Hon. Members will now understand why the hon. Member for Worcestershire, South (Sir G. Nabarro) got an invitation to the London Hilton. It is clear that they needed a comedian. Once again, in his own inimitable style, the hon. Gentleman told us how delighted he was with the tax cuts which are to be announced, he says, by the Chancellor. I wonder whether he will be quite as pleased when we have the compensating tax increases which the Chancellor did not deny when I put it to him today. I said that there would be replacement of S.E.T. with an employment tax and that a value-added tax will be more inflationary, to say the least, than S.E.T.
One recalls with interest what the hon. Gentleman used to say about the anomalies of the purchase tax system. One will be interested to see how he will react to the anomalies which will inevitably arise from a value-added tax with the sort of exemptions which were suggested when the present Government were in opposition. On his other proposals, an increase in the amounts allowed for National Savings Certificates, as he suggested, could have only one result—a switch by surtax payers from one form of savings to another. To talk about this increase in life insurance as a method of getting an enormous increase in savings, by increasing the proportion from one-sixth to one-third, is absurd. One has only to imagine a man on £3,000 a year suddenly deciding to spend £1,000 a year on life insurance premiums to get increased savings. He would not have much left to live on.
As the Chancellor said, economic facts have not changed with the change of Government. Whether we have an economic crisis or not is not relevant now that the election is over and the Government have taken as much advantage as they can from the situation which they were able to exploit. The definition of the word "crisis" has now been changed by the Chancellor. He made somewhat heavy weather of it when he described it not as an economic crisis but as "serious economic trouble"—incidentally, not sufficiently serious to warrant any action now.
I certainly accept the economic facts and I am not prepared to quibble about the fact that there is not a satisfactory rate of economic growth. The first quarter has certainly been bad. My right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) is probably right that we are now moving to perhaps the level of growth for the rest of the year that he forecast in the Budget—3 per cent.—but that is still far from satisfactory.
I am equally satisfied, on another economic fact, that the level of unemployment is far too high and has been too high for far too long. I am equally satisfied on another economic fact that investment is too low and has been too low for a very long time—[Laughter.]—for many years, including years when hon. Gentlemen were in government before that. I am equally satisfied that the present level of wage-price inflation is higher than it has ever been, but apart from this question of inflation, which is an international problem, all these other economic facts have been with us in varying degrees for many years.
If this is a crisis in that sense, of course we have had a permanent crisis for a very long time. It is rather silly to labour the point about whether or not we have an economic crisis. It all depends for its importance on the success that the Government will have in handling economic growth. All politicians pay lip service to economic growth when they are in opposition and before they become Ministers. This has happened for a long time and no doubt will go on.
Certainly, the present Chancellor was no exception. He will deserve the congratulations of the House and the country if he can achieve the levels of economic growth which are implied in every one of his speeches over recent years—[An HON. MEMBER: "Hear, hear."] The hon. Member says "Hear, hear," but in the past the major reason for the failure to achieve economic growth has been the priority given to the balance of payments, the need for debt repayments, the parity of the £ and short-sighted policies on investment.
The omission from the Gracious Speech of every one of those items may be significant, but speeches during the election and before the election—for years in this House before that—certainly do not give one great hope that those priorities will be changed. Indeed, much greater emphasis was placed on every one of those items by the present Chancellor even than by my right hon. Friend.
We heard again today of the enormous burden of debt repayments, with the clear implication of the need to repay them much faster. If that is not the implication, I should be glad to hear it from the Minister of State. But if it is, what effect will this have on economic growth? If there still is the same priority for the parity of the £ at all costs, again, what effect will this have on economic growth? If the Prime Minister is right in what he was saying before and during the election, and only last week in the House, about the trend of balance of payments, which must be reversed, so that we get back to achieving something like a £700 million surplus, which he once referred to in this House, I am afraid that the Chancellor will not have much prospect of achieving the sort of economic growth on which alone his policy will succeed.
Again, for years before the election, the Labour Government were criticised for the restrictions which were placed on capital outflow abroad through corporation tax and other fiscal measures. We were told about the need to increase that outflow. If they continue this, what will be the effect on balance of payments, and what, again, will its effects be on further economic growth?
What would be the economic effects of the absurd policy of reversing everything that has gone on in recent years in the field of Defence, for example, by returning again to a military policy east of Suez, with the inevitable increases that that would mean in terms of costs across the exchanges?
Neither the speeches made from the Government Front Bench nor the Gracious Speech lead one to hope that the Chancellor is likely to achieve the target he has set himself for higher economic growth. Indeed, I detect already the cautious hand of the Treasury being placed on the Chancellor. When he said earlier "It is premature to take action to stimulate demand", that remark came strange after all that we have heard from the right hon. Gentleman in recent weeks and months.
I wish to make it clear that the Chancellor is, of course, right to wait and to give careful consideration before embarking on any tax reforms. Nobody expects him to come forward with tax reforms overnight. However, the right hon. Gentleman said that the economic position showed an unhappy situation and that everything that he and his hon. Friends had said about the economic position indicated that it was bad. I have agreed with him from the point of view of stagnation or "stagflation", as he called it, and on unemployment and investment. All these things are bad and we want to know why the right hon. Gentleman is not acting immediately on these issues.
The Chancellor need not wait to introduce a Budget next April to deal with these sort of matters. He could deal with them now. Why is he not doing so? If we do not have an economic crisis but serious economic troubles—and I agree that we have them—why is he not using the regulator? Why does he not, for example, relax hire purchase and relax domestic credit expansion? What is he waiting for—or has he already succumbed, as I fear, to the hand of the Treasury?
Is he accepting what was said in the Green Paper "The Task Ahead" about the underlying potential of productivity being between 3 per cent. and 3½ per cent. and is he therefore restricted to that? If he does not accept that, why is he not making a start to achieve the higher level of growth about which he has spoken so much?
The longer the right hon. Gentleman waits the more he must inevitably lose—the thousands of millions of £s that we have lost in recent years—in terms of lost economic growth. If he delays, he will be faced with a situation of further heartbreak for months longer of people unemployed, particularly in the development areas. My hon. Friend the Member for Whitehaven (Dr. John A. Cunningham) and my hon. Friend the Member for Sedgefield (Mr. D. Reed) spoke graphically on this subject in their maiden speeches.
The right hon. Gentleman has made many fine speeches about the level of unemployment in recent years and I have always listened to him with great respect. However, if the tears he was then shedding were not crocodile tears, then he should take the action that is open to him now to deal with these matters.
Apart from these actions, which I believe he could take now, there are two further policies he could follow, relating, first, to wages and prices, and, secondly, to investment. On wages and prices, my advice is that he should ignore the enormous amount of advice that he is getting, ranging from the O.E.C.D. to the Economist, and particularly the latter. It is easy to rehearse the statistics about the level of wage and price inflation that we have had and are experiencing now. It is less easy to show precisely how to deal with it.
We saw an example of this in the Chancellor's speech today. I was happy to hear that he will not try to implement legislation on wages and prices. At best, legislation on wages in recent years has held wages down by perhaps 1 per cent. and I am doubtful even of that.
It seems that the right hon. Gentleman will try to persuade the public sector to hold back its wages, though I do not know what sort of actions he has in mind. If, for example, he is proposing to tell the miners that they cannot have a wage increase and Lord Robens that he cannot have any price increases, then the effect of that on the economy would not be likely to be happy. I should have thought that the chance of any miracle occurring for success in the sphere of prices and incomes is remote. The most that the right hon. Gentleman might achieve is a small effect. He should accept with pleasure the offer made by Vic Feather to co-operate in voluntary wage restraint. This the only way of achieving even a modest degree of success on this issue.
Be that as it may, I hope that the right hon. Gentleman will take urgent action on industrial investment, because it here that we have fallen down for many years. When we talk of what Governments can do in this sphere, we are speaking of action on the margin, because, in the main, companies will invest because they think a profit will result; and anything else we do can have only a marginal effect, though an important one.
A genuine argument can be adduced about investment grants and investment allowances. Some companies prefer one to the other. But as my hon. Friend the Member for Sedgefield pointed out, in the development areas new companies often do not make large profits, if they make a profit at all, in the early years, so that investment allowances are of no use to them. The last available official report on the incentive effect of investment allowances did not lead one to conclude that they were a useful method of providing incentive. A number of people with whom I have spoken in industry say that the last thing they want is big changes in this whole sphere of investment allowances and grants.
I agree that the larger companies were not happy about the switch from using the Inland Revenue in dealing with allowances to the Board of Trade and there were many administrative problems. However, the change has now been completed and is working more smoothly. If we are now to have a period of perhaps six months of great uncertainty, that could have a disastrous effect on the level of industrial investment for some time.
We can no doubt in the future have a debate about investment allowances or investment grants, but for now the important thing is to have an investment allowance which is reasonable, in terms of incentive effect on the margin, and which does something about cash flow. The worst of all worlds would be to have uncertainty, and I hope that the Chancellor will take an early opportunity—I trust that he will do this before we rise for the Summer Recess—to put those concerned out of their feeling of uncertainty and let them know precisely what sort of investment policy the Government propose to pursue.
A kite has recently been flown about scrapping grants, with the idea of announcing a certain date for their abandonment, resulting in an immediate rush to buy new plant. If the Government intend to deal with their policies properly and definitely, they must agree that to implement this idea would mean government by gimmick and would represent hardly a satisfactory way of dealing with the problem.
Regular variations in rate, to which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) has referred from time to time, may remind companies of the incentives which they frequently forget, but to cancel all incentive grants in the hope of getting a big rush to replace equipment would seem a crazy way of setting about obtaining increased investment.
To begin with, the manufacturers of machine tools could not cope with it in the few months that would be available, and there would be an enormous flood of imports of machine tools. We are getting enough being imported now, when one thinks of the incompetence of many of the machine tool manufacturers in this country.
Whatever happens later to the level of investment, I accept there may well be an argument for a smaller level of investment allowance later. In the United States they have had as little as 7 per cent. tax allowance and it has worked in some ways quite satisfactorily. Certainly, when it was taken off there was a tremendous outcry. But if we took it off here very quickly there would be a grave problem of cash flow unless the Chancellor intends, with all his other tax cuts, to cut corporation tax as well.
If that is his intention, it is worth while knowing what he has in mind but, for the present, I should have thought that one of the things he could do very quickly, in view of the surplus available from the cautious Budget we had, would be to bring forward the date of payment of investment grant. That would put money into the hands of the companies which have invested in the past and which are more likely to invest for the future—companies of the type that need these funds. I hope that the right hon. Gentleman will think very seriously about bringing forward that date.
In the past, Governments of all parties have nut private industrial investment very high in their speeches but low in actual priorities, because it does not bring dividends quickly enough in the election cycle. It is part of the price we have paid over many years for democracy, but the level of investment has been too low, and largely for that reason: because Governments of all kinds have wanted to do other things first.
If the Government mean what they say, and wish to be judged by actions and not by words, this is the ideal area in which action is vitally needed. Our hopes of obtaining investment-led growth should not be disappointed if we are to believe all the Chancellor's speeches, but I very much regret to say that from his speech today, and certainly from the Gracious Speech, it looks as though our hopes are likely to be dashed.