I am very glad to follow my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle), with whom I entirely agree in all the points which he has made. It is always gratifying to be reminded of a prediction which has come true; one is usually reminded of predictions that do not come true. Within a short compass, my right hon. Friend dealt with the main points of the economic situation in a way with which I entirely agree.
This is the end of the Budget debate. It does not look much like it. [HON. MEMBERS: "Hear, hear."] Perhaps the Budget does not look much like a Budget; I do not know.
The debate has been marked by interesting speeches. There have been two maiden speeches, one by my hon. Friend the Member for Bridgwater (Mr. Tom King), the other day, which I was sorry not to hear, and another by my hon. Friend the Member for Louth (Mr. Jeffrey Archer), in an excellent contribution this afternoon. I was glad that he brought in the question of overseas aid, which too often tends to be overlooked when discussing our economic problems and resources.
We had two powerful speeches today, one from my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) and another from the hon. Member for Perth and East Perthshire (Mr. MacArthur) about S.E.T. I hope that the Chancellor of the Exchequer, in his reply, will address himself to the arguments about the tax that were put forward by my right hon. and learned Friend. The Chancellor, on Tuesday last, rested a little too easily on the interim report by Professor Reddaway. The arguments put forward by my right hon. Friend were of a solid character and merit a serious reply from the Chancellor this evening.
This Budget has not created a great deal of excitement. It fell pretty flat when delivered and nobody has tried to pick it up seriously since. It was described by theEconomistas an empty Budget and on the whole that is not a bad description.
What are the reasons for this? The first is that the amount given away by the Chancellor was so small in relation to £3,000 million of additional taxation imposed by the Chancellor and his predecessor during the last five years. In the early stages of the speech we heard a great deal about the remarkable improvement in the balance of payments. One could almost hear his friends below the Gangway licking their lips in expectation of splendid concessions. Then, in the end, all was bathos. Why, despite the remarkable turn-round in balance of payments, was there so little for the Chancellor to give away? Is it because he is doubtful even now of the continuing strength of the balance of payments? I am not sure about this. I should like to know more about his thinking.
No doubt he is relying to some extent on the fact that other countries are inflating as we are, but not always as fast—Germany, Sweden, Japan, for example, are all putting up their costs pretty fast. But the benefits of devaluation have largely been eroded. The Prime Minister tries to deny this, but it is true. When one looks at the extent to which British export prices in dollar terms are now lower than they were at the time of devaluation, there is little left of the 14 per cent. which we should have obtained.
We should not be too complacent about the continuing prospect for the balance of payments on current account, particularly if the world trade buoyancy we have seen in recent years should to any extent turn down. The major restraining effect on the Chancellor was the level of home demand and what has been called the wages explosion. There can be little doubt, both from his speech in the House and his television broadcasts, that had the Government not been faced with this wage explosion he would have felt in a position to make much larger tax reductions than he did. Therefore, the first reason for the first disappointment with the Budget is the fact that so little was given away in total.
The second reason lies in the details, which were complicated and probably incomprehensible to many of the potential beneficiaries. There were many useful concessions, which generally have been accepted by the House. We agree that the right hon. Gentleman was right to go for reductions in direct taxation in contrast with the normal doctrine of Socialist Chancellors. We are doubtful whether he was right in the selection of his main income tax change.
There are two real criticisms which have been made by my right hon. and learned Friend and other speakers on this side of the House. The first is that by his change he has made the initial impact of tax sharper than before on additional earnings when the tax first falls on somebody. It cannot be denied that this will have a disincentive effect on overtime, extra effort and extra earnings. Secondly, one cannot help wondering whether the people whom he has removed from the burden of taxation are necessarily those with the greatest claim. Certainly, some of them have been in and out of tax for many years and that cannot be denied. All Chancellors periodically take some people out of tax and then later, with inflation, they climb back in again. We all know this one and we are not very impressed.
What is deserving of a greater explanation is who are the 2 million people who will get the benefit? The Chancellor said that 800,000 were working wives. I think that only 400,000 are fathers of families on low incomes and that a large proportion are young people—possibly 500,000—under 21, getting their first earnings in industry. No doubt, like everyone else they are entitled to tax reductions. We all want to see tax reduction, but are these the people who should be chosen for priority consideration by the Government at a time when so little is being done for family poverty and when those with the lowest incomes are getting no benefit because, as they are paying no tax, nothing done by the Chancellor can help them?
Therefore, we cannot help feeling that on social grounds alone the proposals put forward by my right hon. Friend the Member for Enfield, West (Mr. lain Macleod) are far more acceptable, far more sensible, and far more just than what the Chancellor has proposed to do.
There are differing views about the economic effects of the Budget. Some of the Chancellor's hon. Friends think that he has been over cautious. Some people think otherwise. TheEconomistsaid:
He has been going for a rise in consumption slightly more irresponsible than Mr. maudling aimed at in 1964.
I shall come back to 1964 in a moment. I shall enjoy doing so. However, the Chancellor and I agree in rejecting the slightly jaundiced view of the Economist on this matter.
Certainly, it is important to know a little more about how this fiscal monetary combination which the Chancellor proposes will work out. We think that the Chancellor is right to remove the artificial ceilings of bank loans. He may be right to use the special deposits again, but surely there is a considerable doubt whether these actions will be effective unless he has the control over the open market operations of the Bank of England, in other words, unless he is drying up the money supply at source will these other proposals be effective?
What will be the effect on the economy on the figures the Chancellor has given of the £900 million d.c.e. and the 5 per cent. increase in money supply where he predicts a 3½ per cent. in g.d.p. and we are all seeing a 10 to 12 per cent. increase in wage incomes? If he tries to hold the money supply to this point will he not be tied to a very tight credit situation in the latter part of this year? The House and the country are entitled to closer and more thorough analysis of how these various facets of the Chancellor's policy will interact.
What will be the effect on unemployment? The Chancellor made many forecasts of a number of important economic indicators, but he did not forecast two. One was the move of unemployment and second was the move of prices. He was probably rather prudent to ignore the two, but we should ask him what is his estimate in the light of his hope of a 3½ per cent. increase in g.d.p. and his plans for a tight money supply expansion. What does he anticipate will be the course of unemployment during this fiscal year? What are the Chancellor's predictions and judgments in these matters?
Next, there is investment. Does the Chancellor really expect out of this to get the sort of increase in investment that the country really needs—and the increase is dramatic. I agree with him that over the years this country has invested too little and consumed too much. But I was appalled the other day, when looking at some figures produced by a major international company of productivity here, in America and in Japan, and seeing the reason why Japanese productivity was shooting ahead of ours, to find that Japanese investment in new plant was roughly four times as much as we were putting into comparable industry in this country.
The change needed in investment must be dramatic. A little help for buildings does not get us very far. What is required is investment in plant and machinery and, of course, in methods. The total allocation to industrial investment in the coming year of about £160 million seems very small in the light of the problem facing us. We should like to know more about that.
We should certainly like to know more about prices. The Chancellor was not explicit in his estimate about prices. What does he expect to see in the way of further price increases this year? They seem to be rising at about 7 per cent. per annum. Given what seems to be a realistic estimate of the growth in incomes of between 10 and 12 per cent., for what increase in prices is he budgeting in order to get all the bits of his jigsaw together?
The right hon. Gentleman must have that figure in mind. He cannot possibly have in mind a picture of the economy and the balance of supply and demand over the next 12 months without having in mind some estimate of the extent to which price rises will absorb the estimated increase in the rise in real incomes. He must have a figure in mind and he ought to give it to the House.
I turn to rather broader questions of the economy and the economic past and present, the contrast between the present Government and the record of the last Conservative Government. In a contrast of the five years before the 1964 election and the five years after it, the figures are most impressive. Under our Government, annual growth was 3·8 per cent.; under the present Government, it is 2·2 per cent. Under our Government, six months out of the 60 had unemployment at over 500,000; for the present Government, it is 29 months out of 60. Industrial production was up 23 per cent. in our years; up 13 per cent. in theirs. Savings, a vital figure, during the five years of Labour government rose 2·3 per cent.; during the five years of Conservative government they rose by 98· per cent. Retail prices in our five years rose by 3 per cent.; in this respect, the Government have done better and their figure is higher, at 4·3 per cent.
The only figure which the Chancellor can quote to his benefit is the basic balance of payments. During the five years of our administration there was a £1,161 million deficit; during the five years of Labour administration, £817 million. But there is a joker in this of another £800 million on the debit side in their accounts to which the Chancellor did not refer. There are many other statistics of housing, interest rates, and so on, all so many examples of the lamentable performance in economic matters of the Labour Government compared with the Conservative Government.
What is the answer of the Chancellor and the Labour Party? They say, "Look at the improvement in the external balance and the improvement in the surplus at the Treasury on its internal accounts". In two ways, by quoting those, the Chancellor is merely setting out with great clarity the follies and the failures of his own colleagues. The surplus which he now has on current account in the Treasury is merely a measure of the colossal rate of additional taxation which he and his predecessor have felt it necessary to impose on the country in order to cure the collapse in confidence in sterling which occurred as a result of their Government's action.
On the repayment of debt, the Chancellor talks of money flowing back into the country. I agree with him that in the basic economic position of the country what matters is the current account. Capital account is for the future and, on the whole, the country has a surplus of assets on capital account.
But if this is right, if movements out are balanced against movements in, the hot money flowing in now is merely a measure of the extent to which it flowed out a few years ago.
The Chancellor said that he thought that, on the whole, working balances in sterling were about back to normal. There is no excess of money coming into this country. The enormous figures that the right hon. Gentleman quoted for money flowing back into this country were merely restoring the normal position under a Conservative Administration from where it got under a Labour Administration.
What are the other arguments? I want to come to the splendid argument about 1964. The Chancellor, to give him his due, did not refer to this. He referred to the improvements since 1968, which was in logic and economic history the right comparison to draw. The Chancellor is rather different from some of his colleagues. His "side-kick" this afternoon was on again about 1964 with some rather strange remarks. The Prime Minister returns to 1964 with a sickening familiarity—like a dog returning to its vomit. He never keeps off it.
Let us look at 1964—[Interruption] There are a few basic facts about 1964 which hon. Members opposite seem to have forgotten and of which I intend to remind them.
First, I remind them that the promises they made in 1966 bore no relation whatever to the situation in 1964. When the Prime Minister excuses the breach of his 1966 promise about housing by a reference to 1964, he must know perfectly well that in 1966 not only had the Government all the facts at their disposal, but that they were also claiming that they had solved the balance of payments problem.
What is the charge about 1964? Do hon. Members opposite really believe that I reduced taxes in the 1964 Budget for electoral purposes? They seem to have forgotten that I put up taxes. They seem to have forgotten that I put up the tax on cigarettes and beer. Was that electioneering? They seem to have forgotten that I put up Bank Rate; I did not reduce it. All these matters are conveniently forgotten in the myth that they are trying to create about 1964.
I do not remember any hon. Members opposite in 1964 asking me to increase taxes even more than the £115 million that I put on in an election year. Perhaps that argument was that I did too much in 1963. Hon. Gentlemen opposite are nodding. But look at what the present Chancellor and the Prime Minister said in 1963. They blamed me for being too cautious and not going for enough growth. "Why 4 per cent., why 5 per cent?", asked the present Chancellor, "You should go for 6 or 7 per cent." The Prime Minister said" We are not blaming the Chancellor for expanding the economy." In 1963, there was no criticism of me for expanding too much; I was criticised for expanding too little.