down effect on the rate of increase and, therefore, a useful effect on the level of imports of goods subjected to the scheme, and one may reasonably expect the scheme to have a continuing useful and significant direct effect on imports in 1970—though, again, as in the past, one is not in a position to give any actual figures.

These are the main reasons for the continuance of the scheme. There is little need to say much about the actual terms of the Bill itself. Subsection 1(1) of Clause 1 contains the guts—the extension of the provisions of the Act for a further year, and the reduction of the rate of deposit from 50 per cent. to 40 per cent. Subsection 2(2) of that Clause looks a little complicated but is necessary to ensure the continued exemption from import deposits of goods imported for blind welfare purposes. As far as I know, no point arises under Clause 2.

I will sum up. The purpose of the Bill is to continue a measure of selective credit control operating on importers that has made a useful contribution in a number of ways to the success of our economic policies. It would be rash and it would be foolish to reverse these policies, or any part of them, just when they are paying off. I therefore ask the House to give the Bill its Second Reading so as to enable the scheme, in a modified form, to be continued for a further time.

4.53 p.m.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

When, last week, we debated the Ways and Means Resolution governing the Bill I suggested that what was needed was not so much an explanation as an apology from the Minister. It is true to say that in his opening remarks the Minister got as near to an apology for the Bill as we are likely to get. As for the explanation, I must say that I find it a trifle odd. On the one hand, he was saying that he was very optimistic about the general economic position, that there was nothing to worry about, and, on the other hand, he was a little pessimistic and did not think the Government could do other than introduce the Bill.

That takes me to the core of the whole point I want to make and on which I shall concentrate. It is right and proper to stress how much more cautious the Minister is being this year than last. As he points out, when what is now the Act was introduced last year, the temporary nature of its proposals was stressed time and time again. On 22nd November, the Chancellor of the Exchequer said: The scheme is not one which can or should be kept in being for more than a limited period, but it will have a powerful effect over the next few months … "— [OFFICIAL REPORT, 22nd November. 1968; Vol. 773, c. 1796.] Again, the Financial Secretary himself, speaking last year as Minister of State, on the Second Reading of this Bill's predecessor, said: It was made abundantly clear that the Government view this as a temporary Measure, as a Measure which is necessary in present circumstances to have an immediate impact on balance of payments … It is with reluctance that one introduces a Measure of this kind, but its aim is to have an immediate effect …"—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 865.] One can get further quotations from the then Financial Secretary throughout the Committee stage. On 3rd December, quoting the words of the subsection under discussion, he said that the duty 'shall cease to be in force at the expiration of a period of one year beginning with the date on which this Act is passed, or at such earlier time as the Treasury may by order …'".—[OFFICIAL REPORT, 3rd December, 1968; Vol. 777; c. 1484.]determine. It is, therefore, quite extraordinary that we should now be asked to consider a Bill precisely similar to its predecessor except that the rate is reduced from 50 to 40 per cent. We should go into it in some detail since the previous Measure was introduced in very much an atmosphere of crisis. It was first mentioned by the Chancellor of the Exchequer on a Friday afternoon, when he pointed out that the international monetary situation was very dangerous, and that this was an emergency measure which he needed to introduce.

Since then, we have had a quite different approach by the Government, and a number of things have happened internationally. We have had a devaluation of the French franc and an up-valuation of the German mark, and we hope that there is now greater stability in the world currency markets than there was then. Nevertheless, the Government propose to continue a measure which they themselves made abundantly clear was temporary. So we should examine their arguments. The essential point that we need to make is that in our view the Government are right to be cautious about the present economic situation, but that it would quite wrong to rely on the Bill and to perpetuate the scheme, because it has very adverse effects to which I shall refer in a moment.

The fact is that if it were true, as the Prime Minister, for example, is constantly assuring the House, that there had been a fundamental change in our economic structure, the Bill would not be necesasry, because all it would be doing would be increasing the improvement and bringing it forward a very short period of time. It may be that if the Bill had not been introduced a number of imports which had been delayed because of anticipation of the ending of the scheme would have taken place. The Government do not think that the amount is very large. The National Institute for Economic Affairs thinks that perhaps it would be between £10 and £20 million. But now that the scheme is to be continued, some of the delay will come about. The effect is small one way and another; none the less, if there really were a continuing long-term improvement in the balance of payments, and the Government were confident, they would not need to resort to the Bill.

One of the worrying things was pointed out by my right hon. Friend the Member for Barnet (Mr. Maudling) on 21st October, when he suggested that the Government were really quite wrong if they thought that the introduction of this Bill would not itself have some effect on confidence. It is not sufficient for the Prime Minister to go round saying that all our economic problems are over and then for the Government to introduce a Bill like this which shows just how very worried they are about the actual situation. We must, therefore, examine why it is that the Government are so nervous and why they feel that even this scheme should be continued despite its disadvantages.

Two main points are clear. The first is that the Government are now worried about the situation brought about by their own weakness over wages and prices in the public sector and that as this is in danger of undermining the Chancellor of the Exchequer's entire strategy they do not think that they can allow even this moderate amount of relaxation and yet avoid the disadvantages.

The second is that the Government realise, although they will not admit it, that any Government can achieve a balance of payments surplus if they are prepared to sacrifice all their other aims as well. This is the difficulty that any Government face. The crucial question we have to ask is: what happens to the balance of payments when the brakes are taken off again? It is an indication of the Government's hesitancy and lack of confidence that they feel the need for the Bill.

Before dealing with those points, there are two other things that perhaps I should say in parenthesis. I make it very clear that we on this side welcome as strongly as anyone the improvement in balance of payments that has taken place, but it is the duty of the Opposition to appraise the situation as they see it and to put forward arguments for their view.

I hope that we shall not have more speeches by the present Home Secretary about an £800 million deficit in 1964 as, apparently, we had again last weekend. Time and time again we have explained why this is so. It cannot be reconciled by the kind of "Sunny Jim" speech that he was making in his own period of office, because we have had many troubles since, although he said then that the deficit problem had been overcome, and so on.

We need to get the actual figure in perspective. All of us have problems when we come to look at figures on the balance of payments with overseas debts of £3,000 million. If we knock off the noughts from the end and treat them in simpler terms, we have run up overseas debts, looked at from the point of view of an ordinary banker with an ordinary customer, of about £3,000. If we look at the amount being made on a current account basis, the Government have had surpluses, on the most optimistic basis, over the months of £40, £22 and £3, giving a total of £65. On the whole, if a person goes to his bank and says, "I am sorry, I have run up £3,000 in debts over five years, but I have £65 on current account," I do not think that this would be justification for people saying that his economic problems were over. It is true that there has been an improvement in our invisible earnings. The Government have done everything by way of S.E.T., and so on, to frustrate these rather than encourage them.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

The hon. Gentleman, in his usual way, is being quite fair in his critical argument, and I am not complaining about that. But when he makes simple comparisons, saying that we would be in trouble with the banker if we were still under a heavy liability of £3,000, he forgets that the banker would also want to know whether we were servicing the original debts, and had any assets as a result of those loans being advanced. It is not quite fair to put it like that. Every major British employer of labour, every industrialist, is running into enormous debts to finance work in progress. So long as he finances those debts by paying the interest on them he is not in any trouble with his banker.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

This is a net increase in debt, over a time, and it is doubtful whether there has been any increase in corresponding real assets.

I have two main points to put forward. First, the Government are concerned about the present situation and are determined to introduce this Bill because they have been irresponsible in the public sector, in wage claims. The Government have now given up any pretence that they are really maintaining any coherent prices and incomes policy. True, the latest economic estimates of the Treasury seek to put a brave face on this but the Economist for 15th November says: Nevertheless, the Treasury has to admit that the index of average earnings in July and August, taken together, was already 3 per cent. about its level in January-March and less six months before. In the period October-December, the number of inflationary settlements is likely to rise considerably. It goes on to say that we could well have a very rapid increase indeed in the coming months.

If we look at the individual wage claims generally, whether of the miners, or the dustmen, with an increase of 16 per cent., exhibition stand-fitters, 16·3 per cent., British Leyland—spreading into the other sector—up into the 14·4 per cent. figure, it is abundantly clear that all pretext of the norm has been totally abandoned and that the Government are right to be concerned.

It has been sought to justify this in terms of productivity, but in almost every case the increase in wages has taken place, on ground of productivity, before the increase in productivity has taken place in the specific industry. This has undermined the entire Government policy. Now we hear that the right hon. Lady, at the D.E.P., is planning pay rises for another 900,000 workers. We are entirely in favour of a high-wage, high-efficiency economy, but we do not believe that Government's present measures are likely to bring that about. We do believe that the claims and the pace being set by the public sector is likely to be inflationary and, therefore, the Government will be unable to take measures in other areas which on grounds of encouraging investment they ought to take.

We do not know what the position will be when the brakes are taken off. In essence, my right hon. Friend the Leader of the Opposition, in the debate on the Address, compared the Chancellor —I thought it was a singularly accurate metaphor—to a juggler with five plates, one full employment, another controlling inflation, another collective bargaining, the fourth economic growth and, finally, balance of payments. He pointed out that the balance of payments was the only plate which the Chancellor had in the air at the moment. If I may presume to extend the metaphor it seems that the crucial question is what happens when the Chancellor seeks to pick up the other four plates? This is really the point at issue.

Once this is attempted, what happens to the balance of payments? So far, we have no real evidence to support the view that there will be other than a repetition of previous circumstances. The danger here is to investment, because if one looks at the present situation, with the credit squeeze, it will be seen that it is adversely affecting investment. The effects of this can only be resolved either by allowing profit margins to rise in the present squeeze, which will inevitably mean an increase in prices and a further inflationary spiral, or, alternatively, the Government will have to take the kind of line which the Minister is suggesting, to have a continuation of the credit squeeze, which, in turn, will shrink investment.

Either way, the Government are in a difficult situation and we do not accept that the Bill will do anything significant to help them out of their dilemma. The main objections to this Measure can be listed easily. It is important not to say that this is something which, given the picture we have been discussing, is necessary, but rather to ask whether it is the right Measure in the present circumstances. It is clear that it has a number of grave disadvantages, internationally and nationally.

If we look at the international position we must refer again to the grave doubts expressed in the debates last year with regard to whether this Measure is consistent with our legal obligations under the G.A.T.T. or European Free Trade Area proposals. This was debated on 3rd December last year at great length. My right hon. and learned Friend the Member for Epsom (Sir P. Rawlinson) pointed out that the Government were apparently applying a duty, as they are in the Bill, and it was abundantly clear that this was a duty charged upon commodities on their importation into the country and that this was inconsistent with the European Free Trade Area convention which said quite clearly that member States shall reduce and ultimately eliminate, in accordance with the Article, Customs duties and other charges. He went on to say that the Article pointed out that member States should not apply import duty on any products at various levels and that the member States shall not apply, directly or indirectly, to imported articles any fiscal charges in excess of those applied indirectly to like domestic goods.

There is grave doubt about the legality of this Measure. When I challenged the Financial Secretary on this in the debate on the Ways and Means Resolution last week we were told that this was really not a problem, that it was discussed in the debates in E.F.T.A. last year and as a result the E.F.T.A. Council effectively agreed to defer the matter and to take no action upon it. When it came up in the present context the Minister told us that it was decided not to mention it. I do not think that it enhances the international prestige of this country or confidence in its economic situation if the Government can get round doubt about the legality of these measures only by ensuring that they are not discussed, and by pushing them under the carpet.

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

Whether they are discussed is not a matter for Her Majesty's Government, but for the other members of the E.F.T.A. Council, and they chose not to raise the question.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

It is no good having a situation in which the House argues the case and strong feelings are expressed, and some overwhelming arguments are put that the import deposits were not legal, and then the Minister tries to get round it by saying that this was simply not discussed in the E.F.T.A. Council. This is not a satisfactory situation. If there is doubt about the matter, the Government should have sufficient confidence themselves to take it to the E.F.T.A. Council and have it decided in one way or the other. This they have refused to do. We know that this is something they find objectionable, but it is a matter which should be decided beyond doubt.

Photo of Sir John Hall Sir John Hall , Wycombe

In the debate last year I asked a number of questions of the Attorney-General. I asked whether or not this was legal and the House was given the impression at that time that it was. Is my hon. Friend saying that this is not legal under the terms of the E.F.T.A. agreement?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

My feeling was that I was convinced by the argument that it was not. It is now becoming abundantly clear that the Government are not prepared to put the matter to the test. They have avoided doing so.

That this is clearly contrary to the spirit of the E.F.T.A. convention cannot be seriously disputed. That being so, it is clear that actions of this kind—in particular, repetitions of actions of this kind —are likely to result in an adverse effect on treaties with the E.F.T.A., the I.M.F. and the G.A.T.T. Yet we in this country have more to gain than anyone from a rapid expansion of world trade. This kind of action inevitably tends to encourage restrictionism rather than encouragement of further free trade and inevitably protectionist elements at a time when we are anxious that they should not succeed.

On the more detailed domestic points, we have some difficulty in recognising the picture painted by the Financial Secretary as it concerns the credit squeeze. Travelling around the country, particularly in the East Midlands and Yorkshire, I have been very much struck by the severe effect the credit squeeze is having on a number of otherwise extremely viable concerns. This will no doubt be seen in the coming winter in the effect of bankruptcies, liquidity and the level of activity of ordinary viable commercial concerns.

The Bill is very unfair and discriminatory against a particular group of people—importers. The Government last year sought to suggest that it was purely temporary. In such circumstances it might be that this group could bear this kind of impost, but if one looks at the kind of profit margin normally achieved by those in the import industries it becomes abundantly clear that it is very little, if anything, greater than the extra cost they will incur as a result of this scheme.

Instead of the normal system by which they borrow money to finance activities, pay the interest and make a profit, they now have to borrow roughly half their additional capital, pay a rate of interest on it which may rise as high as 14 or 15 per cent., and then lend it to the Government free of interest. The amount they will incur by this kind of transaction is likely to be roughly the same as the profit which they would normally make.

A number of firms in a perfectly viable position—some of which have been operating for 60 years or more—suddenly find their whole livelihood taken from them. This the House should bear in mind when deciding whether to perpetuate a proposal of this kind. It is objectionable even in the short run, but if it is perpetuated it will put out people who have viable businesses meeting the needs of their customers, by an arbitrary act. I hope that we shall have an opportunity of returning to specific cases on later stages of the Bill.

At the moment, there are a number of examples of cases which are not exempt under the present provision which we should seriously consider. The imposition on paper and board for packaging must make it more difficult for firms which package goods for export. For plywood, there are no adequate substitutes. The total United Kingdom supply of plywood is about 4 per cent. of overall consumption. The imposition of the surcharge on plywood must increase total costs of production. I understand that although the import duty has been removed by a special provision by the Board of Trade from certain types of steel needed for exports, the import deposit will still be charged. This is an absurd situation which we should discuss in detail in later stages on the Bill.

I invite my hon. and right hon. Friends to join me in opposing the Second Reading of the Bill. First, because it perpetuates a device which was originally introduced in last year's crisis. It was objectionable then, but it is a great deal more objectionable now. Secondly, it is contrary both to the letter and spirit of the law. The Government are not prepared to meet the first point and put it to the test, and on the second it can have only an adverse effect on international relations and the prospect of encouraging world trade. Thirdly, it is quite clear that the Measure further accentuates the credit squeeze at the beginning of a winter which is likely to be very difficult for many sectors of in- dustry and discriminates against a small part of the business community in an arbitrary way.

This is not to say that we believe the balance of payments to be in a satisfactory situation. On the contrary, we still have grave doubts about whether the Government will succeed in maintaining the surplus once they take the brakes off. Although further measures are needed to achieve a solution to our economic problems—particularly trade union reform and reform of the tax structure so that the principle is not that the Government collects all the money and then decides who shall have some back rather than leaving it to industry to decide what to do with it—this Bill is a very objectionable device. I hope that the House will reject it.

5.7 p.m.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

We are dealing this afternoon with a very complex question. In support of the Bill we have had some very powerful arguments presented by the Financial Secretary. I hope that I may be able to say without rancour or malice that, having been in this House for a number of years, one becomes a little sceptical of all professional economic opinion on major questions of this kind. I have been here long enough and listened to all kinds of wise prognostications and judgments about the unknowable to find that in the event we are faced with the fact that many of those prophecies which have been presented as objective, scientific analyses of our economic affairs have been presented purely from a political point of view and coloured according to on which side of the House the hon. Member sits.

I do not want to make too much of that except to say that we are dealing in this Bill with one of the pieces of protective legislation that has been designed by Her Majesty's Government to help to arrest inflation. Whatever our differences on the respective sides of the House on these matters might be, we all at least agree that one of the greatest troubles and tribulations which have afflicted all of us for the last 20 years has been the continuing adverse effect on our affairs of inflation. This has been a world-wide occurrence. Having shed our empire and what has been called our imperial heritage, our vulnerability has been particularly acute and we have had to take exceptionally stern measures to arrest inflation.

It was all very well for the hon. Member for Worthing (Mr. Higgins), in his very eloquent speech, to say that these measures are ill-conceived. He as a reasonable man with a liberal mind, although he sits on the Conservative benches, will be the first to agree that a fire brigade, having put out a fire, does not immediately return to the fire station whilst the embers are still smouldering; it keeps a watchful eye on things.

It would be unwise for the Government, because their policy is paying off aid because our economic affairs are reaching a state of success which has not been experienced for some years, to take these brakes off. The hon. Gentleman says to the Government, "Take the brakes off Submit your case to the international organisations—for example, G.A.T.T. and E.F.T.A.—with which Britain is associated". That would be most unwise.

I am as sensitive as the hon. Gentleman is to our good name and our standing in the international organisations of which we are members, but it was naughty of the bon. Gentleman to suggest that we are in breach of G.A.T.T. The General Agreement on Tariffs and Trade has specific clauses permitting a country which is having trouble with its balance of payments to take exceptional measures. Such suggestions as that made by the hon. Gentleman are theoretical to a degree which it is difficult to accept.

When we discussed this matter 12 months ago I had the privilege of addressing the House for a few minutes. I then cited, not a theoretical case, but the impact of these measures on our trade. I quoted the case of the textile industry, which used to be one of the major industtries in Lancashire. I have complained bitterly, in the House and elsewhere, about the unfair competition that the textile industry has had to face over many years and which has caused it to lose ground.

Twelve months ago, because of the tariff fiituation, there were large imports of towelling against the general run of the international trade in textiles. These measures have at least been accepted by Lancashire's textile industry as part of the answer to its problem. Some hon. Members opposite have supported these measures. I know that this is theoretical, and perhaps my hon. Friend the Member for Heywood and Royton (Mr. Barnett) will disagree with me.

When hon. Members opposite talk about imports and suggest, in resistance to the Bill, that these measures will have a damping-down effect on British manufacturers, they are very wide of the mark. Many of those who are importing many things that the country does not need and cannot afford are not manufacturers at all, but commission takers. The import machinery is not run by manufacturers but by agents and corporations who have never made anything in their life, any more than any Member of Parliament has ever made anything in his life, except many speeches—[An HON. MEMBER: "Speak for yourself."] Perhaps I am speaking figuratively. Hon. Members will allow me the liberty of a little humour, because we are all so miserable in these matters. We tend to look at each other as though we were reading the funeral oration for a dear departed colleague.

Britain is on the move forward. I want it to continue to do so. I do not accept that people who are taking commission for conducting international trade are adding anything to the nation's wealth. I therefore do not accept it as a valid argument that, because of the inconvenience to those who are having to tie up £500 million of their capital by way of deposits, this scheme should be ended. So long as it is necessary to maintain these controls, even at their reduced level of 40 per cent., I, who am sometimes critical of my own Front Bench, am completely with the Government and hope that the Bill will be supported by the House.

The hon. Member for Worthing dealt with the question of imports. He is aware, as is my hon. Friend the Minister of State, Treasury, that our imports have been greatly in excess of anything we either needed or could pay for. For many years they were rising at a rate of 25 per cent. per annum. Since the import deposit scheme was introduced, imports have been steady, with a nominal increase of 3½ per cent. and 6½ per cent. in the exempted class. This difference is even greater than the gross figures would suggest, because in this period devaluation at 14 per cent. has occurred. Taking 14 per cent. off the value of the currency means, other things being equal, that prices for imports should increase by 11½ per cent. Therefore, if we were dealing with the same volume of imports as previously, there would have been a far greater increase than 3½ per cent. To that extent, these measures have justified themselves.

Not wishing to make any polemical points on a very difficult matter, I want to say that I shall welcome it when Britain is sufficiently strong to remove all artificial controls on the free flow of trade. Until such time, as a British Member of Parliament my duty is to see that the interests of those I represent take priority over the interests of international speculators and people who are taking commission on the flow of international trade.

I leave it there, assuring my hon. and learned Friend the Financial Secretary, who has just returned to the Chamber, having missed a very good speech, that tonight he will have my strong support on this Measure. I hope he will continue these controls in force for as long as they are necessary.

5.18 p.m.

Photo of Mr Julian Amery Mr Julian Amery , Brighton, Pavilion

I agree with the hon. Member for Westhoughton (Mr. J. T. Price) that almost every doctrinaire view on economics is wrong. Having written three rather heavy volumes on the free trade tariff reform controversy, I am not at all inclined to be convinced of the infallibility of economic forecasts.

I find it difficult to make up my mind whether the import deposit scheme has done good or not. Some industrialists tell me that it has. Some say that it has not. With the proper humility which I hope that I always show in the House, I am prepared on this occasion to accept the collective wisdom of my right hon. Friends above the Gangway. If they say that the scheme is wrong, so be it. However, I shall support them tonight with a slight misgiving.

I grant at once that, if the Government had spent rather less on Government expenditure and given rather more encouragement to producers—inventors, investors, managers and workers—this would not have been necessary. I agree that if the weight of taxes had been less severe it might not have been necessary. I agree, too, that if the burden of debt had not been so heavy it would not have been necessary, but we have to deal with the situation as it is. When I say "we" I mean we on this side of the House, because this is a situation which the Government have built up, and which we look like inheriting.

The trade figures are better, and we are glad of that, but we are not out of the wood by a long way; and the Government's decision to keep on the import deposit scheme shows that they are conscious of this. There are a lot of unknown factors ahead. There is the deflationary trend in America. There is the gradual erosion of the Kennedy Round, as I see it. There are many other problems which may come up before we reach the end of the year ahead, and so I feel some sympathy—which I do not often feel for him—for the Chancellor of the Exchequer at his not wanting at this stage to dismantle whatever economic defences he still has.

This particular defence, as my hon. Friend and his right hon. colleagues argue, may not be a very effective measure, but it is a measure, and in deciding to oppose it tonight and I shall join my right hon. Friends in doing so—let us at least be quite clear what the implications are for us in the Conservative Party.

It is our avowed aim when we return to power to pursue a policy of economic expansion, to relax the credit squeeze, to cut taxes, and to strengthen our defences. I think that all those steps are right. But let us not be under any illusion that, even if the present Chancellor is as successful as he hopes to be, the measures that I want to see us adopt when we take over will put some pressure on the balance of payments.

We have in the past had a dash for freedom, and had it successfully. We confounded the critics who thought that we would not get away with it. We did it in 1932. Then we had a tremendous pool of unemployment and a great element of unused industrial capacity. It was thus fairly easy to expand without any strain on the balance of payments. We did it in 1952 when there was full employment and industrial capacity was fully utilised, but we still had then the network of wartime economic controls. These have nearly all gone, and there are very few economic defences left to any Government, even a Socialist Government; and the measure that we are debating is one of them.

Let us accept that this one is ineffective. Let us agree that we on this side of the House are right to vote against it. But I trust that we shall be very careful not to close our minds, from any doctrinnaire adherence to old-fashioned views of free trade, to other ways of regulating the flow of imports if we have to do so when we come back.

There are many ways in which it can be done, not least by administrative action in the public sector. I shall not go into them, because to do so would be out of order in this debate. I conclude by saying that I am not so confident about the situation that we are going to inherit as to be sure that we can do without at least some measure of economic defence where the import programme is concerned.

5.24 p.m.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

En the months before the economic miracle I thought on a number of occasions about the import deposits scheme as something that might exercise some sort of constraint on the rise in imports which was alarming many of us. In those times used to put down Questions, a habit which I have given up because of its futility. On two occasions I asked that a survey be published of the assessment of the effectiveness of the import deposit scheme. As the Chancellor turned me down, I thought that I would go to the source of all economic inspiration, at that time the Department of Economic Affairs.

In July, 1968, I asked whether a survey could be published of the operation of the import deposits scheme, and I received the usual polite but terse reply, "No, Sir". Being a loyal party Member of Parliament, I went round to my con- stituency during the Recess saying that an import deposits scheme had nothing to recommend it. When we returned to the House I discovered that we had in operation an import deposits scheme, which I found, not for the first time, slightly disconcerting.

I always thought that this was a slightly better type of approach, if one were trying to restrain imports than, for example, import controls. My interest in it grew when, following a publication in February, 1968, of the National Institute Bulletin which advocated import controls I asked one of the people who wrote the survey whether he had paid any regard to the possibility of an import deposits scheme. He replied, "Actually, we do not know very much about it, but we have asked the Italians to translate some of their documentation so that we can have a look at it".

I was not altogether put off, but I have never really been attracted to the import deposits scheme, because I felt that it would have an effective impact on the balance of payments. Its attraction for me has always been that, unlike import controls, it has this sort of deflationary side effect. I accept the figures given by my hon. Friend about the direct effect of import controls on the balance of payments, but I think that he is a bit optimistic about the addition to reserves because foreigners will put down the import deposit for importers in this country. They might have done that when they felt—perhaps they believe politicians in this country rather more than we do —that it was going to be of an essentially temporary kind. If they feel that it is something that will be with us for a considerable time, their willingness to put down the deposits might decrease somewhat.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

I see the point that the enthusiasm of exporters to finance their exports for six months may be somewhat diminished if the measure continues, but what is much more likely is that they will give longer credit, which may be for three months or four months. That is not unusual.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

I accept that. I do not want to go into any calculations on this rather difficult theme. In any case, my hon. Friend has much more experience of this than I have, and I should like to get him into a good mood because I am going to introduce a concept which always makes his hackles rise, and that is the concept of money supply.

We have to face the fact that although we have got a bit euphoric, if I may coin a verb, during the second quarter of this year because money supply—if I can speak in this old-fashioned term—was down somewhat, we now know that in the third quarter money supply has begun to rise again. The reason I support what the Government are doing is not because of its effect on the import bill, but rather because I feel that the net repayment of this £550 million held by Customs will have an unfortunate inflationary effect, and I am thinking only of the period up to the next election. The inflationary pressures will be very much greater, quantitatively speaking, than the deflationary pressures about which we have heard so much from the the hon. Member for Worthing (Mr. Higgins). I have a high regard for the hon. Member for Worthing, but if he sticks to economics and economic quantification he impresses me more than when he strays into the realms of political philosophy.

Perhaps I may say something in parenthesis here. The hon. Gentleman almost brought tears to my eyes when he talked about how terrible we were because we were breaching what he called the G.A.T.T.—I read those awful American detective stores in which the "gat" is entirely different from what, I suspect, the hon. Gentleman had in mind—or we were doing something which gave grave offence to our E.F.T.A. colleagues. I have never suggested that the world owes us a living in any sense, but, when we get on this high horse of international political morality, we should do well to look around the world and ask ourselves what other countries do in breach of all the sacred testaments of the G.A.T.T., E.F.T.A. and the rest. When the hon. Gentleman presses that point, he does not make any impression.

Also, when the hon. Gentleman talks about the terrible fate of people engaged in importing, I can only remind him that that sort of thing can happen to anyone at any time. To go from the sublime to the ridiculous, from the hon. Gentleman's importers who have been so gravely embarrassed by the Government to a constituent of mine who sells hot dogs, I must tell him that the local authority decided to draw two yellow lines along the road and, as a result of that terrible official act, my constituent is out of business. So let us all weep now. Perhaps we can forget that, and close the parenthesis.

I shall now be slightly technical because, as I have said, I feel that the reason why the Chancellor cannot at this moment release £550 million is quite simply that, on balance, the inflationary pressures which are likely to build up will be much greater than the deflationary ones. It is obvious—although one does not know the answer to it—that, on balance the Government will not in the next two quarters commit the heinous crime of increasing liquidity in this country. They may be a heavy borrower at the moment net because they are short of tax revenues, but this will be completely changed in the first quarter of 1970.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I am not clear whether my hon. Friend is now arguing that the only way open to the Government to control domestic credit expansion, even taking his argument, is through an import deposits scheme.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

No, I am not doing that. What I am saying is that there is a particular situation here in relation to the import deposits scheme which, if we unwind, would create a significant increase, perhaps, in the liquidity position in the country, in domestic credit expansion, money supply, call it what one will. On the whole, I think that the Government's operations might well be deflationary, and I think, too, that there might be a certain deflationary effect through the operation of the capital account internationally. We gather that we are almost in balance, but we could so easily move out of balance, and that would have a deflationary impact.

I am not sure that the great optimism about interest rates coming down will be fulfilled. The behaviour of the Eurodollar rate at the moment is fascinating. A fall from 11½ to 8½ per cent. made even pessimistic local government treasurers believe that we were at the beginning of a new millennium in this context. But the strange thing is that the Eurodollar rate has already swung back to 10 per cent. because of certain action which the Federal Reserve Bank in the United States is taking. The evasive action of what we can call the commercial banks always presents the Federal Reserve Bank with a difficult situation, but, if it so happens that, in order to circumvent the pressure which is being put on liquidity in the United States, the commercial banks increase their borrowing in the Eurodollar market, we may once again see funds going across the Atlantic out of our reserves; and that might have its deflationary impact.

But that is chicken-feed compared with what I regard as the potential inflationary pressure. Reading from that great journal of economic truth, the Economist, the hon. Member for Worthing, quite rightly, I think, tried to scare us about the inflationary impact of wage increases. I am glad that he left me the last sentence, and I thought that he would quote it all. The economists say that, on their calculations, this will add, at current rates, £3,000 million to the wage and salary bill of this country, and as it is at the moment only £25,000 million, that £3,000 million increase would make many of the other factors which we discuss look like peanuts.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

I am much obliged. I was searching for a figure, and I am now told that it is approximately 12 per cent. That is one of the reasons why I believe in rather more constraint on money supply, or, at least, a better mix of fiscal and monetary policy; and I say that precisely because I think that it will give us the right sort of financial framework in which these rather large—I had better be careful here, in case I am quoted in my constituency—wage bargains which have been struck recently would not be possible, if—and here I agree with the hon. Member for Worthing—the Government played their part more effectively in the public sector.

Apart from that, there are several other factors which we sometimes overlook when we say that about us all is despair and despondency, deflation, rising unemployment and the rest. There are other sources of inflationary pressure. One is the balance of payments itself. Nobody seems to use the argument that, if we move from a balance of payments deficit to a balance of payments surplus of, say, £500 million or £600 million—I had better stop myself at that figure—the inflationary impact of that is very considerable. There are all sorts of other influences. There is the considerable and continuing inward borrowing from the Eurodollar market. There is the apparently innocuous factor of the use of the funds which are flowing into this country to repay our swaps with the central banks, which have their sterling counterpart.

Finally, there is the effect of any short-term investment that comes into this country, the process so eloquently and poetically described as the unwinding of the leads and lags. All this has sterling implications, and as the country grows in economic strength it will, on balance, present an inflationary situation for the Chancellor.

What about the problem of disclosure by the banks? There will be a separation of deposits from reserves. To what extent will the liquidity position of the banking system increase next February? Technically, it will increase by between a half of one per cent. and one per cent. What will the consequences be?

What about the Bank of England? What will its policy be? I am certain that the Chancellor does not know its policy in relation to money supply. The Governor of the Bank of England keeps on saying that its means of support in the gilt-edged market have not changed, and that its objectives are the same as they ever were. I do not really believe that. If suddenly the investing public turned their back on the gilt-edged market, I wonder what the Governor of the Bank of England would feel he had to do. I think that he would feel he had to support it.

What about the monetary lags? What about that man Friedman, who is now dominating our economic consciousness? What will be the impact, if the Friedman lag is somewhere between six and 18 months, of the upsurge in the supply of money which took place in the fourth quarter of 1968? Nobody knows, but I am very good at posing questions. All I am saying in support of my hon. and learned Friend the Financial Secretary is that I think that on balance the inflationary pressures in the economy are likely to be sufficiently serious for him to retain the import deposits scheme.

5.43 p.m.

Photo of Sir Arthur Harvey Sir Arthur Harvey , Macclesfield

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) made a powerful case for a spring election. I only wish that all his colleagues on the Treasury Bench could have heard what he said. I also hope that the speech of the hon. Member for Westhoughton (Mr. J. T. Price) will receive full publicity in his constituency. If he discusses the matter with any of the small firms trading there, as his hon. Friend the Member for Stoke-on-Trent, Central has spoken to some of his, he will find that they are alarmed about the continuation of the tax, even at 40 per cent.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

I do not make wild statements in the House. I have spoken to textile manufacturers in my constituency who welcome the legislation and have supported it all along. I know that the hon. Gentleman would not wish to misrepresent me, any more than I would wish to misrepresent my constituents.

Photo of Sir Arthur Harvey Sir Arthur Harvey , Macclesfield

I am not doing anything of the kind. I also have the privilege to represent textile manufacturers, but they are in some ways a different category from those who import to reexport.

The Financial Secretary was very cagey in presenting the Bill, in comparison with what happened last year. He said that we must now be more careful. Why must we be more careful today? He also said the same amount of money was taken out last year and that no more damage would be done than was done then. But if one continues a tax for two years instead of one and small firms have not the liquid funds to reinvest, they are hurt twice as much. The hon. and learned Gentleman has hold of the wrong and of the stick if he contends that.

The hon. Member for Stoke-on-Trent, Central was right to talk about inflationary pressures. They are alarming. We have seen increases in pay for dustmen, firemen and so on, many of them justified to some extent. But there is a shoal of them, and such increases will become the pattern throughout industry in the months ahead, with terrifying implications for the economy.

But I want to return to the problem of import deposits. It is my firm impression that during the past 12 months most companies believed that this tax was to last for only a year. The Minister can say that the Government never gave a categorical assurance that it would not continue beyond the year, but the inference was there. Speaking as Minister of State, Treasury, the hon. and learned Gentleman himself said last 28th November: It is a stop-gap Measure, a temporary measure, to accelerate the improvement in our balance of payments, …"—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 868.] Nobody reading that would have thought that it would be continued for another period after a year.

In answer to a Question about the scheme not being revived after 5th December this year, the then Financial Secretary told my hon. Friend the Member for Leicester, South-West (Mr. Tom Boardman) on 1st April:

… It is not one which could or should be kept in being for more than a limited period and I have nothing to add to that statement." —[OFFICIAL REPORT, 1st April, 1969; Vol. 781, c. 220–1.] The decision to continue the scheme has thrown a great many firms out of gear, and I shall show why. It is not the Government that have achieved even the three months favourable balance of payments; it is industry. It has been said that firms dealing in commissions and so on do not contribute anything. But £40 million a month is earned through insurance, brokerage, shipping and so on. I do not think that many hon. Gentlemen opposite realise what the City of London contributes to our favourable trade balance. It should be given due credit for a great achievement; it has saved the day so far.

My information is that about 70 per cent. of the firms affected have been unable to meet their demands from United Kingdom suppliers, so they have still had to import the products they need. Some found the price differential was adverse. The cost of home-produced alternatives was a competitive handicap, and this in turn affected exports.

There are many extraordinary anomalies. We heard of many of them last year. For example, all calcium carbide has to be imported. It is essential in the production of many goods for export. But it is still necessary to pay the 40 per cent. import deposit, whereas Ferro alloys, which are allied to carbide, and manufactured along with it, are exempt. This does not begin to add up. Caviar can be imported free of the duty. We know that it is a food. Dirty rags, clothes, carpets and mats made with rope can all be imported without paying the 40 per cent. tax.

Therefore, I find it difficult to understand the workings of the Government's mind. I have had that experience for five years with the present Government. I found the workings of the Government's mind in the post-war years under the Attlee Government vastly better, because there was much more logic in what they did. One understood the Ministers better.

The reduction of the rate from 50 per cent. last year to 40 per cent. for the next period will do little to alleviate what promises to be the most severe squeeze of company liquidity since the war. Firms and individuals will have to pay their tax next spring, and that will be the testing time for industry. The scheme is bound to have an adverse effect on British industry's ability to invest. We want British firms to invest more, and the tax is holding the money back in Government hands when it should be going into new machinery and equipment.

Sir Steuart Mitchell emphasised in his paper to "Neddy" how grave the country's record on this score is. He referred to the age of our machine tools and the fact that in real terms British industrial investment is no higher than it was in the peak year of 1961. That is a terrifying thought when we talk about our industrial recovery.

The import savings are comparatively small; they are not enormous. That has been admitted. The National Institute puts forward the figure of £60 million for 1969. The Association of British Chambers of Commerce thinks that a relaxation would have eased the liquidity problems of industry but would not have seriously affected the volume of imports. The small companies are being increasingly affected. Let any hon. Member go to his constituency to get the truth from the people trying to run companies—and not the large companies. The I.C.Is of this world can find the money. It is the small firms which are affected. Seventy per cent. of British industry is made up of firms with from 70 to 100 or 200 people.

I do not think that the pressure which we shall get next year is fully appreciated by the Government. In the autumn, in early September, most firms prepare their industrial budgets, not just for one year but for five years ahead. They try to work out what their capital investment will be and what increases there will be in wages, bonuses, and so on, in order to make a cash plan for their business. Having done most of this work, they now have to add 40 per cent. for the import deposits scheme. I know that the Government budget, rather indifferently, for only a year ahead, but most firms try to look ahead for at least five years, which is the right thing to do. It would not be a bad thing if the Government did more of it themselves. We should then know where we stood.

On 22nd October this year, The Guardian predicted a noticeable jump in imports in the next two or three months. It is a well known fact that from about August most firms thought that this imposition would come off in the next few days. Quite rightly, they held back on imports because it was in their interest so to do. I have heard it said—I do not know whether it is true—that even the Government are holding back on the import of Virginian tobacco, not for import tax reasons but because it will help the balance of payments in the runup to the general election. I should like to know whether this is true. I am prepared to wager that in the next two or three months the import figures will increase considerably. I hope that they will not, but I think that there will be quite a large increase. Firms do not know when the tax will come off, whether it will he in the lifetime of this Government or the next Government, and they are uncertain about the future.

Reference has been raade to E.F.T.A. We have only to cast our minds back to the time when the Government slapped on the import surcharge overnight without reference to our friends and colleagues in Europe to know what an uproar it caused. This imports tax, which is not in the same category as the import surcharge, is nevertheless against the spirit of the E.F.T.A. agreement; I am not qualified to talk about G.A.T.T. I know from my friends in Europe that they resent this imposition very much. Even the Irish Government are very concerned and are seeking discussions with the Government about it at an early date. We should liberalise trade as much as possible.

I ask the Government to think about this matter very carefully. While we have had two or three months good trade figures, what will happen next year if the Americans continue with their deflationary policy and world trade goes against us? Surely we want to get the momentum going in this country. Recently home sales in the motor car industry have been right down, and this must in the long term affect export business. That applies to every other industry in this country which is trying to export. We live by exports. I hope that we shall have a better explanation when the Minister winds up than we had at the beginning of the debate.

5.54 p.m.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

It would be a mistake for me to agree with the suggestion of the hon. Member for Macclesfield (Sir A. V. Harvey) that all small firms have been hit by the import deposits scheme. Obviously one cannot make a generalisation like that. I agree that a number of small firms have been hit, depending on whether their imports are essential or not. I support the plea which he made by implication and the plea made by the hon. Member for Worthing (Mr. Higgins) for the Schedule to the Act to be examined again so that many of the borderline cases—and I wish later to mention one with a constituency angle—between essential and not quite essential raw materials may be considered and adjustments made before the Bill goes on the Statute Book.

I was very interested in the rather peculiar speech of the hon. Member for Worthing. I have often chided him by saying that his speeches run to a common pattern. He lambasts the Government politically in the first part of his speech and then quickly goes on to make some constructive observations to which I always listen with great attention. But on this occasion he was politically critical throughout his speech. That rather destroyed the impact which he wished to make on the House.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

As my hon. Friend says, it was out of keeping with the hon. Member's usual way of trying to educate —and I mean this quite sincerely—the House in his economic theories.

I was interested to hear the hon. Gentleman say that he had been venturing north of Watford to discover, in the areas where the wealth of the country is produced and not squandered in places like Worthing, what is going on and how far the import deposits scheme has affected the firms there. He said that many of the firms which he went to see, I believe in my part of the country, told him that the scheme had harmed them, that their cash flow has been upset, and so on. He went on to say that many of them were 60 years old. This gives the clue.

I know many small firms in my part of the country. What they are suffering from is not so much this scheme or any other measures introduced by the Government, which the Opposition say have placed unfortunate impositions on them, but managerial inefficiency.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The point which I was making was that the scheme is seriously jeopardising the future of many firms which have been in operation for a long time and which would be perfectly viable were it not for the scheme.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

I should like to examine the firms. I do not deny that the hon. Gentleman believes that what he is saying is correct.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

He believes what he has been told.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

I do not think the hon. Gentleman has spent long enough in the areas where the wealth of the country is produced to discover precisely what is going on. I should be very glad to take him round and to show him what goes on, not only in the board rooms but on the workshop floors, and to look at the old-fashioned machinery and methods which some firms stick to. It is about time that a lot more pressure was put on them to bring them up to date. I do not propose to say anything about the hon. Gentleman's curious use of statistics, which began in 1965. Apparently, nothing went on prior to 1965, when the hon. Gentleman was putting forward his views.

What impressed me was the comment—and the hon. Member for Macclesfield echoed this and, to some extent, I agree with it—that wage increases on the scale that we have had recently could lead to inflation. I understand that if the Conservative Party had been in power the increases recently granted to dustmen, firemen, coal miners and others would have been strenuously opposed by a Conservative Government.

The hon. Member for Worthing went on to say that a Conservative Government would introduce trade union law to put legal restrictions on demands for wage increases made unofficially by work-people. This is not the time to discuss trade union law, but when we discuss that matter later this Session we shall put some pointed questions to hon. Members opposite about how a trade union law of that kind would operate. I understand that workpeople would have no defence if they came out unofficially on strike against a trade union agreement.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The right hon. Gentleman must accept that I said no such thing as the proposal which he has just attributed to me.

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. Both the hon. Gentleman and the right hon. Gentleman are getting rather out of order, even on the Second Reading of the Bill.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

It was the combination of the two observations that led me astray, and I accept what the hon. Gentleman has said.

I am prepared to believe that the import deposits scheme has played a part in improving our trade balance and in bringing our balance of payments into surplus. For many years our national imports bill has been far too high, and unnecessarily too high. We have been importing far too many goods which should have been and could have been manufactured competitively here, and I agree with all those hon. Members who have said that it is only on a competitive basis that we can keep our imports. It is the backwardness cf many firms and of British management which has prevented us from competing effectively, and, consequently, imports have come in on too big a scale. It is my experience that the import deposits scheme has made many of the smaller firms look again at what they can do to save imports and to get things manufactured in this country, but there are many essential materials which must be obtained from abroad, and I mean not just the raw materials not found in this country but materials which are essential for British industry.

The hon. Member for Macclesfield mentioned one of them, calcium carbide. Curiously enough, I want to mention silicon carbide, which is of great importance to many of what are called the light trades in Sheffield, cutlery manufacture, hand tools and things made of the special steels which are manufactured in Sheffield. The abrasives industry, as it calls itself, has to produce grinding wheels and other abrasive equipment for modern grinding methods, and it has to use silicon carbide to do so. Silicon carbide might be made in this country, but if anyone were to set up a plant to manufacture it, he would have to be heavily subsidised, because its manufacture requires a great deal of cheap electricity. That is why the biggest manufacturer in Europe is Norway. I understand that there is surplus capacity in Europe for the manufacture of silicon carbide which we want here. Just because the classification of the various groups in the Schedule follows a sort of traditional pattern and the classes are fairly wide, silicon carbide is buried in one of the classes and is not exempt from import deposits although it is an essential material.

Here I come to the point mentioned by the hon. Member for Macclesfield about small firms being affected by import deposits. It depends a great deal on the extent to which they are dependent on essential imports. The firms which I am mentioning which use silicon carbide have to obtain what is practically their main material from abroad. There may be other materials of this kind which are essential to the manufacture of goods in this country and which must be imported because they cannot be produced here economically and for which it would be impossible to start plants on the basis of import saving. I therefore think that the classifications in the Schedule should be looked at again and I make a special plea, admittedly on a constituency basis, for silicon carbide.

I am sure that there are many other marginal cases of this kind, marginal in the sense of the classification in which they appear, which should be looked at again. I sincerely hope that my hon. and right hon. Friends in the Treasury will undertake this exercise so that the Schedule may be amended before the Bill reaches the Statute Book.

6.6 p.m.

Photo of Mr Kenneth Baker Mr Kenneth Baker , Acton

Any debate on import deposits has to start with the question of how effective they have been over the last 12 months, because they have been operable since November, 1968. Have they been effective in restraining imports? This afternoon the Financial Secretary put forward three reasons for import deposits, but they were three very different reasons from those which the Government adduced a year ago. He said that they were important first because of their effect on domestic credit; second, because of their effect on the reserves; third, and in a very minor way, because of their effect on the import bill. When the Government introduced these measures a year ago, those three arguments were in exactly the reverse order and the main argument was that there would be a significant effect on our import bill.

One has to start by asking what effect there has been on the import bill. The Chancellor of the Exchequer gave the lead to the Treasury case in his speech earlier this year when he said: There is no way of quantifying the precise effect of import deposits. In the second breath he took after saying that he said categorically: But there can be no doubt that the scheme has had a useful restraining effect on imports …"—[OFFICIAL REPORT, 21st October, 1969; Vol. 788, c. 953.] What did the Chancellor mean when he referred to a useful restraining effect on imports? How can he know what the useful restraining effect is if in a sentence earlier he has said that there is no way of quantifying the precise effect of import deposits? It is illogical to say that the effect cannot be quantified and in the next breath to say that there has been a useful restraining effect. Can the Minister of State, who will be speaking tonight on a Bill for the first time as a Minister at the Treasury, start by explaining what the Chancellor meant by that? The Minister of State is an acolyte of the temple and much of his time will be spent explaining the Delphic utterances of the Chancellor, and we should like him to start by explaining what the Chancellor means by a "useful restraining effect".

I think that the scheme has had only a little effect in restraining imports, a marginal effect. The Financial Secretary as good as admitted that when giving us the figures for the five years prior to the scheme for imports of goods on which import deposit now has to be paid and which rose by 13 per cent. whereas in the last year they have risen by only 6½ per cent., or roughly half; but imports of those goods which are specifically exempt from import deposits in the same five-year period rose 5 per cent. and last year 3 per cent.

Photo of Mr Kenneth Baker Mr Kenneth Baker , Acton

No, I believe that that is what the hon. and learned Gentleman said. My own researches into some sort of pattern in trade would indicate that that is the case. This change in the relationship between exempted and non-exempted goods is statistically insignificant.

But there are many other questions to which I should like an answer. First, how much money has been put up by foreign suppliers? How much will our reserves be hit when the scheme is withdrawn? Second, what proportion of imports are now covered by extended payments?

The Treasury Minister may ask "How can we be expected to know this?", but if we are being asked to extend the scheme for a further year we ought to have an answer to these questions, because the case for an import deposit scheme has yet to be made. The only evidence I have come across that the scheme is effective was a statement from the Spanish Foreign Trade Ministry last week when the Spanish Foreign Trade Minister said that the import deposit scheme had affected Spanish exports to this country. I give that to the Government for what support they can get from it. I suspect that even that opinion was distorted and owes more to the influence of the Gibraltar situation than to the import deposit scheme.

On this evidence we should be reluctant to approve an extension of the scheme. The Government are acting from two motives in bringing in the Bill. One is inorance, because they simply do not know the effect of the scheme, and the other is fear, because they are rather apprehensive of what would happen if the scheme were scrapped today. These twin motives of ignorance and fear seem to have been the constant companions of most Socialist legislation over the last five years. Quite apart from not believing that the scheme has been effective, I believe that it has had three very unfortunate side effects.

The first of these concerns the price of imported goods. A year ago we were told that the import deposit scheme would give a little inflationary push, it was thought as much as 2 per cent., on imported goods. The Government got to the strange figure of 2 per cent. by saying that the prevailing interest rate a year ago was 8 per cent. and as one had to put up import deposits for only six months it was therefore cut in half to 4 per cent., and as one only pays 50 per cent. of the amount of the goods it is cut to 2 per cent.

Let us do this strange sum in the figures of today. Take a rate which many importers have to bear, of 15 per cent. Halve that to 7½ per cent. and halve that again to 3·75 per cent. That seems to be the minimum inflationary result on these imported goods. There is a price increase in the region of 4 per cent., I suspect slightly higher. This is entirely gratuitous inflation. It is not inflation due to any act other than the import deposit scheme It is totally unnecessary.

The second unfortunate side effect has to do with the point raised by my hon. Friend the Member for Worthing (Mr. Higgins); namely, the legality of this measure. I quite accept what the minister says, that we are, strictly, acting within the legal framework of E.F.T.A. and G.A.T.T. Loopholes in both these arrangements allow certain countries to bring in measures of this sort, but were mainly intended for the small countries which get into difficulties. They were never intended, particularly with E.F.T.A., for the richest and most powerful country in the Association; namely, the United Kingdom. To use them once last year was bad enough, but to do it a second time is humiliating.

The third effect is the effect of the scheme upon liquidity of companies in our economy. There is no doubt that business throughout the country is under considerable pressure because of the cash flow situation. This is not surprising when we realise that only a month ago businesses had to meet extra S.E.T. charges totalling annually £120 million, extra National Insurance charges payable this month totalling annually £150 million and extra corporation tax charges payable next January which come to £120 million.

In addition there is the whole force of the import deposit scheme, which comes to £558 million. Companies throughout the country are strained, and in my business experience and the experience of many companies in my constituency, investment programmes are being cut. The Financial Secretary virtually admitted this when he said that there is an improvement in investment and hon. Members opposite could argue that it would be even better without this scheme. It would be substantially better without it. Money is so tight that we have seen the growth of a subterranean money market to finance import deposits. Hon. Members can see advertisements in the financial press and in various magazines by people who are prepared to put up money to finance import deposits. The starting rate for this is usually 15 per cent. or more. The money-lenders are doing well under Socialism. There is plenty of life and soul for those engaged in usury. This is a further example of how Socialist controls create the conditions in which "spivs" survive.

Because there are these unfortunate side effects I would not support the scheme, because I do not believe that a case has been made out for extending it. I do not believe that overall it is effective. It has harmful effects on the liquidity of companies, particularly small companies, and I hope that the House will reject it.

6.15 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

I am in favour of this Bill, but I should declare my interest in a small importing company. I am in favour of the Bill because fundamentally we have no alternative. The scheme as devised was intended to bring a certain restriction of credit and if one accepts this policy no one can say that we are now in a position to say that success has fully been achieved.

Whether or not the scheme did bring about a reduction in imports—and my own figure all along of £50 million or £100 million was not far out—we are not in a position to allow imports to rise suddenly. The Chancellor has no alternative but to continue the scheme and to find a more suitable means of ending it in the diminishing manner to which my hon. Friend referred. I am not too sure about what level of credit restriction we should be engaging in, but one thing is fairly clear and it is that the policy of the Government permits no rapid increase in credit until the balance of payments situation continues along the present course for some time.

I have always felt that we have underestimated the enormous changes that came over this country in the last decade, and the kind of reactions which we should have undertaken long ago. In my latest Answer from the Board of Trade I find that exports to the Commonwealth are now only 22 per cent. of our total exports as compared with a level of 45 per cent. throughout the 1950s. A crucial change has come over our trade, a reorientation from the Commonwealth to other markets and it has brought in its train some necessary fundamental changes in the direction of our economic policy, to which we have always reacted far too late.

My own solution all along was to impose restrictions on imports, preferably by means of import quotas, but if not by this, then at any rate by getting some advantage from the use of import deposits. A better alternative would have been a floating rate for the £. I always felt that control over imports is really the kernel of the issue. However much incentive and encouragement the Government give at any time to exports these are something which depend upon the importing countries whereas we do have absolute control over imports, whether by means of import deposits, which can be varied or import quotas which can be rigid. This is a matter for argument, but there has always been the possibility of exercising control over imports, which we utterly funked for too long. We are not now in a position to introduce import quotas. We are now too far committed to our present strategy. I regret the opportunity to use quantitative restrictions of imports but it is now too late. We have had, first, the import surcharge and now the import deposits scheme, and there is no room for any further experimentation.

I come now to the question of legality. If the countries with which we trade, or countries with which we have financial or monetary agreements—and I include the I.M.F. here—feel that there is something wrong in taking unilateral action of this kind, then that view must be contested. I do not believe that they can hold a view as rigid as that. If we are not allowed to introduce import quotas because that would be contrary to the G.A.T.T., or to move to a floating rate because too many people have interests or theories against it, then we are faced with an impossible situation in which we are unable to manage our own economy in a way which any Government have a right to manage it.

No other country which has been in economic difficulties has accepted a situation in which it would be unable to exercise a degree of control over its economy. A country cannot be put in a position where it cannot advocate controls in the final resort. Whether it be by import quotas or deposits, by floating exchange rates or by other means open to them internationally, a Government must have control over the economy of the country in order to get the balance of payments right, and if this means a conflict with a certain number of international agreements, then that merely proves that those agreements are wrong. That is the only possible conclusion if countries are to be placed in a position where they cannot act to maintain a proper balance of payments situation. So I accept wholeheartedly the need to continue the scheme but I hope that it will be possible to phase it out in the manner suggested by my hon. and learned Friend.

The phasing out required can be left for decision later, both as to the percentage of deposit and the term of deposit. It may be done by one or other or both; it depends on the circumstances over the next 12 months. With the balance of payments situation as it is, we need to wait a few months longer.

6.22 p.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Earlier, the hon. Member for Westhoughton (Mr. J. T. Price) warned us, properly, that we should try and avoid omniscience in making our forecasts of what was liable to happen in the next year or so if we did or did not renew this scheme. Many of us, in looking back on forecasts we have made over the last 18 months or longer, will hardly dispute the wisdom of that remark.

As always, I listened with great attention to the hon. Member for Ashton-under-Lyne (Mr. Sheldon). While I respect many of his ideas, I have always regarded his views on the control of imports as his Achilles' heel. I do not know whether he was among the large majority of hon. Members opposite who voted for the Government's decision to apply for membership of the European Common Market, but he would no doubt accept that the sort of autonomy he demands is incompatible with membership of the Community. I regard that as one of the Community's more attractive rather than less attractive features.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The hon. Gentleman will no doubt recall that France imposed import quotas last year.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Yes, but France had to get the sanction and approval of the Commission in order to do so. Of course it is open to any member to do so, but one cannot apply the sort of automatic autonomy in the Community which the hon. Gentleman is demanding.

I look forward with great satisfaction to voting against the Bill. My reason is a (most precisely the opposite of that advanced in favour of the Bill by the hon. Member for Stoke-on-Trent, Central (Mr. Cant). Here I am being careful to avoid any danger of hard and fast crystal gazing, but I have a strong suspicion about his forecast of dire inflationary dangers ahead. I think that, if there are dangers, they point in the opposite direction.

I was astonished to hear my hon. Friend the Member for Worthing (Mr. Higgins) complain that the Government should be introducing this Bill after what they had said last year about the temporary nature of the scheme. On the Government's record, cne would surely have been astonished if they had not introduced the Bill. It is quite normal with the Government that, when they say something is only temporary, it becomes permanent, and that, when they say something is permanent, it proves to be temporary. I am, therefore, not in the least surprised by the Bill. On the contrary, after all the Government said last year, I would have been surprised if they had not introduced it.

I am concerned about the reasons for retention of the scheme and its consequences. The hon. and learned Member claimed to advance three reasons but I detected a fourth, which I shall ber claimed to advance three reasons which he did advance, as has been pointed out, has been demoted from last year—the need for control of imports. I am glad that has been demoted because I regard it as the most heinous aspect of Government policy.

I always hope that the Government will resist the sort of pressures put on them by the hon. Member for Ashton-under-Lyne and some of his less numerate companions on the benches below the Gangway. The hon. Gentleman has now lost the assistance of the former President of the Board of Trade and of the Paymaster-General, who were both on the side of the angels. I am glad, therefore, that the hon. and learned Gentleman the Financial Secretary did not give the need to control imports as the first of his reasons in importance.

The first of the hon. and learned Gentleman's reasons in importance was control of credit expansion. We have not heard from the Government any explanation of the change of mind which undoubtedly occurred in the Government on this matter. In the Letter of Intent of last July, the Chancellor said that he planned to limit domestic credit expansion to £400 million in the current year. In October, he told the hon. Member for Heywood and Royton (Mr. Barnett) that he had made this forecast on the assumption that the import deposits scheme would be rescinded. What happened between July and October, when it was announced that the scheme was to be continued, to make the Chancellor, despite the substantial contraction in domestic credit expansion in the first quarter, change his mind and decide that, in order to reach his target of £400 million, the scheme should be renewed? We are entitled to an explanation because there clearly has been a change in the Government's thinking on this. The Chancellor has admitted it and no reason for it has been given today.

The hon. Member for Stoke on Trent, Central advanced several arguments for fearing inflation in the months ahead. One of his main reasons was the degree of inflation caused by recent wage settlements in the public sector. That is an argument which one should view with a certain amount of scepticism. There have, of course, been recent highly inflationary wage settlements in the public sector. Every time that the right hon. Lady sticks her sticky finger into the negotiating procedure, we know that the results will be all that much more inflationary at the end of the day.

I wonder, however, whether we will see settlements of that sort reflected in the general run of wage settlements in the private•sector of industry during the next six months, for this simple reason. After allowing for the effect of the Bill, which the Government are asking us to approve today, I do not believe that private sector companies will have the sort of cash flow that will enable them to do anything other than resist wage claims, perhaps, more severely than they have done in the past. In other words, I think that the general control of money supply in the domestic economy is now such that we may well expect that the effect of recent inflationary wage increases in the public sector is not followed in the private sector. If that is so, that argument for renewing the scheme falls down.

The fourth argument advanced by the Minister of State in support of the Bill was, to my mind, the most ominous of all. He said that if the import deposit scheme was not renewed, there might be an expansion of domestic private manufacturing investment to such an extent that the balance of payments would be damaged. That is a highly dangerous assessment because it amounts to saying openly that the purpose of renewing the scheme is to reduce the volume of private manufacturing investment.

Furthermore, the Minister of State—and this was why I interrupted him—referred to forecasts of private manufacturing investment during the next year and quoted a figure of 10 per cent. above this year. That clearly relates the Board of Trade's survey of manufacturers' intentions which was published on 21st October. The point about that survey was that it resulted from a questionnaire of firms' intentions taken in September, before there was any news of the Government's intention to renew the import deposit scheme and at a time when it was widely expected that the scheme would be taken off. I believe that, as several of my hon. Friends have pointed out, the effect of renewing the scheme must have a severe effect, particularly next spring, on companies' cash flow. The immediate effect of that must be to curb their investment intentions.

In the Minister of State's introductory remarks, the background against which this should be considered seemed to me to be very out of date. The hon. Gentleman was back on the track which his right hon. Friend the Chancellor gave the overseas bankers in October, when investment was "on course" and going ahead magnificently. Since then, the Chancellor has very much changed his tone. When he spoke the other day to "Neddy"—it is, I suppose, a question of horses for courses he sounded distinctly unhappy about the level of manufacturing investment at the present time. He said that the problems could not all be solved in one year and that while the investment level was not satisfactory, the Government could not get everything right at once. Therefore, the Minister of State's highly optimistic expectations about manufacturing industry are not only very out of date, but are even more out of date than those of the Chancellor. Hence, I find it difficult to accept the rosy picture painted by the Minister of State.

There have, of course, been suggestions, to which the hon. Member for Stoke-on-Trent, Central referred, that the automatic effect of a substantial balance of payment surplus would be to increase the amount of liquidity available in the domestic economy. That surely overlooks the operation of the Exchange Equalisation Account. The beauty—or the horror—of this is that just as the Government were free to continue to expand the money supply at a time of acute deficit in 1967–68, so they are free today, if they so choose—and they are showing every indication of so choosing—to contract the money supply at a period of growing surplus. Therefore, there is none of the automatic interrelation between the two.

Like my hon. Friend the Member for Macclesfield (Sir A. V. Harvey), I am also particularly concerned about the effect that the sort of acute liquidity squeeze, which, I believe, we will see in the early months of next year will have on smaller companies. For the larger companies, I believe that it will mean a drastic cutback in manufacturing investment, thus preparing all the most suitable grounds for the next balance of payment crisis in a few years' time. For the small company, however, which in many cases is probably up against its overdraft limits, it could well mean, as my hon. Friend suggested, a rash of bankruptcies. The consequences of this will be particularly acute in Scotland, where the private company—the so-called close company, so hated by the Chief Secretary to the Treasury—forms the backbone of our manufacturing capacity.

I believe that the consequences of a credit squeeze with the kind of intensity that the renewal of the scheme implies in the course of the spring of next year could have a serious effect on private companies in Scotland—a much more acute effect overall both on the structure of companies in Scotland and on the level of unemployment and employment than probably in other parts of the United Kingdom, where, on the whole, the privately-owned company is less significant in the contribution which it makes to the local economy than it is in Scotland.

When one considers that pressures of this sort seem to have been applied by the Chancellor very largely because of his personal tiff with the London clearing banks, who failed to come down to their lending ceiling and he therefore de- cided, apparently, almost in a moment of pique, to extend the import deposit scheme to teach them a lesson, it is irresponsible that such widespread effects should be caused in areas like Scotland in the pursuit of one of the Chancellor's personal quarrels.

What worries me most is not so much the direct impact of the Bill. I admit that the effect of not returning to companies the forced loans which they have made to the Government, as they expected them to be returned, in the spring, may be only limited in quantitative terms. What worries me is that this is an indication of the Chancellor's whole attitude, which seems to me to be one of "Hold on tight. Disregard all the danger signals on the internal credit system, keep all the goodies together for a good old consumer boom Budget next year—and then go on to the next balance of payment crisis thereafter".

6.40 p.m.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I always think of the Member for South Angus (Mr. Bruce-Gardyne) as the other extreme to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant). The hon. Gentleman always condemns domestic credit expansion out of hand, and my hon. Friend thinks it is the most wonderful thing in the world—at least at the moment. I find myself somewhere in the middle. I do not know what effect domestic credit restraint, in the way it is being used at the moment, will have on our economy. I really doubt whether either of the hon. Gentlemen really knows what effect, or how quickly, it will have.

I would like to say a few words about what the hon. Member for Worthing (Mr. Higgins) said in starting the debate for the Opposition this afternoon. He knows that I hold him in the greatest respect, but his speech today was extremely disappointing, to say the least. He said the reason for the Bill was that the Government were worried about the balance of payments because of the problem of prices and incomes and the way there was wage inflation as we have recently seen. He was concerned with what happens when the brakes come off, and he accused the Government of being irresponsible in their attitude to wage claims.

The hon. Gentleman is always very good at asking the most intelligent questions, but he is never quite so good in giving us the intelligent answers, because generally he keeps himself strictly to the questions, and he did so again today. When he accuses the Government of being irresponsible in their attitude to wage claims the assumption must be that he is implying that a Tory Government would be responsible about wage claims and that, though they would not be pursuing any legal, compulsory incomes policy, if they had control, none of these public sector wage claims would have been allowed.

I can only assume that that is what the hon. Gentleman meant and it would have been more honest if he had spelt it out. I think that is what he meant, but if my understanding of what he said is wrong I should be delighted to give way to him; but that is the clear implication of what he said. The obvious implication for the economy and the industrial sector of doing that, of preventing all public sector wage claims, is such as would not exactly help the balance of payments situation, I would have thought or, indeed, the economy generally.

What was perhaps the worst thing in the hon. Gentleman's speech was the way in which he spoke about the small importers. I myself have some contacts—considerable contacts, really—with small companies, small importers, and in last year's debate I declared an interest, in that I advise them. To suggest, as the hon. Gentleman did, that as he goes round the country and speaks to small importers he finds they are extremely concerned about their liquidity problems seems to indicate a less critical approach to the small companies giving him information than his normal, critical approach to the Government when they give information, because if he really expects any small company director to take a nice, optimistic attitude towards any Government proposals, then he really is rather more naive than I would have expected him to be.

My own experience is that pretty well every director of a small company will complain bitterly about all sorts of things, not least about Government action in all sorts of directions. To suggest that one should just accept their point of view without question is also to suggest that the hon. Gentleman is rather more naive in his approach to these matters than I would have expected.

However, at least the hon. Gentleman did not go quite as far as his right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) did last year in trying to have it both ways, as some hon. Gentlemen have tried to have it. The right hon. Gentleman said last year that the whole scheme would be ineffective because the money would be found, and then he went on to say that it would be damaging because it would featherbed home producers. I really do not quite see how it featherbeds home producers at the same time as it is not working, but that is precisely what the right hon. Gentleman said last year and what we are constantly being told.

I myself, as I made clear in the debate last year, do not hold out very great hopes—I never did—about what the scheme will do. I never like quoting myself, and I shall certainly not do so today, but 12 months ago I forecast that the scheme would not come off after 12 months, and should not come off, and I forecast that the money would be available to importers, and that the scheme would have a marginal effect; and, of course, it has.

I will take up the view that this is having a selective pressure on liquidity. This is what the hon. Gentleman and others have said, that it is having a selective effect on the liquidity of importers. This measure does not have that effect directly at all, because any importer, small or large, can find funds without affecting his current cash flow, and the hon. Gentleman really must know that. I suggested in the debate last year that it would be a very simple matter for an importer to put an advertisement in The Financial Times, saying, "Wanting to borrow money. Security for that money will be cash—that is, money left with the Government in deposits." He need not do that any more because there were and there still are advertisements in The Financial Times and elsewhere offering money—admittedly, at 15 per cent. and upwards: but money is available.

So it becomes a problem of price. It is the size of the tax, as it were, which is the problem, not liquidity. It is not directly a liquidity problem on small importers.

Of course, what happens with the larger firms is that they very often will use moneys which they have available and which they had meant to use for manufacturing investment. That is a different thing, and I want to come to that in a moment, but to suggest, as the hon. Gentleman did, that the scheme is causing small importers such liquidity problems asto put them into bankruptcy and liquidation is a totally false argument.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Yes, but that was not entirely my point. I agree that in many cases the point the hon. Gentleman makes about liquidity may be true, but my point was that the cost of financing the deposit on top of the cost of financing capital investment might be greater than the profits of the concern, particularly if it is perpetuated over more than a year.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The hon. Gentleman did not spell it out. He is wriggling a bit now. He was arguing about the liquidity problem of small importers. I am saying there is no problem because the money is available outside existing resources. Now he is arguing that it is increased cost. Of course it is true. It adds to the cost of the goods. Nobody would dispute it. Even at the 40 per cent. import deposit level, with the average rate of interest being charged today the real increased cost is probably somewhere between 2 per cent. and 3 per cent.—counting it twice a year, because it comes only every six months. This is an increased cost. All that is happening is like adding on purchase tax to the cost of goods. Most importers are passing that increase off. So we can talk about price inflation. But what we cannot do—I would like to get this clear—is to talk about small importers having a liquidity problem.

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

When the hon. Gentleman made precisely this point a year ago he went on to say that it would be deflationary. Does he still hold to that view?

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The hon. Gentleman is diverting me—[Laughter.) I am quite happy to be diverted, but I thought many other hon. Gentlemen wanted to get into the debate. All these fiscal measures will be, at one and the same time, both inflationary and deflationary; in one sense inflationary through increase of prices, and in the other sense deflationary in the way the hon. Gentleman the Member for South Angus was referring to it, in the effect on money supply. So there is a double effect. However, I hope I have dealt with this main point.

There is so much confusion about the effect on small companies. I am very concerned about the effect of the general credit squeeze on small companies, but the crazy thing about this situation is that this general squeeze is having an effect on small companies and not on small importing companies, because small importing companies can obtain funds. My criticism, therefore, is that this is not a selective pressure on liquidity but a general added pressure on liquidity.

My hon. and learned Friend the Financial Secretary gave some figures which seemed to show that the scheme was having some effect, and that where previously the non-exempt imports have been increasing at an annual rate of 13 per cent., they increased last year at the rate of 3 per cent. I am not sure whether those figures are correct, but the burden of his point was that the only evidence available showed a reduction in the increase in. imports. If this is so, and I accept that it is possibly so, although I believe that it is because of the general credit squeeze and not the selective nature of the pressure, and if it is perfectly legal. under G.A.T.T. and E.F.T.A., why say that it will be only temporary? If it is having only some effect, why not leave it? I have no objection to leaving it for some time if this is a legal weapon which is open to us.

The argument of the hon. Member for Worthing was that, having signed an agreement which we believed enabled us to put on an import deposit, we need to go to the other parties to the agreement and ask them to examine it in minute detail to find if it is wrong, although we have already said that what we have done is right. I cannot accept that argument.

If the Government's main concern and their top priority is to achieve an extra £50 million surplus on the balance of payments, then this and any other measure is of value. But that is not my main concern. My main concern is to give the highest possible priority to increased manufacturing investment. That 1 regard as a higher priority than an extra £50 million surplus on the balance of payments.

All the squeezes of recent years—and not going back merely to 1964—presumably have some effect somewhere on investment and on stocks. In the debate on the Queen's Speech I referred to research on stocks held by companies in this country which had been done by Norman Cunningham of the Liverpool University School of Business Studies, to which nobody seems to have paid much attention. The research showed that stocks as a percentage of national income over an eight-year period were 24 per cent. for the United States, 25 per cent. for Sweden, 28·5 per cent. for France and Germany and 45 per cent. for the United Kingdom. These are significant figures. All the credit squeezes seem to have had no effect in forcing management to look more closely at the level of stocks carried in relation to turnover. I put that down to inefficient management; it obviously cannot be put down to inefficient workers.

The hon. Member for Worthing is, I understand, opposed to credit squeezes and says that they are not the answer to our economic problems. But one would have expected that credit squeezes would have had some effect. We know that they have some effect on manufacturing investment and one would expect them to have an effect on the ratio of stock to sales and production. I would be interested to know from my hon. Friend whether the Government are looking at this aspect. The report of last year from the Washington Brookings Institute showed that our management was less efficient than that of some of our competitors. If this is so, it warrants close examination, because of the great damage that is done to our economic and balance of payments position.

The Government are not the first Government to find that the answer to economic problems lies in credit squeezes. We have had credit squeezes for a long time. Hon. Members on both sides of the House say how terrible credit squeezes are, but I wonder what sort of world they are living in if they think that for years and years there have been credit squeezes which have had no effect.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Would not the hon. Gentleman agree that the severity of the credit squeeze on this occasion is very much greater, in that for the first time since the war, I believe, the domestic money supply actually declined in the first quarter of this financial year?

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

A comparison of the current credit squeeze with other credit squeezes depends upon many circumstances, and it is unfair to take it out of context. The effect of credit squeezes on companies depends on many factors. One cannot say, with the stricter control of domestic credit expansion, that we are now, because of Milton Friedman and the money supply theory, looking more closely than we did at the amount of control. It may be that on other occasions the control was exercised without anybody being aware of it, including those exercising it.

The manufacturing investment figures have been bandied about, and all of us, including the Chancellor of the Exchequer, feel these to be inadequate. I do not want to go into the question of whether the manufacturing investment figures provided by the Board of Trade survey or the C.B.I. survey are the right ones. Those figures could be used in many ways. One problem about debates on economic affairs in the House is that, unlike the more reputable papers, we do not always separate opinion from fact. The hon. Gentleman, who is normally so good with his facts, got himself politically involved this afternoon, and we did not get a separation of opinion and facts.

It would be astonishing if the credit squeeze did not have some effect on the decision of a board of directors as to its expectations and also on liquidity. Whether or not management is efficient is not the point. The point is that manufacturing investment will be affected. If the figure goes up 10 per cent., one would assume that had it not been for the credit squeeze it would have gone up further.

One of the heaviest prices which we pay for parliamentary democracy is that manufacturing investment does not pay off in the short term. Every Government, not just this Government, put other economic factors before manufacturing investment because the pay-off from manufacturing investment does not come in the short term, and we have elections in the short term. This is one of the prices we must pay.

I put my priority with manufacturing investment. If in the process of getting a higher rate of manufacturing investment, vie had a balance of payments surplus of, say, £300 million instead of £500 million, I would be satisfied that my priorities were right.

7.0 p.m.

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

I was disappointed with the speech of the hon. Member for Heywood and Royton (Mr. Barnett) because I thought that this year he would come out against this scheme of import deposits in view of his remarks last year.

The hon. Member said on that occasion that he could give only half-hearted support to the scheme, which would cause much administrative trouble and distortion. He added then, however, that as it was to be only a temporary measure, he would support it. Like all of us, he thought that it would be temporary.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

If the hon. Gentleman will read the speeches I made last year he will see that I accepted the scheme not just for a year but, if necessary, for a longer period.

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

I thought that it was only only the hon. Member for Stoke-on-Trent, Central (Mr. Cant) who argued that it should be a permanent weapon for the management of the economy.

However, I was disappointed at the hon. Gentleman's speech because I thought that he was an uncompromising free trader who believed in liberalising trade. It must be beyond doubt that this scheme creates a non-tariff barrier to trade, a point which I wish to emphasise because 1 believe that it could have a serious effect in the present primate of world opinion.

A year ago, particularly when we debated the subject in Committee, we argued at length about whether import deposits would conflict with the Convention of Stockholm. It was agreed that the spirit if not the letter, of E.F.T.A. was being offended. At the time our partners in E.F.T.A. were disappointed. Indeed, they maintain that attitude. It was made clear at the meeting on 6th and 7th November of the Ministerial Council of E.F.T.A. that concern was still being expressed at the existence of this scheme. Yet they showed much understanding of the problem we were facing a year ago.

Our E.F.T.A. partners realised a year ago that we were in a state of crisis. They also accepted the word of Her Majesty's Government that this was to be only a temporary scheme. Indeed, several hon. Members have referred to the language that was used by the Government on that occasion. I remind the House of an exchange which took place between my hon. Friend the Member for St. Ives (Mr. Nott) and the Financial Secretary. The Financial Secretary said, for the nth time: It is temporary … to which my hon. Friend interrupted: Like Income Tax. The Financial Secretary replied: Unlike Income Tax, it would not need another Act of Parliament to renew it. Following that comment, HANSARD describes, in brackets, an "Interruption" —and we know that that is an OFFICIAL REPORT euphemism for a real old rumpus. The Financial Secretary added: I suppose that that is not so. All I can say is in anything like the present circumstances I would find it deplorable to renew any form of restriction, and it is not our intention to do so. Our intention at present is to bring this to an end automatically after 12 months."—[OFFICIAL REPORT, 26th November, 1968; Vol. 774, c. 267.] Exactly 12 months have passed, but far from the scheme automatically coming to an end—it would have done but for this Measure—we find the Government proposing it for a further year. This is causing our partners in E.F.T.A. not just apprehension but some degree of alarm.

Everyone recognises that as long as countries persist in fixing rates of exchange they must have some safeguards reserved to themselves in the event of balance of payments trouble. Like the hon. Member for Ashton-under-Lyne (Mr. Sheldon), I accept that this is necessary, and presumably such a safeguard must take the form of a non-tariff barrier. However, nations are anxious, now that the Kennedy Round has been completed, not to resort to non-tariff barriers. Unfortunately nations are devising, and employing, non-tariff barriers which were not even thought of a decade ago.

It is beyond argument that the proposal before us is a non-tariff barrier. The definition of such a barrier, in commonsense —it may not be precise but it will do—is any interruption of the free flow of international trade. We heard sufficient figures from the Financial Secretary to know that this scheme has had a check on the flow of imports into this country. This is to be welcomed, though one would wish that such a check would be only temporary if it is likely to endanger our relations with countries which historically have been our markets.

For this reason I regret the retention of this scheme unless it can be proved to be strictly necessary. It is humbug for this House to advocate any form of liberalising trade in or out of the Common Market if we persist in this kind of non-tariff barrier once it is seen by ourselves and the world that our balance of payments are no longer in serious trouble.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

I agree with much of what the hon. Gentleman is saying and I, too, believe in purity, as long as I live in a pure world. I remind the hon. Gentleman—he might bear this in mind before developing his argument—that even some of our Commonwealth partners—for example, one of our historic markets in Australia—when in balance of payments trouble do not adopt devices of this kind but go further and close their ports against all imports of British goods. This has been done to the great detriment of the Lancashire textile industry on many occasions. I would like the hon. Gentleman's views on this.

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

I thought that I had given them. I acknowledged that there must be safeguards for countries which may be in balance of payments trouble, especially if we persist in maintaining fixed rates of exchange. That is acknowledged by G.A.T.T. and our partners in E.F.T.A., and that is why they did not kick up such a shindig a year ago as they did in 1964 when we introduced the surcharge.

It is right that a country should reserve to itself a protective measure such as this if it is clear that there are balance of payments problems. That, however, is no longer clear. Many countries have heard it gleefully said ad nauseam by Her Majesty's Government —I do not deny them the right to say it and I am pleased that this state of affairs has occurred—that our balance of payments is healthy and in surplus. That cannot be a justification for renewing this scheme for a further 12 months. To do so only undermines the confidence that has existed among our E.F.T.A. partners and I am concerned tonight to point out the effects that the scheme is having on our partners in E.F.T.A.

The astonishing success of E.F.T.A. during the last few years is not sufficiently acknowledged by the Government. The trade between the E.F.T.A. countries increased 2½ times since it was formed.

The hon. Member for Ashton-under-Lyne told us how the trading pattern had changed in the last few years; and that only 22 per cent. of our trade is now with the Commonwealth compared with 45 per cent. some years ago. One reason is that we have enlarged our home market, which no longer comprises only the 50 million population of these islands but the 100 million in the E.F.T.A. countries. This is an excellent state of affairs, and it explains why in the first six months of 1969 trade among the E.F.T.A. partners rose by no less than 16 per cent.

What is even more significant is the remarkable growth of trade between E.F.T.A. and the E.E.C. E.F.T.A. exports to the E.E.C. are twice as large as those in the other direction. To give precise figures, the E.F.T.A. countries have increased their exports to the E.E.C. by 17·8 per cent., while the E.E.C. has increased its exports to the E.F.T.A. countries by only 9·4 per cent. Trade between E.F.T.A. and the rest of the world has shown almost as considerable an increase.

It has been said elsewhere that E.F.T.A. is the fastest growing market in the world, and it would be tragic if we were to do anything to impair its strength or imperil the confidence that exists between its partners. The scheme that it is now proposed to continue will be in force during next year when we may well be negotiating with the E.E.C. If those negotiations taken place, it will be imperative for us at the same time to retain the good will and co-operation of our E.F.T.A. partners. The present scheme does not do that.

If it were clear that we were still in balance of payments trouble our partners in E.F.T.A. would acknowledge the necessity for the scheme, but the Government cannot say "We have achieved a balance of payments surplus; we are out of the red now" and in the same breath offend against the spirit of the E.F.T.A. agreement and, in so doing, jeopardise both trade and good will among our E.F.T.A. partners.

Any course of action which throws doubt upon our good faith is morally bad and politically dangerous. A Bill which perpetuates a non-tariff barrier, which offends against the Convention of Stockholm—to which we are a signatory—and which offends against the spirit of E.F.T.A. must call in doubt our good faith towards E.F.T.A. I therefore believe that the Bill must be morally bad and politically wrong.

7.15 p.m.

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepools, The

A year ago I had the privilege of speaking on this subject, and I believe that it was then considered more than likely that a year later we should be again debating whether, in view of changing economic circumstances, to remove these duties or extend their operation for a further period. The hon. Member for Holland with Boston (Mr. Body) said that if we were so hopeful about the balance of payments the Bill would not be needed, but the strength of the trading figures for the last three months is hardly by itself, sufficient foundation upon which to make a change.

The problem with which we have been struggling for many years is still with us, and although the trend towards a healthy balance of payments looks stronger than fcr many decades, hasty action now could be ill-advised. Nevertheless, the gravity of the Bill, the enormity of the Bill, the seriousness of the Bill and its effect on E.F.T.A. nations or any other outside group of trading nations must be put into perspective.

It was, I think, the First Secretary who last year defined quite clearly what the scheme meant. It was pointed out that it did not deal with certain imports from developing countries, or with large categories of raw materials. In total, it affects only about one-third of our import bill—just under £3,000 million. It is, therefore, not very large. Indeed, it is only part of a package of other steps that have been taken by the Government in order to get an export bias and some marginal control of imports.

When the hon. Member spoke of the effect of the scheme on the E.F.T.A. countries I was rather pleased to hear my hon. Friend the Member for Westhoughton (Mr. J. T. Price) intervene to indicate that we do not live in a pure world. In an aside, I might say that it is the desire of most of us that the world might be purer than it is, and certainly in terms of economics and of moral values it is to be hoped that there will be some improvement.

I was the chairman last year of a subcommittee of the Estimates Committee which dealt with the subject of exports. One of the pleasing things I was able to tell the House was that in the year under review the United Kingdom earned abroad about £10,000 million. That is the highest earning capacity per head of population of any country, including the United States. It therefore serves the country not well at all for hon. Members opposite, within the climate of a deficit on balance of payments or within the climate of a change for the good, to indicate to the world outside that we are behaving dishonourably towards our trading partners, wherever they may be. It serves the House and the country not well for hon. Members opposite to try to minimise abroad the significance of Government policies that have brought about a trend for the good in the balance of payments position, albeit only in recent months. If the rest of the world conducted its trading affairs at the high standard which this country adopts, our trading fortunes might have been better without some of the steps we have had to take. That sometimes hurts us at home far more than those abroad.

If the Financial Secretary was right a year ago, as I suspect my hon. and learned Friend was right today in talking about the very marginal effect of this Bill, I presume that the idea was to take out of home consumption a certain amount of liquidity. That was one of the parts of the package deal arrangements. There were two objectives of the Bill. One was to modify imports in the limited area to which I have referred, and the other was to take out of home consumption some of the demand.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

On the assumption that this country is exporting more per head of the population than any other country, would not other countries—if we put up barriers against them when they are importing in substantial quantities from us—be upset and object to this imposition?

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepools, The

I do not take the point; the hon. Member must bear with me. When I have travelled abroad one of the things which have worried me is the charitableness of this country. It is a joke in the Far East that we provide aid and the Chinese exploit it. I shall not be a party to anything which suggests that if we conducted ourselves differently our friends abroad would be happier. The trading relationships of this country are of a high order. When this House looks pertinently at our record we find that we increased exports to Japan last year by 26 per cent. The instruments used by the Government have been useful. Whether one attempts to make political capital out of it or not, our record stands for many years. We could not have got that relationship which is desirable to help the economy, on our exports and imports—

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

Will not the hon. Member agree that the proposal to introduce charges—import deposits, to use the words of the 1968 Act—offends at least against the spirit of the Convention of Stockholm of which we are a signatory?

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepools, The

I fully agree that any measures which go outside the desirable principles outlined in the E.F.T.A. and the G.A.T.T. are unhappy, but we are not loners in this respect. The principles of free trade and of the G.A.T.T. and the E.F.T.A. have been attacked from time to time by other countries. I was glad to find that my right hon. Friend the then Financial Secretary to the Treasury said on 28th November last year: I want to say a word about the E.F.T.A. and G.A.T.T. situation. I am entirely wedded to the belief that the move to free world trade from restrictions initiated in the G.A.T.T., E.F.T.A. and other efforts we have been making, such as the Kennedy Round, is vital for the prosperity of the world, and to no country is it more vital than our own which is so dependent upon world trade."—[OFFICIAL REPORT, 28th November. 1968; Vol. 774,c. 754.] It is not valid to say that when we are trying to put our own house in order it is wrong to have a small marginal instrument such as this Bill, which deals with only one-third of our imports and protects the developing countries. To maximise the charge that we are behaving dishonourably is going beyond what has been practised by many other countries.

My firm belief is that even in the European Community the economic difficulties suffered by the members of the Six are such that time and again the principles of the Rome Treaty have been violated. Let us not point an accusing finger at this country. This country has had to deal with the problem of getting the balance right between exports and imports. I have indicated that this is a marginal Bill and I refer to a matter which I raised in that same debate last year. I said: I noticed in the Financial Times this morning this comment when it referred to the review of the National Institute of Economic and Social Research: There is no doubt the reason for the difference '"— I defined that difference in the estimates of the balance of payments and went on with the quotation from the Financial Times—' lies in the behaviour of imports relative to the level of domestic demand. It is chiefly in respect of import forecasts—price and volume—that successive revisions have taken place. Thus the Institute's call for import controls earlier this year was amply justified.'"—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 8511 The Financial Secretary has informed us today that the rate of increase in imports has fallen from something like 13 per cent. to 6½ per cent. last year. He made the point that the Bill is marginal, but I take a different line—not in order to contradict the Government but merely to suggest that there were other means. If the report Ihave quoted was correct, we might have been more selective and applied physical controls in the right areas and on the right kind of imports.

I say this for a particular reason. The general reason is known to the House, but there is a particular reason. In this country today we are involved, not only with the larger question of getting our world trading problems put right, not only with the question of balance of trade and balance of payments, but simultaneously with the restructuring of industries at home. It would take more than someone with a crystal ball to be able with certainty to ascribe the consequences of this Bill in such a way that the problems we are suffering from the restructuring of industry should not be made more difficult than they are.

Because of the redistribution of industry, and particularly the settlement of small industries on Merseyside, in Wales and in Scotland, we could adversely affect those industries with a Bill which did not clearly define the kinds of imports which are affected. It is far better when dealing with restructuring and redistribution of industry to pinpoint the kinds of imports which we want to control. That would do two things which are desirable. One has been outlined by the Financial Secretary, the marginal effect on increase of imports. The other is to protect industries which need protection in developing areas.

First, during the past 12 months these controls have done no harm that can be detected in the economy. Secondly, they have helped to level out imports, which has made some contribution to righting the balance of payments. Thirdly, there does not appear to be any sufficiently strong evidence to justify withdrawing these controls.

Therefore, there is a case for continuing them in force. A year ago I asked if some aspects could be examined. During the course of the past year there does not seem to have been sufficient research to highlight our need to be more selective in the physical control of cur imports to achieve the important objectives of any imports control system—namely, to achieve the required balance in international trading and to protect home industries which are in the process of being resettled in development areas.

If the hon. Member for Worthing (Mr. Higgins) were to balance his language about Britain's conduct with the hard facts of improvement, he would modify his viewpoint and agree that this is a storm in a teacup. It is not a matter of major importance. It is no more than part of a package deal. The concern of both the hon. Gentleman and myself can be expressed by my asking the Minister to take note of our concern and, if import controls of some kind have made a useful contribution to Britain's trading fortunes, during the next year could some more research be carried out so that we can be more selective in achieving our objectives?

7.32 p.m.

Photo of Mr David Crouch Mr David Crouch , Canterbury

The hon. Member for The Hartlepools (Mr. Leadbitter) has said that this is a very small Measure which has done no harm. Perhaps it has not. I shall address myself to that problem.

A year ago, when the then Financial Secretary took us into the labyrinth of these controls, he told us that it was his intention to bring the scheme to an end automatically after 12 months. That is why we on this side will vote against the Bill tonight. There was no great enthusiasm on either side of the House for last year's Bill.

Today I listened to the speech of the hon. Member for Heywood and Royton (Mr. Barnett) with great interest, as always. He made some constructive points, as he did in his speech a year ago when he said this of last year's Bill: … I am not sure that it is worth the trouble of the distortion, administrative problems and anomalies that it creates. We should keep this subject in perspective. We can work ourselves up into a colossal tizzy about the one-third of our imports to which we are applying some sort of restriction. The very fact that we applied these administrative controls has a depressing effect both ways in our trade. It has not only a depressing effect on the restriction of imports, as my hon. Friend the Member for Worthing (Mr. Higgins) described, but also a reciprocal depressing effect on exports because of the interference with the free flow that is necessary between our manufacturers who export and those who import.

The then Financial Secretary said some interesting things about what he thought was the intention of last year's Bill. I ask the House to listen to what he then said, very honestly—the right hon. Gentleman is always very honest with the House— I do not know exactly, or even within a wide range, what the effect will be "— that was honest? but I do know that the less effect on reducing imports the more is the effect on reducing extra bank liquidity … I am hoping that there will be a significant and marginal effect in terms of imports themselves. I shall be very surprised if there is not such a marginal effect, but the exact amount of it obviously no one can know."—[OFFICIAL REPORT, 28th November 1968; Vol. 773, c. 752–84.] We were left in no doubt that it was a doubtful Bill—a small Bill and a marginal Bill.

I was present for the debates both on Second Reading and in Committee on last year's Bill. It was designed, as I thought, to reduce imports. I listened to those debates with an open mind, because I was concerned about the Government's overall aim to achieve a surplus on balance of payments—the surplus that the Chancellor was then looking forward to and which he now proudly says he can see being achieved.

What has been achieved during the last year? I was not very happy with the answer that we got from the present Financial Secretary today. How marginal has been the achievement, and how marginal or how large is to be the achievement if we continue with this scheme at 40 per cent.? We have heard that the scheme is designed, on the one hand, to apply a selective liquidity pressure, to take a little heat out of the economy. Have I heard the figure £650 million somewhere? How much heat has been taken out of the economy by this scheme?

By how much have imports been reduced? I thought that imports would be reduced. A year ago I was even prepared to consider supporting a Measure which might have had some dramatic advantage for the country in reducing the factor for imports in the sum that goes to make up the balance of payments at the end of each month and at the end of the year. As I understand it, imports have not been reduced. Only the rate of increase in imports has been reduced.

Therefore, after a year of this administrative interference and intervention by the Government, the heat has been taken out of the economy in reducing the liquidity pressure, on the one hand, and some heat has been taken out of the rate of increase in imports in the balance of payments sum by a factor which we have not been told in terms of hundreds of millions of £s or millions of £s.

When there are exchanges in this House and in the country about the balance of payments situation, it is really because we want to know where we stand. If, tonight, we are to give sanction to the Government to go ahead with this Measure, which they said they wanted for only 12 months and now they want to continue for another 12 months, we should be told exactly what we will get for it. Having listened to the debate this afternoon, I am still not clear what is the answer to the sum.

I believe that the Government's aim is to achieve a surplus on the balance of payments, to maintain the rate of achievement which we have seen. We know how the sum is made up on the balance of payments. We want to know what savings of imports will result from a continuation of the Bill. I should even be ready to consider supporting the Bill if I thought that it would make a valuable contribution to our economy, but I do not know its value. It do not know its value in reducing imports. I have been told that it may reduce the rate of increase, but that is not enough.

I know that this Measure interferes with our overseas trade. The hon. Member for Heywood and Royton said that it increases costs by about 2 per cent. to 3 per cent., and I can only accept the hon. Gentleman's word for that. I think that this Measure is yet another example of the Government's concern to interfere and control, and in this instance to do so to very little purpose and with very little real advantage. It illustrates the Government's incompetence—this is my fear—in the overall management of our economy.

We can see some light at the end of that tunnel. The amperage of that light is about £300 million. This flickering light is a long way off, and we want to do nothing to let that light of a surplus of £300 million go out, but we want the Government to take positive and real steps so that people in this House and outside can recognise them as competent steps in the management of the economy. The Bill does not seem to me to do that. It seems to me to be a continuation of the muddling, interfering, and administrative intention which produces very little.

There are much bigger things involved than those which the Bill will control. We are faced with a massive overseas debt of £3,000 million, which has been built up in five years. We are faced with the extra burden of taxation. Those are the factors which sit, not in the balance of payments, but in the balance which the Chancellor has to maintain on the economic tightrope which he has to walk and take us with him. We know that the measures taken by the Government have resulted in price increases of more than 22 per cent. in the last five years. I do not wish to range widely from the Bill, but we are debating this Measure as though it is of massive importance. I say that it is of minimal importance.

Having spoken about the economic tightrope across which the Chancellor has to walk, perhaps I might remind him ard his hon. Friends of some of the things that they have done while attempting to reduce imports which have made it more difficult for the Chancellor and the nation to keep their balance. The Government have attempted to reduce imports, but they have more than attempted to reduce demand at home. They have succeeded in drastically reducing demand at home by a succession of deflationary measures. They have successfully reduced and restricted our economic growth and industrial investment. They have reduced employment. They have reduced savings, and they have reduced the whole object of people wanting to save.

Photo of Mr Ronald Brown Mr Ronald Brown , Shoreditch and Finsbury

The hon. Gentleman said that we had reduced employment. That is not true. Would he not agree that the real problem is that we have not succeeded in marrying up the vacancies one sees in the Sunday papers with the people who need jobs?

Photo of Mr David Crouch Mr David Crouch , Canterbury

I am interested to hear what the hon. Gentleman says about this country having more than 500,000 unemployed. I am sure that the men and women concerned will not be impressed by this explanation of why it is so difficult to find them employment. The fact is that the unemployment figure is more than twice what it used to be.

The Government have succeeded in making some reductions. They have succeeded in reducing the value of the £ by 3s. 9d. in the last five years. Those are the major things that are getting us out of balance. Those are the dangerous factors facing us. Those are the matters to which we should devote our attention on another occasion in the very near future. Those are the serious matters which we must face when we are considering our economic problems.

We must take such steps as are necessary to get into balance and to help the Chancellor and the country to ensure that the light at the end of the tunnel burns a little brighter. Let the Government therefore take the real steps which would take the whole country with them. Let them reduce unofficial strikes. Such a measure would be a more positive step towards helping the country than the little Bill that we are considering tonight. Let the Government take steps to reduce the wastage of manpower. Let them take steps to increase efficiency in management and in the unions. Those are the matters to which the House should be addressing itself. Let the Government take steps to improve the efficiency of the management of the nationalised industries. If such steps were taken, there would be a restoration of confidence in the country and in the Government.

We are messing about with a little Measure which Government spokesmen said a year ago they could not see how effective it would be. Tonight we have heard nothing in defence of the Bill, except that it is an interesting piece of administrative mechanism which they do not want to drop. I suggest that this Measure is an interference with the free flow of our trade, and that it in no way helps to balance our economy and maintain a surplus on our balance of payments.

I have tried to suggest that there are real problems to which the Government should address themselves. The Government should address themselves to the real problem of reforming industrial relations. The Bill does not deal with a real problem, and I shall therefore not vote for this Measure tonight.

7.50 p.m.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I apologise for having been away for some time. I have been attending some Committees. What I have wanted to do all day, and have now succeeded in doing, is to read some of the speeches made last year in precisely similar circumstances.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

Better to forget them.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I am not sure that it is a good thing to forget them. I am not accustomed to repeating my speeches, and I shall not do so tonight, but I was one of about three Members who supported last year's Act. Everybody else was sceptical, and I was one of the few who pointed to exactly what it would probably do if we gave it a chance.

I also pointed out then some of the extraordinary remarks made by hon. Members opposite. I said that their prognostications were doomed never to be realised. I remember weeping tears as hon. Member after hon. Member opposite told us graphically, almost chancing their arm at the exact numbers involved, of the number of people who would be driven to bankruptcy by the Act. According to the Opposition. the queues in Carey Street would be miles long as a result of the little Act we passed then.

One hon. Member opposite looks as though he does not believe me. If I am challenged, I will read some of the things his hon. Friends said about last year's Act. It would make good reading, and make one wonder whether hon. Members opposite ever learn from their mistakes. I begin to doubt it.

Last year I said that the Bill we were considering was designed to have a marginal effect; we wanted to hold down our imports, or if possible slightly to economise at the margin, for a limited period. I said that, with an import bill of about £6,000 million or £7,000 million a year, to turn the corner into a period of surplus we needed to economise by about 2 per cent. at the margin. That was just to turn the corner towards home in the long effort to solve our balance of payments problem.

I added: We are gradually reducing the monthly deficit on the balance of payments. We have got it down to a figure, at the moment, of between £20 million and £30 million a month. After an intervention, I continued; By the time we take invisibles into account. we have the figure down to £20 million or £30 million a month. What we are trying to do is to make a quick action to get it turned round the corner as soon as possible into surplus …."—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 845.] I said that this was for very good reasons which my right hon. Friend the Chancellor of the Exchequer had outlined.

That is precisely what last year's Act has helped us to do, despite all the fears of hon. Members opposite and some of my hon. Friends, and without the enormous queues in Carey Street that hon. Members opposite were wailing about at the top of their voices a year ago. Do they never learn?

I went so far as to put down an Amendment in Committee, about which I am quite unrepentant, because I believe that such legislation, to be used as infrequently as possible, should be a part of any country's permanent armoury in the modern world.

Photo of Mr Richard Body Mr Richard Body , Holland with Boston

The hon. Gentleman has left out the choice bit of the speech from which he quoted. He later advocated that Act as a once-for-all action for 12 months. But the 12 months are now up.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

The hon. Gentleman is right, but perhaps he did not hear what I said. Having reflected on the matter, I put down an Amendment in Committee saying that we would do much better to keep it permanently as part of our armoury. It is an entirely proper method to use.

I do a certain amount of work on the Economic Committee of the Council of Europe, where I mix with my Scandinavian and E.F.T.A. colleagues. I take part in meetings three or four times a year with all my parliamentary colleagues from the E.F.T.A. countries and talk to them openly, and also privately behind the scenes. They do not do the wailing that hon. Members opposite do on their behalf. They realise that these things are the facts of life today, given the necessity of countries to take action from time to time, driven by difficult adjustments in national economies. They recognise that our legislation is perfectly legitimate, because nobody will physically cut imports from E.F.T.A. countries in any order of magnitude. We are trying to limit imports from E.F.T.A. countries, as from elsewhere, to a point that can be coped with, having turned the corner with our steady rise in exports. They realise that all countries must tailor these matters as they go along to some extent, because we cannot afford to remain in a debtor position for many years.

What is the alternative? My E.F.T.A. colleagues are sensible about this. Many of them are good Socialists, and see this from first principle. If one is faced with a balance of payments situation which is very difficult to correct, the classical remedy is to have a good old deflation. That will solve one's balance of payments problems and give one a beautiful surplus. The last right hon. Gentleman opposite to be successful, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), did precisely this in 1961–62. Have a good old wallop at the problem, and one achieves a balance of payments surplus. But my E.F.T.A. colleagues recognise that they may then come off much worse in their trading relationships with this country than if we take a gentle action, as is taken at the margin in legislation of this kind.

That is why last year's Act was sensible, and why the Bill is sensible, and why I hope again in Committee to press my point that the Government should realise that such legislation is a good thing to have tucked away, for use as infrequently as possible, as a good alternative to the blunter weapons of real deflation.

There is another point that makes one think harder about the matter. When France moved into a balance of payments deficit in the middle of this year, what was the French Government's first response? It was not to have deflation on the old recognised pattern but to use the physical weapons of control and things like an export subsidy. I know that France had difficulties with the Brussels Commission as a result. In other words, country after country in the modern world recognises that one can no longer solve significant balance of payments problems of individual countries by old-fashioned methods. I know that labour will not politically stand for massive deflation. It is quite right. There are other, sophisticated weapons to use, such as methods of encouraging exports and the restructuring of industry, as well as measures such as the import deposit scheme which one may need to have as well in case it is difficult to make the changes vitally needed. But I agree they should be used as sparingly as possible.

I am glad to have been one of the three hon. Members last year who said how much they welcomed the then Bill and to have foretold how successful it would be in precisely the way it has been successful. I am glad that I pointed out how ridiculous were the complaints and fears and wailings of hon. Members opposite about it. I know that it is not up to him, but I hope that my right hon. Friend the Chief Secretary will try to ensure greater latitude this year in Committee, since a number of us would like a debate on whether to make this scheme part of our permanent system of reserve controls.

We should stop worrying about the supposed complaints in Europe. I go into Europe to mix with fellow-Parliamentarians more than anyone now in this Chamber and more than most hon. Members in the whole House of Commons. That is currently part of my job. I can tell the House that the fears which have been expressed about the reactions of our colleagues in Europe are entirely unfounded. Hon. Members opposite would do well to recognise the Bill for what it is—a sensible, small Bill, operating at the margin, with a year of success behind it, and which is quite properly being renewed for a year. Indeed, I hope that it will be renewed for beyond a year ahead.

8.2 p.m.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Glasgow Cathcart

The hon. Member for Birmingham, Northfield (Mr. Chapman) has been fortunate and unique in being able to quote a speech he made last year. This is what many lion. Members opposite have not been able to do, for obvious reasons. The then Financial Secretary made a splendid speech last year. He said that he would find it deplorable to renew this form of restriction and that it was not the Government's intention to do so. Many such speeches were made from the benches opposite. They all said that it was a deplorable Measure brought in once for all, for 12 months.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

I do not go rooting through the Library to find and regurgitate old speeches. I spoke last year. I made an unequivocal supporting speech for the scheme. Since the hon. Gentleman is challenging us, I challenge him. If he stands up and objects, as he often does, to the unregulated import of immigrants from all parts of the world, I am equally free—and I agree about the regulation of immigrants—to advocate—

Mr. Deputy Speaker (Mr. Harry (Gourlay):

Order. The hon. Gentleman is getting wide of the Bill.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

I will finish in a moment, Mr. Deputy Speaker.

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. The hon. Gentleman cannot pursue that argument.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

No matter. The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) has got the point.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Glasgow Cathcart

I am sorry if I have offended the hon. Member for Westhoughton (Mr. J. T. Price). It was not my intention. I did not refer to his speech because I know that we on this side always listen with such care to his speeches that there is no need to repeat them because they are always fresh in our memory.

The Financial Secretary gave us the real reason for this Bill today. These regulations are like something I equally condemn—strong drink. Once one has started, it is difficult to stop. The hon. and learned Gentleman indicated that today because he made it clear that, if we were to remove these controls, two things would happen. First, a free movement of credit—the £500 million tied up in deposits—would flow back into the economy; secondly, there would be an inflow of the built-up demand for imports which have been waiting for the restrictions to go. We know that this would happen and thus, import deposits, like many other bad habits, are difficult to stop, once started, because of the consequences involved.

Only one basic argument has been made for continuance of the scheme. It included the strange figures which have been mentioned. We are entitled to ask what those figures mean. One hon. Mem- ber said that the figures showed that there had been a reduction in imports. That is not my understanding. Another hon. Member said that the rate of increase has slowed up. That is not my understanding either. The hon. and learned Gentleman said that the increase in exempted goods had been at a slower rate than non-exempted. That is not saying a great deal, particularly talking in terms of an annual rate of increase of 7 per cent. in money terms, and not at constant prices, and it takes no account of movement in existing prices. If the hon. and learned Gentleman was trying to indicate that the scheme has done something, we should know what it has done. If there has been any increase, then to what specific purposes and for what reasons? But he failed to give any reasons, apart from these mysterious figures.

When the restrictions were introduced, they were accepted reluctantly by some of our trading partners because they appreciated that we were in a state of crisis and that something had to be done—although perhaps the wrong thing from our point of view. The Government said clearly that this would be a temporary Measure for only 12 months and would not be repeated. The 12 months have passed and our trading partners could understandably ask, "What have you done in the interim to solve the roots of the problems which brought you into this crisis? Have you taken specific measures to deal with wage inflation?" Within the last few weeks we have seen wage inflation appear to be soaring. The idea of a norm of 31 per cent. has disappeared and has no significance. Our partners could ask whether the Government have made any real endeavour to cut down unnecessary administrative costs. The answer would be, "Far from it".

Perhaps the hon. Member for Northfield has seen the interesting figures published recently. If this were an average British audience, 22 per cent. of the people would be employed by the public services; in America, the figure would be 11 per cent. and in Japan 5 per cent. The hon. Gentleman should think of that as being among the root problems we should be tackling. If we had tackled those problems, our trading partners would look upon us with far more understanding.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

Does the hon. Gentleman really think that our colleagues in the E.F.T.A. countries are saying these things? They are not. They are saying that they are glad to see that we have had a package of measures which has brought us a balance of payments surplus which looks like totalling £500 million. They are not sharing the hon. Gentleman's ideas. They do not go around Europe saying what he says.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Glasgow Cathcart

They may not say it in exactly the same way but I have splendid quotations of what has been said by E.F.T.A. Ministers, and if the hon. Gentleman goes around E.F.T.A. meetings and gets the impression that its members are not concerned about the scheme, he must be blind and deaf and unconscious at the same time. This is not the impression given by E.F.T.A. Ministers.

Whether or not there is this concern in E.F.T.A., we are taking action in breach of the spirit of both E.F.T.A. and the G.A.T.T. There is no doubt of that. Whether one is concerned with the small print of the agreements, this scheme is in conflict with their spirit. The Government should be concerned about it. Are they saying that we will take part in a trading organisation but will not pay too much attention to the rules and that, if the rules do not suit us, we will change them from time to time?

The Government are to start a grand exercise in which they hope to get Britain into the E.E.C., an organisation which imposes rigid rules and restrictions. If the Government regard the less onerous restrictions imposed by E.F.T.A. as being of no concern, and if they are prepared to shuffle them aside, they will find it difficult to persuade the countries of Europe to accept us into the Community.

Personally, I do not urge the Government to press ahead speedily to enter the Common Market. Like many hon. Members on both sides of the House, I have strong reservations about it. But the Government give the impression that they are anxious for Britain to enter the Common Market. I hope that they will consider seriously what the reaction will be in Europe if they break a solemn undertaking which was given to E.F.T.A. when these arrangements were intro- duced, when they said that they would be operated for only 12 months.

As has been rightly said, these arrangements cannot be applied selectively to help the economy. They cannot be operated so as to allow firms to buy machines and equipment to make themselves more efficient. On the other hand, as is well known to the hon. Member for West Ham, North (Mr. Arthur Lewis), who is one of the most active Members in this respect, they cannot be used to keep our things like gaming machines. At Question Time and on other occasions, the hon. Member has produced staggering figures of the amount of our resources take by imports of what many people regard as unnecessary luxuries. These restrictions do not differentiate between what would generally be regarded as in the interests of the efficiency of British industry and something not necessarily important to British industry.

If we are in serious imbalance, there is a restriction which we can use without breaking the E.F.T.A. or G.A.T.T. arrangements. That is the use of import quotas. They can be used selectively, according to the category of goods or materials, or the purpose for which they are to be used. I often wonder why import quotas are not used. They have much to commend them, It is suggested that to introduce them would invite retaliation, but there would be retaliation only if another country found itself in serious imbalance, too. have a sneaking suspicion that one of the reasons why quotas are not used is that, although they are acceptable under G.A.T.T., they are not acceptable under the Treaty of Rome, which is significant in view of the Government's campaign for British membership of the Common Market.

If we have to have a restriction of this sort, we should concentrate on making it a restriction which is in the interests of the country and of industry and which does not break solemn undertakings which we have concluded with other countries, or contradict words clearly stated by the Chancellor of the Exchequer and his advisers.

Unfortunately, like many others advanced by the Government, these restrictions have an undoubted inflationary effect. They have certainly put up prices and have increased the costs of industry. It is a sad fact that one of the things which has been most marked under the Labour Government, particularly in recent years, has been the staggering increase in prices. The hon. Member for Northfield suggests that that is not new, and of course inflation is not new; but if he were to talk to his constituents, not his friends in E.F.T.A., but the man in the street, many would tell him, particularly those on fixed incomes, that they were now more concerned about rising prices, because of the squandermania of Socialism, than they had ever been. When we have so many measures which have so clear an inflationary effect, the Government should avoid unnecessary action which has a further inflationary effect.

I am not normally a suspicious person. I like to find the best in people and to identify those factors in a policy which may have something to commend them, but I have a suspicion that the reason the Government are pressing ahead with import deposits is that in that way they can maintain a check on liquidity, a hold on money supply, and keep the economy decently in check until they can look forward to the next Budget, a pre-election Budget, and then let things rip.

If they were to remove import deposits now, the effect would be rather inflationary. It would improve the credit position and improve the money supply. The Government are holding things in the international economy while they wait for a grand slam Budget, a boom of about six months and then an election. Of course I am suspicious [Interruption.] If the hon. Member for Central Ayrshire (Mr. Manuel) had studied seriously and with any sense of conviction some of the disasters which have stemmed from the policies of his Government and the ill advice of their advisers who formulate the policies, he, too, would be suspicious. Coming from Scotland and representing a Scottish constituency, he more than anyone else should be suspicious. I am ashamed of him.

Photo of Mr Archibald Manuel Mr Archibald Manuel , Central Ayrshire

The hon. Member is ranting on in his usual way. I was explaining to a colleague that the hon. Gentleman had said that he was not suspicious and two sentences later told us that he was. It does not seem right.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Glasgow Cathcart

I said that I was not generally suspicious. If the hon. Member had sat on these benches and watched the policies brought forward by the Labour Government, with such catastrophic and devastating effect on the economy, as I have, he would be suspicious. I am not suggesting that he is not here regularly. He is a very conscientious Member and is regularly in his place. However if he had been here on 28th November, last year—I am sure that he had an important engagement which kept him from the House that day—and had heard the Financial Secretary to the Treasury, a very important man, saying that he would find it deplorable to renew a restriction like this in any form and that it was not his intention to do so and that it was the present intention to end these restrictions automatically at the end of 12 months, and 12 months later had found that these restrictions were to be continued and that the Government refused to undertake that the extension was for only another 12 months, he would be very suspicious.

Once again, instead of being concerned with the important factors in the economy and with the steps which need to be taken, the Government are concerned with only one brutally limited timetable, the timetable which might help them shakily to survive for another five years. Whether we consider import deposits or anything else, nothing could be worse for the country than another five years of the present Administration.

8.19 p.m.

Photo of Mr Ronald Brown Mr Ronald Brown , Shoreditch and Finsbury

I shall try to resist the temptation to comment at length on the speech of the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor). To some extent he has let the cat out of the bag. In his peroration he firmly said that these restrictions had been working, that they were keeping the economy in check. He went on to say that, although he was not suspicious, he was nevertheless provoked into believing that the Government's reason for using this scheme for getting the economy into good shape was that they would use it for electoral purposes. He is entitled to make that judgment, but if he does, he cannot argue, as his hon. Friends have been arguing, that the scheme has upset everybody and is having a bad effect. I thank him for the point he made. He made a powerful argument for showing that these measures were first class.

I listened with especial interest to one part of the hon. Member's argument. During the months that I have been in the House, as a Scotsman he has called for more and more Government activity in Scotland. He devoted part of his speech to arguing that departments set up in Scotland should be disbanded, saying how wrong it was to have various Ministries sending employment to Scotland. I am sure that my right hon. Friend the Secretary of State for Scotland will bear this in mind in future. He has taken many into Scotland, and some of us Londoners have been a little worried about it. I was pleased to hear what he said, because I shall remind him of it from time to time. The whole problem of the debate is that hon. Gentlemen opposite can never get into perspective the whole strategy.

Every time we have a debate like this it is disjointed because we are attempting to address ourselves to a particular problern at a particular time and, consequently, no one ever really sees the whole picture. The point of bringing in this Measure last year was to provide an armament, to pursue a strategy, which, as the hon. Gentleman rightly said, enabled us to control the economy. It has to be seen in that light. Another hon. Member went on about some of the other things that we should be doing. He said we should be looking at unofficial strikes, at the wastage of manpower, at unemployment. This is true, and we are doing this, too. It is necessary to look at each in turn within the broad strategy. We are addressing ourselves to these various aspects.

The whole of our industrial relations policy is designed to ensure that as far as possible we remove any provocation that causes men to be so incensed about their conditions that they come out on strike, unofficial or official. As to wastage of manpower, one of the great problems is marrying up the amount of vacancies which do not coincide with the skills available of those who are unemployed. It is true that the 500,000 figure is too high but there are vast numbers of vacancies remaining unfilled.

It is in this respect that many of our manufacturers are feeling concerned; they cannot meet their delivery dates and they cannot meet their obligations because they cannot get the type of skill that they require. Our industrial training policy is trying to take care of this but it cannot be cured overnight. We can only set up all the facilities enabling industrial training to take place as quickly as possible and to provide people with the skills which they can use in areas where at present they are unemployed.

People talk about wastage of manpower. There are far too many people employed on public relations. Someone had better try to persuade me of the value of all these people to society. I see it most perhaps in local government. As is well known, a vast number of Conservative councillors were elected in 1968. When I look at their backgrounds I find that many are public relations people, "ad-men", this, that and the other. None of them produces one iota towards the health of the economy and this nation's recovery.

When talking about wastage of manpower it is worth pursuing it a bit further. I am asking that this Measure should be continued for as long as we have to do so. I am not so sure that this particular tool ought to be retained only in the armoury of management. It seems extraordinary that there is an argument to be adduced here that industry can use a whole range of tools of management but the Government cannot.

There is a powerful case for my right hon. Friend to consider whether this ought not to become a tool of government to enable us to deal correctly with the economy. I have some experience in E.F.T.A. and on the Council of Europe where I, too, served on the Economic Committee. I never heard there the sort of wailing that goes on from hon. Gentlemen opposite. Those people were impressed by what we were trying to do. True, they objected to the 15 per cent. surcharge, not because they thought that we were wrong in applying it, but because they thought that others might copy us. They understood why we were doing it, and they took our word that we would get rid of it as soon as possible, which is what we did. Their concern was not for what we were doing but for what others might claim the right to do, without our reasons.

Hon. Gentlemen opposite are doing the country a disservice when they try to create friction and bad feeling between ourselves and our partners in other parts of the world by using this as a political issue. I have no objection to hon. Gentlemen advancing their arguments, but they must go back to their own period in Government because there are many areas where they are open to criticism for having done precisely the same thing. If they can argue the case with a basic premise then we will listen with interest.

So far all that we have heard is a petulant comment from the hon. Member for Cathcart, in which he let the cat out of the bag. All that he has said is that we may be successful in all that we are attempting to do. By the time we come to a General Election we will be able to prove to the electorate that the country has had five years of first-class government. Hon. Gentlemen opposite are doing a very great disservice in creating trouble purely for a political end.

My last point has to do with the problem we have in trying to encourage our manufacturers to innovate. There is indiscriminate purchasing of imports, of semi-manufactured goods, that could easily be produced in this country. They are not being so produced because it is much easier to buy them in. When hon. Gentlemen talk about pushing up the prices at home it is because our manufacturers are prepared to buy in because it causes them no problems. They pay just as high a price in buying in as if they had set about the task of using research and development to innovate and produce the goods.

I think that this Measure has helped here. It has encouraged industry to try to provide its needs from its own resources, rather than buy in from abroad. I believe that in the further year for which this Measure is being extended it is likely to encourage industrialists to innovate more, to provide alternatives, to provide substitutes from within our own country. It is in this area that our country is so good, at being able to produce first-class quality goods through innovation, by using all its skills and expertise. I support this extension, because this Measure has a real chance of providing us with a firm basis and of enabling our industries to try to provide for themselves without simply importing unnecessarily. I hope that those in industry will note that we are encouraging them. This Government have given more funds to industry than any other. This will pay off in terms of the quality of life that our people will enjoy.

8.29 p.m.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

I was particularly interested in the criticisms which the hon. Member for Shoreditch and Finsbury (Mr. R. W. Brown) made of my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor). The crux of the argument between them was: what was the original intention of the Bill?

As my hon. Friend says, the clear intention which was put forward was that this was a temporary Measure which was to last for one year. That clearly emerged from what was said by the Financial Secretary last year. It is true that not all of us last year believed that the Bill would end in December, 1969. Without making too much of a point of it, I said: A time-bomb is built into this Measure… just when we should be getting on our feet, a further drain on sterling is likely to take place ".—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 850.] In other words, I was saying that there would be a further drain on sterling in December, 1969. That is curious timing for those interested in General Elections.

It was clear to me at that time that it would have been inconvenient, to say no more, to have suddenly had a drain on our reserves by people paying their debts to foreigners who had lent us money to pay the import deposits, and, by an increase in imports, it would have been strange if the Government had been willing to allow that sudden drain on resources through to the first quarter of next year. I am therefore not surprised that we have this Bill, in spite of the clear statement that the scheme was to last for a year.

The debate last year and indeed this year had two main themes. The first was the direct effect of the Bill on importers. It has been spelt out in speeches that it has a direct effect. The only question was just how great would the effect be. I accept that anyone who has a good market for goods which he can import can get the credit to pay the deposit. There is no doubt about that. But that is not the end of the story, because he can get it only at a price, and it is a substantial price, because of the interest which has to be paid. Therefore, the increase in the cost of the goods to the public is bound to be substantial. The likely increase has varied from 2 to 4 per cent.

I was talking to a substantial importer from a big firm today who told me that he firmly believed that the import deposits would end in December. He told his foreign suppliers that they could be sure that this would happen. It is an interesting commentary that his foreign suppliers told him not to be a fool. They were equally sure that it would remain on the simple ground that once a tax is on it stays on. Therefore, whatever the importer felt, clearly his supplier was under no illusion about what would happen this December.

I wish to concentrate not on the direct effect of the scheme but on the general effect on the economy as a whole. The Bill, together with its predecessor, is part of one of the severest squeeze policies that we have known. We must consider whether this means that the policy of very severe squeeze is to continue exactly as it has done over the past months. Of course this is not necessarily so. Admittedly, it was almost the last turn of the screw in the squeeze conditions as they were created. Indeed—and this is what caused me so much concern when last year's Bill was before the House—once that Bill began to operate, so went the last chance of the banks getting down to their limits. I believe that it was the last straw.

Conditions were such that banks had the alternative either to obey the Chancellor's request and get down to the credit limit, at the same time putting many people out of business, or to see the condition in which they were placing their customers, resist applying the final pressure and thus fail to reach the Chancellor's target. As things turned out, the target was fixed at too difficult a level for the banks, with the greatest good will in the world, to reach. I think it is now tacitly agreed, although it has not been publicly stated, that the banks stand no chance of ever reaching that target.

As we said last year, the squeeze, of which the Bill and its predecessor form part, has a particularly harsh effect on small companies. I spell, out last year the various ways in which the squeeze worked and I will not repeat them. We have heard a lot recently about the fact that there has not been a noticeable increase in bankruptcies and liquidations, but I believe that the figures will now begin to increase.

I should like to take up the point which I made in an intervention. It is not only in liquidations that one finds companies in difficulty. Very often, particularly if they are basically viable concerns, but simply because much more credit is taken by customers, if they cannot keep within the limits set by the banks there is the danger of receivers being put in. That is happening. In certai cases—I accept that this is of limited application—it is possible to escape one's creditors by putting in a receiver for a while and taking off the pressure. I believe that if figures could be produced for the number of receiverships which have arisen during the last few months—certainly, most practising accountants would be able to give a fair indication—the numbers would be seen to be increasing considerably.

An argument was put forward that we need not worry too much about the continuing severity of squeeze next January because, it was said, people survived last January when the original Act was in force. That, however, is a completely false argument. In January of this year credit was nothing like as tight as it is today. There can be no question of that. Secondly, because this has been going on so long, because people have been taking longer to pay their bills, there has been mounting pressure throughout the year. I believe that there must be an easing of the credit restictions if a great deal of unnecessary harm is not to be caused.

This is especially important for the small companies in the development areas. In a speech the other day I expressed the view that in considering the development areas insufficient attention had been given to the question of credit in those areas, in which we accept that trading is more difficult. In the development areas people are in greater danger of going out of business, taking more credit and the like, and, therefore, there are additional difficulties. There are also people who have moved into development areas seeking to expand and lacking the backing to withstand periods of severe credit restrictions, and, of course, going into those areas on purpose to expand, and yet, at the vital time, finding they cannot get help.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

This is fascinating, and I am following with great interest, but could the hon. Gentleman explain to the House how all this financial opinion is related to the Bill? He is right off beam, if I may say so with great respect.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

With equal respect, I am perfectly on the beam, and it has to do with it in this respect, that if a squeeze is put on, and if additional credit is required, no matter where it comes from, it comes from within the economy, and it has an effect on the overall availability of credit. If people find they cannot go to the bank they go to some other financial institution. They have to get the money from somewhere, and it all has to come from somewhere within the economy, and pressure builds up, and finance becomes more and more difficult to get.

Look at the sale and lease bankarrangements which were very popular at the beginning of the year when this squeeze had really begun. Many of those arrangements were made, but those institutions which went into them quickly got sufficient of them, of that particular industrial type, and so they closed their books to that sort of deal, and that meant that that sort of credit was no longer available, and people went to seek other sources of credit. I shall not go into the details now, but I do assure the hon. Gentleman that we have to look at credit overall when we are studying a matter of this sort.

The availability of credit is a very important factor in dealing with development areas, and it is being under-estimated by this present Government. One has only to look at a constituency such as my own, for example. Before it ever became part of a development area the unemployment level was 4·4 per cent. at Scarborough and 5·5 per cent. at Whitby. Before this present Act came into being it was running at 5·3 per cent. and 9·9 per cent. respectively. Now, a year after the Act has been in operation, it is running at the highest level ever at this time of year, 5·6 per cent. at Scarborough and 10·4 per cent. at Whitby. It is because there is a general lack of confidence, and because there is this very severe credit squeeze which is being applied to small businesses. One has only to inquire whether it is having a serious effect on industry in my constituency to find that there is no doubt that it is.

We were initially asked to consider this legislation as temporary. If it were to be considered as a temporary measure that would be another reason why some form of import quota would not be applicable, because to set up the rigmarole of an import quota system would not be worth while if the control were regarded as purely temporary. By the new Bill, the original Act will run for a further year, and there are powers to withdraw its provisions at an earlier date. Quite honestly, I do not believe that there is much likelihood that the provisions which we have been discussing this afternoon will be withdrawn or altered in the next 12 months. To put it another way, I very much doubt whether they will be altered before the next General Election.

8.45 p.m.

Photo of Sir John Hall Sir John Hall , Wycombe

My hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) made a thoughtful speech and rightly drew attention to the effect of the import deposits scheme on credit availability, a subject to which I will refer later.

I have listened to the greater part of the debate—I was not able to be here for one part of the afternoon—and the theme running through it, certainly from the point of view of my hon. Friends, has been two fold; first, surprise and condemnation of the Government for renewing a scheme which they repeatedly said was temporary and likely to come to an end after 12 months, and, secondly, surprise and condemnation of the Government for continuing an Act which was contrary to the spirit and letter of E.F.T.A. agreements.

I am surprised that anybody should have been surprised over these things. I cannot understand how anybody could believe that any imposition or restriction imposed on the British people by the present Government should be temporary. I am also surprised that anybody should comment on the feelings of the E.F.T.A. members about this because not only my hon. Friends but people abroad realise that it is useless to take matters up with Her Majesty's Government.

When we debated this matter on 3rd December last year I intervened in the speech of the Attorney-General to ask whether our action was legal under E.F.T.A. agreements. I got the impression—perhaps I did not hear his words correctly, but I gather that the House generally got the same impression —that what we were doing was legal. We gather now, however, that we have not been acting legally and that what we have been doing has been contrary to agreements into which we entered.

The speeches of hon. Gentlemen opposite today have taken the view that it does not matter very much if we have acted legally or illegally because other countries have done the same sort of thing. Hon. Gentlemen opposite have said, in effect, that when it has suited their purpose, they have breached either the letter or the spirit of agreements previously freely entered into. Thus, they argue, it does not matter if we do the same. This is excusing one sin with another and I am sure that the Devil excusing sin would find support and comfort from the arguments of hon. Gentlemen opposite.

I should have thought that Her Majesty's Government would have attempted to have held to their bond, word and agreements and would not have knowingly taken steps which were contrary not only to the spirit but to the letter of freely entered into agreements, bat apparently this has not been the case.

I was not surprised when I first learned that the Government intended to extend the scheme. Indeed, about six weeks after the passing of the original Act—that is, in the early part of this year—when having discussions with colleagues in companies on which I serve I suggested that it would not be a temporary measure, and I gave reasons why I took that view. I pointed out, for example, that the Act provided for the Government to receive large sums of money—we were told earlier that it could be £550 million—free of interest. It was a great windfall for the Government which they would not lightly give up. I suggested, secondly, that it would not be temporary because it took a considerable time for measures of this kind to become effective.

Governments of both parties have erroneously supposed for a long time that their measures take effect virtually the following day. It frequently takes a considerable time for legislation to work its way through the economy. I suggested to the people I was advising that the real effect of the legislation would not be felt in the first 12 months but after that time, so certain was I that the scheme would be extended. This is the time when the real effect would be felt.

The reason the effect would not be felt at the beginning was that, first, a lot of imports were in the pipeline, and, secondly, in many cases the overseas suppliers would attempt to keep their buyers going by extending their credit, which is what they did. I was also fairly certain that it would be difficult for the overseas suppliers to continue indefinitely, this long credit, and I will mention one or two examples from personal experience which show this to be true. After all, we have been talking about the general effect all over the country, but it is sometimes necessary and salutary to come down to particular examples to see how certain sections in the community are affected. In the debate on this subject last year I opposed the Measure, because I thought that it was likely to impose considerable hardship on a small section of the community. One section of the community, the importers, has already been mentioned. The importers are seriously affected because of the way in which the import materials are selected, and certain limited sections of the industrial world are much more severely affected than others. Because of the way in which the imported goods have been selected for this impost, certain manufacturers who are unable to find any substitutes in this country are forced to pay import deposits, whether or not they wish to, if they are to continue in business. This imposes special hardships on a comparatively limited number of people. At that time I thought this was wrong.

Above all, I was concerned about the long-term effect on industrial development and capital investment in this country. I was certain that in the first 12 months people would try to find ways of maintaining liquidity and of overcoming the problems imposed by the import deposits, but that as we came into the latter part of the first 12 months, and as the Measure was extended for a further period, as I was certain it would be, industry would find itself faced more and more with the difficulty of being sufficiently liquid to finance capital investment, and there was the problem of the effect of this Measure on cash flow in general.

The Financial Secretary said that most of the forecasts made by the Opposition had been falsified. I quoted the experience of companies in which I am personally concerned, which represent the experience of many other companies similarly situated. The forecasts which I made at that time certainly have not been falsified. The amount which I forecast that the company would probably have to pay was just about right; it was rather less than it might have been, because imports from America were restricted by strikes in that country in the early part of the year. My forecast of its effect on capital development has come right.

This company, in common with many others similarly placed, being unable to raise money from the bank to pay the import deposit, had to restrict its capital investment for its originally planned development and thus slow down expansion. One consequence of this was that, instead of expanding at the planned rate, it will now, especially as this Measure is to be extended for a further period, find itself two to three years, if not more, late with its development plans. As a result instead of being able to make itself independent of imported materials, which it could do if it developed a large market sufficient to enable it to put up additional factories in this country, it will have to postpone the day when it does that, so that several years later it will have to go on importing semi-finished materials, which are the factory's raw materials, whereas, if it were not for this Measure, it would be within measurable sight of being able to make itself independent of imports and therefore saving foreign exchange. This Measure has postponed its capital expansion. Although this is the experience of only one company it must be typical of many others—

Photo of Mr Ronald Brown Mr Ronald Brown , Shoreditch and Finsbury

The point is why the company which the hon. Gentleman has quoted should have waited until 1968 before making plans to provide for substitution of imports. Such a company ought to have been thinking of that matter many years earlier. The criticism of such companies has been based on their not deciding to do that sort of development when it would have been to their own advantage.

Photo of Sir John Hall Sir John Hall , Wycombe

The company I quoted started about 10 years ago and has expended very rapidly in that time, but has to get a very considerable market indeed to justify a capital investment of several millions of pounds before making itself independent of imported raw material. As it is, I must say that the company has made quite amazing progress in that 10 years—I am one of the managers.

That example is certainly not unique. Many people have been affected. The greatest damage has been done by the Measure's long-term effect on the cash flows of companies caught by this import deposit. If the scheme is to work as it is said it will in the coming year, certain amendments are needed. I would not necessarily disagree with the hon. Member for Birmingham, Northfield (Mr. Chapman), who suggested a Statute which would enable us from time to time, as necessary, to introduce various checks and restrictions designed to correct our imbalance.

Where I do disagree, and violently, is with the way in which the Measure has been introduced and operated. That has done a great deal of harm. The whole thing should be reviewed. During the last 12 months investigations should have been made to see how the scheme was affecting the various interests that were most hard hit by the payment of import deposits. So far as I can gather from what we have heard from the Government today, no such investigation has taken place. There have been vague remarks about its effect on the rate of imports but we have had no information about the very serious effect that the scheme can have on certain industries most affected by it.

If we are to put on the Statute Book a Measure designed to introduce certain checks to redress balance of payments, we must endeavour to ensure that it is reasonably fair in its impact on industry as a whole; and that that impact does not fall only on one small section of industry. My criticism is that the impact does fall on a small section. It has been said that the Measure as a whole is not of great importance, but it is of great importance to those companies most affected by it. We should review the list of imports affected, and see whether it should not be brought up to date.

If our economy is as strong as the Government Front Bench would have us believe, a continuation of this scheme is unnecessary. If it is not as strong as they would have us believe, the scheme, by making capital expansion more difficult, is sacrificing long-term advantage for a short-term benefit. I am sure that those of my hon. Friends who suggested earlier that removal of this import deposits scheme would have more impact on the electorate next year were quite right.

9.0 p.m.

Photo of Miss Joan Quennell Miss Joan Quennell , Petersfield

I shall not detain the House unnecessarily for more than the few moments which remain before Front Bench speakers wind up the debate. I sometimes wonder how those who never before have attended our debates must marvel that such a pea-green piece of paper as this Bill should evoke such intense argument for the whole of an afternoon.

I want to speak about the effects of the Act during the last year and of this Measure in future on the agriculture industry in that there are certain imported forms of agricultural machinery, substitutes for which cannot be found in this country but which would enable this country enormously to save imports of particular forms of foodstuff. I have endeavoured to take up this matter with the Department concerned but as yet I have not had a satisfactory reply, so I avail myself of the opportunity to bring it to the attention of the Government once again.

One of my constituents embarked on a farming project for the production and conservation of grass by using a new grass-drying method. A considerable amount of research and growing interest in farming and research circles has developed in this technique. So that hon. Members who are not familiar with this extraordinary operation can be put in the picture—although far be it from me to suggest that they should "go out to grass"—I should explain the process.

Grass pellets, or cubes as they are called, which are the end product of the process are sold to compounders and the compounders use them in poultry food.

If they are produced in a certain way the protein-rich grass of this country can be utilised to feed as cattle cake and especially for winter feed of both poultry and animals. Most of the protein at present used to feed animals in winter is imported. It is ridiculous in a country which, goodness knows, can grow grass which our animals can convert into meat, to penalise farmers who wish to import this machine so that they can supply the crop for this sort of cube to compounders.

This machine costs E36,000 to import and there is an import deposit charge on it of a substantial amount. The agriculture industry is penalised in other ways and it is almost impossible under present circumstances for agriculturists to advance by using modern techniques which could be applied in this country, provided they can get these machines, certainly for the forthcoming year. I therefore ask the Treasury Bench to consider in Committee the Schedules to the Bill so that this sort of machinery may be exempted.

9.4 p.m.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

It cannot be said that the debate this afternoon has shown this Bill to have very many honest long-term friends. [Interruption.] It has had a few foul-weather friends; who said they would stay with it so long as the dirty weather necessitated it but would abandon it as soon as the economic weather improves. If hon. Members below the Gangway opposite want to start jibbing so early in my speech, I should draw attention to the fact that the Government ran out of defenders of the Bill and the last five speeches have been made from this side of the House.

The best thing that can be said about import deposits in the 12 months in which they have applied is a very negative thing, that their impact has been at best marginal. Indeed, to do the Government justice, initially they never claimed that the impact would be anything but marginal. The impact has been so marginal as to be barely perceptible.

The worst that can be said about import deposits is that they have been positively damaging. There is much more to be said in support of the argument that they have been positively damaging, as my right hon. and hon. Friends have unfailingly succeeded in showing, than for the argument that they are merely marginal in their effect.

However, to put the best possible complexion upon the Government's case, I start by considering some of the alleged benefits which have been claimed for this nasty little one-page Bill. The Chancellor was the most emphatic and the most confident prophet about the prospects for import deposits when he announced them last year in these terms: Imports will be reduced directly because of the difficulty and cost of obtaining credit ".—[OFFICIAL REPORT, 22nd November, 1968; Vol. 773, c. 1795.] Incidentally, my hon. Friend the Member for Acton (Mr. Kenneth Baker) was right to point out that the whole emphasis, when this scheme was launched, was on the positive effect of restricting imports. It is a far cry from the note sounded by the Financial Secretary who described it this afternoon as a useful selective measure of credit control. That is a very different animal from something which was to have a direct effect in reducing imports.

The Chancellor was speaking in the context of stocks. There have been one or two references to stocks and stock-building today. The Chancellor, when he told us that Imports will be reduced directly was specifically referring to the squeeze which was to be imposed upon stocks as the result of credit difficulties.

In fact, the seasonally adjusted level of manufacturing stocks, taking them at 1963 prices so as to take volume into account, having been static in the second, third and fourth quarters of 1968—that is, in the year before import deposits came into effect—promptly jumped 2 per centage points in the first half of 1969. I believe that this was no fluke. I believe that the scheme of import deposits is positively perverse. It actually stimulates, and has stimulated, imports above the level which would otherwise have occurred.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Does not the hon. Gentleman realise that manufacturers' stocks will be raw materials, which are not affected, or partly finished goods, which equally are not affected, or finished goods which they have been manufacturing, which equally will not be imported goods affected by the deposit scheme?

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

The hon. Gentleman has left out semi-manufactures, which are very important. I will illustrate the point by taking a specific commodity—fractional horse power electric a.c. motors, a stage ahead from the Prime Minister's famous subject of fractional horsepower steam engines, when he sought to link Socialism to steam and steam to Socialism. Unfortunately, he forgot to look into the question of fractional horsepower electric motors. In this vital category we find that in 1969 the import of these motors rose at a rate of 20 per cent. over what it was in the full year before import deposits came into effect.

The explanation from the trade is that that was due almost entirely to the fact that before import deposits were introduced manufacturers and users of fractional horsepower electric motors were not carrying stocks. The chairman of one of the manufacturing companies concerned with the British production of these motors said: Brook— that is, Brook Motors— feels part of the increased demand "— which has entirely reached the end of the capacity of British manufacturers— might be the result of client companies not carrying stocks, then finding demand picking up and so going in for rushed over-stocking. That is what happened. Towards the end of 1968 the Chancellor announced a scheme affecting the import of a type of machinery of which people did not carry large stocks but which they had hitherto used in fairly large quantities and bought British. If someone thinks—and the psychological effect is crucial—that there will be a run on the home stocks of fractional horsepower electric motors because imports will be squeezed, he stocks up. The British manufacturer runs out of stocks, and delivery dates then become a long way ahead for these motors-30 weeks in most cases compared with 12 weeks for the Swedish equivalent—so he promptly imports materials in the categories which import deposits are meant to keep out. This is perverse, and we see this quite unmistakably from the figures which are available.

But that is not all. The Chancellor went on to say: The scheme is not one which can or should be kept in being for more than a limited period, but it will have powerful effects over the few months when we most need its benefit."—[OFFICIAL REPORT, 26th November, 1968; Vol. 774, c. 1796.] There is the second strand of the Chancellor's argument—not a marginal increase, but a positive reduction in imports resulting from this deposit scheme, and a positive reduction occurring in the early months of the scheme.

Again what do we find if we look at the actual figures? I pass over the throwaway line about the temporary nature of the scheme, and it not being one which should or could be kept in being for more than a limited period, and come to the question of the early months of imports.

Believe it or not—and I do not know whether the Financial Secretary will believe it since he digested his own Treasury figures—in those very early months which the Chancellor singled out as being strategic we find not only an increase in the volume of imports, but an increase concentrated substantially on those very categories which the scheme was meant to exclude.

The Financial Secretary slightly misled the House—I am sure unwittingly—by trying to make the comparison over a period of five years from 1964 onwards. That will not do, because we know that the rate of economic growth since 1964 has dropped by about three-quarters, from about 4 per cent. or 5 per cent. per annum of G.N.P. to the anticipated growth this year of 1·9 per cent. This is the forecast of the National Institute. One would really expect stocks of manufactured articles and semi-manufactures of this kind to drop. But what happened in the few months before the end of 1968, when the scheme was announced, and the first part of 1969? I shall quote here from the Board of Trade Journal, taking an extract from the issue of 6th August, 1969, the time when the Board of Trade reviewed the progress of trade in the first six months of this year: By volume, imports in the first half of 1969 averaged 144 "— on an index number with a base of 100 at 1961— the same as in the second half of 1968, and little more than the average of 143 in the first half of last year. Then, says the Board of Trade Journal—I hope that the Minister of State will note this concluding quotation— The Imports Deposit Scheme has probably helped to restrain imports this year. Arrivals of goods subject to the Scheme in the first half year were only slightly higher than in the second half of last year… Not a positive reduction—" only slightly higher ". In fact, one ands that overall, by volume, imports have not gone up between the second half of 1968 and the first half of 1969, but some have gone down, and the category specified here by the Board of Trade Journal as relating to the import deposit scheme has positively risen. Clearly, therefore, the scheme is not having the sort of effect which the Financial Secretary alleged.

Photo of Mr Thomas Price Mr Thomas Price , Westhoughton

The hon. Gentleman's argument seems logical up to a point, save that he omits the main factor in it. If, during the period about which he is speaking, exports have expanded dramatically, one would expect a slight drag in an upward direction for raw materials imported to sustain that vast expansion in our export trade. The overall figures are entirely destructive of the hon. Gentleman's general argument.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I have great respect and affection for the hon. Member for Westhoughton (Mr. J. T. Price), but is he suggesting that there must be a preliminary import boom if one is trying to generate an export boom? If an export boom necessitates as a corollary a preliminary import boom, what on earth is the point of having the import deposits scheme? It is the hon. Gentleman who lacks logic. [HON. MEMBERS: "Oh."] It is evident from the reaction on the benches opposite that it is the truth that wounds.

Now, another quotation from the Board of Trade Journal of 6th August: The Import Deposit scheme, which came into operation on November 22 last year, may have affected the level of certain imports among industrial materials. There is no clear evidence of any marked effect, however, since imports of semi-manufactures, which were largely subject to the scheme, increased a little by volume between the second half of 1968 and the first half of this year. Again, the out-turn entirely falsifies the Chancellor's prophecy of a specific cutback in imports as a result of the scheme. In my view, it is perverse, as I have sought to show.

The House will note the rather delicate way in which the Board of Trade Journal attempted to make the transition to a positive increase in imports against the background of the expected result which, clearly, was a positive decrease. One might say that it succeeded in striking the slightly hysterical note of reassurance which one would expect from a doctor who had prescribed for a young lady a fertility drug potion instead of the pill, and it could be said to have succeeded, because of the perverse results, in giving British imports a dose of the fertility drug.

Perversity of result is one of the hallmarks of the economic fruits of the present Administration. Let me remind the House how this happened. They imposed a selective employment tax squeeze to get men out of the service industry, and then found that above all the men were squeezed out of manufacturing. They concentrated investment incentives on manufacturing industries, by contrast, and then found that the solitary growth sector, the real loner in investment growth in the British economy, is the retail distribution sector, that industry sector most detested by the Prime Minister and on the whole bitterly resented by most Socialists—a totally perverse result. They clobbered the service sector and investment overseas, and lo and behold the whole salvation of the British balance of payments comes from the invisibles, including dividends on capital earlier exported. Now we see exactly the same perverse effect of import deposits: the Government slap them on, and up go the imports of semi-manufactures, almost in isolation.

It is a situation worthy of Alice in Wonderland. It was Alice who taught us that if one wanted to grow small one took a drink out of a bottle marked "Take me" and instantly grew larger. The Government's whole economic philosophy is to hunt around for any old bottle marked "Take me". They take it in the expectation that something will happen, and the reverse occurs.

A direct reduction of imports, and especially stocks, was not the only benefit which it was alleged import deposits would yield. There was also the little matter of liquidity, touched on by the then Financial Secretary to the Treasury, now the Paymaster-General, when he said on 28th November last year that the effect of import deposits

… will be that of mopping up liquidity which would otherwise be available to finance other consumption or other expenditures."—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 751.] But this pious hope shows how extraordinarily little the present Administration understand about the complexity and sophistication of the economic system they are trying to manhandle. They should learn their Friedman a little better, and take a few lessons from the hon. Member for Stoke-on-Trent, Central (Mr. Cant).

The fallacy of the argument that liquidity is mopped up on a large scale is exposed by the fact that many suppliers of goods to this country are now introducing substantially deferred credit payment terms. As one example, whereas the Government of India previously asked for extremely rapid settlement of debts they now ask only for a down payment of 50 per cent. until the import deposits are released and they can be paid in full. The effect on liquidity of such an arrangement is totally neutral. The British importer who hitherto promptly paid 100 per cent. of the cost now pays 50 per cent. to the seller and 50 per cent. to the Chancellor, and does not have to pay the seller the full price until the import deposit is released. This practice is growing, and I believe that it is disadvantageous to Britain. It teaches a large number of foreign suppliers the art which we and other countries have developed to a nicety of extended deferred credit payments. At the end of the day we may well find that we have taught foreign suppliers to British importers some of the tricks of the trade, and that it has made Britain more vulnerable to foreign salesmen. I do not think that that is a good idea.

This will not have the same effect on all importers. The selectively discriminating effect of the squeeze on some importers will hit, above all, the small firms. Many of my hon. Friends have spoken eloquently on behalf of small firms. It should not be overlooked by the House that about half the country's industrial output is in the hands of firms with fewer than 500 employees, and the sort of discrimination which the scheme brings about—because, on the whole, the big operators get easier credit terms from those from whom they borrow—bites wholly irrationally and in a predatory manner usually on the small and the weak firms. No rational regard is had to the needs of small importing business firms or, indeed, of some of the small imports which particular firms find crucially necessary to their operations.

The right hon. Member for Sheffield, Hillsborough (Mr. Darling) referred to silicon carbide, and my hon. Friend the Member for Macclesfield (Sir A. V. Harvey) drew our attention to the need of some firms for calcium carbide. These crucial ingredients, of vital and sometimes overwhelming importance to small firms, are simply lost in the small print of the list of exemptions and non-exemptions in the Bill, although they are a matter of life and death to many firms.

But this is typical of Socialism. At one time we were told that the religion of Socialism was the language of priorities. It is now expressed above all by priorities for big business. It is big business which gets the benefits under Socialism while the small firms are squeezed all the time.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The hon. Gentleman must read the Financial Times and see the advertisements offering as much money as they require to precisely the small firms that he is talking about against the security of the money. Of course, this would be at a cost but it is a price cost and not a liquidity cost.

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

Before my hon. Friend the Member for Barkston Ash (Mr. Alison) brings his excellent speech to a conclusion, could he spell out his remarks in simple language to the knuckleheads opposite who do not understand one word of what he is saying?

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I assure my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) that I shall not be bringing my remarks to a conclusion just yet. For the benefit of hon. Members opposite who may need this point about small firms spelt out in plain language, I will explain that it is the small firms which have youthfulness and vigour and willingness to take risks, which have the vision of building something big from something small, and which are alone the base upon which this country can go forward in future.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

The hon. Member for Barnett and Sheldon—as we used to call him in Committee on the Finance Bill —should contain himself. I shall deal with his question about liquidity. Although the scheme in terms of liquidity will have extremely difficult implications for the small firms because of the cost, it will not have—and here I agree with the hon. Gentleman—overall a significant effect, I believe, on liquidity. I pay ready tribute to the hon. Gentleman for having a heart and head in sympathy with us on the Conservative side.

The Chancellor undoubtedly let the cat out of the bag on the liquidity question—I am glad that we have the right hon. Gentleman in his place for at any rate the concluding part of the debate—when he said in the debate on the I.M.F. Letter of Intent of 25th June, halfway through the first year of operation of import deposits, that bank lending to the private sector would increase this financial year by not less than that of last year; that is, by between £600 million and £700 million. It is curious that the Chancellor should have said that, for bank lending is of the essence of liquidity. If bank lending is to be allowed to go up in the year of import deposits in exactly the same degree and quantity as it did in the year before import deposits were imposed, it does not look as if we shall get that much of a squeeze overall on liquidity.

In any event, we know that bank lending will increase this year. The Chancellor will have to let it. He is having to make a virtue out of a necessity. He has long since had to abandon the idea of keeping bank lending within the original ceiling prescribed, and the reason is simple. If the right hon. Gentleman attacks the private sector tooth and nail in the matter of bank lending and private credit, that sector will fight back through the gilt-edged market or through the market for non-marketable Government securities, to state a paradox.

The Chancellor must be aware that in the financial year 1968–69 the private sector liquidated over £525 million worth of central Government debt, £300 million worth of it in the revenue quarter; that is, the first quarter of this year. If the private sector did the same thing again in the revenue quarter of this financial year—that is, the first quarter of 1970—and liquidated central Government debt to anything like the same degree, the whole Government domestic credit expansion calculation, which pledged to the I.M.F. an increase of not more than £400 million in this financial year, would be totally falsified. I calculate that if the private sector liquidates central Government debt on the same scale as last year, the I.M.F. pledge will be exceeded by a good 50 per cent.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

I have listened to most of the debate and I confess to being completely baffled by what the hon. Gentleman is saying. Are we in for a shocking bout of deflation or inflation?

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I suggest that the hon. Gentleman puts that question—

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

The hon. Gentleman does not know the answer. [Interruption.]

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. The hon. Member for Birmingham, Northfield (Mr. Chapman) must restrain his enthusiasm.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

The hon. Member for Stoke-on-Trent, Central has his own interpretation of the figures somewhat wrong. In his speech he contradicted himself. While being against any increase in the money supply, he was at the same time in favour of import deposits. They are contradictory, because if one introduces import deposits with a view to cutting down the balance of payments deficit to encourage a surplus—the Chancellor will corroborate this only too readily—then a balance of payments surplus tends to decrease—no—increase—

Hon.Members:

Make up your mind.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

—tends to increase the money supply. In other words, more money is drawn out of the E.E.A. and handed to the people. The hon. Gentleman therefore cannot have it both ways. If he wants to restrict the money supply he must have a deficit on the balance of payments.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

I said that I believed that the inflationary pressures which were likely to develop were fairly considerable and that I therefore did not believe that the Chancellor of the Exchequer could release the £550 million held by Customs as import deposits.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

If the hon. Gentleman thinks that we are in danger of inflation, the one thing he should not advocate is a cutback in imports. If imports are cut back and the money supply is allowed to go on increasing at the same time, there will certainly be far greater pressure on home resources and a greater tendency for prices to rise.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

The domestic credit expansion point is one that the House needs to note with some care. The thing that we should be worrying about—and here I hope that I carry the hon. Member for Heywood and Royton (Mr. Barnett) with me—in the context of domestic credit expansion is what happens to the extra sums that the Chancellor of the Exchequer mops up with the import deposits scheme. It is by no means self-evident that this means that credit is restricted. It depends entirely on what is done with the money. If the effect is to decrease the Government's need to borrow money, it simply means that those who would otherwise have lent to the Government have more to lend to others.

Again, if it simply has the effect that money taken by way of import deposits from some unfortunate importers is handed out to others by way of debt repayment, this is totally cyclical and has no effect on mopping up credit. It simply shunts resources, by no means in an economic and rational way, to those capable of paying a higher price for it. The arguments on the liquidity basis, which the now Paymaster-General advanced so eloquently, are beside the point.

I want to conclude by bringing forward what to me and many of my hon. and right hon. Friends are our definite puzzlement and misgivings about the Government's determination and steely-eyed purpose in keeping on this irrelevant little Bi11. What is the basis for the Chancellor of the Exchequer coming forward with the Bill a second time? We have already shown that although he talked of imports being reduced directly, this has not happened and that, on the contrary, the opposite has been the case. We heard the Chancellor talking originally of keeping the scheme in operation for a limited period, in a context of months, because he specifically said that the earlier months of the scheme were crucial. That has already been stretched to two years.

The Paymaster-General said that the whole scheme was intended to have a temporary effect until the strategy enabled us to come into surplus. I thought that we had now come into surplus. We all noticed how extraordinarily euphoric the Prime Minister was at Question Time on Thursday about the upturn in the export figures. As the Government are bringing forward the Bill a second time, one may ask whether there is a snag. Is there some element of doubt? Is there some gnawing uncertainty about the surplus that we hear being crowed about so much? Can it be that the improvement is illusory after all? Can it be that the substantial margin on the trade account as suggested by the latest three-monthly figures is in reality so accidental, or so confused with over and under recording, or distorted by special factors, that it requires the utterly marginal prop of the import deposits scheme to keep the whole ship afloat?

One is driven to the conclusion that we are much nearer the truth in fearing that the trade figures may not be nearly as good as they look than in thinking that this is simply an elementary precautionary measure. Here we are forced, with some regret, to look at the league table. Many people will have noticed how unwilling the Prime Minister is nowadays to go back to his erstwhile habit of quoting league tables. But the much vaunted increase in the rate of exports of British industry in recent years must be seen in the context of world increases in exports.

For the year 1968 the United Kingdom percentage rate of increase in manufacturing exports of 71½per cent. was exactly half the average for the leading industrial nations of the world and is not a good enough performance. But it provides the only tolerable background against which the Government could hope to get away with a scheme of import deposits. It is only because other countries' exports have been so remarkably buoyant at double our rate that they have, in a sense, overlooked the circumstance of the British import deposits scheme because it has not bitten so firmly on to them. But this is the only circumstance—the circumstance of the huge boom in world exports—in which our import deposits scheme would be tolerable.

If world trade slackens in 1970—and there is some indication that it will—woe betide us. If the United States get inflation under control, if the Germans feel that they need a fair crack of the whip after revaluation, and if circumstances change in the terms of the rate of growth of world exports, others will import, or will have imported, this extremely bad habit—this protectionist habit, as my hon. Friends the Members for Wycombe (Mr. John Hall) and Holland with Boston (Mr. Body) called it—from Britain. It will rapidly be learned by other countries overseas and will be sent back to us with interest.

I suspect that the lack of enthusiasm of the E.F.T.A. Council about discussing this too explicity, to which the Financial Secretary referred, is precisely for this reason. It has learned that this is a useful card to have in the pack, and as soon as the growth in world trade slackens off we shall be paid back in our own coin. This is the moment to drop the Bill.

9.42 p.m.

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

Unlike my hon. and learned Friend the Financial Secretary, I come new to the world of import deposits. I suppose this accounts for the naivety with which I approached today's debate. I had assumed that there were great issues at stake and fresh arguments which would be deployed. There seemed no other explanation of the Opposition's determination to make such a fuss. I confess that I am no wiser, particularly after having listened to the speech of the hon. Member for Barkston Ash (Mr. Alison). I was not sure which side he was on. But at least some of his arguments were arguments which I might have used had not he deployed them. They were arguments, especially on money supply, which were totally contrary to those used by his hon. Friends earlier.

There has been some constructive discussion of the Import Deposits Scheme and its consequences for those most closely affected, and genuine concern was expressed by the hon. Member for Worthing (Mr. Higgins) and my right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) about the Bill's effects in certain fields. But we have also heard a good deal of nonsense. The Opposition, including the hon. Member for Barkston Ash, have attempted to widen the debate and take it away from the limited case for the Bill. They have certainly tried to avoid facing the particular issue, and I think that they have done so because in their hearts they are divided about it.

My right hon. Friend the Member for Hillsborough referred to the speech of the hon. Member for Worthing as being rather peculiar. My hon. Friend the Member for Heywood and Royton (Mr. Barnett) referred to it as being below the hon. Gentleman's usual standard. If I may be allowed to do so, I will disagree with both my right hon. Friend and my hon. Friend. I thought it was a rather good speech. It was ingenious sometimes; it was oblique for most of the time. It was a good speech because the hon. Gentleman was making the best of a very bad job. I enjoyed the speech and I sympathise with the hon. Member. It is the sort of speech which all of us from time to time have been obliged to make. The hon. Member did well on a sticky wicket. His honest doubts on this issue, reflected in the remarks of his hon. Friend, have been part of the background to all that we have heard this afternoon.

It was the right hon. Member for Brighton, Pavilion (Mr. Amery) who gave the game away. He said that we have to deal with the issue as it is. In other words, he was prepared to face the issue as of now about what ought to be done concerning the import deposit scheme. He said that he had some sympathy for my right hon. Friend the Chancellor. Then he said that he would support his side with slight misgivings.

We know what that Parliamentary language means. The right hon. Gentleman is in favour of the Bill. He is not against the Bill, but, in all the circumstances, he thinks that the only loyal thing to do is to go into the Lobby with his colleagues. That, I think, is the perversity—and it is perversity on the other side of the House today which is at stake —which is a measure of the perversity of the speeches which have been made. I think that hon. Members opposite, particularly on the Opposition Front Bench, wish that they had never been forced to take the stand they have. They have, however, done their best, and even if they have not done it very well, certainly I would have—and it would be appropriate to have—no complaint on that score.

The test of the Bill is simple. First, has our economic recovery advanced so far that we can take avoidable risks with the balance of payments? Second, on the experience of the last year, would an end to import deposits contribute towards such a risk? In the Government's view, the answer to the first question is "No" and to the second question "Yes". Here again, the Opposition have shown themselves to be in a cleft stick. They can hardly set out to persuade us and the country that we have done better than we claim. They cannot say that Britain's economic recovery has gone so far and so fast that risks of that kind can be run. They resort, therefore, to the oldest device of all. They attribute to us a complacency which we have never expressed in order to draw a contrast which would not otherwise stand up.

Photo of Mr John Page Mr John Page , Harrow West

When the Government said last year that the scheme would last for a year or less, were bey expecting the balance of payments to go better or worse than it has gone?

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

The hon. Member, I am sure unwittingly, misrepresents what my hon. Friends said. They said last year that the scheme was a temporary one and would have an immediate effect, but they were careful not to give an undertaking, which properly they could not give, about the longer future of the scheme. I ask the hon. Member to examine carefully, as I have done, precisely what was said on Second Reading and what was said in Committee last year. It may be that they and he would like the scheme to have ended, but no commitment whatever was given.

For that reason, hon. Members opposite have found what they regard as a paradox. On the one hand, when the scheme was introduced my right hon. Friend the then Financial Secretary to the Treasury, now Paymaster-General, explained that it was intended to cover the period until our strategy enabled us to come into surplus. On the other hand, my right hon. Friend the Chancellor has said that we crossed the line in about the middle of the first half of this year and have since been in substantial surplus.

The point, however, is surely this. We are making very good progress but we have not yet reached our immediate target of a surplus of £300 million on current and long-term capital account combined during the present financial year. We are moving in the right direction but we are still short of our destination, the destination that my right hon. Friend the former Financial Secretary had in mind a year ago.

I admit that we are being cautious in bringing forward the Bill. My hon. and learned Friend the Financial Secretary was frank about this this afternoon. It would, however, be extremely foolish not to remain in a cautious stance until the position is plain beyond all doubt. We should take a dangerously short-term view if we were to relax immediately we had crossed the line.

This, after all, was the view of the hon. Member for Worthing. His quarrel—his half quarrel: it was no more than that—was not with the stance of the Government, the cautious one, the reluctance to relax because it might be to relax too soon, but with the means. In other words, he did not like the Bill, but he recognised the necessity, as we see it, for remaining in this cautious posture. I think that is a fair view, it is an honest view, but, with respect, it is not the view which some of his hon. Friends have expressed, and so far as it has been sustained, their argument has been that, because things are better, we can take risks now.

I am not saying that in economic management, any more than in any other field, risks are not involved in all decisions. They are. I think it would be an unusual Chancellor and an unusual Government who said that at no time might a risk have to be taken. There are on this side of the House a number of my hon. Friends who, quite rightly, have been drawing attention to the dangers which might follow if we held the squeeze too tight, but, at the end of the day, having set our target, and having had it accepted, I think both by the House and by the country, it would certainly be wrong to take risks if risks can be avoided.

Photo of Mr David Crouch Mr David Crouch , Canterbury

I am following the hon. Gentleman most carefully, but would he not agree that a year ago the whole House understood the then Financial Secretary to say that the Measure was a 12-month Measure, and that the whole House went with it on that occasion, although the whole House did not vote for it? But the whole House did understand it was a 12-month Measure, no matter how difficult our problems were.

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

I am not at all sure that the hon. Gentleman is correct when he says the whole House went for the Bill and went for the Financial Secretary. My memory of that time is that there was a good deal of scepticism, to put it no higher, on the other side of the Chamber about that Bill. But I take the hon. Gentleman's point. It may be that he thought it was a good Bill. I hope he said so. I quite appreciate what he said about a sense of crisis at that time. There is no sense of crisis now, but it nevertheless remains the case that we cannot be sure what the next few months will hold. In these circumstances the choice is surely a simple one. We take a risk, we take off import deposits, and we hope there will not be disaster; or, alternatively, we do what the Government have done, and say it is a risk which cannot be run.

I follow those hon. Gentlemen who have said that the Bill will make a difference only at the margins. Certainly I would concede and I recognise the point made by the hon. Member for Acton (Mr. Kenneth Baker) that there are difficulties in quantifying the precise consequences of the scheme, both directly for imports and on credit. I know he will understand when I say that he asks us in that respect to do the impossible. But the question is this. If the Bill does not have a perverse effect, if it operates only on the margin, surely it is still a scheme which has to be retained unless the contrary disadvantages are overwhelming.

It has been interesting, listening to the debate this afternoon and comparing it with what was said a year ago, that very few practical disadvantages have been demonstrated. Despite the argument about exemptions, and how many there ought to be, the fact is that the scheme has worked smoothly, and there are many organisations which have been affected by it, trade associations and the C.B.I., which, whatever they may have thought of the principle, have been prepared to say that the scheme, as administered, has proved to be an effective and efficient scheme. In these circumstances, surely the case is for retaining the scheme and not for doing away with it, even if the difference it may make is slight, although I would not necessarily concede this.

My hon. and learned Friend the Financial Secretary put forward three very good reasons for continuing the scheme. [HON. MEMBERS: "Four."] I know hon. Gentlemen thought that there were four, but if they will read HANSARD tomorrow they will find that there were three, although my hon. Friend developed them with so much conviction that he may have convinced the Opposition that there was more to be said for the scheme than even he imagined. The three important arguments which he advanced still stand up.

First, there is the effect of credit restraint. Although we know that here there is an area for argument, there is no doubt that it is a measure of credit restraint, and, for the moment, as I have said, this is the right stance to be in. Second, my hon. and learned Friend spoke of the effect on the import figures, and, with respect, I do not think the comparisons made by the hon. Member for Barkston Ash were always right. The comparison surely is between the trend in exempt and non-exempt goods before the scheme came in and the trend in exempt and non-exempt goods afterwards. It is a question of ratios, and my hon. and learned Friend summarised it by saying that, on the evidence, the difference between the rates of increase in non-exempt and exempt goods has dropped from three times to twice. Nobody has said that imports have not been rising; of course they have. The question is not only the rate of increase of imports but the relative rate of increase of imports as between the exempt and non-exempt sectors. If hon. Gentlemen will examine my hon. and learned Friend's speech, they will see that that has been spelt out.

To summarise, we do not say that the Bill is a matter of life and death, but we do say that all the evidence points to its being very useful on the margin at a time when we must continue to give top priority to the need for a substantial surplus. Thus, the Bill must be seen against a background of growing success but of a continuing need for vigilance, restraint and care. This is a matter of common sense and not of sophisticated economic analysis.

I said a moment ago that removing import deposits is a risk we cannot take. This is the theme of my remarks and of my right hon. Friend's. I had in mind there both the effects directly on imports and the consequences for liquidity. As 1. have said, there are some risks that are inescapable in economic management, but this is not the time to seek them. The argument is about method and timing. As my right hon. Friend the Chancellor of the Exchequer has said, we walk on a tightrope. What is correct at one time may not necessarily have been correct earlier. These are matters of judgment, not of principle. Bearing all the factors in mind, and reflecting on what has been said this afternoon, I believe that our judgment is right.

With regard to the past, the predictions made last year have not proved to be correct. With regard to the future, there is no doubt that the overall credit position will be tight in the months ahead, but I do not believe—

Photo of Mr Stephen Hastings Mr Stephen Hastings , Mid Bedfordshire

There is only a minute to go.

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

The hon. Gentleman is mistaken; we are on exempted business, and, unless you, Mr. Speaker, correct me, I have a considerable time ahead of me if the House wishes me to develop the argument. I would point out to the hon. Gentleman that his hon. Friend the Member for Barkston Ash spoke for about 35 minutes. This gives me another 15 minutes. If he would prefer to absent himself in this period, I would have no complaint.

I assure the hon. Member for Macclesfield (Sir A. V. Harvey) and others who have raised this point that I am not dismissing as a matter of no importance the possible effects of credit restriction on some companies, though I would have some doubts about the glowing tribute of vision and usefulness which the hon. Member for Barkston Ash painted. Rather, I share the view of my right hon. Friend the Member for Hillsborough when he sought to suggest—

It being Ten o'clock, the debate stood adjourned.

Ordered,

That the Proceedings on the Motion relating to Business of the House (Customs (Import Deposits) Bill) and on the Police Bill may be entered upon and proceeded with at this day's Sitting at any hour, though opposed.—[Mr. Harper.]

Question again proposed, That the Bill be now read a Second time.

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

—that if small firms are in difficulties, it is less likely that they will be concerned with problems of liquidity than with considerations of, for example, managerial competence. However, I am not dismissing the arguments that have been adduced and I do not want it to be thought that we are indifferent to this matter or will not watch it very closely. We will certainly do so.

To hon. Members who have spoken about E.F.T.A. I say that, while I respect their feeling that there was something at stake here, and while it was right for them to mention our obligations to E.F.T.A., there seems to have been a curious persistence in the Opposition's approach to this problem. They are more royalist than the king.

E.F.T.A. has considered this matter. It has heard statements both last year and on this occasion from my right hon. Friend the President of the Board of Trade. It is in a position to make such inquiries as it thinks should be made. Surely E.F.T.A. can decide its own view of this scheme without requiring hon. Gentlemen opposite to make unnecessary speeches about it.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Gentleman is not relating his remarks—the same could be said of the speech of his hon. and learned Friend—to the effects of the continuation of the scheme on the Government's application for entry into the E.E.C. The fact that the Government have decided to continue the scheme is bound to be regarded somewhat adversely—

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. The hon. Gentleman has made a speech. He may make only a brief intervention now.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

May I complete my question?

Photo of Mr William Rodgers Mr William Rodgers , Stockton-on-Tees

I had better bring my remarks to a close. I assure the hon. Gentleman that I have taken note of the interesting point which he makes, but I believe that his conclusion is wrong. If he would like me to develop the matter further I would be happy to do so on another occasion.

In preparation for today's proceedings I carefully read the OFFICIAL REPORT of the debates a year ago and especially the speeches made by hon. Gentlemen on the Front Bench opposite. As my right hon. Friend the then Financial Secretary said, they were schizophrenic; they were against the Bill on principle but in two minds about the virtues of a deposit scheme as a method of import restriction. More reasonably, there were anxieties expressed on both sides concerning the Bill's administration. In practice, as I have said, the Measure has worked very smoothly. As my hon. and learned Friend said earlier, it has, among other things, required fewer staff than was originally estimated.

I do not complain about the anxieties of a year ago. They were natural. But I do complain that when they have been proved unfounded hon. Gentlemen opposite are too mealy-mouthed to admit it. The plain fact is that, for the most part, the speeches against the Bill—I exempt the hon. Member for Worthing and the hon. Member for Barkston Ash—have

been motivated by that least constructive of human emotions, resentment.

Resentment has characterised so much of the Opposition's tactics throughout the life of this Parliament—resentment that hon. Gentlemen opposite were not sitting in our place, which they regard as their natural right; resentment that marks their attitude to Britain's economic recovery now; and resentment that they are not presiding over it, mixed with fear that we will succeed. It is resentment which will send them into the Division Lobby tonight—at least some of them: resentment that import deposits have worked, and will contribute further to Britain's rising strength. That is their affair. I do not keep their conscience. But I still wish that they would sometimes judge an issue on its merit, for on merit this is a useful Bill, relevant to the country's need and deserving support from all reasonable men.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 297, Noes 220.

Division No. 7.]AYES[10.5 p.m.
Abse, LeoCant, R. B.Ennals, David
Albu, AustenCarmichael, NeilEvans, Albert(Islington, S.W.)
Allaun, Frank (Salford, E.)Carter-Jones, LewisEvans, Fred (Caerphilly)
Atfildtt, WalterCastle, Rt. Hn. BarbaraEvans, loan L. (Birm'h'm, Yardley)
Allen, ScholefieldChapman, DonaldFault's, Andrew
Anderson, DonaldCoe, DenisFernyhough, E.
Ashley, JackColeman, DonaldFinch, Harold
Ashton, Joe (Bassetlaw)Concannon, J. D.Fitch, Alan (Wigan)
Atkins, Ronald (Preston, N.)Conlan, BernardFitt, Gerard (Belfast, W.)
Atkinson, Norman (Tottenham)Corbet, Mrs. FredaFletcher,Rt.Hn.SirEric(Islington,E.)
Bacon, Rt. Hn. AliceCraddock, George (Bradford, S.)Fletcher, Raymond (Ilkeston)
Bagier, Cordon A. T.Crawshaw, RichardFletcher, Ted (Doncaster)
Barnes, MichaelCronin, JohnFoley, Maurice
Barnett, JoelCrosland, Rt. Hn. AnthonyFoot, Michael (Ebbw Vale)
Baxter, WilliamGrossman, Rt. Hn. RichardFord, Ben
Beaney, AlanDarling, Rt. Hn. GeorgeForrester, John
Bence, CyrilDavidson, Arthur (Accrington)Fowler, Gerry
Benn, Rt. Hn. Anthony WedgwoodDavies, Ednyfed Hudson (Conway)Fraser, John (Norwood)
Bennett, James (G'gow, Bridgeton)Davies, G. Elfed (Rhondda, E.)Freeson, Reginald
Bidwell, SydneyDavies, Dr. Ernest (Stretford)Galpern, Sir Myer
Binns, JohnDavies, 'for (Gower)Gardner, Tony
Bishop, E. S.Davies, S. 0. (Merthyr)Garrett, W. E.
Blackburn, F.Delargy, HughGinsburg, David
Boardman, H. (Leigh)Dell, EdmundGolding, J.
Booth, AlbertDempsey, JamesGordon Walker, Rt. Hn. P. C.
Boston, TerenceDewar, DonaldGray, Dr. Hugh (Yarmouth)
Boyden, JamesDiamond, Rt. Hn. JohnGreenwood, Rt. Hn. Anthony
Bradley, TomDickens, JamesGregory, Arnold
Bray, Dr. JeremyDobson, RayGrey, Charles (Durham)
Brooks, EdwinDoig, PeterGriffiths, David (Rother Valley)
Broughton, Sir AlfredDriberg, TomGriffiths, Eddie (Brightside)
Brown, Rt. Hn. Geogre (Belper)Dunn, James A.Griffiths, Will (Exchange)
Brown, Hugh D. (G'gow, Provan)Dunnett, JackGunter, Rt. Hn. R. J.
Brown,Bob(N'c'tle-upon-Tyne,W.)Dunwoody, Mrs. Gwyneth (Exeter)Hamilton, James (Bothwell)
Brown, R. W. (Shoreditch & F'bury)Dunwoody, Dr. John (F'th & C'b'e)Hamilton, William (Fife, W.)
Buchan, NormanEadie, AlexHamling, William
Buchanan, Richard (G'gow, Sp'burn)Edelman, MauriceHannan, William
Butler, Herbert (Hackney, C.)Edwards, Robert (Bilston)Harper, Joseph
Butler, Mrs. Joyce (Wood Green)Edwards, William (Merioneth)Harrison, Walter (Wakefield)
Callaghan, Rt. Hn. JamesEnglish, MichaelHart, Rt. Hn. Judith
Haseldine, Norman,Maciennan, RobertRoberts, Rt. Hn. Goronwy
Hattersley, RoyMcMillan, Tom (Glasgow, C.)Roberts, Gwilym (Bedfordshire, S.)
Hazell, BertMcNamara, J. KevlnRobinson, Rt. Hn. Kenneth (St. P'c'as)
Healey, Rt. Hn. DenisMacPherson, MalcolmRodgers, william (Stockton)
Heffer, Eric S.Mahon, Peter (Preston, S.)Roebuck, Roy
Henig, StanleyMallalieu, E. L. (Brigg)Rogers, George (Kensington, N.)
Herbison, Rt. Hn. MargaretMallalieu, J.P.W. (Huddersfield, E.)Rose, Paul
Hilton, W.S.Manuel, ArchleRoss, Rt. Hn. William
Hooley, FrankMapp, CharlesRowlands, E.
Horner, JohnMarks, KennethShaw, Arnold (IIford, S.)
Houghton, Rt. Hn. DouglasMarquand, DavidSheldon, Robert
Howarth, Robert (Bolton, E.Marsh, Rt. Hn. RichardShinwell, Rt. Hn. E.
Howell, Denis (Small Heath)Mason, Rt. Hn. RoyShore, Rt. Hn Peter (Stepney)
Howle, W.Maxwell, RobertShort, Rt. Hn.Edward(N'c'tle-u-Tyne)
Hoy, Rt. Hn. JamesMayhew, ChristopherShort, Mrs. Renee (W'hampton, N.E.)
Huckfield, LeslieMikardo, IanSilkin, Rt. Hn. John (Deptford)
Hughes, Rt. Hn. cledwyn(Anglesey)Miller, Dr. M. S.Silkin, Hn. S.C. (Dulwich)
Hughes, Hector (Aberdeen, N.)Milne, Edward (Biyth)Sliverman, Julius
Hughes, Roy (Newport)Mitchell, R.C. (S'th'pton)Slater, Joseph
Hunter, AdamMolloy, WillamSmall, William
Hynd, JohnMoonman, EricSnow, Julian
Jackson, Colin (B'h'se & Spenb'gh)Morgan, Elystan (Cardinganshire)Spriggs, Leslie
Jackson, Peter M. (High Peak)Morris, Alfred (Wythenshawe)Stewart, Rt. Hn. Michael
Janner, Sir BarnettMorris, Charles R. (Openshaw)Stonehouse, Rt. Hn. John
Jay, Rt. Hn. DouglasMorris, John (Aberavon)Strauss, Rt. Hn. G.R.
Jeger, George (Goole)Moyle, RolandSummerskill, Hn. Dr. Shirley
Jeger, Mrs. Lena (H'b'n&st. p'cras, S.)Mulley, Rt. Hn. FrederickTaverne, Dick
Jenkins, Rt. Hn. Roy (Stechford)Murray, AlbertThomson, Rt. Hn. George
Johnson, Carol (Lewisham, S.)Neil, HaroldThornton, Ernest
Johnson, James (K'ston-on-Hull, W.)Newens, StanTinn, James
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)Noel-Baker, Rt. Hn. PhilipTomney, Frank
Jones, J. Idwal (Wrexham)Norwood, ChristopherUrwin, T. W.
Kelley, RichardOgden, EricVarley, Eric G.
Kerr, Mrs. Anne (R'ter & Chatham)O'Halloran, M. J.Wainwright, Edwin (Dearne Valley)
Kerr, Russell (Feltham)Oram, Albert E.Walker, Harcld (Doncaster)
Latham, A.Orme, StanleyWallace, George
Lawson, GeorgeOswald, ThomasWatkins, David (Consett)
L eadbitter, TedOwen, Dr. David (Plymouth, S'tn)Weitzman, David
Lee, Rt. Hn. Frederick (Newton)Owen, Will (Morpeth)Wellbeloved, James
Lee, Rt. Hn. Jennie (Cannock)Page, Derek (King's Lynn)Wells, William (Walsall, N.)
Lee, John (Reading)Paget, R. T.Whitaker, Ben
Lessor, Miss JoanPalmer, ArthurWhite, Mrs. Eirene
Lever, Rt. Hn. Harold (Cheetham)Pannell, Rt. Hn. CharlesWhitlock, William
Lewis, Arthur (W. Ham, N.)Park, TrevorWilkins, W. A.
Lewis, Ron (Carlisle)Parker, John (Dagenham)Willey, Rt. Fin. Frederick
Lipton, MarcusParkyn, Brian (Bedford)Williams, Alan (Swansea, W.)
Loughlin, CharlesPavitt, LaurenceWilliams, Clifford (Ahertillery)
L uard, EvanPearson, Arthur (Pontypridd)Williams, Mrs. Shirley (Hitchln)
Lyon, Alexander W. (York)Peart, Rt. Hn. FredWillis, Rt. Hn. George
Lyons, Edward (Bradford, E.)Pentland, NormanWilson, Rt. Hn. Harold (Huyton)
Mahon, Dr. J. DicksonPerry, George H. (Nottingham, S.)Wilson, William (Coventry, S.)
McBride, NeilPrentice, Rt. Hn. R. E.Winnick, David
McCann, JohnPrice, Christopher (Perry Barr)Woodburn, Bt. Hon. A.
MacColl, JamesPrice, Thomas (Westhoughton)Woof, Robert
MaoDennot, NiallPrice, William (Rugby)Wyatt, Woodrow
Macdonald, A. H.Probert, Arthur
McElhone, F.Randall, HarryTELLERS FOR THE AYES:
McGuire, MichaelRankin, JohnMr. Ernest i3. Perry and
McKay, Mrs. MargaretRhodes, GeoffreyMr. Ernest Armstrong.
Mackenzie, Gregor (Rutherglen) Richard, Ivor
Mackie, JohnRoberts, Albert (Normanton)
NOES
Alison, Michael (Barkston Ash)Bossom, Sir CliveClegg, Walter
Allason, James (Hemel Hempstead)Boyd-Carpenter, Rt. Hn. JohnCooke, Robert
Amery, Rt. Hn. JulianBoyle, Rt. Hn. Sir EdwardCooper-Key, Sir Neill
Astor, JohnBrains, BernardCorfield, F. V.
Atkins, Humphrey (M't'n & M'd'n)Brinton, Sir TattonCostain, A. P.
Awdry, DanielBromley-Davenport,Lt.-Col.SirWalterCraddock, Sir Beresforcl (Spelthorne)
Baker, Kenneth (Acton)Brown, Sir Edward (Bath)Crouch, David
Baker, W. H. K. (Banff)Bruce-Gardyne, J.Crowder, F. P.
Balniel, LordBuchanan-Smith,Alick(Angus,N&M)Dalkeith, Earl of
Batsford, BrianBuck, Antony (Colchester)Dance, Jamees
Beamish, Col. Sir TuttonBullus, Sir EricDavidson,James(Aberdeenshire,W.)
Bell, RonaldBurden, F. A.Dean, Paul
Berry, Hn. AnthonyCampbell, B. (Oldham, W.)Deedes, Rt. Hn. W. F. (Ashford)
Biffen, JohnCampbell, Gordon (Moray & Nairn)Digby, Simon Wingfield
Birch, Rt. Hn. NigelCarlisle, MarkDodds-Parker, Douglas
Black, Sir CyrilChannon, H. P. G.Drayson, G. B.
Blaker, PeterChataway, Christopherdu Cann, Rt. Hn. Edward
Boardman, Tom (Leicester, S.W.)Chichester-Clark, R.Eden, Sir John
Body, RichardClark, HenryElliott, R. W. (N'c'tle-upon-Tyne,N.)
Emery, PeterLancaster, Col. C. G.Ramsden, Rt. Hn. James
Errington, Sir EricLane, DavidRawlinson, Rt. Hn. Sir Peter
Eyre, ReginaldLangford-Holt, Sir JohnRees-Davies, W. R.
Farr, JohnLegge-Bourke, Sir HarryRenton, 111. Hn. Sir David
Fisher, NigelLloyd,Rt.Hn.Geoffrey(SuenC'dfield)Rhys Williams, Sir Brandon
Fletcher-Cooke, CharlesLloyd, Ian (P'tsm'th, Langstone)Ridley, He. Nicholas
Fortescue, TimLloyd, Rt. Hn. Selwyn (Wirral)Ridsdale, Julian
Foster, Sir JohnLongden, GilbertRodgers, sir John (Sevenoaks)
Fraser,Rt.Hn.Hugh(STfford&Stone)Lubbock, EricRossi, Hugh (Hornsey)
Gilmour, Ian (Norfolk, C.)McAdden, Sir StephenRoyle, Anthony
Glover, Sir DouglasMacArthur, IanRusself, Sir Ronald
Glyn, Sir RichardMaclean, Sir FitzroySt. John-Stevas, Norman
Godlier, Rt. Hn. J. B.Macleod, Rt. Hn. lainScott, Nicholas
Goodhart, PhilipMcMaster, StanleySharpies, Richard
Goodhew, VictorMcNair-Wilson,Shaw, Michael (Sc'b'gh & Whitby)
Grant, AnthonyMichael McNair-Wilson, Patrick (New Forest)Silvester, Frederick
Grant-Ferris, Sir RobertMadden, MartinSinclair, Sir George
Gresham Cooke, R.Maginnis, John E.Smith, Dudley (W'wick & L'mington)
Grieve, PercyMarples, Rt. Hn. ErnestSpeed, Keith
Griffiths, Eldon (Bury St. Edmunds)Marten, NeilStainton, Keith
Gurden, HaroldMaude, AngusSteel, David (Roxburgh)
Hall, John (Wycombe)Maudling, Rt. Hn. ReginaldStodart, Anthony
Hall-Davis, A. G. F.Mawby, Raytoddart-Scott, Col.Sir M.
Hamilton, Michael (Salisbury)Maxwell-Hyslop, F. J.Summers, Sir Spencer
Harris, Reader (Heston)Maydon, Lt.-Cmdr. S. L. C.Tapsell, Peter
Harrison, Brian (Malden)Mills, Peter (Torringtn)Taylor, Sir Charles (Eastbourne)
Harvey, Sir Arthur VereMills, Stratton (Belfast, N.)Taylor,Edward M.(G'gow,Cathcart)
Harvie Anderson, MissMiscampbell, NormanTaylor, Frank (Moss Side)
Hastings, StephenMitchell, David (Basingstoke)Temple, John M.
Hawkins, PaulMunro, HectorThatcher, Mrs. Margaret
Heald, Rt. Hn. Sir LionelMontgomery, FergusThorpe, Rt. Hn. Jeremy
Heath, Rt. Hn,EdwardMore, JasperTilney, John
Heseltine, MichaelMorgan, Geraint (Denbigh)Turton, Rt. Hn. R. H.
Higgins, Terence L.Morgan-Giles, Rear-Adm.van Straubenzee, W. R.
Hiley, JosephMorrison, Charles (Devizes)Vickers, Dame Joan
Hill, J. E. B.Munro-Lucas-Tooth, Sir HughWaddington, David
Hirst, GeoffreyMurton, OscarWainwrighl, Richard (Colne Valley)
Hogg, Rt. Hn. QuintinNabarro, Sir GeraldWalker, Peter (Worcester)
Holland, PhilipNeave, AireyWalters, Dennis
Hordern PeterNott, JohnWard, C. (Swindon)
Hornhy, RichardOnslow, CranleyWard, Dame Irene (Tynemouth)
Howell, David (Guildford)Orr, Capt. L. P. S.Wells, John (Maidstone)
Hunt, JohnPage, Graham (Crosby)Whitelaw, Rt. Hn. William
Hutchison, Michael ClarkPage, John (Harrow, W.)Wiggin, A. W.
Iremonger, T. L.Pearson, Sir Frank (Clitheroe)Williams, Donald (Dudley)
Irvine, Bryant Godman (Rye)Peel, JohnWilson, Geoffrey (Truro)
Jennings, J. C.(Burton)Percival, IanWolrige-Gordon, Patrick
Johnson Smith, G. (E. Grinstead)Peyton, JohnWood, Rt. Hn. Richard
Johnston, Russell (Inverness)Pike, Miss MervynWoodnutt, Mark
Kaberry, Sir DonaldPink, R. BonnerWorsley, Marcus
Kershaw, AnthonyPounder, RaftonWright, Esmond
Kimball, MarcusPowell, Rt. Hn. J. EnochWylie, N. R.
King, Evelyn (Dorset, S.)Price, David (Eastleigh)
Knight, Mrs. JillPrior, J. M. L.TELLERS FOR THE NOES:
Lambton, ViscountPym, FrancisMr. Timothy Kitson and
Quennell, Miss J. M.Mr. Bernard Wcatherill.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Harper.]

Committee Tomorrow.