9.1 p.m.
Mrs. Margaret Thatcher (Finchley)
We have had a wide-ranging debate which has consisted of the usual mixture of accusations, epithets and objective analyses. The hon. Member for the Walton Division of Liverpool (Mr. Heffer) had his own description of Government policy but he seemed to think that at the moment we had a Tory Government. Each of us, perhaps, has our own analysis of how we managed to get into the position where this severe deflation came to be necessary.
It is worth while pointing out that many independent commentators are saying to the electorate that my right hon. Friend the Member for Barnet (Mr. Maudling) was the first person who tried to break out of the stop-go cycle which we had been having.
My right hon. Friend decided to try to use the reserves and to use borrowing capacity to finance an expansion. For [column 565]that purpose, he arranged overdraft facilities at the very best time to arrange them—namely, when one does not need them. For that purpose, we had a sharp increase in imports, and stocks rose.
My right hon. Friend managed to ride the problems until the General Election—[Interruption.]—and he would have ridden them after the General Election had we still been there. Had the present Government come to power after a previous period in office, the policies which they pursued at that time might then have been very different from those which they pursued immediately after a prolonged period in opposition.
I mention this because, naturally, if the party opposite came to power after a prolonged period of opposition, they would be anxious to prove how very different they were and that, regardless of the situation, they were concerned most of all to try to carry out their own policies. The result of doing that was to weaken confidence at a most critical time. It means that instead of going on into a period of expansion, we went again into a period of stop. Had James Callaghanthe Chancellor of the Exchequer applied different remedies at the time he came to office, or if he had applied some of the remedies which he applied later, we should never have had a sharp inflation, which only the other day, at Question Time, the right hon. Gentleman referred to as over-inflation. If we had not had the over-inflation, we should not have needed the sharp deflation of 20th July and the statutory controls on prices and incomes which we have now. It is important to try and get the analysis straight, because we should appreciate why we have the very sharp deflation and statutory controls which would not otherwise be necessary.
I agree with a number of hon. Members who have commented that the White Paper is not clear. There is nothing unusual about that. Previous White Papers have not been clear, either. Naturally, we disagree with some of the few matters that are very clear. As I have pointed out in previous debates, on this side of the House we disagree very much with the policy of dishonouring agreements that had been reached formerly. I am well aware that the excuse for it is that 6 million people were covered by agreements. I have never thought it a good [column 566]excuse that, if a lot of people have an agreement, that agreement can be broken. Quite the contrary.
Before the Prices and Incomes Act came into full operation, it was a civil offence to break a contract. Since we have had Part IV of the Act, the Government have taken powers to make it a criminal offence to keep a contract. That is quite unprecedented in English law and it has taken away certain fundamental rights. It has meant that the Government have forfeited the right to co-operation which otherwise they could have expected to continue long into the future.
Clearly, the Government are using those powers more extensively than most of us thought that they would. They are not using them merely to prevent wage increases to large groups of people. Two of the Orders which have been laid concern very small groups. The Rock-ware Glass Order concerned only 34 workers. The one dealing with draughtsmen in the office of the Receiver of Metropolitan Police concerned only 60 workers. So Ministers are using the controls very extensively.
May I examine the argument about the 6 million people covered by agreements? The same argument would have applied to the 5½ million people who are covered by automatic increments, but those are being allowed to go on and were allowed to proceed during the standstill period. The fact that there was a large number of those did not stop that contract from being fulfilled. However, the same argument was used to prevent other agreements from being fulfilled. The standstill has not been a complete standstill, because those who had automatic increments have still been getting them under the terms of the standstill White Paper.
One of the serious difficulties of the White Paper on severe restraint is that merit does not rank for any increase. That is quite contrary to what the Chancellor said recently in a party political broadcast on television. He said then:
“Enterprise and initiative must be and will be rewarded wherever they are.”
The trouble is that what the Chancellor says often sounds extremely good. However, what he does bears little relation to what he says.
We all admire his tremendous debating talents. I think that he and Harold Wilsonthe Prime Minister are two of the best debaters [column 567]whom we have. [Interruption.] Some of us think that they are quite good. I am sure that we have those on our side of the House who are even better.
What we doubt are not the debating talents of the right hon. Gentlemen, but their capacity to reach the right decisions at the right times; and, the longer that they are in power, the longer that will tell.
Inevitably, there will be difficulty if one attempts in a factory, as distinct from a White Paper, to give increases to lower-paid workers and not to those who are above the lower levels. As a matter of practical politics, it cannot be done. When one gets to the factory level and has to negotiate, those in the factory probably will not allow it to be done.
This provision in the White Paper will not come about, and I think that it will be more of a standstill than a period of severe restraint. I think that it would have been far better ultimately for the growth of industry if the Chancellor and R. Gunterthe Minister had agreed that merit should rank for some increase, and ultimately we should have got the growth which is the objective of Government policy.
One paragraph in the White Paper refers to lower-paid workers, and certain aspects of social policy, and a number of hon. Members have referred to this during the debate. I ask the Chancellor to give us a good deal more information about it. As it is in the White Paper, naturally people will be expecting details of how the Government will help those with family commitments. We know that a review has been under consideration for a very long time. I think that it is perhaps pertinent to point out that Beveridge completed his Report within 11 months, so we might expect some report from the Government on this aspect of the White Paper policy as they have now been on their review for two years.
We are all concerned about what happens after 30th June. We note that the Government have not yet decided, and are very anxious to pick anyone's brains that they can. Naturally, if they do not have many of their own, they have to look to someone else to provide them.[column 568]The powers continue after 30th June. The powers of statutory control continue right into the middle of August. I would make a guess about what might happen. After 30th June the Government will then invoke Part II of the Prices and Incomes Act which has not been brought into force, and this will enable them to continue a virtual freeze for another four months. Part of that period will be supported by the continuation of compulsory powers. I think that we should be told before this debate ends whether the Government intend to do that, because naturally it will affect negotiations about wage and salary increases which are going on during the period of severe restraint.
Not a lot of attention has been given this evening to paragraph 42 of the White Paper, which deals with pensions. It is a paragraph which I never expected to see in any White Paper, either on standstill, or on severe restraint. It is a paragraph which virtually tells employers that they must not pay increased pensions to retired employees. I think that this paragraph is both callous and outrageous, and I hope that no employer who has an occupational pension scheme will follow it.
I think that it should be clear that pensioners have suffered already from inflation, and they should be the last to suffer from any severe restraint or standstill provisions. If any company wishes to pay, and wants to pay, increased pensions, and would normally do so in the course of its annual review, I hope that it will continue to do so, and then, if the Government do not like it, they can make an Order and it will be quite clear where the liability lies.
There are a number of other factors concerning persons which are affected by the White Paper. Those who have their pension provisions dependent on the last year of salary—the last three years, or sometimes the last one year—will have the freeze with them, not for six months, or 12 months, but possibly for 20 or 30 years, and I think that every attempt should be made to alleviate that position and see whether they can be compensated for it so that their pensions are not smaller for the rest of their lives.
There has been a certain amount of other publicity in the Press about pensions, [column 569]and we ought to ask the Chancellor for a statement about it. It was released to the Financial Times and to The Times that there had been a letter from Labour Party Headquarters to the Union of Shop, Distributive and Allied Workers stating that
“the party was examining means of controlling the investment policies of pension funds and insurance companies so as to channel investment into those sectors of the economy which fulfilled urgent social and economic priorities.”
I think that we ought to get it clear from the Chancellor. Is he intending to bring in legislation to control the investment policies of pension funds? I think that this would be quite wrong. Hitherto insurance and pension funds have had investment determined on one principle, namely, what is best for the beneficiaries. That is a correct principle, it has given them the greatest increase in pensions and will continue in the future to give them the best possible benefit. We should like to have it clear from the Chancellor that the present position will continue and will not be jeopardised in any way.
Many hon. Members have referred to the down-turn in investment which is now taking place and which is expected to be worse next year. It is worth noting that the level of investment at present has turned down before it reached as high a peak as it reached in 1961. It has turned down rather sooner than one would have expected. I have the impression that the Government think that all they need to do to boost it is either to juggle a little with investment grants or to announce that they hope to get into the Common Market, and that all will be well afterwards. Something much more radical needs to be done. The position has gone beyond the need merely to do a little titivating. We need very far-reaching, radical changes, and whole changes in attitudes.
I suggest that investment is down for a number of reasons. First, industrialists are not yet getting a very large return on investment that they have already made. If someone is not getting very much back from a large expenditure he is very unlikely to embark on increased expenditure for the future. At the moment industrialists do not look like getting increased output or increased sales to use up the capacity that they have already got. [column 570]
Secondly, there is little money in the kitty. There is little ready cash in industry's coffers. If there is any the Chancellor has had it or will have it in the £1,000 million of Corporation Tax on 1st January. If a person has not got any money, or has only very little money, it is not exactly wise to borrow at 7½ per cent. in order to invest when he cannot sell his existing output. Many companies have spent money on over-expansion or over-modernisation and have not had enough cash to tide them over the immediate difficult times. Naturally, if they have money it is important that they should get through those difficult times before embarking on further expenditure.
The third reason why investment is down is that it is quite clear that the Government dislike the fruits of investment going to those who supply the money to invest. We have had many statements from time to time on both profits and dividends. On 22nd November Michael Stewartthe First Secretary made a very tortuous statement on profits. He was not prepared to say that they should be encouraged, but he very reluctantly said that certain of them should not be discouraged. He said:
“We must notice, however, that where profits are increased without improper effects on prices—that is to say, by better management—they must then be regarded as a legitimate form of income which should not be discouraged. But where there is an excessive growth of profits it is open to the Government to take fiscal measures to deal with them.” —[Official Report, 2nd November, 1966; Vol. 736, c. 1154.]
The First Secretary knows that everyone on either side of industry is aware of the fact that when business is booming there are good profits, good dividends and good wages. Industry and labour as a whole are either prosperous or in a depression together. The interests of both those who supply the capital and those who supply the labour are one and the same. Unless we agree that those who supply the capital are entitled to a good return on it, sufficient risk capital will not be forthcoming to make the required investment.
Another reason why investment has turned down is the changed system for investment allowances. The Chancellor pointed out with great flourish at Question Time that Douglas Jaythe President of the Board of Trade had recently announced how to [column 571]get increased cash, but he did not say that all that the President announced was that it was now possible to get a form to fill in—and that one had to be jolly careful to apply for the right form, and there are nine of them. First, it is necessary to discover which form one wants.
That is all that one can do at the moment. One can fill the thing in, but one cannot even return it yet because there is no one to receive it. One cannot return it anyway until, I believe, 16th January, and then can only make an application for investment grant in respect of expenditure made over about six weeks last year. When one has actually got the right form and filled it in and sent it off, the earliest one can get the cash is next July.
Only the Chancellor could make a great flourish about that. It is absolutely useless. All it means is that there will be many more forms to fill in. One contributory factor for the downturn in investment is this. If the Government want more investment, why did they put the Selective Employment Tax on the construction industry?
There is one more point of detail which I hope that the President of the Board of Trade will answer. I think that he agrees that we should get more investment, but his Department is not exactly encouraging it in every direction. Tonight, at midnight, I believe, the 10 per cent. surcharge comes off. Is that so?
Mr. Jay
indicated assent.
Mrs. Thatcher
Yes, it is. In some sectors of imports there has already been an increase of 14 per cent. on the tariff, with regard particularly to machinery which is not constructed in this country. In those cases, it has previously been possible to import machinery and get complete relief from the tariff. That relief has been stopped, and, from 1st October, the right hon. Gentleman has reimposed a tariff of 14 per cent. on that kind of machinery.
There is little point in taking off a 10 per cent. surcharge if, a few weeks before, one has imposed one of 14 per cent. It is absurd, also, to impose it on the very machinery which one wants to [column 572]modernise. Some of our continental competitors pay no tariff whatsoever on this machinery and they are continuing their tariff-free entry.
I want to turn to one or two comments about the increased administrative burdens on industry, all of which have been imposed by this Government. I have already referred to investment grants. A good deal of effort has to go into filling in the forms and discovering exactly what forms to apply for and to what grants this entitles one. Second, industry has had to master all the new aspects of Corporation Tax, which the hon. Member for Heywood and Royton (Mr. Barnett) said that he knew all about in which case, he may be unique in this country. Third, there has been a good deal more red tape connected with the Selective Employment Tax with which firms have had to grapple and none of which they had to do before.
They have also had to get the forms, count heads and decide whether their buildings are “married” or “divorced” to comply with the Minister of Labour's requirements about establishments. They now have to absorb three or four White Papers on prices and incomes so as to know whether they can put up a price or a salary. If they want to expand, they must apply to the Land Commission as soon as it is in operation to see whether they are to be charged a levy for material development. If they have any spare time after all this, they can go out and get orders and produce goods.
This is no way to run a country. To add insult to injury, James Callaghanthe Chancellor then tries to put a tax on all services. These people have had to take on extra staff to meet the requirements of the Government. By taking on this extra staff, they may be precluded from getting premiums.
I turn now to some of the economic judgments of the Chancellor. We know about the past ones, but we are anxious to know about future ones. The Statement of 20th July included a number of deflationary measures which were not intended to bite until next year, so those people who are agitating for a reversal of the deflationary policy are naturally interested to know whether the Chancellor still intends the deflationary measures which were to start next year, still to operate. [column 573]
For example, in 1967–68, he will be taking £100 million out of demand by reducing overseas Government expenditure. Harold WilsonThe Prime Minister talked of firm programmes. We cross-examined the Chancellor on this. We asked the Chancellor if he knew what those firm programmes were. He said he did not know. What is more, he said he did not know when he would know—but that when he did know he would let us know. We still do not know what has happened to that £100 million.
Also in the statement of 20th July were announced many cuts in public investment. The Chancellor implied at Question Time the other day that public investment would rise and that that would more than compensate for the fall in private investment. Does he intend to continue with the £150 million cuts in the nationalised industries; cuts in expenditure on the docks, the electricity industry, the gas industry, on atomic energy and many other parts of the nationalised sector? If not, does he intend in some way to reverse them?
We know that the Surtax surcharge which is due to operate next September is bound to continue. The Chancellor will have to have his swipe at merit there and there is no point in asking the Government about that. However, we know that, whatever happens and whatever the right hon. Gentleman forecasts, he will be confident. This has been a great characteristic of him. He has been confident throughout. Whether we have had inflation or deflation, he has been confident. He was “turning corners” and George Brownthe present Foreign Secretary was seeing lights at the end of tunnels all through 1965.
We had a great revelation the other day in the Chancellor's party political broadcast which was televised, although I did not see it. The right hon. Gentleman said:
“The Government's measures are having the effect they were intended to have, and here's the first difference from what's gone before. This time, the Labour Government is getting down to the root of our problems, and not just tinkering.”
Now we know what the right hon. Gentleman was doing all through 1965, right up to 20th July. He was just tinkering. That is, perhaps, why so many deflationary measures were needed on 20th July. [column 574]One newspaper put it particularly aptly, perhaps a little cruelly—although the right hon. Gentleman has a tough hide—when the Birmingham Post stated:
“Mr. Wilson and Mr. Callaghan have boundless confidence in themselves, but so have many of the most dangerous drivers on the road.”
I return, finally, to the White Paper and the powers under Part IV relating to prices and incomes. I share the view that one of the most alarming speeches was that made by the hon. Member for York (Mr. Alexander W. Lyon), who had become conditioned to permanent statutory control over incomes. That is extremely dangerous. There is nothing in the present situation to warrant permanent statutory control over incomes. I hope that the promise which the Government gave to the effect that such controls would last for only 12 months will be one assurance which they will honour.