I beg to move,
That this House approves Mr. Chancellor of the Exchequer's statement on Economic Measures of 19th July, 1971.
In my statement yesterday I announced a number of measures which the whole House will agree were of considerable significance. I thought it appropriate then to make a fairly brief statement—brief, that is, considering the scale of the measures I announced—but it is right that I should begin this debate today by explaining more fully the reasons for the decisions that I have taken.
The measures that I announced yesterday mean not only that we shall now have the economy expanding faster than we could have expected before. They also mean that we are moving into a new and more hopeful phase in the all-important battle against inflation. I decided on a further substantial measure of reflation not for any single reason but for a variety of reasons. There were many different aspects to be considered before I decided both on the scale of reflation and, almost as important, on the type of measures which were required.
I will tell the House what my reasons were for deciding on measures of this size and of this type. First, as I said yesterday, the most recent information has confirmed what we have suspected for some weeks, that the level of activity in the economy in the first half of 1971 was lower than was thought at the time of the Budget. Even now the full figures are not available, although we have a fairly complete picture of the first quarter. But the latest estimate is that national output in the first half of this year was rather more than 1½ per cent. lower than in the second half of last year.
The second reason for these decisions is that unemployment has risen more than I expected on the basis of the Budget forecasts. In the early part of the year the trend of unemployment was upwards, and I told the House that it was not to be expected that the boost to demand given by the Budget measures would immediately check this trend. Indeed, the House will recall that I forecast that the rise would continue for some time.
In fact, since the Budget there has been a considerable rise in the seasonally adjusted figures, and the present level of unemployment is unacceptable for any prolonged period. The forecast of the growth of G.D.P. over the year or so ahead—that is to say, the forecast of what would have happened if I had not announced new measures yesterday—was that we should have a rate of growth which would be unlikely to bring unemployment down significantly. The forecast was for a rate of growth of G.D.P. of rather more than 3 per cent., and the House should know that on that basis there would have been little if any fall in the underlying level of unemployment.
The reasons for the high level of unemployment lie partly, of course, in the depressed level of output. But another very important reason why unemployment has recently risen more than was expected is, I have no doubt, that the rapid rise in wage costs has caused employers to lay off labour to an extent greater than was foreseen. This process has been harsh in its effects on individual people. But at the same time it has had the effect of bringing about an improvement in the efficiency of industry and creating an additional margin of productive capacity which makes it possible for demand to be expanded more rapidly.
Since the Chancellor has asserted this theory that high wages are the cause of unemployment—he did so on 21st April this year—many of us on this side of the House have closely studied the sources of unemployment in the industries concerned. It would seem from our studies that the main sources of unemployment are those industries which have had the lowest wage rises during the year, and it would seem to be borne out by the fact that those industries which are buoyant tend to pay the highest wages and maintain their work force. Those industries which are not doing so well pay lower wages and tend to create the unemployed pool. Will the Chancellor accept this and reconsider his theory which he keeps announcing to the House?
No, I do not accept this. I am sure that many of us on both sides of the House have talked with employers who have had to lay off men, not only in our own constituencies but in other parts of the country, and I have heard from them quite clearly that one of the principal reasons has been the considerable increase in wage costs. I therefore disagree with the hon. Gentleman.
The third reason for reflation was the outlook for investment. The measures in the Budget, which have not yet had time to take their full effect, would, without any further stimulus, have led to a considerable recovery in demand, and in due course this would have stimulated business to invest more. But in considering this matter during the period since the Budget, it has become clearer that the signs of a recovery in investment have been too slow in coming. The immediate forecast was that without new action industrial investment would continue on a downward trend for a time. This was not a prospect that I could accept.
So the new measures that I have announced will help investment in three ways. First, they will strengthen demand generally and so give business the assurance it needs to invest in new plant and machinery and expand its capacity to produce, knowing that the market will be there. Second, the changes that I have announced in capital allowances provide a direct incentive to bring forward investment plans. Third, the better prospects for slowing down costs and prices should give industry greater confidence that the expansion and the growth of the economy will be sustained.
The additional incentive which is contained in the proposal to allow free depreciation for immobile plant and machinery used by service industries in the development areas will not be temporary. It is right that the development areas should have this additional special help, and certainly my hon. Friends on this side of the House will agree that the discrimination against the service industries in the present free depreciation rules should be abolished.
The fourth factor which I have taken into account is the strength of the balance of payments. Of course, we need a large and continuing surplus on current account to meet our various commitments on capital account and to repay the debt which still remains. I would remind the House, in view of one or two observations made yesterday after my statement, that the debt which stems from drawings in 1969–70—£417 million—and which will still be owing, is a considerable sum and repayments fall due in June of next year.
Any Chancellor must always keep in mind not only the immediate position but also the prospects for a year or two ahead. The fact is that both the immediate position and the outlook for the future are stronger than they seemed to some even a few months ago. I gave the most recent figures yesterday and, as the House knows, I expect the surplus on current account for 1971 as a whole to be substantial.
One of the reasons for this large surplus is, of course, that imports have been lower because demand in the economy has been more depressed than was estimated earlier. But there are also more positive reasons for the improved prospects. The exchange rate moves in Europe will benefit our trade balance to some extent and some of our competitors have apparently been having less success than at one time seemed likely in curbing cost inflation. Moreover, the prospect for world trade in manufactures now appears better than it did earlier.
Incidentally, the repayment of debt to the I.M.F. which I announced yesterday will have one consequence which I know will be of interest to both sides of the House. Since it will bring us below a specified percentage of quota it will mean that we shall no longer be obliged to have any consultations with the Fund staff about our economy, apart from the annual consultation which every member of the Fund has in the normal course. If we had not made this repayment to the Fund there would have been another consultation this autumn. This will not now be necessary.
The fifth reason for the action I have taken is an important one. It is that we now have a considerably better prospect so far as inflation is concerned. As I said yesterday, and have said on a number of occasions, we have made some real progress in achieving moderation in the rise in pay increases. I have always been careful not to exaggerate this, but the fact is that from the latter part of 1969 until the beginning of this year the trend of money earnings compared with a year earlier was strongly upwards and the fact is that since then it has levelled off. At the time of the Budget, this was largely a hope and an aim. Now it is an established fact, and we have at last made an important beginning.
But secondly there is the proposal on prices put forward by the C.B.I. This is a development of great importance, and I would like to pay a tribute in particular to the President, Sir John Partridge, and to the Director-General, Mr. Campbell Adamson, a tribute not only for their farsightedness but also for the skill with which they have launched their proposals. The House knows the details of the C.B.I. scheme which, broadly, involves voluntary undertakings by member firms not to raise prices, and, if they have to raise them, to do so within a limit of 5 per cent. a year. Of course there are provisions for some exceptions, but if the scheme is successful it could have a considerable effect on the rate of increase of retail prices. Obviously it will not mean that, when compared with figures for a year earlier, there will be an immediate sharp drop. This method of comparing prices in any one month with the situation in the same month a year earlier is very commonly and very properly used, but there is, of course, a statistical trap here, because even if there were an immediate and complete freeze on prices operative from today it would still take 12 months before prices showed no increase compared with 12 months earlier. The success of the C.B.I.'s scheme, coupled with the response of the nationalised industries, should mean that the month to month rise in prices will begin to slacken off soon.
My right hon. Friend says there is a response from the nationalised industries. Will he address himself for a moment to the fact that coal, steel, gas and electricity have already announced substantial increases in forthcoming tariffs? What is my right hon. Friend going to do to halt them as a complement to the overtures made by the C.B.I.?
I think my hon. Friend is in fact misguided in what he says, but what I can say to him is that the nationalised industries will match the performance of the private sector in accordance with the arrangements made by the C.B.I., and this is an undertaking which has been given——
On wages and salaries increases, will the right hon. Gentleman agree that, whatever credit may be given to the C.B.I., what is worrying about the situation at the moment is the Government's treatment of their own employees—for example, the very real concern there is among scientists working in Government employ, since they have had a zero award—and that this kind of example will be very troublesome?
I would have thought the hon. Gentleman would have known that this is a result of a pay research in that particular case, but what one can say in general is that since this Government have been in office we have applied to wage negotiations in the public sector the same criteria we have advocated to employers and others in the private sector.
Returning to the response of the nationalised industries referred to by my hon. Friend a moment ago, it was clear that if the private sector was willing to accept a self-imposed discipline of price restraint, then it was only right that the nationalised industries should also accept it. Indeed, if I may say this, without a corresponding restraint by the nationalised industries, which are important suppliers of energy, services and basic materials to private industry, it would not be possible for the private sector to conform with the C.B.I.'s price proposals. The Government accordingly made it clear to the chairmen of the nationalised industries that they would have the support of the Government if they were to participate in the C.B.I.'s scheme, and, as I told the House yesterday, I am very glad to say that the chairmen of all the major nationalised industries, recognising, as those I saw do, the overriding importance of the new move from the national point of view, have said that they intend to co-operate in this way.
Could my right hon. Friend tell the House what estimate he has made of the effect which his assurance that the nationalised industries will be able to finance future investment programmes by borrowing from the National Loans Fund is likely to have on net borrowing requirements this year?
It has always been the practice that any borrowing requirement is given once a year, at the time of the normal Budget—in March or April, at that time of the year. I do not propose to depart from that. I am sure it is a very sensible thing. I hope the House will understand me when I say that I hope I may be able to get on without interruption because I have a considerable amount more to say and I know a number of other hon. Members wish to take part in the debate.
Accordingly, it is the Government's intention that the nationalised industries should match the performance of the private sector by accepting the same restraint on prices on the same conditions. Price restraint in the nationalised industries will create a number of problems for them, but I think it should not be overlooked that they will benefit from the increased turnover which will follow from the faster growth of demand, and they will also benefit from the price restraint in respect of their purchases from the private sector. When I saw the chairmen of the nationalised industries a number of them recognised these factors as being of great importance, and, indeed, some of them have for quite a long time been advocates of some greater increase in economic growth because they have known this would help all the nationalised industries.
The Government were clear from the start that we could not allow the application of the policy to the nationalised industries to mean that their investment programmes should, on that account, be curtailed. As I said yesterday, the precise implications, both financial and otherwise, for particular industries are being discussed between the Ministers concerned and the chairman of each industry.
We are now entering a new phase in the battle against inflation, and a considerably more hopeful one. So far as industry is concerned, I recognise the point which the C.B.I. itself has made that it would be difficult for firms to enter into undertakings to restrain their prices without the expectation of a faster expansion of demand. A faster expansion of demand will mean increased turnover, and this will help managements to counter the squeeze on profits which would otherwise be caused by the price restraint.
The measures which I announced yesterday are the result of a deliberate judgment about the point we have now reached in dealing with inflation and about the rate at which we can afford to expand demand. I have spoken of the contribution of the C.B.I. initiative. The decision to apply restraint in the nationalised industries also will make a major contribution to greater price stability. The cutting of purchase tax will mean that a great many prices will be reduced immediately, and the additional stimulus to demand which the measures as a whole involve will increase the chances of success by private industry in the scheme which it has set on foot.
Given the overall judgment, the choice of measures flowed naturally. Of course, any measures to stimulate demand can be expected to improve employment and to encourage investment. But I had very much in mind also in the selection of the measures the need to avoid action which would store up trouble for the future. For this reason, the removal of hire-purchase terms controls was in many ways an ideal means of giving a quick stimulus to the economy. It is effective immediately, but the direct effect declines after a time as people have to repay the larger instalments on their new hire-purchase contracts.
I considered carefully whether to retain a measure of terms control rather than remove the terms control completely and so leave traders and others to decide on their own terms in a commercially prudent way. To have retained a low range of restrictions would not, I believe, have made very much difference to the demand situation, and, anyway, I believe that it would have become increasingly difficult in those circumstances to justify the particular discriminations which would have been involved.
Yesterday, the right hon. Gentleman the Member for Birmingham, Stechford (Mr. Roy Jenkins) asked about consumer expenditure. At the time of the Budget, as I made clear in the Financial Statement and Budget Report, it was expected that consumer expenditure would increase over the year by 5·3 per cent. Since then, and before taking account of the new measures, the latest information showed the following. It showed, first, that whereas at the time of the Budget I was expecting an increase in consumer expenditure of about 1 per cent. between the second half of last year and the first half of this year, there was in fact a fall of, probably, about ½ per cent. So the base line is lower.
Second, the latest information, before taking account of the new measures, indicated that the growth of consumer expenditure over the year from the Budget, that is, from the first half of this year to the first half of next year, would probably be somewhat slower than was forecast at the time of the Budget.
Thus, without yesterday's measures, the position was that both the level and the rate of growth of consumer expenditure would have been less than expected at the time of the Budget. Yesterday's measures, of course, cannot alter the base, but they will result in a growth of consumer expenditure at a higher rate than was estimated at the time of the Budget. Although there may well be an immediate and substantial upsurge of spending as a result of the abolition of hire-purchase controls, I certainly do not expect either the growth of expenditure over the year as a whole or the level of expenditure to be excessive.
I am grateful to the right hon. Gentleman for going as far as he has in endeavouring to answer the points which I put to him yesterday. May I now put two questions arising on those matters?
The right hon. Gentleman told us yesterday that his current estimate, leaving aside base lines now, was that the rate of growth would be slightly higher than the 3·1 per cent. projected in the Budget forecast. As he now tells us that he expects the growth of personal consumption—this is all without his measures announced yesterday—to be a little lower than 5·3 per cent., could he say what other factors he expects to have grown to counterbalance—indeed, more than to counterbalance—that?
Second, he has been kind enough to go so far as to say that the rate of growth will now be higher than 5·3 per cent. I cannot believe that he has not got a figure for this, and I think that it would be reasonable for him to give it to the House.
On the first point, there are a number of relevant factors. First, we expect more investment than was the position before the changes which I have announced. Second, apart from that, and apart from the changes, I certainly expect the prospects for exports to be better not only in money terms but in volume terms. Then there are the other factors which I mentioned in my statement yesterday, such as the £100 million for infrastructure. There are other factors also which have been announced recently, before my statement yesterday. For example, there is housing improvement, and I expect that there will be more steel investment. All these factors taken together have led to the conclusion which I have just given.
As regards the figure for which the right hon. Gentleman asked, I think it right that a Chancellor of the Exchequer should stick to the practice in this respect. It was the practice adopted by the right hon. Gentleman himself, if he will recall, at a time when he took particular measures one autumn ; he did not give the figure for the change in consumer expenditure. I feel that I have gone as far as I should go, and I do not intend to depart from that practice.
I must accept what the right hon. Gentleman says on the latter point, even though I regret that he takes that view. I shall not press him further about it. On the former point, I was a little confused because I understood him to say that before his measures yesterday he was expecting a higher level of investment than in the Budget forecast.
I believe that it will be within the recollection of the House that he said that a moment ago—though perhaps I may have misheard, or he may not in fact have said it. I understood him to say yesterday, however, that he would expect a lower level than he did at the time of the Budget. It may be that there is some confusion, and possibly it may be a matter of reconciliation between private and public investment, but I feel that it would be for the convenience of the House if he could clear the matter up.
The point is quite clear. If the right hon. Gentleman will look at my words both yesterday and today, he will see that, in effect, the burden of what I was saying was that the prospects for investment were worse than I had expected at the time of the Budget. But now I believe, in the light of the measures which I have announced, that the prospects for investment will be much improved. Therefore, taking that into account and the other various factors which I have mentioned, it all goes to make up the increased rate of growth which I should expect over the coming year and which I announced yesterday.
I shall deal specifically now with the question of investment. In the light of what I pointed out yesterday, and I have repeated now, I felt that it was right to make some improvement in capital allowances in order to deal specifically with the low level of capital investment. I accept that it is the general climate of economic expansion which will always be the best incentive to worth-while investment. I have deliberately limited the period for the improvement of the investment allowances to two years. I did that, first, because, like the previous Administration, who introduced a somewhat similar measure at the end of 1966, I believe that this will encourage industry to bring investment forward. But I did it, second, because I wanted to avoid a continuing commitment which, again, could have stored up problems for the future.
I wish to emphasise that businessmen will be short-sighted indeed if they do not realise that now is the time to invest in new plant and productive capacity. Demand will be rising strongly over the period ahead, and it will be no use gearing up when their competitors have already seized the cream of the expanding market.
It can be said, I realise, that any general increase in investment incentives lessens the differential attraction of the development areas. But, when the increase in allowances is for only a temporary period, it cannot seriously be pretended that it will really affect a manufacturer's decision as to where to site his factory. This is an added reason for making the increase temporary.
I am grateful to the Chancellor for giving way, for there is a serious point here and I hope that he will concede it, particularly with reference to Scotland. There is a high level of unemployment now and, as he has admitted, he is reducing the differential attraction of development areas in relation to investment decisions. We must wait until foot-loose industry comes up to Scotland and takes a decision to expand there, but existing industry has been prejudiced in the present package. Will the right hon. Gentleman note that result of his decision?
That is not true. It is inconceivable, for the reasons I have given, that anyone would decide, with all the I.D.C. arrangements we have, not to set up a factory in Scotland as a result of the measures I have announced, which are to last for two years. Surely the hon. Gentleman will support the decision I took yesterday, which came as a surprise to a number of people concerned about regional matters, and recognise that it was right not only to deal with industry generally across the country as a whole, but also to take steps specifically to help the areas where unemployment is highest, such as Scotland. The main measure directed specifically to the creation of extra jobs in those areas is the £100 million extra expenditure on infrastructure in the development and intermediate areas, which was announced by my right hon. Friends last week.
On top of this, I have taken the opportunity to remove a further discrimination against the service industries in the development areas, and this will have no time limit. If the hon. Gentleman looks at the matter fairly and objectively and wishes to do his best to attract industry to Scotland and the development areas, I hope that he will go round the country pointing out that there are great advantages, which have been increased, taking these matters overall, for industry going to such regions.
I knew for certain yesterday that the right hon. Member for Stechford would not object to the changes in purchase tax. After all, he changed the rates of purchase tax on two occasions. The only difference was that on both occasions he put them up. Nevertheless, I welcome his support in Opposition. To do him justice, he did advocate at the time of the Budget that we should have cut purchase tax rather than S.E.T. Now we have done both. S.E.T. has been halved and we also have the biggest reduction in purchase tax for 18 years.
In my statement yesterday I expressed the hope that, in the light of the new possibilities opened up by the measures I announced and by the C.B.I. initiative, the trade unions would consider how best they can make a positive contribution. The C.B.I. has said that as a corollary of its proposal it will be even more essential for companies to resist inflationary pay claims, and clearly that is absolutely right.
In the light of the new developments, the nation is entitled to expect that both management and unions throughout British industry, public and private industry, will do their utmost to ensure that future pay settlements do not undermine the better outlook for prices that we now have. Unless we can make further progress in moderating the rates of pay settlements, the opportunity which we now have as a nation to get on top of inflation will slip through our hands.
The unions have repeatedly emphasised the difficulty of securing any slowing down in wage demands unless action is taken to moderate rising prices and to create faster growth. Now we have action on both fronts.
—we have at last a chance to break out of the vicious circle of higher wage increases leading to higher price increases, which in turn lead to higher wage increases.
We have at last a chance to achieve lower price increases leading to more reasonable wage increases, which in turn lead to yet lower price increases. That is indeed, as both sides of industry, both the C.B.I. and the T.U.C., have been urging, a policy for prices and growth.
Success will not come without co-operation, and it will not come overnight. But together we can achieve it.
Today is a notable anniversary. Five years ago to the very day, on 20th July, 1966, the Labour Government announced the freeze. The announced cuts in Government and local authority expenditure and cuts in nationalised industry expenditure. They put a penny on beer and 4d. on petrol. They imposed restrictions on hire purchase, and for good measure they slapped on a 10 per cent. increase in purchase tax. The British people will note the contrast.
The British people will also note the contrast between the level of unemployment and activity in the economy five years ago and that today.
The Chancellor of the Exchequer made his speech in a somewhat less excited atmosphere than has occasionally been the case in our economic debates in the past year, and I do not propose unduly to disturb that this afternoon.
We shall see how we get along. No doubt my hon. Friend can help me or can speak afterwards to back me up if he thinks it right to do so.
There was an element of complacency in the Chancellor's speech, that we were on the threshold of great things, which would have made it difficult for someone who was not aware of the facts to realise that the right hon. Gentleman was speaking against the background of probably the year of fastest price inflation in our history and certainly in the year of highest unemployment for 30 years, within the lifetime of most of us.
The Conservative Opposition must realise—[Interruption.] They talk like an Opposition still. The Conservative Government must realise, as the Prime Minister does but his backbenchers do not, that they are a Government and have been a Government for 13 months, and they had better start taking some responsibility.
If the hon. Gentleman will be kind enough to remain where he is for not very long, I shall come to that point and I shall be glad to have his support on my treatment of it. [Interruption]. We are getting on quite well. If my hon. Friend the Member for Tottenham (Mr. Atkinson) will wait, he may be satisfied before we come to the end.
I am well aware of that. Much though I like my hon. Friend, I am sure he will agree that I will make my own speech in my own way, as I generally do.
In his answers to two detailed questions which I put to him, I regret to say that the Chancellor was not altogether clear, even at the end of his second answer, and I detected from the faces of one or two of his hon. Friends who follow these matters closely that they were not totally clear either. I must return to this point later.
I begin with the Chancellor's measures. Our broad view is that they are very belated—unjustifiably belated, but in themselves broadly welcome. They go some way in the direction for which we asked in the censure debate on 28th June and in many debates previously on the Budget and even earlier than the Budget. The fact that they have become necessary only 16 weeks after the Budget sustains without question the force of our Budget criticism from this side of the House.
I ask the right hon. Gentleman to cast his mind back—I am sure that to some extent it is in his mind—to what we said in the Budget debate and in subsequent debates on the Finance Bill. We endeavoured to apply three tests of the relevance of the Budget to the needs of the economy. The first test, which I put in my speech on the second day of the Budget debate, was, would it help to produce a rate of price increase for 1971 significantly lower than that for 1970? We pointed out then that it was no good talking about wages independently of prices, as the Government at that time were constantly and consistently doing, that one could not hope to get a moderation of wages without getting a moderation of prices, and that it was no good saying that prices would follow wages because one had to put them in double harness or, indeed, get prices moderated first. If one did not do that and had wages moderated and prices bounding ahead, the effect would be economically undesirable because it would produce a fall in real wages with shrinkage in demand and a still further adverse effect upon the general level of performance in the economy.
The Government implicitly rejected that approach at the time—there is no doubt about that. They were still rejoicing at the demise of the Prices and Incomes Board, the Consumer Council and everything else which might have had any effect. They put their whole emphasis upon moderating wages and putting prices very much into the background. The only contribution they offered was the halving of selective employment tax, which, as the Chancellor has pointed out, quite fairly, we argued was wrongly timed because it took so long to come into effect—necessarily so, as this was in the nature of the tax. But what was wanted was a quick stimulus at the end of March at the time of the Budget.
We argued also that the cut in S.E.T. would be almost wholly ineffective from the prices point of view. That was strongly contested by the Government and by many hon. Members opposite. But we have been proved overwhelmingly right.
The Prime Minister may shake his head, but I do not notice many other right hon. or hon. Members opposite shaking their heads with him. They have read the results of the surveys in several Conservative newspapers and the experience of people in the shops. We said then—and again the Chancellor has not agreed—that purchase tax rather than S.E.T. should have been cut at the time of the Budget from the point of view of both economic and social effects.
One thing puzzles many people in the country, and certainly puzzles me. The right hon. Gentleman, when he was in office, spent all his time raising taxation and now in Opposition spends all his time recommending reductions in taxation. How does he reconcile these attitudes?
I would have thought that it was within the knowledge of most hon. Members, even if not the hon. Gentleman, that I reconcile this because if one is endeavouring to produce a big shift of resources into the balance of payments in order to secure a large balance of payments surplus, which the Chancellor has been lucky enough to inherit, then one has a rather different problem of economic management than if one is, with a large balance of payments surplus, endeavouring to correct a situation of gross under-use of resources of both men and machines. I am sorry to have had to put that explanation in somewhat elementary terms, which I am sure that you, Mr. Speaker, must have thought oversimplified, but the way in which the hon. Gentleman put his question made it necessary for me to waste a minute or so of the time of the House in explaining to him what must have been obvious to almost every other hon. Member.
If the Chancellor believes that he was right in March to cut S.E.T. rather than Purchase Tax, and if he believes—and we agree with him on this—that the economy needs a further stimulus now, I wonder why he does not get rid of the whole of S.E.T. now instead of cutting purchase tax. There was a Tory promise to do so—although there were so many Tory promises that it is sometimes a little difficult to place them all. But this one came most specifically from the Foreign Secretary, in one of his relatively rare incursions into taxation and economic policies.
The pledge was to get rid of S.E.T. as a whole during the first year of Conservative Government—in the first Budget, I believe, was the understanding. There is no doubt that this would have been in line with Conservative promises, therefore. But the Chancellor has not done it because he can no longer begin to pretend that such a cut, whether it be the first half or the second half, can have any real effect on prices. There is clear evidence of this in what happened at the beginning of July. That £290 million cut in S.E.T. in the Budget was one of the most expensive and useless contributions to Tory dogma ever paid.
The Government now recognise also that they have to do something about price control. So the C.B.I. has been wheeled up to do it. I rather agree with what the Chancellor said in his tribute to the C.B.I. I think that it is being helpful to him from this point of view. But I am not at all sure that it is not doing the job which should be done by the Government, because I am not sure that private agencies are the right agencies to enforce matters of this sort or to see that they are really carried out.
Purchase tax, which should have been used in March, has now been used at last. I do not doubt that these new measures in combination will have some beneficial effect upon the rate of price increases. We shall all welcome that, but we should not exaggerate it. I see that Mr. Samuel Brittan, generally a well-informed commentator, writing in the Financial Times today puts them in combination as possibly having a moderating effect of 1½ to 2 per cent.—in other words, leaving us with a rate of price inflation over the next year of at least 7½ per cent. Against these changes has to be set—and I am glad this point was raised by my hon. Friend the Member for Salford, West (Mr. Orme)—the massive increase in rents which is in train as a result of the Government's White Paper. Therefore, so far as this aspect of the matter is concerned, we welcome what has been done, but why have we had to wait so long for it?
The next test we applied to the Budget was whether it would reduce unemployment. The Chancellor himself did not claim that it would. He merely said that he hoped that it would hold it where it was, which was a dismal enough prospect. But the indications were that he was failing even to do that, as I think he himself now admits. Now there is a considerable switch of strategy, but I do not think that the Government can claim that this is a sensible switch of strategy. I think that it is right, and I have always thought so, but on their own admission they cannot claim that it is a sensible switch in the sense that they have come successfuly to the end of a phase of policy and are starting another phase of policy.
After all, on the latest information available, earnings are 12½ per cent. above what they were a year ago. That is not "having contained this matter". Of course the Government hope in future that they may be somewhat more contained upon the basis of expansion and an approach to price control. Provided the price control is effective, and real wages continue to rise and expansion is achieved, I would certainly hope so too. None of us wants to see either wage or price inflation going on at anything like its present rate.
This policy is an option which has not suddenly become open to the Government ; it has long been open to them. We on this side of the House, and the T.U.C., have urged for some time past that the Government were far more likely to get anti-inflationary results this way—by a combination of an approach to price control and an expansionary economic policy—than by continuing with their own stubborn, unwon and now abandoned war.
Even now, the prospect of unemployment is not very encouraging. As I understand—and if there are different views no doubt the right hon. Gentleman the Secretary of State for Employment will give them to us this evening—the likelihood after the Government's measures is that unemployment may be about 100,000 less, shall we say, at the end of the winter of next year than it might otherwise have been. That 100,000 would be, of course, an improvement, but it would still leave the level unacceptably higher than it was at the time the Government took over, complaining bitterly about a level of unemployment which was much lower than they are even aiming at now——
If the right hon. Gentleman is maintaining that an injection which I think is at an annual rate of about £1,400 million a year is insufficient now, will he explain why he felt it was not right to inject a great deal over a year ago? [Laughter.]
Yes. The Prime Minister should not laugh too quickly. The great thing about having the Prime Minister on the Bench is that we get so much response to everything. There is never a moment of silence or stillness ; there is constant mobility. It is right, as the Chancellor was anxious to point out yesterday, that a Chancellor should judge the situation from month to month—nobody could have judged it more frequently from month to month and produced more mini-Budgets than he has in the last nine months—and make such adjustment as he thinks necessary. If the Chancellor did not think it necessary, with unemployment rising to a level which it never approached under the Labour Government, rising to 800,000 today—more at the time of the Budget—that the right hon. Gentleman should ask why I did not inject £1,400 million 15 months ago makes no sense at all. I assume that if it had been judged right to put £1,400 million in 15 months ago when I introduced my last Budget, the right hon. Gentleman in his wisdom, assisted by the Prime Minister—who I am told assists the right hon. Gentleman a good deal—and by the Secretary of State for Employment, would have acted immediately to put at least this amount in, instead of waiting and dribbling it out in three instalments and letting unemployment go up to 800,000.
Is the right hon. Gentleman saying that the judgment which he took a year ago implied that in his view it would be wrong to give stimulation on anything like this scale anything like as soon as he is now suggesting?
Not at all. I have made it clear several times that I budgeted fairly cautiously in 1970. The balance of payments has proved to be remarkably secure, as everybody except the Prime Minister knows. The balance of payments was then of fairly recent and fragile growth, but I made perfectly clear that if we did not get the growth and stimulus we needed it would be right to give further stimulus in the autumn. I have long thought, and said, that the Chancellor should have acted, and acted much more directly, in the autumn of last year to produce a more rapid rate of growth in the economy, and that he has always been at least six months behind events since then.
I should like to take the opportunity of dealing with one point which the right hon. Gentleman has just touched on again. I admire the integrity he shows in some other spheres, and I think that he will accept that this is really the position with the balance of payments, which I said last June was deteriorating. If the right hon. Gentleman takes the balance of visible trade, to which has to be added the customary £50 million for invisibles, then in the first quarter of 1970 it was plus £19 million a month ; in the second quarter, it was minus £12 million a month—a deterioration of £31 million a month ; in the third quarter it was minus £24 million a month—a deterioration of a further £12 million a month—what I said was that the balance of trade was deteriorating, and that is undoubtedly true ; in the fourth quarter it improved ; it was plus £18 million a month, but it did not go back to what it was in the first quarter.
If the right hon. Gentleman wishes to refer to the balance of payments, in the first quarter it was plus £215 million—[Interruption.] I know hon. Gentlemen do not like these figures, but they are the figures. In the first quarter it was plus £215 million ; in the second quarter £144 million, which is a deterioration of £71 million ; in the third quarter it was £76 million, which is a further deterioration of £68 million ; and in the fourth quarter it came back to £196 million and was still, therefore, £19 million below the first quarter. I want to get those figures on the record, because what I said was that the balance of payments was deteriorating——
I have always been amazed at the tergiversations to which the right hon. Gentleman has gone to try to get out of the difficulty in which he placed himself by his statement in June of last year. I am not grateful to him for offering a tribute to me ; I do not need any tributes from him, because I am afraid that I do not admire the integrity with which he has dealt with these economic matters over the past 13 months. The right hon. Gentleman may say anything he likes about the figures for the quarters of 1970, which obviously in any year vary a great deal, but how any man with any sense of fairness who is not obsessed with a desire for self-justification can now believe that his Government inherited other than a remarkably sound balance of payments position, I cannot understand.
Will the right hon. Gentleman now deal with the figures and face the facts which, because of his desire to maintain his record which led to the inflation when he was in office, he refuses to deal with? Those are the figures, and he should face them frankly and acknowledge them.
I am perfectly willing to face those figures frankly. I have faced them, and I have faced them on the basis that anybody who knows anything about balance of payments affairs knows that there is always a considerable variation from quarter to quarter, and that nobody except the right hon. Gentleman and one or two of his acolytes now believes that when he said in June on the publication of the May, 1970, trade figures that this was a real deterioration he was at best—[HON. MEMBERS : "Melting away".]—that the balance of payments was melting away—that he was at best doing anything other than making a happy assumption from the point of view of Conservative election propaganda, and at worst doing something a great deal more discreditable than that.
Let us deal with one point at a time. It then followed that 1970 turned out to be an even better year. If the Prime Minister wants a session of question and answer, will he tell us what measures he took in the first quarter of 1970 to retrieve the position for the year ending with the fourth quarter?
—for some reason the right hon. Gentleman thought it necessary to inject into our discussion.
This brings me to the next point, which will be a great comfort to the hon. Member for Dorking (Sir G. Sinclair). I trust that the Chancellor is not claiming that there is some specific virtue belonging to himself in being able to produce this mini-Budget, his third in nine months. It is due to two things only—the strength of the balance of payments and the weakness of every other aspect of the economy. I doubt whether the Chancellor has the effrontery, although clearly the Prime Minister has to claim credit for the balance of payments. The Chancellor got slightly near to it, but if he believed that the balance of payments in 1970 was due to any action which this Government took then he will believe anything.
The Prime Minister's prophecies for last year were remarkable. What he foresaw 13 months ago was a year with prices and unemployment down at a stroke and the balance of payments surplus melting away. We know what happened. He would have a considerable future as a long-range weather forecaster.
I turn to debt. Short and medium term debt, the Chancellor told us yesterday, is down to £417 million. The Government will have paid off, when they have carried out the I.M.F. repurchase, which they are to do next month, £1,044 million of debt in 14 months. That is not quite as fast as we repaid debt.
Hon. Gentlemen must face the facts. I know that they do not like them. We repaid £2,200 million in 18 months. The rate of progress of the Government has been good, but there is no doubt out of whose balance of payments surplus they have done so. The £417 million remaining is small, only about 12 per cent. of the total outstanding, and could probably be paid off earlier than need be if that is desired. I hope that we will hear nothing more about the crushing burden of debt which this Government inherited. We incurred debt, there is no doubt about that. [Laughter.] I wish the Prime Minister would practise exercising keeping still for one moment.
It must be very upsetting for his crew in certain circumstances. We paid off two-thirds of the debt. We then left this Government the secure surplus out of which they have been able to pay off nearly all the remainder, and that is the simple fact and the history of the debt.
There is always a beautiful sort of elision from one issue to another by hon. Members opposite. If one talks about the balance of payments they say, "What about debt?". If one deals with debt they say, "What about devaluation?". If one deals with devaluation they say, "What about the sterling balances which we inherited at the end of the war?". Having dealt with the two issues left, I think that I might now be allowed to proceed to my next point—having also dealt with about 17 interruptions from the Prime Minister.
The central point here is that it is certainly no credit to the Government that a further stimulus is required and that a further tax reduction has been given. If this is the basis on which judgment is to be made, then the worse the economy is run the better it can be claimed the Chancellor has done. The absurdity of this is best illustrated by considering the position in the late autumn should these measures prove as inadequate as the Chancellor's previous measures.
The right hon. Gentleman might then decide that he needed a further stimulus, although quite what he would then be piling up for the future I am not sure. He would then be able to explain that his tax reductions were even greater. In effect he would be saying, "So signally have my measures failed that I deserve the greatest credit for having to repeat them more frequently than any Chancellor in history." The truth is that anyone can produce tax reductions if they first create massive unemployment, falling production and stagnant industry.
I apologise for being a little longer than I had meant to be, but a good part of my time has been taken up by hon. Members opposite. There is still the question of the shape of the tax concessions. As the House knows, we thought the shape in the Budget to be unfairly wrong. We argued that at the time. My hon. and learned Friend the Member for Lincoln (Mr. Taverne) and my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) argued this with great force at various stages of the Finance Bill. What the right hon. Gentleman has done does not correct the imbalance of the Budget, although it is not in itself objectionable. There is a wider point. The Chancellor boasts of massive tax reductions that he has made available, over £1,100 million. I think that the Secretary of State for Employment got it slightly wrong for this year and right for next year.
The economic situation has made him almost hunt for tax concessions. It is doubly, trebly objectionable that he should be persisting with something as mean, regressive and unnecessary as his inflationary welfare charges. Their remission would give just as much of a stimulus as tax reductions. To press the school milk Bill for 7 to 11 year-old children through the House a week before he made his third package of concessions is an act of intolerable, insensitive, doctrinaire vindictiveness. To leave 1 million children without school meals because of the higher charges is almost worse, and that is undoubtedly the case as is shown by the figures which have been published. To press on with the so-called "fair rents" for council house tenants is almost equally inexcusable, affecting 30 per cent. of households and involving a possible doubling of rents, with an inflationary effect far outweighing the price-reducing effect of any measures that the Chancellor has announced.
There is also bound to be some doubt about the shape of the economy after the stimulus has been applied. I start by taking Table 4 of the Budget Report. According to that, the gross domestic product was to rise by 3·1 per cent. between the first halves of 1971 and 1972 ; consumer expenditure by 5·3 per cent. ; fixed private investment by 0·5 per cent. ; exports by 2·3 per cent. ; and imports by 6·3 per cent. This was not a very healthy break-down at the time of the Budget. Now, in the final column, the growth of the G.D.P. moves up from 3·1 per cent. to between 4 and 4½ per cent.—say, 4·3 per cent. What happens to the others? The Chancellor would not give us the figure for consumer expenditure, but clearly it will be significantly higher than 5·3 per cent. I fail to see how it can be much less than 7 per cent. It may indeed be slightly above 7 per cent.
From what the Chancellor said—and it is here that he was far from lucid—fixed private investment would not have increased by 0·5 per cent. but would have declined without these measures. What does he estimate these measures will do—bring it back to 5 per cent. or a little higher? I doubt whether in the period we are considering—the first half of 1971 to the first half of 1972—he can do more than bring it back to 5 per cent.
What about exports? I hope that they will be a little better than 2·3 per cent. in volume. I doubt whether they are very much in excess of this. Imports presumably will be a little above 6·3 per cent. with the stimulus. So the balance between the different sections of growth in the economy will be still less healthy than the already rather unhealthy position presented at the time of the Budget, and there is certainly no sign of any structural improvement.
I diagnosed early in 1968 that one of the long-term faults with our economy was that we tended to consume too much proportionately to our national income—not absolutely, because our consumption grew rather less than that of most other countries—to invest too little, to export too little as a proportion and to import too much That was the basic structural imbalance at the beginning of 1968. Over the next two years that was to a considerable extent—although, as the Chancellor of the Exchequer is always fond of pointing out, not without some inconvenience, difficulty and travail—corrected. There was a massive switch in the ratio between exports and imports. Investment went up and consumption was held steady. So there was, although at some considerable inconvenience, an improvement in the structural position during this period.
But already the Budget figures show that we are slipping back to the proportions which caused us so much trouble in the past. I admit that it is easier to diagnose the problems than to say how to put them right, but I must point out the disturbing tendencies of slipping back to the position we corrected with so much difficulty in the two or three years from 1968 to 1970.
What is certain, however, is that the past year has been one of wasted opportunities on an almost unprecedented scale. It was the one year in our recnt history when we had an absolutely secure balance of payments accompanied by substantial reserves of unused capacity. They have not been brought into use. Both men and machines have been increasingly under-employed. Inflation has been exacerbated and not moderatd. Every major election promise has been broken—[HON. MEMBERS : "Oh."] Certainly. The two basic election promises of the Conservative Party concerned prices and unemployment. Tory dogma has been enshrined and the economy has been its victim for 13 months. Now at last the Chancellor of the Exchequer shows some signs of being willing to swallow his own words and those of the Prime Minister. We give a moderate welcome to that belated conversion, but it will need a long time yet to convince us of the competence of his economic management.
The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) referred to the past with extraordinary precision and enumerated the catalogue of things which had gone wrong under his stewardship as Chancellor of the Exchequer and while his right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) was Chancellor of the Exchequer. He was happier about mentioning some of the things which had gone right under his stewardship but did not mention anything which had gone right under the stewardship of his right hon. Friend. But it was extraordinary for him to mention the debt which he left the present Government. He has at least admitted it. Whether he will receive the acclaim of his right hon. Friend the Leader of the Opposition is another matter. He accepts liabilities very easily, whereas his right hon. Friend never does. Therefore, while he claims credit for repaying the load of debt which he created at a faster rate than my right hon. Friend the Chancellor has been able to repay it, it is perfectly right that we should ask who set up the debt in the first place.
The right hon. Gentleman also said that the £290 million reduction of selective employment tax was a most expensive tribute to the Tory Party. I suppose that one could say that the imposition of £290 million of selective employment tax was the most expensive tribute to the broken promises of the Labour Party after the 1966 election.
We have had July measures before. They are certainly not new. But there is a considerable difference between the alarms and excursions, the rapid flight back from Moscow and the general sense of crisis which used to occur in July when the Labour Party was in power. There is a considerable difference between the measures we have before us today and those which were brought before us in one July after another while the Labour Party was in power. My right hon. Friend has proposed a substantial reduction in purchase tax and the abolition of the term controls on hire purchase. These follow the reduction of selective employment tax by half as well as large reductions in corporation tax and income tax. These are measures which are very welcome indeed on this side of the House.
It would have been nice if they had all been earned through higher output. But that is not what has happened at all. We have had these cuts because of a sharp fall in output of over 1 per cent. in the first half of this year. My right hon. Friend the Chancellor mentioned yesterday and again today that future output was threatened because the level of manufacturing investment showed a declining trend. It is therefore right to draw a contrast between the reduction in corporation tax which was made last October and the reductions in the growth of public expenditure at that time and these reductions which are occurring when public expenditure is rising. What would have been intolerable would have been to allow public expenditure to continue to increase at a much faster rate than the growth in output itself, and that is what was happening in the first half of this year. That seemed to me one good reason for boosting the economy.
Another reason was that it did not seem appropriate to call out the Brigade of Guards to defend my right hon. Friend's Budget forecast. If it was clearly wrong, the thing to do was to do what was necessary to put it right, that is, to allow output to grow in line with productive potential.
My right hon. Friend told me yesterday that because output was more than 1 per cent. down in the first half of this year, it did not matter if productive potential grew by nearly 3 per cent. from now to the second half of next year. I accept that. But if by chance output grows by more than productive potential, we shall be in trouble. There seems no margin, or only very little, for error, and the figures of output and productive potential have to be most closely watched in the coming year.
It may even mean that if the figures do not go as we hope, the regulator may have to be used to increase purchase tax in a year's time. I see nothing wrong in that, but, equally, I recognise these measures for what they are, not matters of great principle but timely devices in case of need. Indeed, that is what the instrument of the regulator was set up to do.
I see my right hon. Friend in the position of having left his approach shot short on bad advice from his caddie and now needing a rather bigger club than he or his caddie had originally intended.
The Treasury. He needs the biggest club anybody has used since 1964. I am not saying that the stroke cannot be made, but just that the possibility for error is appreciable and that if it comes off it will be a stroke well worth watching. As I have been urging the Chancellor to take a more powerful club, I cannot blame him for using it, but I would tend to play like Mr. Lu and get it on the fairway rather than have a shot at the green. I merely wish him all the best of luck in the stroke he has made.
The arithmetic is rather daunting. From what my right hon. Friend said yesterday, I guess that the G.D.P. index for the first half of the year, taking 1968 as 100, was 103·3 against 104·9 in the previous six months, a drop of 1·6 points. If the target is still 107·6 for the first half of next year, this would mean an increase of 4·3 points in one year, and that should not require any increase in productive potential. If these figures are correct, there will be no need to rely on any different estimates of the movement of prices and incomes during the coming year from those available to my right hon. Friend last March. If, as he said yesterday, he forecasts a reduction in prices, these reductions could and should have been contained in the March forecast.
There is, in short, nothing in the figures to suggest that my right hon. Friend has made any allowance for any reduction in prices that the C.B.I. by its influence may obtain, and I trust that he has made no such allowance. I also take it as read that no allowance has been made for any assurance which has been given, or which may be given, by the T.U.C. on wage increases. It is not in a position to control its members. It is not in a position to control plant bargaining or wage drift any more than the C.B.I. is in a position to control prices.
There is a very long history of prices and incomes policies and it is a history of failure from the time of Diocletian in 301 A.D. to the Statute of Artificer in 1563, through the Dutch statutory system and our own history under the last Labour Government. I do not object to my right hon. Friend talking in a friendly way to the C.B.I. and the T.U.C. ; what I would object to would be placing any reliance on their undertakings without controlling the money supply.
If my right hon. Friend curbs the money supply, there does not seem to be much point in undertakings of this kind. The fact is that the money supply grew up to the end of the financial year by more than £2,000 million, or some 13 per cent. It is true that the authorities' net sales of gilt-edged stock in the March quarter totalled nearly £1,250 million so that a considerable part of the increase in the money stock has found its way back into Government hands. But with a borrowing requirement which is now more than £1,200 million and now to be added to by the nationalised industries, which will have to borrow to meet their requirements as they are not to be able to raise their prices, which has been estimated to add some £300 million, the Government and the authorities will need all the funds they can get from voluntary savings.
What is the hon. Gentleman's authority for that figure of £300 million? My right hon. Friend asked the Chancellor for that figure yesterday and I have been trying to find it.
My figure may not be very reliable, but it comes from Mr. Sam Brittan in today's Financial Times.
The companies have not found it difficult to pay large wage increases by borrowing from their banks, and nor will they in future unless the money stock is brought firmly under control. Happily, there is at least some sign that this is exactly what is happening. The Bank of England is no longer prepared to support the gilt-edged market in securities over one year, and I congratulate my right hon. Friend on bringing about that situation, yet the demand for gilt-edged has continued undiminished.
Whether it will continue when companies start borrowing again is another matter and that is when inflationary strains created in the first place by the money supply will occur again.
I am interested to see that the right hon. Gentleman is giving some support to this view, because it was his party which created the problem of the money supply in the first place by the largest increase in the money stock in any quarter in the quarter before the General Election.
There remains the problem for the money supply of the inflow of funds from abroad. I think that my right hon. Friend might have considered a reduction in bank rate as an alternative to some part of the measures he has taken as a deterrent effect to hot money flows.
I have one other word on the subject of money supply. Some of us attach more importance to this subject than do others. It would help if we could have more up-to-date figures of the money stock than the quarterly report which we have from the Bank of England. I asked my right hon. Friend last November whether he could publish monthly figures no matter how delayed those monthly figures might be. They would be of great assistance to the House and those who take an interest in these matters.
I am conscious that, having asked for a slice of cake, it seems less than grateful to give a rather muted welcome to a very large rich fruit cake, but I am concerned about appetite and indigestion and the fact that we may have to give some of it back later. But, having said that, I willingly support my right hon. Friend in giving such a brave and decisive turn to the economy.
Anybody with direct experience of industry will know the depths of depression into which a number of industrial companies had sunk after years of failing returns on assets. They were quite unprepared to look beyond today's order book, and for very good historical reasons. Now demand should grow and with it a new atmosphere of confidence in industry which the new investment allowances will do much to stimulate.
We cannot enter Europe with industry flat on its back. It looks, on the contrary, as if we shall be going in at the gallop, and we are all in for a very exciting ride.
The hon. Member for Horsham (Mr. Hordern) spoke about the depression of many companies in industry today. That is one of the most important aspects of this debate and one which has been barely touched upon. We are talking against a background of unemployment and social discontent such as has not been seen since the end of the last war. Although yesterday there was an atmosphere of euphoria, I cannot help feeling that by tomorrow that euphoria will have been replaced by a hangover because what the right hon. Gentleman the Chancellor of the Exchequer has offered the country is really a lollipop. A lollipop has certtain attractions for the consumer, but it contains a soporific ; and it is to that special consideration that I shall later address myself.
Today, with unemployment at its present high level, all that the Chancellor has had to offer have been cuts in purchase tax, which certainly will be of benefit to those who want to buy fur coats, or tiaras, or yo-yos or salted peanuts, but they do nothing for the structural problems of industry as a whole. There is of course the slight beginning of wisdom. I was glad that the Chancellor made some reference to his contacts with the trade unions. I hope that that suggests that the Government have decided that they cannot carry out their reactionary policies merely by bludgeoning the trade unions and forcing them by the discipline of unemployment into courses where the Government wish to direct them. The fact is that the more the Government seek to hit the working classes over the head with policies of restriction and depression the more the working classes will react.
If we look at the whole picture of unemployment in Britain to-day, we find that more than 10 per cent. have been unemployed for more than a year. The fact that the Government have grasped the seriousness of the problem, which has become both chronic and endemic, I hope is the beginning of an appreciation that if Britain is to be raised out of the depression into which it has fallen under a Tory Government it will be essential for the Government to have consultations with the trade unions. Instead of trying to force the working people of Britain into the courses which they forsee, they should seek to obtain a consensus by means of which those who create the wealth of this country can work together with the Government of the day.
One of the most sinister and alarming aspects of the present situation is the way in which the machine tool industry has been declining steadily over the past year and a half. Today, the order books of most machine tool companies are approximately 50 per cent. lower than they were a year ago. This matter is of the utmost seriousness, because the machine tool industry is an industry upon which depends approximately one-third of all the workers engaged in productive industry. If the machine tool industry is depressed, it is a grave symptom of the state of industry as a whole.
For those reasons, I should like briefly to look at some aspects of the machine tool industry. It is true that the Chancellor by his increased investment allowances will bring some relief, but I suggest that the relief he has given is not enough in view of the size and nature of the problem which I will briefly describe. I hope that the House will bear with me if I deal with some statistics, which are of the highest relevance to what I have to say. Not only has there been inadequate investment in the industry, but in addition the industry has become steadily obsolete and there is a built-in obsolesence, which is one of the reasons that production is so low.
To illustrate the situation let us look at a table of statistics showing investment per employee in the machine tool industry and deliveries per head. In Sweden in 1970 investment per employee was 1,013 dollars ; in the United States, 569 dollars ; in Japan, 566 dollars ; in West Germany, 397 dollars and in the United Kingdom, 336 dollars. We were at the bottom of the league. Extrapolating these figures into deliveries per head, we see that in Sweden the figure was 10,800 dollars ; in the United States, 23,700 dollars ; in Japan, 9,400 dollars ; in West Germany, 7,300 dollars ; and in the United Kingdom, 5,800 dollars. Once again we were at the bottom of the league.
Let me express the matter a little differently by quoting the investment rate in mechanical engineering as outlined in figures issued by the European Economic Commission. In Sweden in 1969–70 the investment rate was 1,200 dollars per head; in Japan, 1,000 dollars; in West Germany, 550 dollars, and in the United Kingdom 400 dollars. Again we were at the bottom of the league.
I now turn to the car industry which relies so heavily on the machine tool industry. This will end my table of statistics which I offer reluctantly but which I consider to be necessary in underlining my points. The car industry shows very clear evidence of the decline in British investment and our ability to compete. For example, in the case of Ford of Germany assets per man in terms of mechanical engineering were worth £8,000 ; Opel, £7,000 ; Peugeot, £3,300 ; Chrysler (United Kingdom), £2,900 and British Leyland, £2,200. Translating those into added value per man we see the following : Ford of Germany, £3,500, Opel, £3,800; Peugeot, £2,500; British Leyland, £1,800. These are very serious figures of which the Government ought to take account. Whether we are in favour of going into the Common Market or are opposed to it, the fact is that we may well have to compete, inside or outside the market, with a manpower reinforced by machine tools which are not only obsolescent. but where the individual worker is underpowered. If we go into the Common Market and are to realise the potential benefits, then going in with such a heavy disadvantage will make our competitive power less than it is today.
On the matter of obsolescence, we see that in Japan 64 per cent. of all machine tools were less than 10 years old last year ; in Germany the figure was 58 per cent. ; and in the United Kingdom, 38 per cent. These are serious figures. If we are not to pursue this downward path in this key industry in Britain, the machine tool industry, with a continuation of the redundancies which have already been set in train and with the resultant effects on those engaged in productive and mechanical engineering, and those who depend on it, the Government must do more than simply raise investment allowances by approximately 20 per cent. All this has taken place in a context from which the I.R.C. is absent. While I do not believe that the I.R.C. alone would have been able to correct the disadvantages and difficulties facing the machine tool industry and the mechanical engineering industry, I do believe that the I.R.C. was capable of stimulating mechanical engineering and the machine tool industry by giving loans to Rolls-Royce, British Leyland, and so on, so that the industry which depended on those manufacturing industries could be stimulated.
In this context, perhaps I might add a word which is not offered in terms of simple economic definition but which I believe is most important for the whole psychology of British industry if the proposals announced by the Chancellor of the Exchequer are to have any benefit. It is that, if this great blunderbuss of proposals which sprays its buckshot so widely over the economy is to have any valid effect in tackling the simultaneous and paradoxical problems of inflation and deflation, there must be a completely different attitude in industry to some of its difficulties.
As one who represents a motor constituency, I know that the manufacturers will welcome with open arms the fact that at last their constant demands for hire-purchase restrictions to be lifted and for purchase tax to be reduced have now been acceded to by the right hon. Gentleman. However, I believe that the Duke of Edinburgh was right. In British industry today there is an enormous flabbiness in management, and that has to be recognised before it can be cured. While I count myself among the most enthusiastic defenders of the British motor industry, I am obliged to say that there is a dolce far niente in the industry which should be corrected.
Perhaps I might illustrate that with one example. I know that people tend to generalise from a single experience to prove their point. I do so reluctantly, because the illustration that I am about to offer is very significant for the motor industry as a whole.
Some months ago, the mayor of a large French city wrote telling me that he had ordered a British car from my constituency. He asked me whether I could investigate, because he wanted urgent delivery, and the matter had simply drooled on, with no action being taken. I wrote to the manufacturer explaining that the mayor of this city, by using a British car, would be offering virtually a free advertisement and providing a shop window for British products. I do not know whether the point was taken, but delivery was promised. However, only yesterday, after many months of waiting, I received a letter from the consul-general of that area saying that the car had still not been delivered and that the fact that it had not been was a disgrace to the British motor industry.
I do not draw any hasty conclusion from that. It may be possible for some to say that it was due to delays in the production line or that there was some interruption in the export of the car. The fact remains that this story expresses what many people have often said about not only the motor industry but many aspects of British industry. It has become a tradition to blame the British worker for the inadequacies of industry. I want to stress today that, in the production of any given product, it is not simply the manual worker who is responsible. It is the management of British industry. Management must be more effective, especially in terms of the increased competition that British entry into the Common Market may bring. It is time that, instead of lying back supinely accepting the praises often rightly heaped on British industry, those who control it should recognise that management must be improved if we are to withstand the competition that we are likely to face.
We tend to believe that because our industry has been so eminently successful in its past history, because in its day it was in the forefront of production, and because we led the world with our engineering products, somehow or other we can continue to do that irrespective of whether we adapt ourselves to new situations.
Our machine tool industry has fallen behind. The fact is that it chose to accept the soft option of producing traditional lathes while its competitors in Continental countries were producing electronic and numerically-controlled machines of a vast and sophisticated kind which were able to knock out our products in some parts of the world. The British machine tool industry chose the soft option of exporting our traditional products to certain traditional markets, not recognising that the time would come when even those traditional markets would require more sophisticated types of equipment.
I have been following the hon. Gentleman's remarks closely, but I do not think that his strictures on the machine tool industry for neglecting the development of more sophisticated types of machine tool, such as numerically-controlled machine tools, should be allowed to pass without comment. Certainly the machine tool manufacturer in my own constituency went over very early to numerically-controlled machinery. Unfortunately, his customers in this country, especially in the motor industry, were not prepared to buy his machines.
The hon. Gentleman misunderstands me if he thinks that I am saying that the machine tool industry has neglected numerically-controlled machines. I am not saying that. I am saying that only lately has the industry adapted itself to the need to produce this highly-sophisticated equipment.
After the war, by means of the Monet plan for the modernisation and re-equipment of industry, France was able to pull herself up by her bootlaces. Her Government helped to modernise and re-equip French industry, and manufacturers were offered investment incentives which allowed them to produce remarkable motor car factories like that at Flins, where a chunk of metal can be seen going in at one end, with a completed motor car coming out at the other.
Unless the Government are prepared to take a broader view of modernising and re-equipping British industry, despite all our efforts, we shall find ourselves lagging behind our competitors. By itself, the right hon. Gentleman's Father Christmas dole of goodies to the public will not reflate the economy. When all the consumer products have been consumed, even when the durables like television sets and washing machines have been bought up, left completely untouched will be the underlying problem of British industry. That problem is the rehabilitation, re-equipment and modernisation of the undrelying basic industry which has to be stimulated if we are to be able to compete.
I ask the Financial Secretary to bring to his right hon. Friend's notice the fact that, while some of the peripheral consumer benefits offered by his statement yesterday are welcome, and while in some areas the fact that there will be an increase in spending will in itself be of value to certain industries, the right hon. Gentleman has left completely untouched the fundamental areas of industry which consist of metal working and those other areas which are at the basis of our capacity to compete in the course of the second industrial revolution. It is no good looking for soft options. We must recognise that, unless there are structural changes in our key industries, the consumers' give-away by the Chancellor will end merely in making our situation more and more difficult.
I listened with interest to the comments of the hon. Member for Coventry, North (Mr. Edelman), and I have some sympathy with some of his remarks about the British machine tool and motor car industries. The biggest employer in my constituency happens to be a machine tool manufacturer and, as a consequence, I am well aware of the problems of the industry. Perhaps I might revert to them later in my speech.
I found the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) somewhat puzzling today. He started by implying that my right hon. Friend the Chancellor of the Exchequer had done the right thing, though he had done it too late. He then clearly implied, as my right hon. Friend the Secretary of State for Employment pointed out to him in an intervention, that my right hon. Friend had not done enough. However, he was clearly reluctant to find himself quoted as committed to that proposition. This was hardly surprising in view of the fact that, towards the end of his speech, he seemed to be implying that my right hon. Friend had done too much. I must say that I had rather more sympathy with the second verdict of Roy than with the first.
When the right hon. Gentleman accuses my right hon. Friend of switching Budget judgment from one month to another, one can only assume that he has a short memory. We recall the period following devaluation when the right hon. Gentleman sat on his elegant backside for three months while the largest consumer boom in our history whirled around him, and subsequently, when he acted in the Budget of that year, we were told that he had been reluctant to act earlier because he was afraid that he might create "a hole in the economy". This, too, was subsequently disproved by events. However, it highlights one of the lessons of our present experience—at least, I hope it will—that we are unwise to try to make too specific forecasts of how demand is likely to move and, above all, to try to shift the economy dramatically from one month to the next.
I turn now to the main substance of my right hon. Friend's proposals. Clearly, they are greatly to be welcomed as a Tory package in the sense that, once more, we see a substantial reduction in taxation. Once more we have it confirmed that this is a Government of reducing taxation by contrast with the horrific increases in taxation which we experienced under the Labour Government. Once more we see the Government putting into action that slogan, devised many years ago, to "set the people free".
I also extend a hearty welcome to the two major proposals in my right hon. Friend's statement yesterday. The 18 per cent. reduction in purchase tax—I think that is the correct calculation, but I am sure that the hon. Member for Heywood and Royton (Mr. Joel Barnett) will correct me if I am wrong—coming on top of the 50 per cent. cut in S.E.T. must be a major contribution to price stability. Since I put the highest priority on bringing inflation under control, any steps likely to have the effect of achieving a greater degree of price stability are to be welcomed.
I should just comment on my right hon. Friend's forecast that the reduction in purchase tax would lead to a loss of revenue in a full year of £235 million. I take it that this, like all our assessments of the effects of tax increases or deductions, is based on certain assumptions about consumer response. It is worth commenting that under the Labour Government consumers did not respond in the way that they were expected to respond. When we had these huge continuous increases in taxation, they did not have the effects on consumption which were expected of them. I have a sneaking suspicion that the same could be true when we apply the pressures in the opposite direction.
On the whole, I was not sorry that my right hon. Friend declined the invitation of the right hon. Member for Stechford to give a new figure for the rate of growth in consumer expenditure because I think that in any case these figures are somewhat doubtful. I am not surprised that my right hon. Friend is already inclined to scale down the figure for growth of consumption on the basis of the Budget forecast. But I inclined to agree with the right hon. Member for Stechford that if we are to see a substantially higher rate of increase in consumer expenditure than 5·3 per cent. during the full financial year, the implications, particularly on the balance of payments, are on the ominous side.
Similarly, I give an enthusiastic welcome to the decision to scrap the controls on hire-purchase payments. That seems a matter of common sense. Now that the whole system of hire-purchase controls has been so largely eroded by the personal loan schemes ; now that we have the Crowther Report, and now that we have the new systems of credit control, to which my hon. Friend the Member for Horsham (Mr. Hordern) referred in his interesting and most constructive speech, there does not seem to be any good case for trying to retain the special controls over hire purchase. The corollary to my mind is that we need to know what the Treasury's global monetary strategy is. On that, I can only say that we assume that the Treasury has a global monetary strategy now, but we have not been told what it is. I shall refer to monetary policy later in my speech.
I am of a mixed mind about the change in the increase in the provision for free depreciation and first-year allowances. I certainly welcome the idea of eliminating the last mouthful of the Hungarian goulash, the bias against the service industries applied by the Labour Government ; and, having urged during our discussions on the Finance Bill that if we were to have free depreciation it should be extended to the service industries in the development areas, it would be less than grateful of me to express a welcome for my right hon. Friend conceding that point. I cannot help recalling that only three weeks ago my hon. Friend the Chief Secretary said that this would be far too expensive a concession to make this year.
However, as I made clear in Committee on the Finance Bill, I am somewhat sceptical about the whole system of investment allowances. It is only on the assumption that we have these allowances that I welcome the elimination of the element of bias against the service industries in the development areas which my right hon. Friend has introduced.
I now turn to the strategy of my right hon. Friend's statement yesterday. Like my hon. Friend the Member for Horsham, I have one or two anxieties. I was delighted that my right hon. Friend did not at any time, either yesterday or today, suggest that the strategy of the announcements he made yesterday was framed with an eye to influencing the arguments about British entry into the European Economic Community. I have for long been a convinced supporter of our entry. But even so I should not have thought that it was very wise to conduct one's strategy for domestic economy management with an eye to the effects that it might or might not have on a particular but rather separate issue of public policy at the same time. I should not have referred to this issue, only there seems to have been a certain ochestration of comment in the Press to the effect that the tax reductions were framed with an eye to the great debate.
If that were so—and my right hon. Friend gave no indication whatsoever that that thought had entered into his consideration—the timing would almost certainly be wrong. My right hon. Friend said himself that he did not now, on the basis of yesterday's judgment, expect other than that the rise in employment would continue for a couple of months, stabilise, and then fall.
I suspect that my right hon. Friend may be erring on the side of optimism. I have a suspicion that we shall find that the reaction to these tax reductions is not as swift as my right hon. Friend has suggested. But even if we accept the forecast that unemployment will rise for a further two months and then stabilise, that means that the great debate in the country on the issue of the European Economic Community will be rather a thing of the past before we can see the effects of these measures in terms of falling unemployment, on the basis of my right hon. Friend's own forecast.
The oddest suggestion of all was that which appeared in one serious newspaper yesterday morning—I think that it was even in the Financial Times, but I should not swear to that—that the measures were framed with the idea of depriving the right hon. Member for Leeds, East (Mr. Healey) of his excuse for ratting on the Common Market. That is a fascinating one because, if anybody seriously imagines that by announcing tax cuts at this time the right hon. Gentleman will be so conscious of the loss of his fig leaf that he will run for cover behind the tents of the European Community, he is rather over-estimating the sense of personal modesty of the right hon. Gentleman, and in any case to build up an economic strategy on the basis of "stripping Denis naked" is going a bit far.
I was glad to hear that my right hon. Friend did not give any credence to those arguments. His justification for the measures announced yesterday was really in two parts. First, that without such an adjustment in tax rates industrial investment would have continued to fall and unemployment would have continued to rise to unacceptable levels. Second, there was the agreement with the C.B.I. and the nationalised industries.
As to the first, even before listening to my right hon. Friend's remarks this afternoon I was surprised to hear him say that he was expecting the downturn in investment to continue. These things are difficult to judge, but I should have thought that there were some indications that the downturn in investment had bottomed out and might be moving up. What really interested me this afternoon was that my right hon. Friend seemed to confirm that, and seemed to be saying that even before the stimulus applied to the economy by yesterday's measures the result of the Treasury's latest examination of the economy showed that investment was moving upwards again. I think that we need some clearer indication of the Treasury's assessment on this, because I think that there was an apparent conflict between what my right hon. Friend said yesterday on the matter of investment and what he said today.
I am obliged to the hon. Gentleman. I was coming to that issue, with particular reference to the problem in my constituency where, as I said, the largest single employer is a machine tool manufacturer who has been making redundancies on a fairly substantial and serious scale.
I agree with the hon. Gentleman that the broad balance of the measures announced yesterday will take a considerable time to work through to industries such as the machine tool industry. To my mind the difficulty is that that industry is in a sense the tail-end-Charlie of the investment cycle, and I do not think one can easily change that position. Any measures that are announced tend to take longest to work through to the machine tool industry, and it is at this point that I want to take up what the hon. Gentleman said.
There is one element in the performance of the machine tool and motor car industries which the hon. Gentleman left out of account, and which to me seems fundamental. The basic cause of the decline in industrial investment that we have been experiencing has been the catastrophic fall in profit margins, particularly in industries such as the motor car industry, resulting from a combination of the tax measures of the previous Government and the cost inflation which they set in motion. To my mind the way to see a continuous and improving expansion in industrial investment is to allow profits to recover to more reasonable levels by international standards, and it is at this point that I come to the matter of the C.B.I.'s undertaking.
I rather hope that the C.B.I.'s undertaking, this great declaration of intent, will be observed with as much scrupulous attention as the declaration of intent organised by, as he now is, Lord George-Brown in the spring of 1965. Because if the members of the C.B.I. observe the C.B.I.'s appeal for price restraint it seems quite clear that the recovery in profit margins which has been occurring will disappear, and in the period ahead there will be the likelihood of a further downturn in industrial investment, which can hardly be what my right hon. Friend has in mind.
On top of that there was one aspect of yesterday's statement which caused me great concern, and that was what virtually amounted to the handing of a blank cheque to the nationalised industries, the assurance that however unprofitable they may be, whatever losses they may accrue, they shall have clear access to the National Loans Fund.
The implications of that for the net borrowing requirements are ominous. The implications of that for the control of money supply from the beginning of next year are particularly ominous. Furthermore, it means that the whole approach flies in the face of what we have been trying to do, and what we have so much welcomed in the nudging of the nationalised industries more closely towards the acceptance of the disciplines of the market.
My right hon. Friend said yesterday that he was satisfied that these measures would not place an undue strain on monetary policy because of the buoyancy of savings. It is true that savings have been very buoyant, and that is one reason why one gathers that the rate of growth in money supply in the June quarter was very small. But I cannot help wondering, and cannot help having a nagging suspicion, that this pattern may change fairly rapidly as the measures announced by my right hon. Friend take effect.
My right hon. Friend expressed optimism about the balance of payments. There again, I hope that he is fully justified. What worries me slightly is the thought that if I were running a company and if I were buying in goods to a volume of 4 per cent. more at a cost of only 2 per cent. more and selling out goods to a value of 6 per cent. more to a volume of only 2 per cent. more my balance sheet for a time might look very encouraging, but there would be a danger that I should find myself pricing my products out of the market.
Basically, it comes down to this : we must have some scepticism about the question whether the fall in unemployment or the rise in investment will be quite as rapid as my right hon. Friend has predicted as a result of the measures that he has announced. On the other hand, a head of steam of inflation is being built in for 1972 and 1973, and this at a time when the latest O.E.C.D. report—at which the Treasury is not unknown to have a sight, pre-publication—has suggested that we already have the highest rates of going inflation of any country in the Western world.
It boils down to this : this Government inherited an inflationary stampede for domestic reasons at a rate not experienced before. My right hon. Friend the Chancellor and the Governor of the Bank of England have consistently urged that this rate of inflationary stampede could be brought under control without accepting serious though temporary losses of industrial investment and rises in unemployment. Some of us are somewhat sceptical whether the trick can be turned without accepting those uncomfortable consequences. Now my right hon. Friend has given the economy a substantial further boost. He has expressed the hope that we shall be cutting into the inflationary spiral. I only pray that he is right. Because, if he is not, we are in for trouble.
It would be extremely churlish for anyone in opposition or in Government not to welcome the measures announced yesterday. This afternoon I am not going to argue whether too much or too little has been done—or whether it has been done too late. If I were to argue that it has been done too late I would argue that it has been done not months but years too late. I have been arguing for deflation under successive Tory and Labour Governments for substantially longer than months.
I shall not argue—as some newspapers have done this morning—whether it is too much or too little, because—like the hon. Member for South Angus (Mr. Bruce-Gardyne)—I am extremely sceptical about the short-term manipulation of the economy. No one has a greater admiration for Maynard Keynes than I, but anyone who has observed at first hand the workings of the American economy in the last few months must admit that the dependence on the policies of Maynard Keynes as exemplified in the Nixon-Game plan shows that in the modern world it is wrong.
It is extraordinary that the Nixon Government's attempts to manipulate the American economy to lead to some sort of boom prosperity, for political purposes—coming in an election year—has not succeeded so far. American businessmen's confidence is still appallingly low. I am also extremely sceptical about the forecasts on which the short-term manipulation of the economy must be based. If one thing is certain it is that the Treasury is wrong, but everyone else is even wronger.
I want to say a word about the development areas in terms of the problems of the location of industry. It would not be very sensible to look a gift horse in the mouth. We have had substantial aid for the development areas in the last week or so—the announced £102 million for further public works ; the £50 million for mineral exploration, and the £46 million for extra housing improvement grants. The Chancellor's statement yesterday gave us a tax allowance on fixed equipment in the service industries which will be of substantial benefit to the hotel industry. It is a measure for which we have been arguing for many years.
We have to set against these advantages the fact that we now have an 80 per cent. first year tax allowance, which has halved the differential previously given to development areas. So, if we put those two factors against each other—the body of measures that I have just lumped together against the change in the differential—we find that the development areas will still be struggling. In any case, the question whether or not industry moves to the development areas is not simply a matter of the total amount of Government money available in the pipeline. Industry moves for a variety of reasons. There is no doubt, certainly in respect of the South-West development area that the first major motivation to a company to move from its existing location is the refusal of an I.D.C. That has been shown over and over again in research carried out by various universities and Government Departments.
The second thing that makes industrialists want to move from their present location is the lack of labour. If there is no lack of labour in the major industrial areas—and over the last four or five years the policies of successive Governments have ensured that there is no lack of such labour—the pressures on industry to decide to move are far less. Only when those two factors have played their part do industrialists begin to think about the carrot—to look at the incentives.
Then we have the argument whether we should have grants or allowances. In my view there is no doubt that the change from investment grants to investment allowances has made a substantial difference in the size of the carrot available to attract industry. Only last week the chairman of Rio Tinto-Zinc—and I had better declare an interest here, since I am treading on aluminium ground—said that he would not have put the smelter in Anglesey if it had not been for investment grants. He said that investment allowances would not have been sufficient to persuade him to locate the industry there.
In view of what Sir Val Duncan said, I would point out that that company pays approximately 2 per cent. of its total world tax burden in this country. It should not be taken as typical.
I am sure that the Government will recognise that the C.B.I. of Scotland, the Scottish T.U.C. and the Scottish Development Council—which is not a political body—have all stated categorically that the departure from the policy of providing investment grants will not be of any advantage to the development areas.
I am grateful to the hon. Member for that information, because it accords with my experience of small firms that have moved to my constituency and neighbouring constituencies in the South-West development area.
The fourth factor in persuading industry to move is a personal one, concerning the management. Many people want to move out of the cities to areas where they can enjoy life more. That is an important factor. What they have to think about is the supply of labour in the area to which they would like to move—particularly the supply of skilled labour. I have said that it might be unfortunate to look a gift horse in the mouth, and that these grants had been announced. In the South-West, we did not accept these grants at their face value. Over a long period, we have come off very badly. For instance, between 1960 and 1971, if one lumps the Local Employment Act grants together with investment grants, the South-West development area obtained £133 per head of insured employees and that was the least of any of the development areas in England and Scotland. The figure was £142 for Scotland, £204 in the Northern Region, £237 in Wales and £265 on Merseyside. Judging from the allocation already announced for the Northern Region and Scotland of the £102 million further public works appropriation, the South-West will again come off badly.
We have a desperate lack of industry and substantially rising unemployment. This is the height of the summer. June is the month when we look to unemployment to fall because of the tourist trade. Yet, between June, 1970, and June, 1971, the number of male unemployed in the South-West development area rose from 4,256 to 5,655, a rise of 30 per cent. If that happens between two points in the summer 12 months apart, heaven knows what will happen in the winter. I am not sure that the allocations announced over the last week will help offset that trend.
If I unreservedly welcome the Chancellor's announcements in the short term, I have grave reservations about the Government's long-term strategy. In fact, it is dignifying it somewhat to call it a long-term economic strategy. I listened to the Chancellor's statement yesterday and his speech today trying in vain to find such a strategy.
Of course we are concerned with output and the present rate of inflation, but I am much more concerned with Britain's long-term problems. Perhaps we should just spell it out again. The national income per head has been rising far more slowly that in our major indstrial competitors—about 2½ per cent. compared, for instance, with 4½ per cent. in the E.E.C.
In terms of real product per head, we are now thirteenth in the world league. By 1980 I wonder where we shall be. Our share of world trade has been falling consistently and catastrophically, it is still falling, and the O.E.CD. report last week said that it would continue to fall.
The Labour Government certainly did nothing to stop the rot. Perhaps that is not accurate ; they did many things to stop the rot, but none of them succeeded. That is perhaps even more disastrous than having done nothing.
As the Government have put their policies to us, we have to ask whether they have the policies to stop the rot. I must say that I believe the answer to be "No". The Government's previous aim was a growth rate this year of 3 per cent., which, even if we achieved it, would be only half the rate of other industrialised countries. The new aim is 4½ per cent. which is very much better. If we can achieve it and keep it up, it will go a long way and have a dramatic effect on the whole of our national life, our productivity, labour relations, inflation and our confidence in ourselves, both industrially and socially.
But of course, the question is, will the Government keep it up? It has now been admitted for the nth time in the last two decades that squeezing home demand does not of itself contain inflation or increase exports. I have the feeling that we have been here before and have forgotten the obvious lesson.
My major reservations about the announcements are these. First, I believe that business men invest not because of investment incentives but because of the prospect of selling at a profit. The Chancellor said this afternoon that now is the time to invest, but of course investment will not come if it is just a matter of business men following the investment incentives.
The hon. Member has made an interesting statement with which, on the whole, I would entirely agree—that business men invest because they see the prospect of profits. But if this is so, and investment incentives do not make a ha'porth of difference, why is the hon. Gentleman so enthusiastic about investment grants?
That is not what I said. I said that I was sceptical about the effect of investment incentives on the total level of investment. I accepted immediately and have always proclaimed that investment incentives can have a substantial effect, if they are sufficient and if they are grants, on where the investment takes place. That is so in a world situation—for instance, whether aluminium smelters are built here or elsewhere—and it will affect the question of whether the factories are built in Cornwall or in Birmingham.
My second major reservation is about the commitment of the C.B.I. What happens if this 5 per cent. ceiling clashes in any individual firm with the need for profitability, the need to return a satisfactory rate of profit on capital? Of course the C.B.I. cannot enforce this. A voluntary prices policy is a mirage. How will the Government toughen the sinews of such a policy when it fails, as fail it undoubtedly will? Moreover, even if it were to work moderately, as Mr. Brittan has pointed out in the Financial Times this morning, it will not stop inflation : it will merely bring it down, perhaps, if one is fairly optimistic to about 7½ per cent. Well, whoopee. That is no great achievement. Unless we can do better than that, we shall be back in a balance of payments crisis very rapidly.
Is the hon. Member not aware that one of the problems of those operating price restraint is that the nationalised industries' prices are likely to be monitored much more closely than those of private industry? As a result, there will certainly be genuine price restraint in the public industries but rather less certainly in the private.
As one who has listened to Nye Bevan, I know that one of the arguments for taking over the heights of the economy was that the Government could exercise greater control over the public sector than over the private. But I take the point. What will happen when the return on capital which the nationalised industries have to make is not met? They will have to borrow and borrow and borrow again.
I believe that there is a need for direct action on incomes and prices and that now is the time for the Government to follow up the T.U.C.'s initiative on the wages-inflation guarantee. Perhaps last week, last month or the month before was not the correct time, but now the Chancellor says that he believes that the C.B.I. prices policy has at least a chance of working. If he has confidence in this and in his own policies for growth and containing inflation, surely he should now go to the T.U.C., throw the challenge down and say, "We accept your offer. We are prepared to go along with a policy of splitting wage demands into their two component elements—first, real growth in national income and, second, the amount which is needed to guarantee your members against inflation." There could be a real chance of such a policy working ; at least it is worth trying.
But the fundamental point is that, for the Nth time, the Government have accepted that low demand is no solution to inflation or to problems of balance of payments or growth in the home economy. But have they accepted that low demand has been our major long-term problem? We have had squeezes and freezes which have structurally changed our economy and our industry and ruined our industrial and financial morale.
What will happen when, and it will happen inevitably, the boost now given to the economy brings an import boom which will eventually overtake exports and we have a balance of payments deficit? Perhaps this is not a convenient time to raise such a spectacle, when we have a secure balance of payments. But now is the time to consider what we will do when the balance of payments is no longer secure, and it will inevitably become insecure within a few years.
Devaluation is at any time a dirty word—in times of a good balance of payments because nobody thinks it is relevant and in times of bad because it is only too relevant and dangerous. But it is not now against the policy of the Common Market countries. They devalue freely. We should make our position clear at this stage and say that we will meet the next crisis, when it comes, as it will come, in our balance of payments with a variation—one or other of the many variations—of a floating exchange rate within limits.
In the long term, the Government must plan ahead, not only for the time when a balance of payments crisis comes, as it will, but for the time when the next labour shortage arises, as that will happen, too. This may seem an odd time to discuss this matter, but if the Chancellor's policy works there will be a labour shortage in due course, and I believe that it will happen within two or three years.
There may not be a countrywide labour shortage. We may still have a rather high level of unemployment overall, but there will certainly be a shortage of certain skills. What plans are the Government making to ensure that we will have sufficient people skilled to overcome the shortage when it arises? What training do they have in mind? What other measures have they thought out to cope with this problem? Unless these two things are dealt with now, we shall be back at square one within three or four years.
It is no good thinking that we can adjust the economy with the economist's finesse and so avoid these problems arising. It is nonsense to talk of the regulator in this sense. We are not that clever and we should not rely on it. We will not stop a balance of payments crisis arising or a shortage of labour. We must prepare now so that we are able to walk through those two crises by adopting measures other than those we have used in the past.
I am particularly grateful for the opportunity to speak in this debate because it falls, as my right hon. Friend the Chancellor of the Exchequer pointed out earlier, on the anniversary of one of the great turning points in post-war British economic policy.
Today five years ago we embarked on the notorious July measures and departed from the generally accepted consensus of both political parties that the economy should be run at a high level of activity.
Five years ago today the then Prime Minister, now Leader of the Opposition, introduced the sharpest credit squeeze since the war. He set out deliberately to operate the economy at a level substantially below capacity. He set out deliberately to increase the level of unemployment and to make the balance of payments the first priority in economic policy.
Following those measures there were certain consequences. The amount of slack in the economy increased year by year, and it is accepted today that it is now much too great. The rate of growth has been much slower in the last five years than in the previous five. At the same time, we have, with the passage of each succeeding year, experienced an increasing pace of inflation.
Worst of all, we have experienced a rapid rise in unemployment. Within six months of the measures being introduced, in July, 1966, the level of unemployment had doubled, rising from 264,000 in July, 1966, to over 600,000 in January, 1967, and with the exception of three months since then, the level has been in excess of half a million ever since.
Lest anyone think that this was not a deliberate act of policy on the part of the then Government, I quote some words that were used by the former Prime Minister. On 5th October, 1967, the right hon. Gentleman said, as reported in the Banker the following month :
It is impossible to manage a large industrial economy with the very small margin of unused manpower and resources that characterised the British economy in the 1940s and 1950. We must have a somewhat larger margin of unused capacity than we used to try to keep and this the authorities are now firmly determined to retain.
I rejected that at the time and I have rejected it ever since.
Since those measures were introduced, the British economy has experienced the worst five years since the war in terms of slow growth, rising prices and unemployment. This has been true under both the Labour Government and under the Conservative Administration in the last 12 months.
I am particularly pleased today to participate in this debate because it gives me a chance warmly to welcome the measures which the Chancellor introduced yesterday and which, I believe, will reverse the drift we have experience in the management of the economy over the last five years. I sincerely hope that the measures which my right hon. Friend announced will mark a new era in economic affairs—that they will mark a significant turning point in the same way as the measures announced five years ago marked a turning point.
I welcome my right hon. Friend's measures particularly because we are now moving forward to a rate of growth of, according to my right hon. Friend, between 4 per cent. and 4½ per cent. I was one of those, and I said so at the time, who expressed disappointment with my right hon. Friend's Budget. At that time he said that he expected the capacity of the economy to increase by 3 per cent. in the following 12 months and that he intended to increase demand by 3 per cent. to take up that capacity.
Now, following the measures introduced yesterday, we shall start taking up the slack which exists in the economy, though there is some dispute over how much slack there is. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), speaking in the debate on 28th June, reckoned that it was as much as 20 per cent. I will only say that I believe that it is rather more than 10 per cent. We need not argue about this. The fact remains that there is a lot of slack and that my right hon. Friend's measures will, if successful, start to use up some of it. That is why I believe they could mark a new era in economic management in the United Kingdom.
The advantages which I see coming from the measures are several. First, they will have an effect on prices. They will lead to a slowing down in the rise in prices, but it would be foolish to expect them to stop prices rising. It is right to make a direct attack on prices in this way because there can be no doubt that the British people are worried about the rate of inflation. Yesterday's measures will, I hope, provide them with some reassurance that the Government have taken and are willing to take direct action.
Yesterday's measures will apply in two ways in particular, in the way in which they will affect prices. The first is the direct effect of the purchase tax reductions, and I need not say more about that. The second is that, by increasing demand and taking up some of the slack in the economy, overheads, which exist irrespective of the level of output, will be spread over a larger number of goods. This will lead to lower unit costs which, in turn, should have some effect in braking back rising prices, if not braking back prices themselves. In these two ways my right hon. Friend has made a real contribution to slowing down the rate of inflation.
The second effect of the measures, which appeals to me, is their likely result on employment, because the increased demand which these measures will bring will undoubtedly lead to some increase in employment, or at least to no further increase in unemployment.
I am very interested in the hon. Gentleman's suggestion that one of the things the new package deal will do will be to increase production and lower unit costs. Can he explain who so many of his Front Bench colleagues have for the last 12 years been telling us that the major reason for increases in prices has been increases in wage costs?
I am responsible for my own views, and my hon. and right hon. Friends are responsible for theirs. I have noticed that the hon. Member for Gloucestershire, West (Mr. Loughlin) does not always assume responsibility for the views of his right hon. and hon. Friends.
It is important not only to reduce the level of unemployment but to reduce the degree of under-employment. This is a very serious problem. It is not enough to look at employment and unemployment statistics on their own. Anyone with practical experience in industry knows only too well that there is a great deal of under-employment at all levels, and particularly at management and supervision levels. Quite naturally, when demand falls, or fails to rise, it is unusual, except when it is absolutely necessary, for firms to dismiss managers. They realise that in a few years time output will rise again, and if they are then short of management and supervision staff they will have to promote people prematurely.
There are a number of reasons why I am pleased that there should be at least a halt in the rise in unemployment. First, there is the social reason. I emphasise this because in our modern society we tend to think that because we give better benefits to people who are out of work, unemployment is somehow no longer a problem. That is just not true. One cannot get away from the demoralising effect of unemployment ; of able bodied people, willing to work, having to lounge about on street corners or hang about the house.
To make people feel unwanted in that way is to do immeasurable social harm which will have long-term effects far greater than the immediate short-term disadvantages of being out of work. Whatever may be the financial and other benefits given to these people, it still remains an affront to human dignity that a man willing to work is not able to do so because of the way in which we run the economy. I am glad that my right hon. Friend's measures will to some extent deal with this social effect.
Then there are the economic effects. There seems to me to be an extraordinary waste of resources, in a society which year after year calls for more goods and services, to have 750,000 people out of work now, or 600,000 people out of work when we took office last June. We want far more goods and services, and far higher production, and it seems very much better to have demand at a level that enables us to have more production and a higher level of employment.
Another effect of high unemployment is on restrictive practices. Restrictive practices first came into being because men were afraid—afraid of losing their jobs. They started to spread their work, and erected around themselves restrictive practices. It is universally accepted in our modern society that we want to get rid of restrictive practices, but we shall be able to do so only if we remove the conditions in which those restrictive practices first came into being. It is utterly ridiculous to suggest that a level of unemployment of three-quarters of a million creates conditions which are conducive to the removal of restrictive practices in industry.
I should like to make one final point about unemployment. For some years now we have seemed to be drifting to higher and higher unemployment—the same sort of downward drift that we had in the 'thirties, with the same excuses being put forward by clever people, but with the one difference that whereas people in the 'thirties did not know how to deal with this problem, today, since Keynes, we do know. So it is much less tolerable and defensible to run the economy at a high level of unemployment today than it was in the 'thirties, however deplorable it was then. My right hon. Friend's measures reverse this drift.
I turn to the effect of my right hon. Friend's measures on investment. He mentioned yesterday that it was likely that there would be a fall in investment if nothing were done, and if these measures had not been introduced. I do not believe in a high volume of investment for its own sake. Quality is obviously important—quite as important as quantity—but provided one gets good quality investment one also wants a high quantity of investment. I am very doubtful whether one gets that high quantity of investment by tax cuts or changes in allowances on their own. I gathered yesterday that my right hon. Friend shared that view. If tax cuts and allowances are to be successful, they must be accompanied by an increase in consumer demand. Business men will invest only if they expect demand to rise and, in due course, as a result of this, their profits to rise, too. They will not create more capacity just to have it sit idle.
The motor industry is a prime example of this. Here, Mr. Speaker, I must declare an interest, because I have been engaged in the motor industry for the last nine years. It is absurd to expect that industry to increase considerably its investment until existing capacity is taken up. Last week, in reply to a written question, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) told me that the total output of motor cars in Britain in 1970 was rather less than it was in 1964, yet in the mid 1960s the industry was engaged in a large investment programme to increase its capacity. Until such time as the demand for motor cars has increased, and increased substantially, the industry is unlikely to undertake a further great investment programme.
One of the great benefits to come from yesterday's measures will be a substantial increase in demand which will enable the British motor industry to expand in the same way as all the big motor industries in the Common Market countries—to mention only the Six—have increased in recent years.
The steps announced yesterday by my right hon. Friend will affect economic growth. I take the view that one will get fast economic growth only if one has the pressure of a rapidly increasing demand pulling out more and more goods and services from the economy every year. I have always believed that the great fallacy of Paishite economics was to keep the economy at such a low level that there was no pull on economic growth.
Economic growth in my view should be the principal aim of economic policy, because it is the means of increasing the real wealth of the country. There are subsidiary aims as well. I would certainly put balance of payments in that category, but I believe that one of the great tragedies of recent years has been the way in which balance of payments has been elevated to a position of seeming to be the only real purpose of economic policy. It is a legitimate aim of economic policy to maintain a sound balance of payments, but it is not and should never become the principal aim of economic policy.
My right hon. Friend's measures will also affect the Government's Common Market decision. I do not wish in any way to impinge on tomorrow's debate, but it seems to me that the measures are important as far as the Common Market is concerned for two reasons, though I accept, as my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, that the Chancellor of the Exchequer did not mention this yesterday.
In the first place, his measures will have a useful rôle in preparing public opinion at home. There is a certain opposition to Britain's entry, but I think that it is not so much opposition to the Common Market as such, as an expression of opinion by the people that unemployment is too high and that prices are rising too quickly. Yesterday's measures will have an effect on prices and jobs, which will appeal to the people and which will allow the British public to assess the Common Market on its own merits, and not on other considerations.
The second useful effect that the measures will have in relation to the Common Market is that if we are operating the economy at a higher level of activity, we shall have a strong economy and an economy which is better prepared and better able to take the advantages which will accrue when we join the Market.
I conclude by congratulating my right hon. Friend on the measures he announced yesterday. I congratulate him also on the flexibility that he has shown. I welcome very strongly the assurance he gave yesterday that he will keep the position of the economy under constant review. I do not consider it an admission of weakness for a Chancellor of the Exchequer to change his mind from time to time. As events turn out, it may be that forecasts are not precisely fulfilled. Therefore, it seems sensible that policies should be adjusted to deal with the situation when it changes. I hope and believe that, if in the Chancellor's judgment corrective action should be called for in the autumn, he will not hesitate to take it. At this stage we do not know, but it seems very important to me that a Chancellor of the Exchequer should have a very flexible attitude to the problems to the economy.
I agree with many of the points made by the hon. Member for Leek (Mr. Knox), but I find one or two of his points slightly puzzling and in contradiction to what was said by his hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). In his last remarks, regarding the connection between the measures announced yesterday and the Common Market, the hon. Gentleman saw some direct connection here, one upon the other. But the hon. Member for South Angus denied any connection and hoped that there would not be a connection between the one and the other. I leave the hon. Gentlemen to argue about that.
On prices, it is a considerable shift of opinion for hon. Members opposite now to accept that an aimed reduction in the rise of prices from 10 per cent. to 8 per cent. or 7 per cent. is laudable and acceptable. In the days before the election, when prices were running at a far lower level than today, a direct reduction in prices and "at a stroke" was the theme by the Prime Minister whereas today hon. Members opposite are quite prepared to regard a small reduction in the 10 to 12 per cent. figure for the last year as quite acceptable to the British housewife.
The economic measures before us and the Chancellor's attitude towards unemployment and redundancy are worthy of investigation, especially the Chancellor's claim that high unemployment, and a fall in investment together with redundancies that are being announced, is a direct result of wage-cost inflation. Most hon. Members opposite cheered the Chancellor consistently on this point.
I draw the Chancellor's attention to a recent survey carried out by the C.B.I. in Wales. The C.B.I. is not particularly a Socialist organisation by any means. About three months ago, both before and after the Budget, it carried out a survey of the investment intentions of 194 firms in the Principality. I will not go into all the various reasons why the survey showed that investment was falling, but I will give some of them later.
On unemployment and its relationship with wage-cost inflation, I quote a report on the survey in the Western Mail :
Somewhat surprisingly, the survey fails to confirm the view expressed by the C.B.I. itself and others that rising wages and labour disputes are major factors affecting industry's willingness to invest. These two factors
—which include wage-cost inflation—
… are at the bottom of the list of reasons singled out by firms in their replies as reasons for not going ahead with projects.
I trust that right hon. and hon. Members opposite in the future, when they claim a direct connection here, will prove their point by quoting firms. The C.B.I. in Wales say that there is no connection, and they are the lowest two priorities of many others it quotes.
Another point on this so-called connection, is the question of, why unemployment is highest in Wales and Scotland and the regions of England, where wages are lower than in the South-East, the Midlands and London. If it is the case that unemployment is the direct result of high wages, surely the South-East and the Midlands would be the areas in which unemployment would be highest.
In Wales the weekly income of 25 per cent. of households is £15 a week. In South-East England the £15 figure is for only 18 per cent. of households, yet we all know the difference in unemployment between south-east England and Wales.
The hon. Member for Leek and the hon. Member for South Angus also referred to the C.B.I. statement of intent. The hon. Member for South Angus laid great stress about not accepting this commitment at its face value. I agree wholeheartedly with what he said. But we are talking about a commitment made by 200 top firms. What commitment have the others made? I gather that the C.B.I. is to send them a letter. The Government will not control prices and tackle inflation by the Director-General of the C.B.I. sending a letter to every small firm in the country. They will have to do better than that.
What sort of monitoring of the C.B.I. commitment will take place? What sort of monitoring by the Government will be made on this issue? How will the monitoring compare with the monitoring which will be carried out on the nationalised industries? I can imagine that the nationalised industries will be submitted to severe monitoring if they dare go above the 5 per cent. But will the Secretary of State for Employment ensure that the same sort of monitoring is done on every private industrialist in Britain? What sort of monitoring will be carried out there?
The question of prices has become a major question. The reduction of S.E.T. and purchase tax has been claimed by hon. Members opposite as the gift that we have all been waiting for. They say that the halving of S.E.T. has made a remarkable contribution. I do not know how many hon. Members opposite bother to help their wives with the shopping. I do so, and I see no impact of the reduction of S.E.T. on the cost of living or on food prices. Nor does Mr. Len Reeves-Smith, Secretary of the National Grocers' Federation, who said recently, as reported in the Financial Times, that no dramatic decreases in prices should be expected. Mr. Reeves-Smith continued :
S.E.T., in relation to the whole overheads of a shop, is less than a half per cent. This means that a reduction in prices of goods generally would be a fraction of one new penny.
Is that the promise made by the Prime Minister before the election? Is that what all the housewives voted for, a reduction in prices of one new penny? Mr. Reeves-Smith continued :
I believe Mr. Heath is wrongly leading housewives to believe that they are going to save more on their housekeeping than they really will.
I can say no better than that. I leave the matter there.
I turn to regional policy and the impact of the Government's policies of the last year on the regions, the development areas and especially on Wales, which I happen to know more about than other areas of Britain. With the advent of this Government, and knowing what the Conservatives proposed to do if they won the Election, a great deal of confusion and chaos resulted in the development areas—vis-à-vis the incentives that would be available under the abolition of investment grants and the introduction of investment allowances.
Before June of last year many responsible economic commentators—professors of economics—in Wales and in the country generally predicted that the development areas were on the threshold of a new life. The Shell-Mex and B.P. Yearbooks for 1968 and 1969 praised the efforts of the Labour Government, with their development area policy and the new factories and new firms that came to Wales. One of the Yearbooks contained a long list of firms which had gone to the Principality because of investment grants. The Times said that "a decade of growth lay ahead for Wales" and that there were facts to justify this.
Yet since June of last year the opposite has happened. There has been despondency and the whole economic climate of the development areas, including Wales, has drastically changed. In June of this year there were 30 per cent. more unemployment—or 11,000 jobs—than in June of last year.
If industrialists were waiting for investment allowances to be introduced, one would have thought that with the advent of investment allowances industrial inquiries would have increased at a considerable rate. In the last half of 1970 industrial inquiries in Wales were at their lowest since 1967—that is, since investment grants began to take effect. In the last half of 1970 there was a 30 per cent. to 40 per cent. reduction in the number of inquiries by industrialists for sites in the Principality, compared with the same period of 1969.
As a consequence of all this, redundancies were announced week after week. I could give a whole list of factories that were closed, which abandoned investment programmes, or which abandoned expansion programmes. In the first three months of 1971, 7,000 men became redundant in the Principality, a figure very close to the annual average under the Labour Government.
The number of jobs in prospect for four years ahead decreased. In June, 1970, there were 30,000 jobs in prospect in Wales. A recent Parliamentary Answer revealed that the figure has fallen to under 25,000. Where have the 5,000 jobs gone? They do not seem to have come to the Principality.
In the last five or six months only half the number of firms came to Wales as came in the corresponding period of 1969. In 1969 24 firms, in 1971 only 12.
The number of jobs lost, the fall in the number of industrial development certificates, the fall in the number of industrial inquiries, and the increased unemployment, show clearly that the change in development area policy and the change to investment allowances materially affected industrialists' decisions. So much so that the Chairman and Chief Executive of Rio Tinto Zinc Corporation—Sir Val Duncan—is reported in the Western Mail of 8th July to have stated :
Without the Labour Government's investment grant the £50 million aluminium smelter on Anglesey would never have been built.
Sir Val went on to say that had the present Tory tax allowances been in operation instead of the grants
we would not have got started".
Hon. Members opposite may say that this is only one example. Unfortunately, this is not so. The C.B.I. survey carried out in March of last year on 194 firms in Wales showed that 52 firms had decided to cancel plans for investment and 34 per cent. of smaller firms had cancelled their plans. One of the foremost reasons given in reply to the questionnaire was that there was a change from investment grants to investment allowances.
It is easy to understand why. As yesterday when the Chancellor of the Exchequer again reduced the differential between non-development areas and development areas, so the change from investment grants to investment allowances also lessened the differential between non-development areas and development areas such as Wales. The discounted cash flow method is the method industrialists are encouraged to use when considering the viability of a new investment. The Secretary of State for Trade and Industry was recently asked to compare the advantages to an industrialist under the new system and under the old system, in a non-development area and in a development area.
The Secretary of State revealed in a Parliamentary Answer that, given an asset life of 10 years, under the new system from an investment of £100 an industrialist in a development area would benefit by £36·00. An industrialist outside a development area would benefit by £32·00. That is a differential of £4·00. Under the old investment grant system, an industrialist in a development area would benefit by £52·00. An industrialist outside a development area would benefit by £39·00. That is a differential of £13·00 per £100·00 invested. In other words, according to the Secretary of State for Trade and Industry, under the new system the differential has been decreased by 70 per cent.
Yesterday's announcement that for first-year allowances the rate will be increased from 60 per cent. to 80 per cent. in non-development areas compared with 100 per cent. in development areas is a further step in reducing the differential between non-development areas and development areas.
There is grave concern in the Principality about the future. The £14 million infrastructure boost, if it can be called that, which was announced by the Secretary of State for Wales in a Press statement and not to the House, will not go far to meet the basic problems of the Principality. Will the Government give a guarantee that that £14 million boost will go some way to balance the 30 per cent. increase in unemployment over the last year? To give £14 million with one hand and to withdraw £40 million—as it was last year—of investment grant in the Principality is not a particularly fair deal.
When last November I pressed the Secretary of State for Wales to carry out such a programme of public works he said that he saw no need to do so. Six or seven months afterwards comes this great announcement of what a good thing it is and what a boost it will be for the development areas. It is an admission that the Government have followed the wrong policy and gone along the wrong path. The trouble is that this coming winter the £14 million will have no effect on unemployment in Wales, any more than the other infrastructure will have any effect on the other development areas.
The abolition of investment grants was a major mistake. The N.C.B. cancelled its plan to build a plant at Abernant in West Wales. In a letter to my hon. Friend the Member for Gower (Mr. Ifor Davies) Lord Robens said this :
… the Government's decision to discontinue investment grants had put paid to our ideas.
That resulted in a loss of 600 jobs.
The Association of Rhondda Industries, in a letter to the Secretary of State for Trade and Industry last December said this :
The curtailment of investment grants will present difficulties to those companies who for one reason or another are only marginally profitable. We particularly have in mind relatively newly established companies.
In the development areas the new industries—the small industries which perhaps do not make a profit immediately and which depend on cash assistance in the first few years—are now in difficulty. This is where the redundancy and the unemployment comes from and not from the bogus wage-cost inflation argument of the Chancellor and his right hon. Friends.
The Chancellor's announcement yesterday will not fool the people of the Principality. Purchase tax cuts are one thing. Their effect on the cost of living and on pensioners in particular is another. I cannot see the pensioners of West Wales or even London rushing out to buy colour television sets as a result of the Chancellor's announcement. The announcement has failed to tackle the basic structural problems. It has failed to do anything to stop the mammoth rise in food prices, and it has also failed to tackle the problems of the development areas.
The Question before us is
That this House approves the Chancellor of the Exchequer's statement on Economic Measures of 19th July 1971.
Without doubt, what we are being asked to approve is a substantial new direction in policy and I think I would accept the rather dramatic description given to it by my hon. Friend the Member for Leek (Mr. Knox)—although I am not sure that I would have chosen his words—that we are embarking on a new era. I have an unhappy sense that we are returning to ground over which we have trodden some time ago.
However, there is no doubt that this is a significant occasion and it has possibly been on account of the absence of an Opposition vote this evening that the debate has proceeded rather more quietly than otherwise would have been the case. Undoubtedly, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) helped to contrive a punch-up with the Prime Minister on monumental irrelevancies so far as I could judge, although I can well understand that he has been under some severe pressure on account of his revisionism.
The hon. Member for Tottenham (Mr. Atkinson), who clearly opined that there was not going to be any punch-up, left the Chamber, which was a shame because he is usually able to give us a distinctive view of what should be the course of our economic policy. However, none of that should conceal from us that we are considering what I believe is a major statement of Government policy which will have long-lasting significance. The consequences of it, I suspect, will haunt us for months to come. It was delivered with great panache by my right hon. Friend the Chancellor yesterday, and I am certain that in all parts of the House there will be a general anxiety and hope that what has been announced will do much to restore and inspire business confidence.
If I may proceed in a mood of detached charity, I should like to say how much I welcome the relaxation of the hire-purchase controls as a major step in the implementation of the Crowther recommendations, and I think that for those of us who have a distaste for Government selective action, the implementation of Crowther is a long-overdue assignment with common sense in these affairs.
However, I think that the points which have given a special significance to yesterday's statement lie in two directions, and they have both been touched upon by hon. Members in this debate. First, there is the reappearance of that old and faithful friend we thought we had once lost—the prices and incomes policy—and secondly there are indications of a new direction of Government policy in respect of financing its own expenditures.
My right hon. Friend the Chancellor clearly takes some pride in the re-emergence of an incomes policy. May I quote from what he said yesterday, as reported in column 1038 of the OFFICIAL REPORT :
I am sure that the whole House will applaud the initiative of the C.B.I. and the response of the nationalised industries."—[OFFICIAL REPORT, 19th July, 1971 ; Vol. 821, c. 1038.]
I do not think that anyone listening to today's debate would assume that the House was responding today in accordance with the expectations of my right hon. Friend yesterday. There has been expressed from a number of quarters—not least from my hon. Friends the Members for Horsham (Mr. Hordern) and for South Angus (Mr. Bruce-Gardyne)—a considerable scepticism about the re-emergence of a prices and incomes policy.
I note also that the commentators are not entirely at one in welcoming what is now developing. The right hon. Member for Stechford quoted approvingly at one stage in his speech from Mr. Samuel Brittan, and I would cap it with a quotation from today's article by that gentleman in the Financial Times :
Attempts to establish a system of private law are … inherently objectionable.
I was delighted to hear my hon. Friend the Member for St. Ives (Mr. Nott) say that the whole thing is disgraceful.
My hon. Friend repeats it. I am sure that the whole House looks forward to hearing him consummate those remarks into a full-scale speech. He has well-documented views on these subjects and it is good to know that they have not changed.
Of course, there are those who hope that the prices policy of the C.B.I. will probably be not much more than a harmless effusion which might even have some electoral advantages in the short term, enabling one to go to one's constituency and make the speeches that people like to hear because they feel that inflation is something about which action must be taken and, lo and behold, action is being taken—not questioning the absurdity or otherwise of the action that is proposed.
In all parts of the House there is a welcome to the critical attitude to the C.B.I.'s proposals. I was pleased to hear the hon. Member for Carmarthen (Mr. Gwynoro Jones) pick upon the question of enforcement. It is not merely that 200 people are going to sign the declaration—one wonders who the 201st should be—but, picking out all those people who inevitably do not belong to a trade association or the C.B.I., how are they to be disciplined? By letter. This is policy by correspondence course. This would not matter if it were merely a part of the essential midsummer "silly season" for which every Fleet Street journalist yearns. But we already see one consequence—a consequence which was spotted by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) in an intervention that he made, confirmed by the hon. Member for Carmarthen—that the reality is that this so-called prices policy will bear much more heavily upon the public sector than it will upon private industry.
I believe that already there is ample evidence of an early harvest from this poisoned vine, namely, that the nationalised industries will be required to resort to the National Loans Fund because their prices will be kept down below what the market will bear, and indeed, the Chancellor could not have been more specific on this, and I make no apology for re-quoting his words, so that they can appear both on Monday and Tuesday, when he said that the nationalised industries
will be able to borrow from the National Loans Fund to finance investment programmes which, in the absence of the price restraint, would have been financed out of their own resources."—[OFFICIAL REPORT, 19th July, 1971 ; Vol. 821, c. 1038.]
I would like to suggest to my right hon. Friend that we have spent a great deal of time in the Tory Party trying to establish the principle that it is much more
desirable that nationalised industries should aim as near as possible at the commercial practice in the private sector and that it would be to the advantage of the managements, and above all of the workers, in those industries if they could get what the market would bear, rather than have the prices of their products politically manipulated. But make no mistake, the effectiveness of "policy-by-letter" will be considerably greater in respect of the nationalised industries than it will be for the amorphous private sector.
However, the major test by which my right hon. Friend's policy and measures must be judged will be whether they intensify the inflationary situation with which we have been uncomfortably learning to live the past 18 months. Indeed, one of my hon. Friends—it was my hon. Friend the Member for South Angus—spoke about the creation of a head of steam for 1972 and 1973. These are unhappy analogies if they bear any truth at all, because they foreshadow no diminution in the inflationary pressures but rather their intensification.
Of course, it brings us back to, I suppose, the basic philosophic contention as to what is the prime cause of inflation. There is a disposition, and it is widely held, to think that it is caused partly by the rapaciousness of business tycoons, or, alternatively, by the insensitive greed of British trade unionists. I do not subscribe to that theory. I believe that basically inflation is a monetary phenomenon and that monetary policy holds the major key to its containment, and I do no more than echo the words of my hon. Friend the Member for Horsham. I realise that very often the Government may feel that within society there are dynamic and driving forces creating demands the satisfying of which require the Government to be somewhat more inflationary than they would otherwise wish to be because the denial of those demands might lead to social dislocation or social anarchy or discord on a scale which would be wholly unacceptable. I do not comment on that at the moment but only say that over the last 18 months to two years I think the House has had chances to consider what I believe to be the two major elements in money supply, which, I think, lie at the root of that phenomenon we call inflation.
First, there is the inflow of foreign funds and the extent to which that may be a factor. Secondly, there is the way in which the Government finance their own public sector expenditure. I want to spend a very brief time considering both.
As for the inflow of foreign currency, a good deal has been spoken and written on this subject, and I move on to it with great discretion in the presence of my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) who has probably given more time and study to this subject than anyone else in this House. The question which I should like to address to my right hon. Friend who will be winding up the debate this evening is, what is the expected effect of these measures upon the inflow of foreign currency? And, more particularly, will the foreign debt repayment of £256 million contained in the Chancellor's statement actually reduce the currency flow by that amount?
I must confess that I join here with the hon. Member for Cornwall, North (Mr. Pardoe) of the Liberal Party in commenting that the entire package has certain implications for the exchange rate of which the Government's determination to maintain sterling at a fixed rate at its present parity is I think the first of those consequences which I had in mind when I said that the decisions of yesterday would live to haunt us in the months to come. Therefore it would be helpful, perhaps, particularly in the light of the negotiations which have been concluded with the E.E.C., to know that it remains Government policy to maintain sterling at a fixed parity and that they have ruled out any question of devaluation.
It is most important that we should know this, because the whole of the figures in the Government's White Paper on entry into the E.E.C. are based upon the assumption of the present rate of exchange, no devaluation, and no floating. Is there anyone on this side of the House, or indeed on that side, who believes that as a result of the measures which were announced yesterday there cannot at some time in the future be a greater strain on the balance of payments than there would otherwise have been? I doubt whether anyone could answer that with any degree of certainty. Therefore, I think an answer to that point would be most helpful to the House in the consideration of the issues to which we shall have to attend in the coming months.
I now mention the second point, which was, the Government's method of financing domestic public sector expenditure. For all the old hands of this debate this was the major source of inflation for many years. The phenomenon of the balance of payments surplus is fairly recent. Therefore, when I said at the beginning that I thought we might be not so much moving to the new era of my hon. Friend the Member for Leek, but, rather more, returning to the old familiar territory, it was this consideration that I had primarily in mind. For what do we now know? We now know since the Budget that the Government have proceeded substantially in increasing public expenditure. I do not mean just the £100 million of the winter works. I am thinking also of the authorisation of the capital expenditure programme of the steel industry which we know remains untouched as a result of yesterday's decisions. We know also that there are to be substantial reductions in tax rates. We know also that, until now, the Government have leaned heavily upon the willingness of the public to save money for the Government. Indeed, my right hon. Friend the Chancellor, in dealing with this question of money supply, said yesterday :
Although my proposals will increase the public sector's borrowing requirement, the package as a whole should not require a substantially faster growth of money supply.
Pray tell us what is "substantial"! He went on :
but so far the authorities have been very successful this year in selling gilt-edged and national savings to the public."—[OFFICIAL REPORT, 19th July, 1971 ; Vol. 821, c. 1044.]
None would deny that ; certainly my hon. Friend the Member for Horsham very properly paid full attention to it.
But is it the proposition that yesterday's package is to increase the disposition of the public to save and to lend to the Government, or to spend? What are the hire-purchase arrangements all about? What are the cuts in purchase tax all about? Why is there the emphasis on a consumption-led expansion? I cannot believe that my right hon. Friend can be as sanguine about the future willingness of the public to lend to the Government as they have shown themselves to be in the recent past.
So we come to consider some rationale for this interesting package which was delivered yesterday. My hon. Friend the Member for South Angus has an endearing and long-lasting innocence which I attribute to his having once served in the Foreign Office, for only the naïve would assume that these measures were wholly unconnected with the application to join the Common Market. No major enterprises are ever launched or executed without some sense of gamble and some determined recklessness. What we have seen is a major exercise in political fine tuning. We are entitled to have the severest doubts about the economic consequences of these measures. I will not be mealy-mouthed about this : I have considerable doubts, and I am happy to place them on record.
It is always a pleasure to listen to the hon. Member for Oswestry (Mr. Biffen). I have enjoyed his speeches for a number of years. Although I do not always not agree with all that he says, what he says is said as it should be—lucidly and reasonably. There were some comments tonight with which I found myself in agreement. I agree that the recent actions of the Government, and particularly the package deal of yesterday, are a complete change of policy.
I understand why they need a complete change of policy. They have now been in power for 12 months, having come to power with an apparent prime intention of entirely changing the economic policies with which the country has proceeded for a number of years. They came to power on the basis of a reduction in public expenditure, a system of reliance on market forces, of standing on one's own feet, and of not giving succour to lame ducks. The policy which they have pursued over the past years in practice has been disastrous.
On any subject, prices or unemployment, or social or economic defects, the only chorus from hon. Members opposite for the past 12 months has been, "Ah, but that was the fault of the Labour Government". According to them, a 10 per cent. increase in food prices in 11 months was the fault of the Labour Government.
None of us on this side had any illusion about the degree of inflation facing the country in the last two or three years, but hon. Gentlemen opposite know as well as we do that every industrial nation has been faced with a similar problem. Prices went up because the Government regularly gave a clear go-ahead to those who wished to put them up.
We have had frequent references to the selective employment tax and my hon. Friend the Member for Carmarthen (Mr. Gwynoro Jones) mentioned it tonight. It was criticised as the most onerous burden ever placed on the distributive industry. When I was Parliamentary Secretary to the Ministry of Public Building and Works, my right hon. Friend the Member for Deptford (Mr. John Silkin), who was Minister, and I asked the building industry in formal discussions and in private conversations whether, if we were able to persuade the Treasury to remove S.E.T. from the industry, the industry could give an assurance that the prices of houses would be correspondingly reduced. No such assurance was ever given. S.E.T. has now been reduced by 50 per cent., but there has been no reduction in the price of one house. Right hon. and hon. Gentlemen opposite constantly argued that if S.E.T. were reduced, food prices would go down.
The hon. Gentleman should remember that I followed the Leader of the Opposition in the Budget debate when I said that I did not believe that food prices would come down as a result of the cut in S.E.T. The hon. Gentleman, too, is in distribution, and he knows that we now have equal pay in distribution and that that is the balancing factor against the S.E.T. cuts.
I am glad that the hon. Gentleman was shaking his head only to show that he was agreeing with me. In the small circle in which I mix when people agree, they nod their heads.
S.E.T. was reduced by £1·20 per male employee in self-service shops. I am a bit rusty about these figures and with his great experience—I think that the hon. Gentleman introduced the first supermarket to this country—he may be able to help me. Each male employee in a self-service shop represents a turnover of about £200 a week.
Even in the non-self-service area it must be about £150 to £160 a week. If we take into account all the supporting services available to the individual employed in the shop and boost the sales to make allowance for the services at £120·00 per week per male employee, this allows the shopkeeper to reduce his prices by the magnificent sum of 1p in the £1 of sales.
The hon. Gentleman asked me for my help, and I am willing to give it. It is far better and easier to quote the percentage of sales users as expressed in wages absorption. This is always the same no matter what the prices may be. The price increases over the last year, taking the same percentage of profit, account only for the wage increases in distribution.
I do not want to go into technical terms, but in this House when dealing with something with which we are intimately concerned we try to make it as simple as possible.
Now we have a further package in the shape of the Chancellor's statement. I do not know what effect this will have on the inflationary situation. There is a photo survey in tonight's Evening Standard in which all those interviewed recognise that what the Chancellor is doing in this package is to reduce the price of those goods which are bought only now and again. The interviewees say that it would have been far better had the Government taken action to reduce the prices of foodstuffs.
I do not know what the price reductions will be. We have seen time and again in so-called price reductions of this kind that there is an immediate advertising campaign to attract a slice of the cake of consumption, giving the shopkeeper the opportunity to advertise large price reductions or reductions as large as the amount allowed by the cut in purchase tax. It is remarkable that within a week or two of price reductions those same prices seem to revert to their previous level. There may be very good reasons for this, but I have a sneaking suspicion concerning the speed with which prices revert to their original level following reductions.
I think that a lot of nonsense is talked about price reduction. Let us take for example colour television, to which my hon. Friend the Member for Carmarthen referred. He spoke about his pensioners not buying colour television. Even if a person is not a pensioner and buys a colour television set for £250, this latest tax reduction will make the set cheaper by £9·50. The sum of £250 is not an amount that is spent every day of the week, and if we go through the list of things which will fall under the tax reductions we shall find that, with the exception of one or two items—for instance, a dozen bottles of "pop" on which 2p would be saved—the majority of items where there is anything like a reasonable cut in price are items that are bought, not every year, but once in four or five years.
The hon. Gentleman mentioned that what he would like to have seen was a cut in food prices. Is he arguing that S.E.T. has little effect? Is he aware that world commodity prices play an important part in food prices? Can he enlarge on what he means?
The hon. Gentleman did not quite hear what I said. He will recall that when I referred to food prices in the context in which he has referred to them, I meant the photo survey done by the Evening Standard. What I said was that everyone interviewed in this survey said that they would have preferred a reduction in food prices rather than in other things. The hon. Gentleman is attributing to me something I did not say.
The point I am making is that the general public ought to get clear in their minds what the tax remissions on this occasion are about. I am not sure that I want to see an extension of hire purchase. I know that the hon. Member for Oswestry will not agree with me on this, but I am not puritanical. I appreciate that hire purchase and credit has a rôle to play in society. There are many people who, but for hire purchase and credit, would have to forgo the enjoyment of things they want. But I am not sure that it is a healthy kind of society that allows the extension of hire purchase to the extent permitted under these new proposals. There are elements in our society who will take advantage of this to the fullest extent, and they can be persuaded to overcommit themselves.
I have mixed feelings about the ultimate benefit of the proposal to eliminate the deposit on items bought under hire purchase and also the extension of the period of repayment. I hope, however, that in view of the employment situation this package will give a boost to production and thereby increase employment.
I hope that that will happen for a number of reasons. First and fundamentally, I hope that it will happen because I believe that the person who is unemployed suffers not merely physically but mentally, too. I have never subscribed to unemployment, but there is an additional reason why I hope that the right hon. Gentleman's package will have some effect. Today, we have nearly 800,000 unemployed. However, that figure is not entirely accurate. As the Secretary of State for Employment will confirm, there are substantial numbers of women workers who, by virtue of not being entitled to draw unemployment benefit, pay only the industrial injuries stamp. As a result, when they become unemployed, they do not bother to register at labour exchanges. My guess is that there must be about 60,000 women workers who have become unemployed and who are not registering at labour exchanges.
Another factor is that, with the high level of unemployment and the possibility of an increase immediately that our seasonal workers cease to be employed in the middle or at the end of September, we shall reach an extremely dangerous situation in industry. Growing up in industry after industry there is the attitude of mind among people working in factories which asks, "Why should we cooperate in productivity schemes when we are simply working our mates out of jobs and may be working even ourselves out of jobs?" If we are to have the kind of industrial relations which are beneficial to Britain as a whole, it is imperative that action is taken by the Government to ensure that there is no further escalation of any kind in the unemployment figures. If this package does not work, the Government will have to face the fact and take other measures.
The hon. Member for Oswestry links this package with the Common Market. What the Government are doing is to trigger off the boom that they want. The package will wind itself out in the middle half of 1972. Right hon. and hon. Gentlemen opposite will be able to have a General Election in October, 1972, because they know that, once they get us into the Common Market and have to introduce the V.A.T. in January, 1973, their chances of retaining power will have gone completely.
That may sound a little far-fetched. I notice that one or two hon. Members opposite are smiling. That may be because they think that what I have said is far-fetched. However, I would not put anything past right hon. and hon. Gentlemen opposite. They have their eyes on the effect of the Common Market on their chances of winning the next General Election. That is why we have seen these packages trickling out of the Treasury. After all, it would not be the first time : right hon. and hon. Gentlemen opposite won election after election having "conned" the people by giving a boost to the economy, getting everyone thinking that all was well, and then taking it all back immediately that they were returned to power.
Perhaps I might refer briefly to the C.B.I.'s offer to make no price increases in excess of 5 per cent. Like the hon. Member for Oswestry, I am sceptical about the ability of the C.B.I. even to ensure that the 200 firms which have subscribed to the letter of intent keep down price increases below 5 per cent.
I am extremely concerned about the effect on the publicly-owned industries. In the 12 months that right hon. and hon. Gentlemen opposite have been in power, their attitude has been that the nationalised industries should stand on their own feet, use their commercial judgment in every way, and make a fair return on their capital. It is not so long ago that the British Steel Corporation proposed to increase its prices. Its prices were almost the lowest of the European steel producers. The increase that it wanted was the only way that it could see whereby it could fulfil the obligation imposed upon it by the Government to make a fair return on its capital. It did not get the increase that it wanted. The Government reduced it by 50 per cent. In other words, to begin with, the Corporation was 7½ per cent. down.
Now there is to be compulsion on the nationalised industries. As the hon. Member for Oswestry said, there will be correspondence for the 200 firms who have signed the C.B.I. letter of intent and for the other firms in the private sector. For the nationalised industries, there will be compulsion. In practice, that will mean not only that the British Steel Corporation has lost half the increase in prices which it felt to be necessary to meet the target demanded by the Government. In addition, it will not be able to recoup any additional costs, external or internal, other than the 5 per cent. to which it is to be limited.
Who is to pay? It is all very well going to the National Loans Board. In the end, who will pay? The probable consequence of the Government's action is that the nationalised industries will be driven into a position where they lose money. If that happens, right hon. and hon. Gentlemen opposite must not be heard saying that here is a classic example of the incompetence of nationalised industries. That would be against every canon of justice. If the nationalised industries were put in a position where they could do no other than lose money, it would be a negation of every principle of justice for the Government then to criticise them because they were losing money.
I think that these measures have been introduced for one of two reasons : either, as I suspect, the Government are trying to get the ball rolling for a snap election in October, 1972, which may well be the case, or, if not, they have panicked because they have seen the utter futility of the policies which they have pursued over the last 12 months and they are frightened men.
I do not believe that the hon. Member for Gloucestershire, West (Mr. Loughlin) is right when he says that the Government have panicked. I am sure that they have not. Nor is he right when he says that they are introducing these proposals because there will be a snap election in October, 1972. I should be delighted if there were an election, because I am certain that we would win. It would not matter when an election was held.
As for the hon. Gentleman suggesting that the election will not be after 1973 because the cost of entry into the Common Market would be so high, I suggest that he has not yet read the White Paper and that he should now do so. He will then see that spread over five years the initial effect of entry on prices will be minimal and marginal, to put it at its lowest.
That is not the point of the debate. The point is whether the measures announced by my right hon. Friend the Chancellor are correct in present circumstances. I was interested to hear my hon. Friend the Member for Oswestry (Mr. Biffen). He is certainly consistent in his views and advocacy of the philosophy of his economic theory. However, he was a little harsh in some things he said, although he echoed some of the anxiety we all must feel in present circumstances. I do not believe that my hon. Friend got it the right way round. He was speaking as though the 5 per cent. statement by the C.B.I. caused the chain reaction of the Government coming forward with their proposals yesterday. I do not believe that this is so. I believe that the decision to introduce these measures, which I welcome, was rightly taken before the C.B.I. statement.
In his argument, my hon. Friend did not say whether he accepted that the level of unemployment, about which my right hon. Friend was talking, not coming down in the coming winter months was acceptable or not. Nor, given no touch on the accelerator, did my hon. Friend say whether he accepted that a level of investment which does not reach expectation is adequate. I gather from what my hon. Friend was saying that he would be prepared, in the interests of the parity of his economic theory, to accept a level of unemployment of 1 million in January or February next year and to have a falling level in industrial investment this coming autumn and winter with the obvious consequences which will follow at a later stage.
I am not prepared to accept that situation. It would not be tolerable. It was absolutely essential for my right hon. Friend to take measures to deal with it. We are discussing whether these are the right measures. I believe that they are, though I accept, as my hon. Friend the Member for Oswestry said, that there is an element of risk in them. I believe that my right hon. Friend has gone to the limit, consistent with security or caution, in dealing with this issue.
I think that to reinflate the economy by removing hire-purchase restrictions and by lowering purchase tax is a calculated gamble which it is necessary to take. I should have opposed it if at the same time there had not been measures to increase the level of industrial investment. This, to my mind, is of the most crucial importance. I had my doubts, until I heard my right hon. Friend today, whether the balance was fair enough and whether it would not have been better to have increased the level of inducement for industrial investment—by perhaps cutting corporation tax—and held back inducements for consumer demand spending. But I accept the arguments that the two go hand in hand ; and if we are to bring in the third element, the trade unions, then this was a necessary balance.
I think that the main point is the industrial investment inducement. Will the 20 per cent. increase be sufficient to get industry moving forward to raise the level of investment? In itself it will not, but combined with the other measures I think that it will.
Industrialists to whom I have talked in the Midlands and East Midlands want to be able to view the future with confidence. They want some form of stability in the level of business and industrial activity in the coming months. The less Government interference they see, the more pleased they will be. I believe that the Chancellor has struck about the right level of inducement here.
I was a little disappointed about the anomaly concerning free depreciation in the development areas which applies only to the service industries. One of the most retrograde steps which the Labour Government brought in was the discrimination between manufacturing and service industries. I welcome the fact that we have moved some way along from there by removing this discrimination in the development areas. I wish that my right hon. Friend had gone further and extended it to the intermediate areas, if he was not able to extend it to cover the whole country. This affects mainly the hotel and catering industry which is of particular interest to me, representing Derbyshire, West.
It is not only for that reason that I hope that my right hon. Friend will move along this particular road as quickly as possible. One thing which has worried me since we took over from the Labour Government has been the shake-out which has taken place throughout industry. People have been laid off all over the country, and the extra fat—an unpleasant way of putting it—in many industries has been shaken out. Now that this stimulus has been given to the economy we must make sure that we get a reactivating and reinvigorating of our industrial machine. But it will not take place on the same pattern as before. If industry gets going again, as I am sure it will, and the unemployment figures steady and then begin to drop, I do not believe that the slack will necessarily be taken up in the same places or in the same industries from which it has been sloughed off over the past months. Nor will it happen necessarily in the same areas.
I must make one criticism of the Government. There has not been enough effort concerning retraining. Nor do I believe that the industrial training boards are doing enough. Retraining will be crucial during the coming months. Of course there will be a reinvigoration and reinvestment at a high level, but I do not believe that we are in a position to take up the slack in the unemployment labour market as quickly as will be necessary.
Several hon. Members, including my hon. Friend the Member for Oswestry, have spoken of the voluntary prices and incomes policy. My hon. Friend asked in ringing terms whether we were going back to a prices and incomes policy, which, he thought, had gone out of the window. Various hon. Members, including the hon. Member for Gloucestershire, West, said that for the private sector it would only be a question of correspondence and of paper flying between the C.B.I. and industry, whereas for the nationalised industries it will be a very different matter. It is extraordinary how nowadays everybody seems to assume that no one is telling the truth and that no one is honest or has any honour. It is assumed that if someone says that he will do something, he does not mean to do it.
The C.B.I. will send letters to 200 leading companies asking them to say that, if possible, they will keep their price rises to within a limit of 5 per cent. My hon. Friend the Member for Oswestry asked how this would be enforced. I do not believe that enforcement will be necessary. If a board or a chairman signs a document saying that he will do this or will use his best endeavour to achieve it, he will do so. I would accept his word and take him to be an honourable man. That, surely, is how one should view matters. From this side of the House, one does not automatically assume that everyone will double-cross and go back on his word. Hon. Members opposite may think so, but I do not. I believe that when people say that they will play their part, given that the conditions in which they say that they will do so are fulfilled, if the Government play their part and the trade unions for their part use their best endeavours to do the same, I see no reason to doubt the word of 200 gentlemen or boards who give their word.
I now come to the public sector. My right hon. Friend the Chancellor of the Exchequer said that the nationalised industry chairmen had agreed to accept this voluntary restraint. The question one must ask my right hon. Friend is, when those nationalised industries go to the Public Works Loan Board for money for their investment, which otherwise they would have obtained mostly from their own generated money, what criteria will be used by the Treasury or by the Government in examining those requests for public loan sanctions? What will be the criteria and what will be the priorities in this sector when the nationalised industry chairmen go for their investment needs? We should know this.
I support what the Government have done and the proposals which they have brought forward. I believe that they are in the interests of the country as a whole. What nauseates me is listening to right hon. and hon. Members opposite in their hypocritical attacks on my right hon. Friends for not bringing down prices here or not lowering the cost of that when, during their own entire term of office, they raised taxes on every occasion. Taxes went up to a higher extent than has ever been known. There was more interference by the Government in industry, private and public, than ever before. It was no strange fact that at the end of those six sorry years, the state of the economy in June, 1970, was parlous.
If the hon. Member for Gloucestershire, West, who was partly responsible for it as a junior Minister, does not realise the mess that the economy was in and that during his party's term of office taxes invariably went up and we were the highest-taxed nation in the Western world——
As the hon. Member knows, we have been over this ground many times. The figures are there to be seen in O.E.C.D. documents if he wishes to delve and dig them out.
I believe that the Government's measures are right. There is, of course, an element of risk in them. I believe, however, that they are right to get the economy moving along at the right higher growth levels, and I support my right hon. Friends in the action they are taking.
I was happy to be able to agree wholeheartedly with at least two statements made by the hon. Member for Oswestry (Mr. Biffen) at the start of his speech. He said that the package of measures announced yesterday represented a change of policy on the part of the Government, and I agree wholeheartedly with him. Indeed, I might put it even stronger and say that it recognises the need for almost a different philosophy.
The hon. Member also said that the debate had been quiet and I agree with him. It is none the worse for that. The hon. Member was, however, a little less than fair to my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) in accusing him of starting a shooting match with the Prime Minister. I was reminded of a former distinguished Member of the House and a former Prime Minister, the late Sir Winston Churchill, who was supposed to have sent a dispatch to the effect that the natives did not hesitate to retaliate when fired upon. I feel that my right hon. Friend was responding to the rather childish challenges of the Prime Minister.
I have looked at this package of measures in the perspective of the much greater economy of which they represent a comparatively small part. A few weeks ago, during a debate on Welsh economic affairs, I had the opportunity of reminding the Welsh Grand Committee that we are celebrating this year the bicentenary of the birth of an illustrious Welshman who differed profoundly and to some purpose from the accepted economic doctrine of his day.
I put the startling point to the Committee that Robert Owen's visionary rejection of the laissez faire doctrine at the turn of the eighteenth century would have been equally apt applied to the economic doctrine pursued by economic Ministers of the present Government. All of them could have sat happily at home in the Westminster of 170 years ago.
The failure of the market economy in the context of the modern world can be seen very clearly in terms of a nation like Wales. The Welsh economy is a relatively simple one, still relying largely on traditional resources, uncluttered by innovatory knowledge-based resources, depending a great deal on Government assistance. It therefore responds vividly and directly to whatever kind of economic steering or drift happens to be in the ascendancy.
I tried to show the Welsh Grand Committee that the former geographical key determinants in Wales—coal, iron ore and slate—were no longer with us and that, for example, if the great steelworks of Llanwern, Shotton and Port Talbot were to be surrounded by mountains of the best quality coking coal and the highest-grade iron ore, the steel industry's problems would remain as acute as ever.
The message was that no longer is it a bountiful mother earth who gives sustenance ; instead it is the directed inventiveness of technological man. Research and development—R. & D.—are the new key determinants, and they are very expensive determinants indeed, as I have no doubt Rolls-Royce would be only too ready to testify.
The point that I was trying to make to the Committee was that if the Welsh economy, simple as it is, is left to the caprice of free natural enterprise, if the organised collective will of Government is to opt out, that economy is doomed, and it is precisely the point which Robert Owen had grasped 170 years previously. Instead of leaving the market forces of nature to operate free and uncontrolled in the economic field, Robert Owen held that they demanded conscious and deliberate regulation in the common interest.
Unfortunately, our flat-earthers are still with us. I say "unfortunately" because they are now in Government, and the most worrying feature of this Government's policy is their outmoded belief in the allegedly salutary correctiveness of brute High Tory doctrinal influences like high unemployment rates, or ex-cathedra legal injunctions prohibiting strikes, or the shooting down of lame ducks.
Britain's failure since the war to reconcile the apparently conflicting demands of economic growth, full employment, a satisfactory balance of payments, increased capital investment, prices stability and rapid increases in money incomes has resulted in an atavistic reversal by the Government into the truest Tory stance since Neville Chamberlain, presumably in the belief that we all need shock therapy treatment. But Neville Chamberlain, misguided man that he was, surely stood more attuned to the socio-economic situation of his day than the Government's utter misreading of the modern situation has allowed them to do today.
It is not merely that a total belief in the force of the market as an effective economic control is laughably simplistic. The fallacy of this belief soon forces itself on to even the most pigheaded, as it has forced itself on to the Government, as we saw from last night's package. The Government, for example, have now had to back-track into an economic interventionism comically wrapped up in the most tortuous ideological deviances like the potential free gift to the shareholders of the insistently free enterprise Harland and Wolff.
The need for an accommodation with the unions about incomes is beginning to dawn on the Government now that the shock treatment clearly has not worked. They are now starting a crash programme of road works in the regions which would have done credit to Stanley Baldwin. And yesterday we had a batch of measures, large enough to merit a Budget to themselves, which the Government in their elemental frame of mind will no doubt regard as fine tuning, and which the hon. Member for Oswestry thinks is on the European waveband, and I am inclined to agree with him in that respect.
It is not merely that this simplistic approach has predictably had to be jettisoned. The forced acceptance of a modicum of economic planning by the Government so that at least the rudiments of a healthy economic environment might be secured was, of course, inevitable, and the scale of the reversal in policy simply reflects the crudities of the initial outlook.
But there is a more insidious and deep-seated danger in that the hidebound doctrine of a Right-wing Government is so at variance with social trends that essential and major policies which depend on social acceptance for their workability—prices and incomes is the key one—have been pushed further and further away from the bounds of the practicable.
In brief, the Government, who can pick up as they choose, as they chose yesterday afternoon, with more, or less, finesse a variety of economic planning tools, cannot so readily pick up or set down a social engineering policy, and since the immediate problem facing us in this classical situation of liquidity preference is the socio-economic one of confidence, and since the long-term problem is one of social economic participation, with the unions, for example, co-operating voluntarily in agreed intelligent policies, the social engineering content of an economic policy is paramount, and the measures announced yesterday must assume their relative importance within the context of this very much bigger issue.
In a highly interdependent industrial society, where labour with its sole prescription to knowledge and its high innovatory potential is now the dominant factor of production—or, if one likes, in an industrial nation which has to live by its wits, and by the wits of all the people in that nation—the old hierarchial, stringently authoritarian structure cherished by classical Toryism and by this Government is clearly outmoded.
It is worse than useless for the Government to attempt to shore up this old social and industrial structure which has been in the process of toppling over into a lateral structure for the last few years. For example, the Government were wrong to believe that an incomes policy was to be attained by a dose of unemployment rather than by seeking an intelligent commitment of all partners in the national enterprise. Stagflation has put paid to that theory.
The Government were wrong to believe that industrial relations were to be put right by down-the-line applied injunctions, backed by the mighty forces of the law. Clearly, they said, strikes were the result of union indiscipline. A cool look at the inconsistencies and complexities of the Government's industrial relations legislation, which is now accepted by all dispassionate and knowledgeable observers as unworkable and irrelevant, disposes of that one.
Again, lame ducks were to be allowed to die a natural death, to rest undisturbed by any considerations outside the narrow ones of a balance sheet. The sick bodies of Harland and Wolff, U.C.S. and Rolls-Royce keep on heaving to dispose of that one.
All these attempts to shore up the old structure point out that the whole question of the social engineering content of any competent economic policy has been completely misunderstood by the Government, and the damage done during the last 12 months to what was already the weakest aspect of Britain's economic health is immeasurable.
The initiative of the C.B.I. in the prices field, which clearly is to be welcomed if only as a declaration of intent—and I think that it will probably be no more than that—is already being looked upon from many of the quarters that matter most with eyes jaundiced by the economic history of the last 12 months.
The confidence of workpeople, not merely that of investors, the confidence of Britain has been so seriously weakened by the Government's backward-looking stance that it is no longer a question of a touch on the accelerator, even in clodhopper terms of £1,400 million at a time. It is the easiest thing in the world to have a stop-go economy. We have all long since learned all about that. What we now need is a reappraisal, not merely of the Government's policy, but of the whole fundamental philosophy about social participation in economic steering—and all that it implies about the merits or otherwise of Government by intelligent persuasion or Government by market diktat.
I believe, together with every other sensible citizen, that we need to reject market economies and the social antediluvianism which goes with it—a need understood by my compatriot of 170 years ago—and I fear when I look at the Government, that it is our sorry misfortune in Britain today to have to wait for a General Election so that our people will have the opportunity to affect that philosophic reappraisal and will ram home the message as decisively as I know they will.
I shall not attempt to follow the hon. Member for Wrexham (Mr. Ellis) although I should love to have a debate with him in front of an audience to find out whether he or I was the flat-earther. I believe that the Government have things about right in terms of market economy. They are not laissez faire. Nobody can maintain a position of being a laissez faire economist today. I invite the hon. Member to read the latest paperback from I.E.A., written by Samuel Brittan, which talks about market philosophy.
I do not altogether agree with my hon. Friend the Member for Oswestry (Mr. Biffen). He is an academic market man and I am a market-place market man, if there is such a thing. I do not regard the Chancellor's initiatives yesterday in quite the same light as does my hon. Friend, but before I go into that question I want to take up some of the points raised by the hon. Member for Gloucestershire, West (Mr. Loughlin). He talked about food prices. Half our food is imported, which means that this Parliament and this Government, like the last Government, has little control in the matter. In the days of Empire we might have been able to tell other nations what they should do, and perhaps we did so, but today it is silly to pretend that this Chamber and this House can organise food prices.
I sympathised with the Labour Party when they were caught out by the first rise in the price of coffee and tea for 14 years, and I hope that hon. Members opposite will sympathise with this Government for being caught out by the first rise in the price of butter for ten years. Only last week I discovered that my wife did not know that the cheapest brand of butter was cheaper than the dearer brands of margarine, and has been so for ten years. There is a freak shortage of butter, and a worldwide shortage of protein and meat.
The hon. Member for Gloucestershire, West made great play with the argument that purchase tax cuts would not help people. If he had taken note of the figures produced by his Government and this Government he would have realised that whereas 25 per cent. of the domestic budget in the average household today represents food, 10 years ago it was 30 per cent. In my opinion it will be about 20 per cent. in ten years' time.
Purchase tax will have an effect on food prices. Hon. Members seem to have missed the fact that for several years the Financial Times has had a grocery prices index. Apparently its representatives buy the same products from a variety of stores and then produces the index. This month the index went down. Moreover, the Financial Times expects it to go down next month. That fact seems to have escaped many politicians.
The hon. Member for Gloucestershire, West suggested that there were some mysterious methods by which we could reduce food prices, but when he was tackled about it he did not tell us what they were. In my opinion the only method—and it would be electorally unpopular with shopkeepers—is to give planning permission for out-of-town shopping centres.
I do not deny that vegetables were concerned—mainly new potatoes. But milk increased in price, which made sure that the index did not drop as much as it might have done. That sort of thing happens at this time of the year. But there has been a diminution in the rise in the price of manufactured foods—foods in cans.
Those Members who expected huge cuts in food prices as a result of the cut in S.E.T. were sure to be disappointed. That tax amounted only to ½p in the pound on all food products, and the Government cut off ¼p. [Interruption.] That is all right. I said this in April, immediately after the Budget, in this Chamber. The newspapers were looking for specific cuts. Tesco's and Sainsbury's have been delighted to pitch in and grab the free publicity deriving from the thought that they were making cuts. During the last few months wage increases in the distributive industry have made sure—especially with the coming of equal pay—that the cuts in S.E.T. would be of little effect.
A number of grocery chain stores cut their prices after S.E.T., in a great blaze of publicity, but the hon. Member may be interested to know that Tesco's has increased some of its prices this morning, and has given the excuse that the reduction was only a special offer for a few days.
I accept that. The multiples tend to advertise price decreases, but they never put up a notice saying "Eggs up this week". I accept that that is part of merchandising, and is designed to attract customers. I would not have any part in the suggestion that S.E.T. resulted in cuts in food prices. But that does not apply in the case of purchase tax. There will be cuts in that respect, because that tax is imposed directly on goods.
I now turn to some of the positive things that have pleased me about the Chancellor's initiative. I have been writing to him since 23rd June suggesting that we ought to have free depreciation right over the country, the idea being that it would stir up investment. I suggested a possible slogan—"Tooling up for going into Europe". I have lived in development areas all my life, and I suggested that there should be a 50 per cent. depreciation allowance in order to maintain a balance between areas of high unemployment and areas of high employment. I was delighted to get within 20 per cent. of that ideal. I suggested that this should be done on the day we entered the Common Market. The Chancellor has made it the August after entry into Europe.
I want him to go one step further and advertise initial allowances in the trade Press. In many cases where I have been acting as consultant small retailers, and certainly small factories, do not understand what is involved in initial investment allowances and depreciation allowances. Most small businesses have their accounts audited 18 months after the end of their financial year. They are hopelessly amateurish in that respect. I want to impress upon the Chancellor the idea of advertising in the trade Press, as we already advertise family allowances and family income supplements. I do not see why the Government should not advertise advantages to people in business. I am convinced that this type of tooling up would not be inflationary. When I went to Brighouse and Spenborough from Cleveland, it was an eye-opener. In Cleveland there was huge industry, including the biggest factory in Europe, that of I.C.I. All the grants of the Labour Party and our tax allowances before that went to capital intensive investment. In consequence, although the North-East has much more industry, it does not necessarily have more jobs. Both parties sought and have obtained capital intensive industries.
In Brighouse and Spenborough, where there is mixed industry, I had a great shock. I saw the difference between modern, capital intensive industry and older traditional industries. I realise what a colossal chance we have when I consider the 440 factories in my constituency, not all of which are up to date.
I ask the Government to look again at our election commitment, which we have not yet redeemed, to give help and advice to small business. This is where we shall get the greatest growth in the life of this Parliament and in the next decade—not out of the big businesses, which are O.K. so far as they go. This is where real growth and inventiveness come from. In a division like mine, advice and advertisements about tax allowances and that kind of nudging will work wonders. Brighouse and Spenborough is only one small area in an old industrial conurbation. When one considers areas like Birmingham, one sees that the potential is there to stagger us all.
But is there not a fallacy in this argument? If one argues that modern industry is machine intensive, which it is, and then gives assistance and advice and investment incentives to what are essentially old-fashioned labour intensive industries, does one not produce a situation in which there would be machine intensive industries in the hon. Member's constituency?
No, I do not think that that would happen. Help to small business, organising capital for them, is one of the problems, but another is in training—including management training. This is a great need in our country. We have training boards which, over the last few years, have not been very popular. I am convinced that, in these training boards and in the modern techniques now being brought into large and medium industry lie the seeds of our economic miracle. We must spread it through the business until we get down to the bottom. There we shall find real help for our economy. When I consider the taxation of depreciation allowances, I see that some of these small businesses are voluntary taxpayers. They do not know that those incentives exist and they do not know how to use them.
We should get rid of ancient hire-purchase controls. Credit must be reconsidered. I am an enthusiast for making the joint stock banks compete. I am sure that we shall see slogans on shop windows soon, "Nothing down and years to pay." Again, I do not share the worries of the hon. Member for Gloucestershire, West. We are now in an era in which the credit rating is becoming the criterion on which a shop bases its decision to grant credit.
Is my hon. Friend aware that the larger hire-purchase companies are already getting together to enforce their own controls? It has been said that they will insist on a 25 per cent. deposit and three years to pay.
I was expecting exactly that to happen. Judging from some of the financial journalists, I am not surprised. But we still have good old-fashioned competition. Some entrepreneur will start up a small finance company smewhere offering lower deposits, and he will not join the Finance Houses Association. No licence is required to start a hire-purchase company. Anyone with the requisite amount of capital can do so. A Member of this House started a company with £5,000 after the war and I think that he would say that he has done very well, thank you.
There is room there for competition. I do not go all the way with my hon. Friend the Member for Oswestry in his horror that everyone will kick over the traces laid down by the 200 people who signed the C.B.I. agreement on prices. I have resigned from two trade associations in my time and I do not go all the way with those who talk about people keeping their word in economic matters.
There is no such thing as academic economic man. There is only economic man in economic affairs, and he should look after his interests in these matters. I am convinced that somebody will kick over the traces and offer lower terms—but a word of warning to every customer : the customer is the boss and whenever he or she is buying goods, be careful to obtain the best hire-purchase terms. Ask what is 'the true rate of interest and if it seems too high, march out of the shop, go down the street and find better terms. That is the way the intelligent shopper buys goods and I have no doubt that the various associations that try to protect consumers will bring this point home.
It was suggested by an hon. Gentleman opposite that the 55 per cent. purchase tax rate should not have been reduced. Many hon. Gentlemen opposite still believe that a civil servant or Parliamentarian is clever enough to know what is and what is not a luxury. In any event, if hon. Members look through the list of items that were in the 55 per cent. category they will see some quite ordinary everyday items like photographic film. Do hon. Gentlemen opposite suggest that it is luxurious to take photographs of the kids and place them in the family album? Let us get away from this idea that purchase tax is a luxury tax.
I accept that because there is slack in the economy something must be done to take it up. If sales are boosted, as they undoubtedly will be by these measures, unit costs will come down. In modern industry there is what is called optimum production. If one can hit it, one does well. But if one misses it, one does badly.
I still believe that hon. Gentlemen opposite are bewitched by the question of unemployment. I appreciate their anxieties, and I speak as one who lived all my life in areas of high unemployment. We must look at this as humanitarians. With 800,000 on the dole and 12 million pensioners, we should ask who, in terms of human anxiety, has been getting the worst of it? I have a sneaking suspicion that it has been the old people who, since the last rise in pensions, have suffered most trying to cope with rising prices. I am delighted that this will be put right in September.
I am sure that the cut in purchase tax will help boost sales and will hold unit costs. A calculated risk is involved and I am sure that my right hon. Friend was right to take it. It will be all the more welcome if it will help us to get into Europe, though I am sure he has not done it for that reason. If it helps us get in, well and good, and I speak as a devout European.
At the last General Election I said at every meeting—I swam against the tide and I said this at every public meeting I held, which was on every evening during the campaign—that it would take us two years to steady rising prices. The avalanche of price rises was begun by hon. Gentlemen opposite. I have seen some avalanches in my time and I assure hon. Members that one cannot get in front of them with the idea of stopping them. Like all avalanches, this price rise avalanche was bound to exhaust itself. That is now happening and my right hon. Friend was right to inflate to the degree he has chosen. I am sure that we are on the right course and I expect that by next June the question of prices as a political football will have dropped out of the newspapers.
The hon. Member for Brighouse and Spenborough (Mr. Proudfoot) is known in the House to be an expert on food prices and kindred matters. I listened to him with interest and I particularly enjoyed the first two points he made, though I doubt whether they were well received by his Front Bench.
It is a pity that the Prime Minister did not have the benefit of the hon. Gentleman's advice on food prices being outside the scope of any Government when talking to the electorate on 16th June. The hon. Member also gave us the valuable information that not much is to be got from the cut in S.E.T.——
He really should consult his own Front Bench before making these very revealing statements. That is not the impression that gullible people like myself have been getting from his right hon. Friends for the last 13 or 14 months.
This House is a strange place. I am just ending my 26th year here, and I never cease to wonder at the things we put up with. A little while ago the Chancellor of the Exchequer introduced his Budget, and some of us nearly caught pneumonia from the draught from Order Papers being waved all over the place. It was almost a justification for danger money. Then we went through all the routines of the Finance Bill, with all-night sittings in the Standing Committee. But just the other day the Chancellor of the Exchequer came along, and said, "Sorry old chaps—it was sheer nonsense. There was nothing to it. Here is what I should have done. I now suggest that we forget all about the Order Papers that were waved all over the place, and start again from scratch." I saw a few people picking up their Order Papers again when he spoke, but this time they did not overdo it.
I am one of those who believe that we should get rid of the annual Budget, with all its ritualistic nonsense, and that we should go in more for demand management, which necessitates touching the accelerater or the brake during the year.
I, too, think that the annual Budget is a nonsense, especially in these days when we have so many other ways of affecting the economy without all the Budget ceremony.
We have heard from the Chancellor and from the Prime Minister about the success of their policies in defeating inflation, but all they have done has been to attack the economically weakest section of the working people. Most of our big nationalised industries—gas, electricity, the Post Office, and so on—are the old public utilities. In pre-war days one had to decide whether to become an engineer, with the probability of being out of work half the time, or to go into one of these safe industries and accept low pay as a result. In those industries people accepted low pay in return for security.
The Government have attacked the people in those industries, who comprise the economically weakest section, and have pulled them into line. As a result, the general level of settlements has fallen. The Government now claim that they have thereby had a great success in defeating inflation. My view is that it was a cowardly thing to have done in any case. If they have a case for approaching the trade unions to discuss with them, as we did, how prices and incomes might be contained, why do they not do it?
The Prime Minister never tires of complaining—and the hon. Member for Brig-house and Spenborough has done the same—about the inflationary situation he inherited. The fact is that for over three years members of the party opposite, partly for political kudos, attacked the Labour Government's prices and incomes policy on every occasion when we tried to put a stop to a wage increase which was above the level we had suggested as being high enough. Hon. and right hon. Gentlemen voted against us, and so encouraged every wage group to try to break that policy. Was that trying to contain inflation? Inside and outside the House, they continued to discredit the prices and incomes policy until, in the end, the Labour Government were confronted with the problem of either abandoning it or facing probable annihilation at the General Election, and they abandoned it in 1969. Therefore, the Conservative Party inherited precisely the economy that they had been demanding for over three years, an economy without an incomes policy and, therefore, without the slightest control over prices. If ever a political party deserved to inherit that economy, they did.
When we listen to the moaning and whining about the inflationary situation that they inherited, with the knowledge that that was the background against which it came, how low can people get? It is sheer distortion that we have been listening to from the Prime Minister and the Chancellor over the last year on this issue.
We now have the offer of the C.B.I. I am pleased that it has taken this initiative. But it is the Government who should have been doing this kind of thing. I do not believe that the C.B.I.'s offer will be in any way as successful as the early warning system on price rises which the Labour Government had with the employers. As yet, the nation does not understand how successful that policy was. I give full credit to those who made it possible. With the exception of the six months' standstill, during the period when we were running that policy there was no time at which prices were going ahead of incomes. They were keeping just behind incomes. As we were increasing productivity, we could contain inflation, and therefore, even afterwards, when the incomes policy went, the level of inflation which this Government inherited was nothing like the level for which they have since been responsible. I believe that it was then running at about 3 per cent.
The Government's contribution to steadying prices was to decimate the National Board for Prices and Incomes and to get rid of the Consumer Council so that it could not tell us what was happening, and now the Government are relying on the C.B.I. to do something far more limited than the C.B.I. and its member firms were doing long ago.
I have said that in 1969 the Tories got their way and we gave up the Prices and Incomes Act. Our great weakness was to continue to take some responsibility for prices long after we had lost control of incomes, because without the latter one is powerless to affect the former. Yet me made that kind of mistake.
It is pretty widely commented on in the Press and elsewhere today that there is a need for a new effort at producing an incomes policy. Here again, we are badly handicapped by the history of this Government. Because of the history I have described, they are utterly petrified at even attempting such a policy or such an initiative of themselves. Yet I should have thought that if we are to expand the economy, as the Chancellor now says that he wishes, and if the period of restriction is over, now is the golden opportunity to discuss the future far more effectively with trade unions and employers, and in the House, on questions such as the incomes policy. I know that the Secretary of State for Employment would have to ditch the Industrial Relations Bill before he could hope to get an adequate response from the trade unions. But that, again, is the Government's business.
One of the lines of discussion in the Press is that we must try to get a prices and incomes policy again—this is the line pushed by, for instance, The Guardian— but that it must be entirely voluntary. Are there enough volunteers? Are those who are numerically most important likely to be in the list of volunteers? Unless they are, a voluntary incomes policy is nonsense. If a voluntary system is found to be a failure for lack of volunteers, what do we do? Do we return to where we are now? Is this satisfactory? Or do we then consider discussions with trade unions and employers about the need for legislation?
The hon. Member for Oswestry (Mr. Biffen) and I have argued this—I was about to say almost man and boy—over the years. I always enjoy arguing with the hon. Gentleman. I understand his point very well. If there is to be an effort to get rid of inflationary settlements and to contain prices, I have yet to hear any other method argued which does not have as one of its ingredients a prices and incomes policy.
I argued this in the 1945 Parliament. I was a pretty lone voice in those days. I think it was Wilde who described consistency as the last refuge of the unimaginative. However, we have made some progress. I believe that, as a result of the experience which both sides of industry as well as both sides of politics have had in the last few years, there is probably a better chance now of getting an agreed approach to this problem than there has ever been.
If that is to be done, it is essential to disentangle incomes policy from policies of sheer restriction. There is no real relationship between the two. When we tried to introduce one, it was against the background of an economic crisis. Inevitably, if that is to be done, the policy will become the creature of the crisis.
I have never understood why anyone should assume that collective bargaining reached its ultimate highest form after the First World War. Collective bargaining, which I had to practise when I used to negotiate, is at best a pretty crude kind of horse dealing. There is precious little science about it. We are all agreed that we are entering on the greatest industrial revolution the world has ever seen. But we are to use the crudities of a horse-dealing system which has no science to commend it. I cannot understand how the rewards which industry has to offer from industrial application can be gained while such media are applied.
The House would do well to abandon the conception— "We are in trouble. Bang on an incomes policy".
We have had the present bargaining system for about half a century. It has produced millions of low-paid workers who have no chance of getting a decent living wage. This is because the basic criterion is a person's ability economically to get what he wants ; or, as this Government would put it, stand on his own feet. Until we can get rid of that conception, until we can evolve a system which permits of the rewards which industry can pay to be paid in a fair and proper manner, I cannot see any hope of getting rid of the stop-go problems which we have had or of the inflationary problems which the Government have brought upon themselves.
The move which the Chancellor has made belatedly, contradicting everything that he did in his Budget, is welcome but in itself it means very little. I hear that the last meeting of N.E.D.C. was quite successful. I should like to feel that the Government will take Mr. Vic Feather at his word, that we shall have a rapprochement and that we shall get a new beginning on the important matters which I have been putting to the House. I believe it is now probably more acceptable because people know what the opposite is. It is probably more acceptable to trade union leaders because they know what a nonsense it is when it is necessary to get a 12 per cent. advance for one's members in order to stand still. There can be no defence among intelligent people for that kind of thing, and I hope that this is the beginning of something which will lead to a far more fundamental approach.
I hope that the right hon. Member for Newton (Mr. Frederick Lee) will forgive me if I do not follow his arguments, because I was not able to. He started off by criticising to some extent the Budget and the latest measures, and then developed a philosophical theme which I think is much less immediate to what was announced yesterday. Therefore, I prefer to add my voice of warm welcome to the measures which my right hon. Friend the Chancellor announced.
I apologise for not having been here at an earlier stage of the debate. None the less from the atmosphere of the debate, it was easy to judge, entering the Chamber in an intermediate stage, that there was in this House a very warm welcome indeed for my right hon. Friend's measures. It was the kind of package of measures which hon. Members on this side of the House have always wanted from an Administration which was pursuing Conservative style economic policies, without apologising for that fact.
It is also, in my view, a logical follow-on to the previous Budget measures, contrary to what the right hon. Member for Newton said. At the same time, it is not perhaps in the terms enunciated by my hon. Friend the Member for Leek (Mr. Knox) a new era, but none the less it is a very welcome and long overdue acceleration of the policies initiated earlier this year and, indeed, developed last year.
With my warm welcome one might also intermingle the obvious caveat about some aspects of the so-called new prices policy. If not overdue emphasis is placed upon this policy it will be in some measure a contributory factor to what I hope will be the success of my right hon. Friend's economic policy. To say that it will be far more than that, to say that it will be a radically new development on the prices front is possibly overstating the case. However, to the country and to the House—and it was fascinating to see the glum faces on the other side of the House as hon. Members heard these new measures—the purchase tax cuts particularly and the total end to hire-purchase terms control were long overdue measures which will be regarded as rational in the context of the economy.
Like my hon. Friend the Member for Brighouse and Spenborough (Mr. Proud-foot), I hope the hire-purchase situation will be watched closely as a result of the end of terms control. It sounds a little like wanting to have the best of both worlds. None the less, one assumes that the Department of Trade and Industry will be watching how the hire-purchase firms react to the end of controls and to what extent the Finance Houses Association, precluded as it is from giving any recommended rate of repayment and deposit, will be successful in its efforts to let one member know what another member is doing.
I do not think anybody in this House would wish to return to the situation in 1959 to 1961 when the free-for-all led to crass bad management on the part of the big finance companies as well as the small. I believe the finance companies learned a bitter lesson from that, and that now the more sophisticated managements will not make those mistakes—for example, of allowing very low security for a borrower for buying a nine-year old car with not more than 5 per cent. down as deposit and eight years to repay. I am sure that that sort of thing will not recur.
I am sure, too, that the economy will be in much better fettle as a result of these measures. There were hon. Members on this side, and, indeed, on the other side as well, who, earlier on, were pressing for measures of this genre. I believe that, though they are somewhat late—I do not wish to seem churlish in saying that—they will put the economy in the better shape which is demanded by the public, which is demanded by sane economists of whatever political leanings, and which is widely demanded in the newspapers.
There were two factors in the economy which were crying out for the kind of consumer led expansionist measures announced yesterday. The two factors were these. The first was that there was a very substantial spare capacity which existed throughout British industry and throughout all areas, and I think it was precisely this measure of spare capacity which resulted in very high levels of unemployment, socially undesirable as well as economically undesirable, and the economy was reaching a rate which was disastrously sluggish. The second factor was the continued but creditable rise in productivity, and one would accord a tribute to all those concerned, the shop floor workers and managements, who accomplished an impressive rise in British productivity in many different sectors.
Because of these factors the injection of £385 million purchasing power into the economy is, to my mind, overdue, but welcome, and, as I said, I congratulate my right hon. Friend on having announced these measures. They might have been expected to some extent to have gone further, and in that context perhaps I may be permitted to enunciate one or two items by way of a package plea to my right hon. Friend, while at the same time emphasising that I do not wish in the least to under-estimate the importance of yesterday's measures or to seem to be churlish. However, I plead sincerely that the administration of that great Department of State which supervises our economic affairs notes the opinion expressed on both sides of this House, and, indeed, in the newspapers and our economic journals, and the need, in my humble submission, that this captivating and compelling programme by itself should be merely the beginning of a greater rate of growth, not merely 4½ per cent.—of a new era, as was mentioned by my hon. Friend the Member for Leek, an era of growth for the British economy irrespective of our entering or not entering the E.E.C.
There will be a need not only of substantially faster growth than that which we have experienced in the past, in our dismal economic past, and at levels which have become axiomatic and taken for granted in European countries which themselves have had a faster rate of growth, but which itself was regarded by some as sluggish and disappointing indeed in other advanced industrial societies outside the European theatre.
I therefore make this plea to my right hon. Friend. I do hope that this will be merely the beginning, and I hope that the existing massive balance of payments surplus, an empirical criterion, will not be used as an argument against that, for I am sure that the balance of payments should now be used as the basis for a tangibly faster rate of growth in future even than the target rate of growth for next year.
The balance of payments surplus was built up in ways which I shall not describe, because that would get us into political complications, but, because that balance of payments surplus is larger than much opinion in the country expected, I hope that it will not be eroded in fast expansion, which is still to be modest, but will be the basis for a much faster rate of growth. I hope that my right hon. Friend will not be put off by the Salazarists on both sides of the House and outside who not merely fear faster growth, but regard it, like easy abortion, as positively immoral.
After all, there is no evidence that a faster rate of growth induced now, with an even faster rate of growth for next year or the year after, would of itself give any increasing impetus to the rate of wage inflation. If hon. Gentlemen on both sides of the House look again at the statistics of growth, not only year by year in the last decade or 15 years, but quarter by quarter, they will find that there is no statistical proof that a period of a faster rate of growth of the G.D.P. has led to a faster rate of growth ceteris paribus in the rate of wage inflation. I hope that this will be borne in mind for those reasons, but for one other vital reason going back to what I said earlier about unemployment.
It is simply that the depressing prospect, despite the enormous attraction and value of the measures announced yesterday—and, like every hon. Member on this side of the House, I concede that—is that even with the 4½ per cent. attained rate of growth in the G.N.P., unemployment will fall by the most to 500,000 and that the maximum fall to be expected would still leave 450,000 midway through next year, or perhaps a little later. That is still a totally unacceptable level of unemployment. On all the economic arguments which are accepted, even if some people are not urgently exercised in their minds at the moment by some of the grave social implications, this is a waste of human resources. I therefore hope that my right hon. Friend will keep an open mind on this matter and an open mind about one or two other possible measures which might be taken in future.
It is not that I am in any way unsatisfied or pushing for additional measures now, but there is a body of opinion which wishes to see one or two other things done, and I only remind my right hon. Friend of one or two other possibilities for increasing purchasing power in the economy still further. I do not share the fears of those who have already said that perhaps this will be too much and that we shall find that we are in balance of payments difficulties and so on in a year or two. I hope that my right hon. Friend will consider the possibility of a further cut in due course—without putting any time limit on it—in corporation tax, although this is bound up with the examination in the Green Paper of the future structure of corporation tax.
I hope, equally, that he will maintain an open mind about a cut in the petrol duty. A cut in petrol duty would have had a two-fold benefit : it would have been not only an addition to the increase in purchasing power on behalf of the community as a whole, but a welcome easement of the totality of the range of industrial costs.
I hope that an equally open mind will be preserved about the possibility of reducing the vehicle excise duty, increased yet again by the tax-raising Labour Party, and I hope that it will be reduced by the tax-reducing Conservative Party.
Returning to credit and the hire-purchase situation and the clearing banks ; I should like there to be an early removal of the credit ceiling as a logical corollary to the announcement yesterday. Perhaps, if one dare even mention it nowadays when we talk freely of currency changes and other matters, we might consider the possibility, at an early date rather than at an indeterminate time, of a lower Bank Rate.
I repeat that I do not feel that I am, and I hope that I have not been interpreted as, churlish in advocating one or two additional items. It is not that I do not welcome all that was done yesterday, but I hope that it will be the basis and not the be-all and end-all of the so-called new era.
I should like to congratulate the hon. Member for Harrow, East (Mr. Dykes) on an attractive speech, which was delivered effectively and persuasively and without an excess of party zeal. No doubt the hon. Gentleman will learn to outgrow any leaning that way as he gets older in the House. Since at the moment there seems to be such an absence of right hon. Gentlemen from the Government Front Bench, there is likely to be an opportunity for the hon. Gentleman to replace some of the exhausted volcanoes who are sitting there at the moment.
I agree with what the hon. Gentleman said about finance houses. There will be a mixed view among the finance houses about the total droping of any terms control. The experience they had in 1959 to 1961 taught them lessons for today, and I hope that the hon. Gentleman is right in what he said about that matter. There are always plenty of others who are willing to come in and get their fingers burnt.
I have little doubt that the reputable finance houses will want to maintain some form of terms control, but they will have to be careful how they express it. I hope that the Chancellor of the Exchequer will not press them into such a form of competition that total terms control will disappear. I agree with the hon. Gentleman that this would not necessarily be good for the economy or for those engaged in hire purchase. Hire purchase has been a valuable addition to our economic armoury and a valuable help to young people in setting up home and endeavouring to build for the future.
The Chancellor came to us in a modest, almost contrite, mood considering he was bringing tidings of such good cheer. But when one recalls that at the end of the first 13 months of Conservative Government we have record unemployment, stagnation, record inflation, bankruptcies and a complete lack of confidence in the business community, it is not surprising that he delivered his address in such muted terms. What we are doing today is not congratulating the conquering hero, but saluting the sinner who has come to the repentance stool. He has indeed come to the repentance stool.
It is difficult for the Opposition when that happens because they are always torn between pleasure that their forebodings have proved to be correct and chagrin to think that the Government have at last descended to common sense. So it must be accepted—and the hon. Gentleman will see this when he sits on this side of the House, as will happen shortly—that it is difficult to contort one's features into the correct measure of chagrin and glee at the same time.
There has been argument whether what the Chancellor has done marks a new era in economic management. Hon. Gentlemen on both sides of the House have expressed different views about this matter. During the last 13 months we have been living through what has been called a new style of government. This is the third Budget which the Chancellor has introduced. I long ago formed a league for the protection of Chancellors from cruel attacks, having suffered from so many of them myself, and I am not disposed to blame him about this. But I can justly attack the nonsense to which the Government have exposed themselves about this new form of government. It was going to be thorough, unhurried, and use up-to-date techniques for decision-taking. It was aimed at the long term, and once decisions had been taken the Government were going to adhere to them through hell and high water. If anyone thinks I am exaggerating, I am sure that a reading of the foreword of A Better Tomorrow will show that I have not done so.
I am determined … that a Conservative Government shall introduce a new style of government. … I want to see a fresh approach to the taking of decisions. The Government should seek the best advice and listen carefully to it. It should not rush into decisions, it should use up-to-date techniques for assessing the situation, it should be deliberate and thorough. … What is more, its decisions should be aimed at the long term. … Finally, once a decision is made, once a policy is established, the Prime Minister and his colleagues should have the courage to stick to it.
How many weeks is it since the last Budget?
The Chancellor of the Exchequer himself summed it up in a speech on 28th
April in words which might well form my text tonight. Talking about the Government, he said :
The real point is that for the first time for years we have a Government which is really planning ahead.
Three Budgets in nine months is not bad for planning ahead.
The result of what has happened is the collapse of the Government's post-election policy. What we have had during the last 24 hours is a hurried patchwork of measures—measures which are short term in their effect, measures which have been taken and will be implemented before the long-term effect of the measures taken in April are felt, measures which in fact will add to consumer expenditure rather than to investment, and measures which, as I hope to show, are worse in their social impact than is sometimes thought.
One can argue that this is a panic-stricken response to Bromsgrove, or that it is a desire to soften people up before we try to get into the E.E.C. But what cannot be argued is that this is long-term planning in any sense of the word. This is a political decision. From time to time, all Governments are forced into political decisions. But do not let even the most ardent supporter of the Government try to get away with the propaganda that here is a cool, unhurried Chancellor of the Exchequer who has reviewed the economic indicators and forecasts, has decided that another touch on the tiller is needed, and has proceeded calmly.
It is precisely because I was attacked in this way that I was so delighted to see the new unhurried approach that we were to have. When they were in Opposition, right hon. and hon. Gentlemen opposite used to tell me so often that if only I had this unhurried decision taking with all the modern techniques, any fool could have got it right, even me. But here is the paragon, the man who is really planning ahead. Here we see him pushed into a rushed political decision which has no relation to his own economic approach to the problem.
Left to himself, I believe that the Chancellor—wrongly, in my view—would have much preferred to have adhered to his policy of trying to get a 3 per cent. growth rate this year, and of trying to see whether the long-term measures, the full impact of which has not yet been felt—indeed, their impact has hardly been felt at all—would succeed. Instead, the right hon. Gentleman has been pushed by his political colleagues into a different set of actions.
What was the policy of right hon. and hon. Gentlemen opposite? It was a clear policy. It was that, by allowing unemployment to increase, we could curb inflation. That is where they started. That is why, over several months past, the Chancellor of the Exchequer has been standing on one side watching unemployment mount in the hope and belief that this would ensure not only that the trade unions were weakened but that inflation was curbed. Their only policy has been to use unemployment to curb inflation—and it has failed ; it has broken down.
I agree with hon. Gentlemen opposite—it may be for different reasons—that this marks a turning point in economic policy. In the end the Government have not had the resolution to pursue the policy of unemployment to the point where it might have curbed inflation. They have flinched at the end ; they have been unwilling to plunge the nation, men and women, further into unemployment. That does credit to their hearts, but it does not do much credit to their long-term planning or to their original policy which they conceived and have been attempting to work out.
So now we all know—the hon. Member for Leek (Mr. Knox) said it—that they had abandoned the course which they set for themselves, which was to overcome inflation, before they turned to other courses. Nobody, not even the Chancellor, in his wildest dreams believes that we have yet overcome inflation. Certainly the right hon. Gentleman does not believe it. He still reads out lectures on morality about it. But what he is doing now is to rely on the pledge of the C.B.I., the 150, 200 or 1,500 firms who, as I think the hon. Member for Oswestry (Mr. Biffen) said, will—what was the phrase?—control prices by correspondence. The Chancellor is relying upon their pledge—rather like relying on the pledge of a reformed drunkard to abstain from alcohol over the next five years—and is now flying on a wing and a prayer.
What he has done in abandoning his policy is to say : "I hope that the C.B.I. can keep price increases down to 5 per cent. I hope that if they do that, or get anywhere near it, the trade unions"—I shall come back to this again— "will in their turn try to reduce wage claims so that we can overcome inflation in this way. I will abandon what was undoubtedly a policy which, in my view, created more social division than I have ever known, about which many of us felt extremely deeply, and which helped to create a great deal of the bitterness which existed in this House, namely, to allow unemployment to rise without stepping in to correct it." I do not think that this can be denied.
There always was a level of unemployment. When I was at the Treasury I was told that if we could keep it down to 1·8 per cent. it would mean that the unemployment which was necessary for people moving between jobs would be about right. My right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), a former Chancellor of the Exchequer, has said that if he were asked—I shall come back to this, because the House cannot dodge it ; no more can the hon. Member for South Angus (Mr. Bruce-Gardyne) by making party points—whether the level of unemployment—[Interruption.] If asking me in his usual aggressive, but sedentary, way what I was doing is not trying to make a party point, I underestimate the hon. Gentleman, whose reputation was made on white fish and has been sustained by the balance of payments ever since.
I want to come back to this point, because it is important. I hope that the Government will understand the depth of feeling which exists, not only in the country but on this side of the House, that the attitude of Ministers, who no doubt in their private lives are decent. generous, good and warm-hearted people, should have allowed unemployment to rise from half a million to about 800,000 without taking appropriate corrective action. I believe that this, together with the Industrial Relations Bill, has done more to create social divisions, which I thought were long since dead, than almost anything else I should have thought possible. But now indeed the Government are turning round.
I want to come to what is happening. I intervened this afternoon and was told that 100,000 was regarded as the maximum figure by which unemployment would be reduced. We are entitled to an estimate about this from the Secretary of State for Employment. Does he accept the figures which was quoted by his hon. Friend the Member for Horsham (Mr. Hordern)? Does he believe that in 12 months' time the measures which he has taken will reduce the level of employment by 100,000? Is it more or is it less? I do not ask him for exact figures, but the House should know at what the Government are aiming.
Speaking for myself, and speaking on this probably for the hon. Member for Harrow, East, if he will allow me to do so, I want to make it clear that if these measures reduce unemployment only by 100,000 I should not, this side of the House would not and I do not believe that the country would regard that as adequate or satisfactory. In other words, I do not think that in a period of expansion such as we have now, the country should be ready to tolerate a level of unemployment which next summer would, presumably, be still over 600,000.
The Secretary of State for Employment may say that he cannot give exact figures, and I do not ask for them, but at what level are the Government aiming? At what level do they expect unemployment to settle down? If the right hon. Gentleman can tell us this, we can judge whether his and the Chancellor's policy is adequate and the country also will be able to say whether more measures should be taken. We shall then get to the difficult question, which again was touched on by the hon. Member for Harrow, East, of what those measures should be and the form that they should take.
My first question, therefore, to the Secretary of State for Employment—I think that the House will agree that it is a perfectly fair question—is what reduction of unemployment does he hope will be produced by these measures? At what level does he hope that unemployment will settle down? If he says, as I hope he will not, that it is 100,000 less than it is now, I must tell him that I shall regard it as still highly unsatisfactory.
I come to the question of who is out of work. There is no doubt that the nature of unemployment has changed very much during the last five years. Nearly one-third of those who are out of work and without jobs have been out of work for more than 12 months. By coincidence, I asked the Minister a week ago whether he could give me the figures for my constituency and he gave them to me for the travel area covered by the Cardiff employment exchange. I quote them only because they happen to be up to date and the right hon. Gentleman has given them to me. There are 3,675 men out of work in the Cardiff employment exchange area, of whom 1,026 have been unemployed for more than six months and 589 for more than 12 months. That is to say, 28 per cent. have been out of work for over six months.
If we take those who have been out of work over a year—and the number and percentage throughout the country is growing even faster than that ; it is nearly one-third in the country as a whole—what is their position? They have exhausted their redundancy payments. They have exhausted their earnings-related unemployment benefit. They have now even exhausted, over 12 months, their flat-rate benefit. These are people who are now entirely without means except that provided by Social Security. They are for the most part unskilled and they are over the age of 40. Here is a reservoir which, even if unemployment goes down to 600,000, will still be there. We must ask the Secretary of State for Employment what hope he can offer these men. What plans does he have for them? What retraining and other measures can he say will enable them to have hope for the future?
I do not mention the young school leavers who are registering this month. They have their whole lives before them and there is a great problem for them. If, however, we are to have a level of unemployment which, throughout the whole winter and throughout the whole of next summer, is still only slowly going down and is well over the 600,000 mark—if it is better, I shall be delighted—the Government owe the House an explanation how they intend to handle this situation.
I have a word to say about the regions. I think that the Government have not faced the difficulties in which the regions have been put by the removal of investment grants. The low level of demand in the economy has undoubtedly contributed, and this will now be slightly taken up, but the number of inquiries in the regions—including my own in South Wales—for new development certificates—and this was referred to earlier today by my hon. Friend the Member for Carmarthen (Mr. Gwynoro Jones)—has been lamentably low. Once again we must ask the Secretary of State what he thinks will be the impact of these measures on such areas.
I think that the measures taken by the Chancellor in manufacturing will be harmful, and I hope that the right hon. Gentleman will interrupt me if he does not agree. Manufacturing in the development areas already has free depreciation of 100 per cent., and that remains, but outside the development areas the Chancellor is increasing depreciation from 60 per cent. to 80 per cent., so the differential is halved against the development areas.
I agree, but it comes on top of the removal of investment grants, and these areas are not flourishing. I am astonished that the Chancellor of the Exchequer should intervene in this way. It is for only two years, but many men will be unemployed for a long time during those two years, and what I am saying—and the right hon. Gentleman should not look so surprised—is that by his measures he has not improved the position of the development areas in manufacturing but has worsened it. Is that not a fair conclusion?
I am sure that with his experience the right hon. Gentleman will be careful how he answers me, in view of the impact that it might have on factories going to development areas. I take it that the right hon. Gentleman is not suggesting, in the light of what he said, and what I have done, that a company wishing to set up a new factory will in future be more likely to set it up outside a development area than inside one?
Of course I shall be careful, though I have a feeling that my words do not carry much weight with the accountants who work out the discounted cash flow when working out where to establish a factory. I think that there will be marginal cases in which people will say that there is no need to go to a development area and that they will do better if they stay where they are. The Chancellor cannot argue that if we increase the area of attraction outside a development area we thereby help the development area. That is too silly for words.
I agree that in the matter of service industries the development areas will be more favourably placed, but let us examine the total figures. I understand that the total additional aid to be given to service industries, both inside and outside the development areas, is £5 million to £6 million a year, but the total aid to be given to manufacturing industries outside the development areas is £35 million a year. How can anyone claim that that is not a differential against the regions at a time when they are suffering substantially from the Government's policy?
The position of the service industries must be that they will be more favoured if they go to the development areas now than they would have been if they had gone the day before yesterday.
I have acknowledged that that is so for the service industries, but what I have said is that the disadvantage, taking the sum as a whole, is very much greater than that small advantage.
I turn to the next question raised by many hon. Members, and I put it in a pointed way to the Government. How long is the sunshine going to last? What will influence those who will be taking investment decisions is whether they believe that this period of growth is here to stay, or whether this is a sudden boom, as it is being described, that will evaporate in the course of a year or two. When I heard the Chancellor yesterday, in some ways it was like seeing an old film coming round again. [Laughter.] I fully accept that. That is why I want the country to
avoid it in future. Ministers deceive themselves if they believe that there was anything new in what they said. The Secretary of State for Employment apparently thinks that there was something new, because when he spoke in the debate on the Motion of censure, only three weeks ago, he told us that the measures to come were to be different from any previous occasion. He said :
we are … determined … not simply to produce a flash in the pan.
Later he said :
One could easily take measures which would buck the trend … but the trend would reassert itself."—[OFFICIAL REPORT, 28th June, 1971 ; Vol. 820, c. 154–5.]
Does he believe that we now have a series of startlingly new measures that nobody has ever thought of before? Is this something to set up permanently on the road to lasting growth and expansion, combined with price stability, full employment, and a satisfactory balance of payments? If he believes that, I am not surprised that he believes in his Industrial Relations Bill as well. The plain truth is that this is the old stuff all over again, but it brings me to a serious point.
The hire-purchase reliefs that the Chancellor has beneficiently given us have a quick-acting but not long-lasting effect. I think that that is generally agreed. What happens next? Are the Government now committed to a permanent growth rate of 4 per cent. or 4½ per cent.? The hon. Member for Harrow, East thought that it should be higher ; so did I. He will soon learn wisdom about this. When, about three weeks ago, I proposed that we should aim at a growth rate of 5 per cent. it was dismissed as frivolous. In one of the semi-heavies last Sunday, it was said that this was a frivolous proposition. But if the Chancellor comes forward with the aid of the C.B.I. and says, "Let us go for 4½ per cent.", that is the acme of statesmanship. That only goes to show how litle notice we need take of the criticisms that now appear in Conservative newspapers on a number of subjects. [Interruption.]
I have only two minutes left, and I have many points to make, so hon. Members opposite had better keep quiet and hear them. I should like the House, the country, and especially those who are going to invest, to be told by the Secretary of State for Employment what will happen when the Government run into trouble. What will they do? Will there be another stop? Are we at the beginning of another stop-and-go? That is the question that business men want answered.
What will be the course of events? First, the quick-acting hire-purchase measures mean that more goods will be brought. More people will exchange their cars, and more colour television sets will be bought. There will be higher consumer expenditure. What will follow very quickly is a much higher level of imports. How much higher I do not know, but before yesterday's measures were announced the O.E.C.D. thought that it might be as high as 11 per cent. or 12 per cent. Another point to remember is that stocks are low. If these measures have the effect of ensuring rather more confidence—as I hope they will—our import bill will undoubtedly increase. So we shall face a substantially larger import bill in the next 12 months.
Export prices are admittedly rising fast. Our exports will grow in value, but will they grow very much in volume? I do not want to be a Cassandra, but I am sure that hon. Members saw this morning the alarming statistics about engineering orders. They are up by 7 per cent., but that is made up of a home increase of 10 per cent. and an export decrease of 3 per cent. Members may feel merry this evening, but if that trend were repeated the Chancellor would soon have a lot of worries on his shoulders.
What are the Government's priorities in this new phase? What will they put first if they run into difficulty? Is it to be the balance of payments? Is it full employment? Is it growth? Is it overcoming inflation? These questions were asked in another way by the hon. Member for Oswestry.
The Government will have to choose. The Chancellor cannot believe that everything is now plain sailing and that he will not have to make a choice between these priorities. We make our choice now, and it is for growth—but it must be sustained growth. We cannot have another flash in the pan, to use the Secretary of State's words. For that reason, I ask the Chancellor to make his intentions clear. Unless and until he does, many people will believe that this is just the beginning of another stop-and-go.
What are his guidelines for wage claims? The Chancellor asked for moderation. What does he mean by this? What guidance can be given to the trade unions? The trade unionist on the bench has his own standard of life. Is it to be maintained, or does the Chancellor think that he must forgo something now, and that his standards should be lowered? After all, we have the rises in national insurance contributions, school meal charges, health charges, rates, fair rents, food prices and the rest.
What should the trade unions be asking for now? What guidance can the right hon. Gentleman give them? Should they be asking for increases based on the increase in the retail price index? Would that be the moderate and modest claim that the right hon. Gentleman wants them to maintain? Is that reasonable? If he asks for that, for a period of 12 months, hazarding by own personal view, I think that he might get it.
But that leaves aside the great gains in productivity which a number of industries will make in that time. And he owes it to the unions, if he wants something from them, to indicate his own belief of what would be a moderate wage claim, of what would commend itself to him. He needs their co-operation in present circumstances.
There is no doubt that the Government have made inflation worse by their own actions. They are still piling burdens on the wage earners' shoulders, they have wasted the last 12 months, these measures have produced nothing new, their fiscal policies still favour the rich against the wage earner. They should have increased the old-age pension if they had a sum of money like this to dispose of. They were elected on a fraud, and the day will come when the people will settle their accounts with them.
The right hon. Member for Cardiff, South-East (Mr. Callaghan), in light-hearted vein, started by trying to welcome the Chancellor with what he described as a salute to the sinner come to repentance. If ever there was a Freudian slip, that must have been it. I return the salute to the right hon. Gentleman, with compliments.
In the last half of the 1950s and in the early 1960s, he was the signpost to the sixties. He was always looking forward to growth rates of 5 per cent. rising to 6 per cent. and even more. I am sure that he will remember speeches he made in that sort of optimistic vein. But then, in the early sixties, when he became the Chancellor, he remained the signpost—fixed firmly in the ground, in one spot, pointing to the town of growth, still 10 miles away, and not moving towards it.
Now he is presenting himself to the country as the signpost to the seventies. Now he wants to jump into the driving seat of the anti-Common Market bandwagon and drive flat out for five years. If we want a racing driver in command, I doubt whether we shall look to the right hon. Gentleman, who, when he was last in the driving seat, produced a rate of growth so small that I doubt whether he would have much chance of success in a tortoise race. We shall look to someone other than the right hon. Gentleman when we want growth.
I said in our debates on unemployment at the end of April and again at the end of June that the present levels of unemployment and the rising trend were unacceptable, were not to be tolerated, and that we were absolutely determined to halt the increase, to reverse it, and to get unemployment down and keep it down. The measures we are debating today provide proof that we mean what we say. We are determined to do just that.
As I have said before—the lie was resurrected this evening—we did not deliberately create unemployment in an attempt to control inflation. It is true that unemployment rose considerably more than we expected and more than was forecast on the basis of current policies last summer and autumn. To that extent unemployment is higher than we meant it to be or wished it to be, but we did not deliberately take any action to bring it to this level and we are determined to halt it and bring it down. Unemployment is a cancer in the life of society as a whole and in the lives of those who suffer it.
Before the right hon. Gentleman proceeds, can we get the charge exactly right? I did not say the Government had created unemployment. I said that they had allowed unemployment to rise without taking corrective steps. That is the charge and it sticks.
We did take some, admittedly relatively minor, expansionary steps as long ago as last October. They were certainly expansionary compared with the steps taken by the Labour Government ; and, as I say, they started as early as October. They were followed by the much larger measures in the Budget and by the measures announced yesterday.
I am sure that, given the choice, the overwhelming majority of people would choose greater security of employment in preference to greater increased money incomes. This choice is a real one and the right hon. Gentleman and his right hon. Friend the Member for Blackburn (Mrs. Castle) knew that it was a real choice when they had the responsibility of office.
A sensible annual rate of increase in money incomes is a good thing. It acts as a spur to efficiency and progress, it leads to extra demand, it leads to growth in national wealth and increases in personal prosperity. It creates, in short, a virtuous circle. However, once the annual rate of increase in money incomes rises far in excess of that which can conceivably be covered by increased efficiency and productivity, instead of being a virtuous circle we get a vicious circle, with rapidly rising prices which lead to lower demand, lower profits and, in turn, to lower investment, lower output and, therefore, less jobs. This results in stagnant, if not actually falling, real incomes and personal prosperity.
Thus, restraint in incomes—and I underline that restraint in incomes means a further reduction in the present level of settlements—is an essential component of a strategy for growth and full employment. If the green light for expansion which the Chancellor lighted by his Budget measures at the end of March, followed by the further large stimulus which he announced yesterday, is to remain at green over the coming years, as we wish it to do, then great and increasing restraint by those who make pay claims and by those who grant them is absolutely essential. That needs to be said loud and clear almost before anything else is said in this debate.
The Government's policy of de-escalating pay settlements has been an essential precondition of the present expansionary measures, a subject to which I shall return later. It will remain essential in future and it will be intensified rather than relaxed. So the Government will continue in all the pay negotiations for which they are responsible to take as their over-riding objective the need to bring about a substantial and progressive reduction in the level of settlements, and will expect other public sector employers and all employers in private industry and commerce to conduct their pay negotiations with the same objective in view.
This growing restraint, while just as vital as it has been in the last year, should now, however, be easier for all concerned. The Chancellor's measures announced yesterday, on top of his Budget reliefs which are now beginning to find their way into people's pockets and companies' banks, coupled with the C.B.I. initiative on price restraint, have opened a new opportunity to the country to bring price inflation under control and to return to more normal conditions. The reductions in purchase tax have operated immediately to have an effect on prices, and as consumer demand picks up under the stimulus of my right hon. Friend's measures, firms will be helped by the fall in their unit costs to hold their prices down.
This is one answer to some of my hon. Friends who fear that this price restraint initiative by the C.B.I., if it had effect, as I believe it will, might lead to a lowering of the essential profit margins without which there cannot be prosperity and investment in future. But I believe that, coupled with the rise in volume, firms can hold their prices down while maintaining the healthy levels of profit required for future investment. They will be helped in this by the support being pledged by the nationalised industries to the C.B.I. action.
We therefore have a real chance to break out from the inflationary spiral, and now we have before us this very real prospect of bringing prices under control it is in the direct interests of those who are seeking pay increases to play their part by not pressing for inflationary settlements.
The right hon. Gentleman asks : "What does that mean?". He and his Government believed in—and, to be fair, the Conservative Government before them started it —this business of mentioning norms and giving precise criteria. We, anyhow at the moment, take a different view. I believe that this has been right in the past year, and that it is right for the future. I believe that if the right hon. Gentleman talks, as I am sure he must, to many trade unions leaders he will find a fairly strong consensus of feeling that it would be unhelpful rather than helpful to go back to the idea of precise norms and criteria which tend not to have much effect and, indeed, only to be yardsticks by which failure can be measured ; and also to have other ill effects within the trade union movement, and on industrial relations. Pay restraint is the vital catalyst for the creation of growth, provided we want that growth, as we do and must have, with reasonable price stability and full employment.
So we shall be able to resume in the N.E.D.C. the discussion on this subject which was started constructively at the meeting a week or two ago, and to do so now, I believe, against the helpful background of what I think are not only new but promising developments. We believe that industry, the trade unions and the Government can then consider together how best to promote their success. The aim, and we must all do what we can to drive this home, is not the negative one of the holding down growth, of holding down real earnings, but the exact opposite : it is the positive aim of increasing growth, and creating a more stable value of money and a greater security of jobs.
During the debate I have heard two distinct and rather opposite reactions to this development. One tends to come from the benches opposite, and it is that we ought to do more in terms of a formal prices and incomes policy, with a clouded voice as to whether it should be voluntary or statutory. I reject that. I do not believe that earlier joint discussions would have been possible, at least not on any fruitful basis, and I do not believe that it would be right. Certainly, I assure my hon. Friend, in particular, as well as the country, we shall not lead the country again down the blind alley of statutory prices and incomes policies.
The other and opposite reaction that has come from some of my hon. Friends has been—perhaps I overstate, but the inference has been there—that all policy to influence movement on prices and incomes is, at least, of no avail and at worst, and more probably, actually harmful. I want to make it clear that the Government reject that opposite view too. We do not believe that anti-inflationary policy can depend solely on fiscal, monetary and public expenditure policies. We must not and cannot depend too much either on C.B.I. initiative on price restraint or on any expected union reaction to it.
As my hon. Friend the Member for Derbyshire, West (Mr. Scott-Hopkins) said, the Government would have acted anyway. We did not decide to act simply as a reaction to the C.B.I. initiative on price restraint. Our action was not dependent on it. But we believe that that initiative is a helpful one and we welcome it. We believe that it increases the room for manœuvre and the chances for success and reduces the risks of embarking on the degree of expansion on which we are embarked.
Similarly, of course we shall welcome any constructive response which may come from the trade unions. We should have taken this action, because we believe it is right and because we do not believe that it is right for a Government to do what the previous Government did, namely, to make dependence on a prices and incomes policy a major weight bearing component in the overall economic policy. In an informal, nonstatutory form it can contribute a worthwhile weight on the right side of the scales. If one expects that much from it, but not more, it is of value, and that is the spirit in which we approach it.
I turn to the criticisms which have been made by the Opposition about what we are doing. I suppose that the principal criticism is that it is too late ; perhaps, also that it is too little—although I was a little confused by the speech of the right hon. Member for Cardiff, South-East. One part of his speech seemed clearly to be indicating that he thought it was too little, and the last part of his speech seemed clearly to be indicating what he thought were the terrible dangers of going as fast as we were proposing to go. I will deal with those points in a moment, but first I must say a word about the two right hon. Gentlemen who made these criticisms from the Opposition Front Bench. It is a rum world and one never knows who on the Opposition Front Bench will stand on his head next. The two right hon. Gentlemen came to the House today as two dashing cavaliers of economic growth. But this is fancy dress. In real life they are very different.
The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) was Chancellor of the Exchequer from November, 1967, to June, 1970. He put up taxation at a rate of £550 million a year. He achieved a growth rate of 2 per cent. a year. He also achieved an increase in unemployment of 2 per cent. a year.
The right hon. Member for Cardiff, South-East was Chancellor from October, 1964, to November, 1967.
I mean the former. I do not mean—[Interruption.] The right hon. Gentleman will realise shortly that I am handing him a bouquet, and meaning to, by comparison with his right hon. Friend the Member for Cardiff, South-East.
The right hon. Member for Cardiff, Sotuh-East was Chancellor from October, 1964, to November, 1967. He increased taxation at the rate of £350 million a year. A little better than the right hon. Member for Stechford, he achieved an increase in unemployment of 16 per cent. a year over the whole of his period in office ; and he achieved an increase in unemployment in his last 13 months as Chancellor of 160,000.
As the Secretary of State has given with greatest precision—clearly most carefully worked out—the percentage increase over my two years and the percentage increase for my right hon. Friend's two years, will he now tell us, because clearly he could not possibly have come along without completing the picture, what has been achieved by his right hon. Friend the Chancellor of the Exchequer during his 12 months in that office?
Indeed I can. I apologise to the House for having temporarily mislaid the paper. I have now found it amongst my notes. I am sorry that it got stuck to another paper. In October, 1964 the unemployment figure—[HON. MEMBERS : "No."]—I will just give the figures—was 340,000. In October, 1966 it had risen to 375,000. By November, 1967—that is, 13 months later, the last 13 months of the right hon. Gentleman's period of office—it had risen to 535,000. In June, 1970 it had risen to 561,000.
It has, I am sorry to say, risen in the last 13 months by about the same amount as it rose in the last 13 months of the right hon. Gentleman's period of office as Chancellor. This is why we are taking the action we are to correct it. It would have been much better had the Labour Government taken action as we are doing, when the figure has risen by that amount in a year.
As for growth, on which the right hon. Gentleman is so keen, he achieved a growth rate of 17 per cent.—surely Mr. Stagnation himself! [Interruption.] As to the balance of payments figures of 1967–68—[An HON. MEMBER : "What was it in 1964?"] Not very good, but there is a very big difference which right hon. and hon. Members opposite refuse to understand. We were conducting, strangely enough, a planned expansion in 1964. My right hon. Friend the Member for Barnet (Mr. Maudling), who was then Chancellor of the Exchequer, had made, and had announced that he had made, provision for seeing us through the inevitable period when imports rise faster than exports. When the Labour Government took office one of their first acts was to pay tribute to the confidence in sterling and to the provisions which were there to see the position through ; and there was no debt of the level which they left behind.
The right hon. Gentleman and other hon. Members, such as my hon. Friend the Member for Derbyshire, West and the hon. Member for Cornwall, North (Mr. Pardoe) have mentioned the importance of retraining and training facilities. I agree that this is immensely important. I have today announced a number of new actions and a special drive to increase the numbers of unemployed workers being retrained with Government help.
The following steps are going to be taken. First, the level of allowances to adult trainees will be raised substantially in September. The rate of allowance for a single man will be increased from £8·25 to £11 a week, giving a maximum lead of £5 over unemployment benefit. There will be appropriate increases in the higher rates payable to men with dependants. I have also now authorised the building of further new Government training centres on the eastern side of Birmingham, north Manchester and in the Chesterfield-Mansfield-Alfreton area as part of the expansion programme that I announced last year.
Third, I am approaching employers in every region to identify the facilities for training of unemployed workers at Government expense in spare capacity and employers' establishments. Fourth, my right hon. Friend and I are consulting the educational interests concerned about the promotion of more extensive training for the unemployed, including for the first time those under 18, in colleges of further education. Fifth, I am taking new initiatives to publicise these improved allowances and facilities as well as the advantages of retraining in general, in order to bring all Government training centres up to full capacity and to make use of other available resources including those in colleges of education and in employers' own factories. Occupancy of places at G.T.Cs varies from 85 per cent. in the North-Western, London and South-Eastern Regions to only 69 per cent. in the Northern and South-Western Regions. Our objective must be to raise that national occupancy to a level as near as possible to the whole operative level.
In addition, let me remind the House that I announced some months ago other measures to expand training, which were a follow through from the measures initiated by the previous Administration, which I gladly acknowledge. Thus more opportunities will be provided for short, limited-skilled training for those not having full-course training in basic skills. We are also providing for skilled workers to come into Government training centres to be trained in additional skills or to have conversion training in other skills more likely to assist them back into employment. Special courses will be organised to assist such people ; more training of employees sponsored by firms will be undertaken, and this type of training often creates further opportunities for employment elsewhere.
In addition to the measures announced by my right hon. Friend, I hope the House will see and welcome the fact that there is on foot a big new drive for providing facilities for training at all ages. This is only the beginning of the drive to which the present Government are committed. I am convinced that there is room for expansion in Scotland, in places which are not yet occupied, and this drive will be at least as much in Scotland and in the other development areas as elsewhere.
I think the House will see that the combination of my right hon. Friend's Budget announcements of measures yesterday and the announcements which I have just made in the employment policy field are proof positive that the Government are determined, as we said before, to halt, then reverse and bring down and keep down the level of unemployment. The Government are committed to the strategy of growth. We are determined to succeed. We are convinced that we shall.