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.