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Volume 436: debated on Tuesday 15 April 1947

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23. Essential Commodities Reserves Fund


"That the sum of nine hundred and seventy-three thousand and forty-one pounds fourteen shillings and sixpence be paid out of the Essential Commodities Reserves Fund into the Exchequer."


Motion made, and Question proposed,

"That it is expedient to amend the law with respect to the National Debt and the public revenue, and to make further provision in connection with finance."—[ Mr. Dalton.]

6.36 p.m.

It is traditional that on this, the first day of the Committee's discussion of the financial proposals for the year, we should offer congratulations to the Chancellor of the Exchequer on the accomplishment of what is always a formidable Parliamentary task, and which must today have been a formidable physical task also. I can certainly do that, and can also congratulate the right hon. Gentleman on the clarity of his exposition, not infrequently, may I add, barbed with shafts aimed at hon. Members on this side of the Committee. The fact that the targets at which he was aiming were not the views held by anyone on this side, of course, in no way discouraged the right hon. Gentleman from aiming his shafts. In fact, when he began to exhort us on the question of the export trade, I really felt that he should be looking up and down the Treasury Bench. I would commend some of the literature of those days to some of his colleagues, now wisely absent. Nor would any one in this House challenge the Chancellor's ability to state a case. If there is a criticism which we on this side wish to make about him in this respect today, it is not that he fails to take credit for what he has achieved, but that he also quite cheerfully takes all the credit for what others have achieved.

For instance, there was his description of the monetary policy. That is not in any way an invention of the present Chancellor of the' Exchequer. The cheap money policy dates back to the days of Mr. Neville Chamberlain and to the first big financial conversion operation which, I think I am right in saying, took place in 1932. But anyone listening to the right hon. Gentleman today would have thought that he was the first person who had ever heard of the cheap money policy. He spoke about the new social legislation, and invited us to look round at this world and at what we are going to enjoy. But most of it was based on legislation worked out by a previous Coalition Government. He forgot to mention that that ever existed at all. [Interruption.] That is a matter of degree, and not a matter of principle. In fact, proposals like the family allowance were all worked out in the days of the Coalition Government, and nobody knows that better than the right hon. Gentleman. It seemed to me that he went so far as to claim credit for the error of the actuary in respect of the number of babies. I would warn the right hon. Gentleman to be rather careful about that. He had better wait until the babies grow up, and see what they say about it.

I now wish to say a word or two about the proposals. First of all, I must say, and I am sure that the right hon. Gentleman will realise it, that the account which he has given us—I make no complaint of its length—of the increase of taxes here and the reduction of taxes there, presents a very formidable study for this Committee. I am certainly not prepared, and I do not think that anybody would expect at the end of a three-hour speech, to enter into these matters on merit at all. I think it would be unwise to do so, because one must study these matters before speaking on them at any length.

I want to refer to one particular matter because I do not want any misunderstanding about the announcement made by the Chancellor. He referred to the unexpected surplus which he could fore- see on the basis of present taxation. He said that, for this year, he could foresee a surplus of £248 million. That is quite true, and there seemed to be some criticism that hon. Members on this side of the Committee were not cheering. I will tell the right hon. Gentleman why I was not cheering. I wanted, first, to see of what this surplus consisted. I say at once that we on this side of the Committee are just as pleased as hon. Members opposite that there should be a financial surplus in the present state of national affairs. There is no division among us on that. But we must see what that surplus is. When the right hon. Gentleman went on to explain the nature of the surplus I think we all felt that we were right to be a little silent until we had examined the matter. It may be, perhaps, that some of his hon. Friends behind him were unwise to be so exuberant in their enthusiasm, because the right hon. Gentleman himself was rightly conservative in his handling of this surplus. It was not a revenue surplus at all; it was a windfall of a number of items, such as the sale of war stores, and so on. They are very welcome, but they cannot be included in revenue. They are non-recurring items, and, therefore, though they are welcome, they are not matters which can give us great confidence or cause for jubilation, or are any particular evidence of the immediate financial strength of the country at all. They are evidence, however, that there has been some pretty slack accounting here and there, and that people have at last been pulled up who should have been pulled up some time ago.

I have some observations of a general character to make. The first is about the figures of last year's revenue and expenditure. The right hon. Gentleman took great credit for the fact that the deficit was less than he estimated a year ago. There, again, I must point out that the expansion of receipts was influenced by a number of windfalls. For instance, if I am right, the Budget estimate of about £22 million from miscellaneous receipts, has been more than trebled. The sum of £15 million expected from sundry loans is about doubled. The right hon. Gentleman will not dispute that the question of Income Tax yield was influenced, to some extent, by the volume of money in circulation, and that, when an increased volume of money is accompanied by higher prices, rather than by higher production, that is not a state of affairs which we can be called upon to applaud.

I will give another example which will appeal to the right hon. Gentleman. Despite the cut in the beer supplies which, I think, he said would cost him £50 million, the Excise receipts have fallen only by £28 million. That, surely, reflects a growing volume of spending power, and is another example also, of too much money chasing too few goods—a problem of which the right hon. Gentleman must assuredly be conscious. So much for the revenue side of the account.

As regards the expenditure side, I must put one or two questions. Have there really been any economies at all on the expenditure side, or are these reductions in the Estimates to which the right hon. Gentleman referred merely deferments of expenditure because, for one reason or another, it was not possible to carry out the work in the financial year? We would like some further information about this in the course of the Debate. There is another aspect to which I wish to refer, concerning revenue and expenditure, which is of greater significance than anything I have so far said. If the right hon. Gentleman were to take into account all the items of Government expenditure, and not merely those which appear in the revenue returns, the gap between Government receipts and outgoings would not be the £569 million which he talked about, but somewhere about double that figure.

I arrive at that figure by including the so-called capital expenditure, or the "below the line" expenditure, which amounts to nearly £600 million. That, as the right hon. Gentleman explained, includes E.P.T. refund, housing, war damage payments, Civil Contingency Fund, and so forth. If the right hon. Gentleman replies, as he is entitled to do, that much of this expenditure is truly on capital account and, therefore, ought not to be included in the year's expenditure, I merely comment that these moneys have had to be paid out in this year. More than that, if they are not included on the expenditure side of the account, neither should transitory revenue items like the special receipts which have been referred to this afternoon—sales of war stores and so on—be included on the credit side. I think the total deficit is really larger than the right hon. Gentleman anticipated at the time of his Budget last April.

With regard to savings certificates, one of the reasons why the Chancellor has had to borrow some money in this last year, though he said he would not have to borrow it, has been the disparity between the net small savings, which totalled about £300 million, and the gross small savings, which totalled about £560 million. I cannot altogether acquit the right hon. Gentleman of some share in the public misunderstanding about the savings campaign. Some of my right hon. Friends and I have supported that campaign. In his last Budget speech the right hon. Gentleman gave £520 million as his target. He was, in fact, giving a gross figure, and not taking account of the certificates which would be cashed, yet he described this gross figure as new money. Of course, as far as savings certificates were concerned, it was not really new money at all. The only new money was the excess of the certificates bought over the encashment of old certificates. I am glad the new return will give a truer picture. But, apart from the shortfall of the savings, there is no doubt that such borrowings as the right hon. Gentleman has had to make from the City have been made necessary by greater outgoings than he anticipated a year ago.

I wish to say a word about the overseas balance position, because that is the most important question of all which confronts us at this moment. It is true, of course, that the deficit there is smaller than that which the Chancellor anticipated a year ago—it is £400 million instead of £700 million—but the factors which account for that are not at all comforting. First of all, there is the fact that our exports at the early part of the last financial year went ahead fairly well, rather ahead of expectations, but after that the figure began to fall progressively in the autumn and has been falling ever since. Moreover, this year we have got to take account of the effect of the fuel and power cuts on our export figures. I ask the right hon. Gentleman to tell us what the effect is estimated to be. because it is vital to any appreciation of the balance of payments position.

I fear something else has happened. In 1946, I fear, we have exported in many lines, particularly capital goods, to soft currency countries which have little or nothing to offer in exchange, and to sterling countries which, as a result of our exports to them, merely struck off a proportion of the big debt to them. I offer a striking example which contains a lesson of enduring importance to the right hon. Gentleman and to his Government. I take railway wagons as an example. There is no dispute about our need for railway wagons in this country, nor is there any dispute as to the cry from other lands all over the world for railway wagons. When, in a Debate on this matter just before Easter, I referred to the need for more wagons and equipment for our own railways, the Minister of Fuel and Power replied by a reference to South Africa. He explained, quite rightly, that in South Africa, which was a possible source of supply of coal for us, the limiting factor was transport. He told us that if only we could supply the wagons South Africa might be able to help us with coal. The right hon. Gentleman appeared to think that that was sufficient answer to my suggestion.

What are the facts? In January and February, 1938, before the war, we exported to South Africa 2,994 wagons, and to India 464. This year we exported in those two months to South Africa, 145 wagons and to India 4,301—infinitely more than before the war. In other words, we sent to South Africa one-thirtieth of the numbers we sent to India, which can offer no contribution towards the solution of this particular problem. That is what we on this side of the House mean when we say that Government planning has not been adequate. I suggest the right hon. Gentleman should look into that. It is an example of where the Government have allowed a situation to develop which is clearly not in our national interest, and will have its effect on the balance of payments which must be the right hon. Gentleman's chief anxiety now.

Another reason why I think the balance of payments figures look comparatively encouraging at present is because the level of our imports has been so low—7o per cent. of 1938. That is not by any means satisfactory. It means that many industries are short of essential raw materials, that all are working on very narrow margins, that the much abused word "bottleneck" becomes only too true, and, therefore, the reduction of the present deficit in the balance of payments has only been obtained at the expense of results later this year and, I tear in other years. More important is the question, what is to be the rate of expenditure of the American and Canadian Loans this year and next? On that subject we must have some information during this Debate. What will be the effect of the fuel and power shortage on the Government's estimate of the balance of payments? Are we wise in running such considerable favourable balances with these soft currency countries? What is the Government's estimate on making sterling freely convertible in July? That is a matter upon which there are many great anxieties, and I hope the right hon. Gentleman will let us have his views in the course of the Debate.

There is one other subject to which I must refer because the right hon. Gentleman dealt with it at such length, and I do not wish there to be any doubt as to where my right hon. Friends and l stand in regard to it. That is the question of cheap money. As I said earlier, the right hon. Gentleman spoke as if he were the first who attempted to practise the policy of cheap money. That is not true. His predecessors began it, and the late Mr. Neville Chamberlain began the conversion operation to which I referred. There is no dispute about the desirability of capital being available at relatively cheap rates during a reconstruction period such as that in which we are now living. Any criticism on these benches is that the right hon. Gentleman has pushed too far and too fast with his cheap money policy, and he has been able to sustain it only by the creation of credit on a scale which has done harm to our economy greater than the gain which he has achieved by the saving on the interest rates themselves. That raises the question, is there inflationary pressure, and how bad? The most accurate record, so far as I know, is the Board of Trade wholesale price index, and that stands at 8o per cent. above 1938. That is the measure of the degree of our inflation. I know the right hon. Gentleman will agree that that is sufficiently serious. Its effects are known only too well; they affect our spending power and the balance of our economy. My right hon. Friend the Member for Aldershot (Mr. Lyttelton) dealt with this matter at some length the other day; I shall not repeat his argument, but the right hon. Gentleman did say in reply to my right hon. Friend that the rise in the note circulation had flattened out and that the bank deposits declined. But the decline of bank deposits in February is an annual occurrence, largely in order to meet the tax requirements of the right hon. Gentleman, and they have risen again, I think, by £32,500,000 in this last month. So the right hon. Gentleman's reply did not meet my right hon. Friend's point.

I do not wish to detain the Committee longer. I conclude with this summing-up of the situation. Despite the changes which the right hon. Gentleman has made in taxation, some of which we welcome, and despite the new impositions, to some of which we shall have to lodge grave objections, the broad position remains that our national expenditure is still far too high. I know perfectly well that a case can be made out for every single item in our national expenditure—it always can—but it is the Chancellor's duty to reduce that burden of expenditure. Today it handicaps us in every way. It handicaps us in our attempts to compete abroad. The first fine careless rapture of the sellers' market is over. We now face stiff competition in foreign markets. Even now the iron and steel industry has not got 100 per cent. of its coal allocation. However great the ingenuity of the right hon. Gentleman, it remains profoundly true that only by a reduction of expenditure can he restore the balance to our economy and prosperity to our industry. It is by that test that, in the long run, this Budget will be judged and it is by its influence on our life that the nation will pronounce on the work which he has done today.

Ordered: "That the Chairman do report Progress, and ask leave to sit again."—[Mr. Joseph Henderson.]

Resolutions to be reported Tomorrow; Committee also report Progress; to sit again Tomorrow.