18 OCTOBER 1963, Page 27

Hats off to Maudling


The best tribute that has been paid to Mr. Maudling's efforts was contained in the latest report of the Federation of British Industries covering the four months to the end of Sep- tember. Of the 644 replies to their question- naire, 54 per cent said that they were more optimistic about the general business situation than they were four months ago. (Only 3 per cent said 'less.") This was borne out by the rise in output they reported and the lengthening of their order books. Forty-two per cent recorded an increase in their export orders over the past four months and over a third were more opti- mistic about their export prospects. The only thing they were pessimistic about was the rise in costs and the fall in profit margins, which is what one would expect them to be. The moderate- ness of the Maudling recovery is, however, still confirmed by the fact that 56 per cent reported that they were operating 'below capacity. The proportion working to capacity has risen from 34 per cent to 42 per cent. The highest pro- portion ever reported by the FBI as working to full capacity was 60 per cent in the middle of 1960. The FBI are therefore justified in saying that 'there is still substantial capacity for the further expansion which is confidently expected.' Mr. Maudling would have been wise to have taken my advice and cut the still heavy purchase tax on household equipment goods. This would have made his recovery less lopsided and given a boost to the consumer durable trades outside the motor industry.

Some caution about the recovery was evident in a speech by the arch-planner, Sir Robert Shone, the director-general of the NEDC, at a luncheon of the Birmingham Chamber of Com- merce on October 10. He was considering whether the economy was on the target of a 4 per cent growth rate which his Council had fixed for the five years to 1966. It looks, he con- ceded, as if the economy is picking up—perhaps somewhat belatedly—and moving towards the target. Industrial production is some 4 per cent above the level of a year ago and, what is more important, industrial productivity has improved by about 7 per cent from 1961. This, as he said, is the basis of our competitive power in exports and also the basis on which an incomes policy needs to be founded.

No one would want to dissuade Sir Robert Shone from being cautious—in view of his pre- vious experience in industrial estimating—but I do not think that he has allowed sufficiently for the luck which Mr. Maudling and the rest of us are now enjoying in the export field. As air xooerr sale, exports ratseu tne Diggesi aouots when the development plan was first issued, but they are now moving ahead rapidly, being over 7 per cent up on the previous year, and look like continuing so. Outstanding has been the rise in our exports to North America, but ship- ments to the EEC and the sterling, area are also showing some useful growth. In the first quarter of the year the rise was mainly due to the larger orders for machinery and transport equip- ment, which account for nearly halt' the total. but since then the further growth has been in the other half of British exports—mineral fuels and lubricants, chemicals, textiles, scien- tific instruments, clothing, food (sugar) and drink (whisky). British exports must be fairly competitive when they reach a record monthly total, as they did in August, of over £350 million. A nation that can export £4,000 million worth of goods in a year should be able to pay its way in this competitive world. This great export achievement, coupled w ith extremely favourable terms of trade, has brought us a comfortable surplus on our balance of payments.

In another sector of the economy Mr. Maud- ling has also had a stroke of luck. The fall in private-enterprise investment has been a brake upon his recovery—witness the miserable per- formance of the machine-tool industry--and the continuing high unemployment in the develop- ment districts has been giving him cause for real concern. Imagine his delight when he heard the news that the ICI board had sanctioned the investment of £30 million on six new capital projects in the north-west and north-east of England. These include a naphtha-cracking plant on Merseyside and an expansion of the nylon polymer works on Tees-side. They bring the company's total capital expenditure in Britain this year to nearly £68 million against only £20 million in the corresponding period of 1962. The ICI board would never have authorised- these vast expenditures unless they had been satisfied that the Maudling recovery had conic to stay. This may well be the turning-point in the downtrend of private investment. There is a good deal of evidence from inquiries reach- ing the Board of Trade and from applications for industrial development certificates that the Bud- get incentives- which the Chancellor gave to pri- vate enterprise to make new investment, especially in the development districts, are now beginning to take effect.

There is no doubt that Mr. Maudling badly needs an upturn in private investment to com- plete his re-expansion of the economy. The in- crease in public investment cannot be pushed too far, for it falls mainly on an over-extended building and contracting industry. We are enter- ing the winter with a fairly high unemployment ratio overall 2.1 per cent—and a worsening of unemployment in the development, districts would create an awkward political situation.

Allowing for all the luck, the success so far of Mr. Maudling's reflationary policy stands out to his great credit. He has achieved a sub- stantial re-expansion of the economy with stable prices, a strong £ and a favourable balance of payments. He needs the support of other big investors like ICI to bring him to next April without another unemployment crisis. If he can then-present another stimulating Budget, we can look forward to something like a boom by the middle of 19q4. Perhaps it would be wise for his party to keep him in the Chancellor's seat.