ECONOMIC SITUATION

HC Deb 25 July 1957 vol 574 cc621-784

4.13 p.m.

Mr. Harold Wilson (Huyton)

We have just had one example of Tory freedom at work, and the subject we are debating this afternoon, the inflationary situation, is another. On 10th April, the day after Budget Day, I described the Chancellor's speech as "an assignment with inflation". That phrase was indignantly repudiated by the Chancellor and the whole establishment Press. I do not think that any hon. Member or any responsible newspaper today, only 15 weeks later, would say that that warning was not justified.

It is the unprecedently widespread concern about inflation itself which has given rise to this debate, although the House will not wish to ignore other developments in the economic situation. There may be some who will wish to question the Prime Minister on his remarkable statement last Saturday—the "You-haven-ever-had-it-so-good" speech—which was in striking contrast to the Chancellor's two grave speeches only a fortnight ago.

Making every allowance for the intoxicating nature of his audience and his own exuberance in his job, some hon. Members might like to question the Prime. Minister about his claim that the gold reserves rose by £88 million in the first six months of this year, always the most favourable seasonal period for sterling. We should like to ask the Prime Minister—if he were here—whether it was just a Freudian slip which made him omit the reckoning that in this same period sterling area borrowings from the International Monetary Fund, the repayment of the U.S. waiver, and the first instalment of Adenauer Aid received in April amounted to £118 million against the £88 million increase in the reserves for which the Prime Minister was taking credit.

I want mainly to deal with the inflationary situation at home. Sterling is under heavy pressure, but we have said many times this year that the scale of the Government's borrowings and the mobilisation of the second line of financial reserves ought to be enough to see us through this year without a foreign exchange crisis. I see no reason to change that view. But the scale of these borrowings and the need to repay them before very long make it all the more urgent, as we have frequently said, that we make all the changes necessary in our internal policies to enable us at the earliest possible moment to be able to reach a situation of strength in our overseas dealings. The first problem with which we have to deal is inflation.

I concede right away to the Chancellor that there is no new or sudden crisis. To some extent it has been over-dramatised and sensationalised, and the Chancellor bears his own responsibility for that and, no doubt, the Chancellor of the Duchy of Lancaster, who has been putting it round rather assiduously, to the embarrassment of the Chancellor of the Exchequer. However it may have been over-dramatised, this is not a new problem.

What has happened in the last two weeks has been a sudden realisation of the degree of inflation in the country, a sudden expression of widespread concern, a sudden shock as we pass further economic sound barriers—consols falling below 50, a 3d. letter—and 1 oz. at that—the lowest recorded price for War Loan, and so on. There is a realisation that the Prime Minister's plateau—and it cost the country £700 million to attempt to reach that plateau, £700 million in lost production—is now lost to us.

All these things have led to an attitude of hopeless resignation about the future of the currency to the point where it becomes not a change of degree but a change of kind, where many people in key positions, from underwriters at Lloyds to those responsible for trust funds, are redisposing their affairs on a scale which reflects their anxiety about the future of the currency. Of course, it is when the community comes to accept inflation as part of the natural order of things and takes action to anticipate the effect of inflation that a creeping inflation turns into a galloping inflation. It is for that reason rather than because of anything inherently new in the situation that we must all view this matter with the deepest concern.

Having said that, let us put the problem into its proper setting. Constantly rising prices have been with us since the early days of World War II. There has been no let up. To some extent inflation has been world wide. From 1946 to 1951, when we were in power, the cost-of-living index rose by 32 per cent. From 1951 to 1957, with the Conservatives in power, it has so far risen by 28 per cent. It is fair to point out that the rise from 1946 to 1951 took place against a background of constantly rising world prices. World prices doubled in the period. We were more successful than any other country in keeping home prices down. It is also fair to point out that since 1951 the rise in the cost of living in this country has been against a background of falling world prices and that the cost of living has risen more in Britain than in almost any other country for which figures are available.

The Economic Commission for Europe has just published its latest quarterly report. It examines the cost of living position in seventeen countries, as compared with 1953. By March, 1957, prices in this country had risen by 14 per cent. compared with 1953. Only Greece, Spain, Finland and Yugoslavia—for what comfort that is to hon. Members opposite—showed bigger increases in the seventeen listed countries. Over the same period—and again this is worthy of note—the same report shows that the indices of increase in national production show Britain the lowest of all—bottom of the league—with a 13 per cent. increase in production in 1953 against an average for Western Europe of 29 per cent. So it is clear that Government restriction of production is not the answer to the problem of inflation.

I have said that this is a continuing problem, but perhaps I might fairly begin—for the benefit of those hon. Members still fighting the Korean war with undiminished vigour—with the period 1950–51, because that is the one that they always throw up at us. Yes—that was the year of the worst increases in prices in this country. The international scramble for commodities, and private and Governmental stockpiling, gave a fresh and vicious twist to the inflationary spiral. In 1952, when world prices fell, I believe that the Government missed a great opportunity to halt the spiral, when they deliberately forced up food prices at a time when I believe that prices could have been stabilised. They did it by slashing food subsidies.

Having started from that period, I take another three periods—the periods of the three separate Conservative Chancellors—not for the purpose of making political capital out of it; that would be only too easy; but because there are deep and sincere differences of view about this question of inflation on the two sides of the House. I want to examine the different approaches of right hon. Gentlemen opposite, as a preliminary to drawing conclusions from their experience and presenting, I hope, a positive alternative.

From 1953 to 1955, we had what has come to be known as the "Butler boom". Against a background of the easiest economic conditions that we have known for a generation—favourable terms of trade; falling world prices and no world dollar problem—we had the events which will always be associated with the name of the Lord Privy Seal. This was the era of decontrol; of "Invest in Success" and of tax incentives to investment; and it was also the era of the pre-Election Budget of 1955. It also led to the post-Election import crisis of 1955.

If we analyse what happened in these years, we find that from 1954 to 1955 alone, while our production rose by 3 per cent., our imports rose by 11 per cent. A special dollar problem was created by decontrol, because, during that same period when production rose by only 3 per cent, imports from the dollar area rose within a single year, by 30 per cent. Investment, largely inessential, boomed, and the Economic Survey published the following spring complained that: a considerable upsurge in the capital expenditure of industry was being superimposed on the buoyant level of consumers' expenditure … the size of the expansion … was greater than our resources permitted. As we all know, the Lord Privy Seal reacted to this situation by instituting the credit squeeze, imposing hire-purchase controls, raising the Bank Rate and introducing his autumn Budget, which taxed household essentials and which itself gave a fresh twist to the cost-inflation spiral. So much for the Lord Privy Seal, whose cancellarian epitaph was pronounced by the Prime Minister in imperishable prose which I could neither hope nor wish to rival.

I turn to 1956, which economic history will no doubt regard as the era of the Macmillan stagnation and the attempted wage squeeze. The Prime Minister embarked upon a policy of deflating his predecessor and the economy at one and the same time. He was more successful in his first aim than in his second. I am not suggesting that there was a complete break of policy. Continuity of economic policy was shown by the continuation and tightening of the credit squeeze. The Bank Rate was raised to the highest level for a generation, and the investment programmes of the nationalised industries were cut and cut again.

The Prime Minister's Budget had as its motif the encouragement of savings, and in this alone the right hon. Gentleman has had some success. He also set out to make history by cutting Government expenditure, and we all know how that ended. But the main theme of his economic policy—I do not think that I am misrepresenting him—was to curb the boom. He said: I think we have learned this lesson from the … past year. We cannot afford to run the economy flat out …".—[OFFICIAL REPORT, 17th April. 1956, Vol. 551, c. 857.] As the present Chancellor in this year's Budget said, after quoting the very words which I have just taken from his predecessor: We intended to reduce the pressure and we did reduce the pressure … In the process some potential production was lost, and that was inevitable."—[OFFICIAL REPORT, 9th April, 1957; Vol. 568, c. 968.] That is what he said in April. Now, in July, the Chancellor, growing more daring, or reckless—I am not sure which—blames inflation upon the failure of production to rise, and calls for higher production. The late Chancellor—the present Prime Minister—as part of his policy to curb the boom, abolished investment allowances and tightened the credit squeeze. As he hoped, production stagnated.

But there was another aim in his economic policy, namely, the "plateau". He asked the nationalised industries to hold down their prices, and he appealed to private firms to do the same. Then, with his promise of a plateau, he appealed for a wage freeze. His policy was to lower the tempo of production and to have a small measure of unemployment, nothing like the old Stockton days, but enough to reduce overtime and increase short-time working, and to squeeze industry so that wage claims could not be granted.

He aimed, in fact, to create conditions in which, to quote the famous words of the Deputy Chief Whip— … the atmosphere of negotiation when they "— the unions— come to employers will be very different from what it has been during the years since the war. Some of us feared, and warned the Government, that this would mean a worsening of industrial relations. We warned the Chancellor a year ago about the economic Suez group calling for a show-down with organised labour. We did not know then that he was leading that Suez group as well. The show-down came in engineering, where the chairman of the engineering employers happened to be a crony of the Prime Minister, so much so that he is now a Cabinet Minister, in charge of fuel and power, in another place, and, we hope, largely out of range of those hon. Members opposite who have already got two fuel and power scalps dangling from their belts.

The House will want to know whether there was collusion between the Chancellor and the engineering employers. We have no Bromberger papers to show as yet, but there was certainly a resort to force in the employers' blank refusal even to discuss the wage claim. As we all know, when the show-down came the Government changed their attitude. As the Economist commented, at the end of all this period of attempted wage squeeze: Disinflationary policy probably raised labour costs, at least in British industry, more than galloping inflation had done in the boom. Why did the squeeze fail? Why did the plateau policy fail? For this reason—that at the very moment when the Chancellor was appealing for wage restraint he was himself forcing up wage claims by forcing up the price of bread, milk, prescriptions and, above all, rents.

So much for the Prime Minister's attempt to deal with inflation. The new Chancellor, who took over this year, had to frame his policy regarding inflation amid the ruins of the policies of both his predecessors. He had this dilemma. Should he follow the Lord Privy Seal and have a "free-for-all," leading to inflation and an import crisis, or should he follow the Prime Minister and hold imports down at the cost of industrial stagnation? Should he, as the Lord Privy Seal did, go in for expansion with inflation, or should he, as the Prime Minister did, go in for inflation without expansion?

The right hon. Gentleman decided, so far as we could measure what his policy was in the Budget speech, to let production ride. This is what we called his assignment with inflation. When we used those words in April, we were not complaining of the size of the Budget surplus; that is really irrelevant. The right hon. Gentleman keeps telling us that he is aiming at the same surplus as the Prime Minister aimed at a year earlier, but, of course, the Prime Minister was £300 million out in the event. Of course, the size of the inflationary surplus is irrelevant; in periods of inflation, some surplus of realised revenue over realised expenditure is not of itself disinflationary, because the greater the pressure of inflation the higher is the Budget surplus, borne like a cork on the waves. We were not even referring, when we used this phrase in the Budget debates, to the nature of the tax concessions, although, of course, the highly provocative nature of the Surtax concessions must, by this time, be obvious to all.

What was clear, even in April, was that the Prime Minister's little recession was over. Home consumption was rising. Hire purchase was reviving. Wages, profits and dividends were all on the upgrade. The credit squeeze, on which the Government relied, was weakening, and the Chancellor was unwilling to do anything except look forward to next year's Budget give-aways. Three months later, we have all the signs of inflation. The cost of living is still rising.

Right hon. Gentlemen have, I think, deluded themselves too long about the stability of the Retail Price Index over last year. They always take April as the starting point, and, of course, the reason for its apparent stability for long periods during some months last year when there was no increase in the index lay in purely temporary and seasonal factors in the price of vegetables, resulting from poor crops early last year—as the Treasury Bulletin for Industry recently made clear. Looking at all the other indices, the prices of publicly-owned and privately-owned industry have gone up. "Ernie" has done his calculations and produced the 3d. one-ounce letter. Wage rates, about which we hear a lot, were in May 5 per cent. up on May last year. Industrial profits, in the first quarter of this year, according to the Economist, are per cent. up on those for 1956, and they, of course, cover the whole year, the year of the Prime Minister's recession. We can, therefore, I think, expect a further rise in industrial profits.

Dividends have gone up over the last year more than wages, despite their covering the period of the temporary recession. Ordinary shares this week, on the index, stand at 203 as compared with 183 a year ago—11 per cent. up on the year, an 11 per cent. increase in ordinary share values, tax free. I could, of course, show a much more graphic increase if I were to base the comparison on the low figure during the Suez Crisis; they have risen nearly one third from that point. But I am trying to be objective about these figures, and I am going back to last July.

The figures of home consumption are rising rapidly, especially hire purchase. The figures for household goods are up by 15 per cent., and the hire purchase figures for motor cars have doubled. As to the financial indices, bank advances since January are up by £167 millions, despite the fact that the nationalised industries have repaid £52 million. The expansion to other borrowers, therefore, was two-and-a-half to three times as great as in the same period of 1956. Bank deposits of clearing banks are up by £184 million in six week, the largest ever recorded for this time of year; compared with twelve months ago, they are up by £193 million. As the Economist said, commenting on these figures last week, So much for the credit squeeze". There are more serious things. The gilt-edged yield has been down recently to less than 0.25 per cent. differential compared with the yield on equities, and the dollar premium only yesterday was up to nearly 20 per cent. compared with prices in this country. It can, I think, fairly be said that the Chancellor has kept his assignment with inflation.

I do not need to spell out the dangers to our foreign balance, to our standard of life, to employment, and, of course, even more immediately, to the already low, and month by month worsening, conditions of life of old-age pensioners and those living on small fixed incomes. That needs no arguing in this debate.

Looking back over the record of the three right hon. Gentlemen, the question arises, where has Government policy gone wrong? First of all, they have deliberately forced prices up and given repeated twists to the cost inflation. Now they are doing it again with rents. I should like to ask the Minister of Labour what his position is. We often hear appeals for wage restraint, and there is this very gentlemanly campaign of denigration against the trade union movement. Will the Minister of Labour tell us whether the Government now consider that the unions are justified in claiming more wages because of rent increases, or are they expected to absorb rent increases within existing wages? Surely, the right hon. Gentleman must have borne this in mind when rents policy was being considered by the Government.

The second reason why the Government have failed is that they have relied almost solely on monetary policy and now find that it does not work, at least, in the only way they know how to apply it. Thirdly, they have failed because they reject all selective controls. Their approach is, all or nothing, full steam ahead or full stop, the accelerator at full throttle or the brake. The Lord Privy Seal gave the green light and everything, especially the inessentials, boomed ahead. Then they had to cut, and when this Government have to cut, it is mainly the essential sector of the economy which they cut. We have warned them time and time again. We told them in 1954, in 1955, in 1956, and again this year, that the test in holding back or pressing forward should not be, "Is it public or private industry," but, "How essential is it?" Of course, they cannot accept that argument, because if one has to apply the test of essentiality in the private sector, it means controls, and it means selective controls at that. Investment in the public sector, in the main, is plannable. In the private sector it is plannable to a degree, only if one uses controls. I am sorry if these phrases offend the susceptibilities of the hon. Member for Kidderminster (Mr. Nabarro), but this is an extremely important matter.

Mr. Gerald Nabarro (Kidderminster)

My hon. Friends and I could not hear the right hon. Member for Huyton (Mr. H. Wilson); he happened to turn round.

Mr. Wilson

I beg the hon. Gentleman's pardon. I will repeat the words, because I hope that he will make use of them when he thinks about these things in future. I said that investment in the public sector is plannable. In the private sector, it is plannable to a degree only if one uses controls, and selective controls at that.

We believe—it is a fundamental difference of approach—that if one holds back the less essential investment, one not only gives the green light to essential progress by reducing competing strains on available resources, but one can do much more, one can positively expand the essential programme then and give it positive encouragement.

The keynote, therefore, of this system of selective controls should not be restriction but planning for expansion. This means, of course, expanding the basic industries, the export industries, and holding back the inessential industries to make this possible.

Viscount Hinchingbrooke (Dorset, South)

Dr. Schacht.

Mr. Wilson

I have already had one intervention from the noble Lord the Member for Dorset, South, this afternoon, and on that occasion he thought he could deal with these problems by quoting Tory Press misrepresentations of something I said years ago. If the noble Lord believes that planning for full employment can be done only by the methods of Dr. Schacht, it is time he came into the twentieth century. I want to illustrate this point for the benefit of the noble Lord.

Sir Ian Horobin (Oldham, East)

Was not Dr. Schacht in the twentieth century?

Mr. Wilson

I should have thought the hon. Gentleman, above all, would have realised the seriousness of this inflationary position and would stop trying to make silly cracks about it. We all know that Dr. Schacht was in the twentieth century. We also know, on this side of the House, that the twentieth century has produced democratic methods of controlling investment and economics.

In the Lord Privy Seal's free-for-all he did not expand the basic industries sufficiently, and when the boom occurred he had to spend 100 million dollars on imported dollar steel in 1955. We have often mentioned the amount of inessential building going on: I do not want to repeat all those arguments about large blocks of offices. It was highly significant that the Chancellor's scaremongering speech a fortnight ago took place at the opening of one of these large blocks of City offices. We have referred to overexpansion of the advertising industry; this year we shall be spending as a nation £30 million on T.V. advertising alone. We are spending nearly £400 million a year on advertising as a whole.

The scribes often tell us that if we hold back an inessential product by, say, building licensing, that only dams up the inflationary purchasing power temporarily and it pops up somewhere else. I do not believe it. When all the economists have finished arguing, inflation comes from decisions to spend. If an oil company is told that it cannot spend money on that petrol station, or a brewery cannot spend money on that pub, they are not likely to spend the money on anything else, and inflation is thereby reduced. I do not say that that applies to other forms of control such as import licensing. We say, hold back inessential building by investment control and actively expand essential building by tax concessions and public investment. We believe that a most important part of this process could be the use of Government factory capacity, and that is why we deplore the closing down of Royal Ordnance factories.

Monetary policy has a part to play in holding back the private sector, but only as one arm in a combined operation. The Government have placed far too much reliance on monetary policy and, having done so, they find that they really do not know how to make it work. The House is familiar with our complaints of the Government's monetary policy and our attacks on the cost of it—the increase in the National Debt charge, the increased cost of £150 million a year on the balance of payments, higher charges, rents, and interest rates for local authorities, the crippling of colonial development, the driving of Commonwealth borrowers to foreign financial centres for their capital and a bad effect upon small businesses.

We have made another charge too, that the monetary policy has not even worked. It has not done what it set out to do. For five years the Government have put their faith in monetary policy and when they find they have not a clue how to work it they hand over the job to Lord Radcliffe to find out. This is bankruptcy. We shall have to wait two years for the answer and during this time the Government will not know how to use the monetary weapon, while on doctrinaire grounds they will not be willing to use any other.

I do not want to enter into all the recent arguments about the techniques of monetary policy. One thing is very clear, and I am sure that many Government supporters will agree with this: we could have had the same degree of credit squeeze—if that was the Government's policy—and the same restriction of bank lending, at a much lower Bank Rate. The Bank Rate as a controller is largely ineffective. It hardly restrains borrowing and it certainly does not restrain lending. The only time it seems to bite is when it is put up. That impact effect takes the form of a widening between lending and deposit rates, and even that impact effect disappears. It tends to become a sort of ratchet mechanism, going up by 1 per cent. and down by½per cent. The tendency must always be upwards if we rely on monetary policy.

Why is monetary policy ineffective? Some say it is because of taxation. At today's taxation levels the Bank Rate would have to be 10 per cent. instead of 5 per cent. to be equivalent to the pre-war 5 per cent. I remember the noble Lord making that point a year ago. It is a fair point to make for anyone holding his economic point of view. Others say it is because of the volume of Treasury bills. It is significant that the Governor of the Bank of England—which is the main instrument of the Government's declared policy—himself says that monetary policy cannot work effectively at present levels of Government expenditure. With the failure of the Prime Minister to cut Government expenditure, it seems foolhardy on the part of the Government to rely so much on a policy which the chief monetary controller says cannot work in the conditions in which the Government are applying it.

The authorities are not willing to squeeze the banks' liquidity. They cannot operate on the cash basis because of Treasury bills. We cannot fund the floating debt, certainly in the present condition of the gilt-edged market, except at excessive rates of interest, so we have had funding by stealth, the Government broker creeping up behind the gilt-edged market and every time it raises its head cracking it one so that the market never has a chance to rise. I know that the hon. Member for Oldham, East (Sir I. Horobin)was putting a point not dissimilar to this only a year ago about Treasury bills.

Therefore monetary policy, as it works, is not the answer. That is why some of us would support a policy of sterilising some of the short-term debt. This goes far beyond Members on this side of the House. It would include sterilising some Treasury bills by a once-for-all conversion into Treasury deposit receipts, possibly wit)mandatory liquidity ratios thereafter. The trouble is that the Government have no idea at all about this matter except wringing their hands and saying that it is all the public's fault. We have their policy for local-authority borrowing. The Lord Privy Seal drove local authorities into the market for their borrowing and virtually closed down the Public Works Loan Board. This was done to improve the bookkeeping position below the line.

It does not affect in any way the volume of local expenditure but merely increases the cost and the difficulty of local-authority borrowing. Local authorities are driven to sections of the market, like the mortgage market and insurance companies and so on, who would be among the main suppliers of capital to the gilt-edged market. This is simply drying up the flow to the gilt-edged market, and contributing still further to the depression there. The Chancellor of the Exchequer must have realised that bookeeping fiddles of this kind are no substitute for an economic policy.

I want to ask a question. Have the Government a policy for dealing with inflation? If they have, they have been very secretive about it. The biggest blow to confidence has been the frank recognition by the Government of the dangers of the present situation, combined with their unwillingness or inability to do anything about it. This is commented on even by newspapers who normally do not support anything said from this side of the House.

The Financial Times last Saturday said: Rightly or wrongly the view has got around that the Government has, at least temporarily, given up the fight against inflation. In the News Chronicle Sir Oscar Hobson, who is not a paid-up member of the Labour Party by any means, said this morning, under the heading "The Boneless Wonder": The £ is under pressure because informed opinion here and all over the world is profoundly disturbed at the spinelessness of the Macmillan Government in tackling inflation. A well-known weekly paper said last week of the Chancellor of the Exchequer: By his feeble speeches he has revealed that he is bankrupt of any rational economic policy. And if he is not prepared to take the drastic steps that are probably going to be required there is a real risk that he may bankrupt his country too. That was in the Spectator.

What is the Chancellor going to offer—the usual lectures, exhortations and appeals for restraint? Are we to get the steel White Paper after it had been embargoed for release last night and now postponed until tonight? Are we likely to get another gloomy tale of cuts in essential investment, cuts in both the production and use of steel?

I gather that the Chancellor will announce this afternoon this new Wages' Court. I leave it to my right hon. Friend, if he catches your eye, Mr. Deputy-Speaker, later this evening to examine the Government's proposals. I ask the Chancellor to make this clear in his announcement: if any independent body is going to make pronouncements on what wages the country can afford and what dividends the country can afford, will it, for instance, be allowed to say how much rents ought to be allowed to go up? I think that this is a fair point if we are to divide up the national cake fairly. Will it be allowed to say that the Rent Act ought to be repealed and what is the bearing of rents on the industrial situation? Did the Minister of Housing and Local Government consult this new delphic oracle before he introduced the Rent Bill? Will the Chancellor take its advice before he gives any more concessions to surtax payers, especially on the eve of a General Election? Will it be allowed to criticise Government policy and, if so, will the Government change their policy. Of course not—that would raise fantastic constitutional implications. It is because I am certain that the Government have no clear answer to this problem that many of us suspect the Government of humbug in this connection.

I have just referred to wages, because wages are already at the centre of the problem of the cost-push inflation spiral, to use an American phrase. It is no good hon. Members blaming the unions for the inflation. Time and time again we have warned the Government that their policies could and must only lead to greater wage demands and industrial disputes. I do not intend to pursue that.

We hear of the need for wage restraint. Even hon. Members opposite are now invoking the spirit of Sir Stafford Cripps. I agree that we need today at least the same measure of restraint in wages, salaries, profits and dividends that Sir Stafford Cripps called for and achieved. That restraint must apply to rents as well as to other forms of income. I believe that such restraint can be fairly asked for only by a Government that will back their appeals by the same measures of social justice that underlay the whole Cripps' policy.

Last year, the Government lost the greatest asset that any Government could have in this matter of inflation—and which any Government has had since the beginning of the Second World War—and that is the support of the Trades Union Congress in wage restraint. I believe that the unions have shown great restraint since the war. In a sellers' market they could have made and exacted much bigger claims for their members than they have done. The end of wage restraint should not be laid at the door of individual trade union leaders, not even Mr. Cousins, who seems to have joined Mr. Nehru in the current Blimps' demonology. The responsibility rests clearly on the Prime Minister and his Cabinet.

Time and time again the T.U.C. have told the Government the steps that were necessary to secure restraint—some real control over rising prices and rents. The Prime Minister forced them up. It suggested some control over inessential building. The Prime Minister equivocated and refused. It suggested a fair budget. The Prime Minister turned his back on it. A fair reward for a fair day's work was what it put forward—and the Prime Minister extolled capital gains and the windfall state.

Those who appeal for restraint in income must create a condition in which such an appeal can succeed. It means a greater degree of planning of our national resources and planning for expansion by giving a real priority to essential investment. It means a real assurance of price stability in return for wage restraint and, if necessary, by a temporary price freeze. It means a socially just Budget and social security provisions, including relief for those in greatest need, a tax on capital gains and a real drive against the citadels of fiscal privilege in this country.

I have indicated some of the measures necessary, in our view, to end inflation, to put value back into the £ and to ensure the economic survival of our country. I will summarise them briefly before I sit down.

First, we need to use such physical controls as are needed to hold back inessential investment, so that we can plan an ordered expansion of the investment needed for our basic industries and for export. This will mean, particularly, building licensing and, perhaps, control over the use of sheet steel or other scarce materials for inessential purposes. With these relatively negative measures we need positive measures: tax incentives, the full use of publicly owned industrial capacity in the Royal Ordnance factories and elsewhere, guaranteed orders and blanket agreements to call forth production of the goods that we most need.

Secondly, we also need a Budget strategy which gives an amount of public saving—a genuine surplus—large enough after allowing for private saving to meet the investment programmes of the country. Before hon. Members opposite say that this means higher tax rates, I would say that we can achieve this—yes, and do more, give justice to old-age pensioners at the same time—not by raising tax rates so much as by widening the tax base, such as the methods we have suggested, making an attack on evasion and avoidance, supplemented, in time, by the savings accruing from the national superannuation scheme.

It is not, however, enough merely to have the right global budget strategy within that budget strategy. [Interruption.] I missed what the hon. Member was saying.

Mr. Kenneth Pickthorn (Carlton)

I thought "in time" were the operative words.

Mr. Wilson

It will obviously take time to introduce a national superannuation scheme, but I hope the hon. Member will recognise the relevance of that to the attack on inflation. Within the global budget strategy, we need to create the conditions of social justice by taxing the forms of spendable income which are now tax free, such as capital appreciation.

Thirdly, as part of the system of controls, we agree that monetary policy has its contribution to make, but it must be a monetary policy reflecting the conditions of the 1950's, not the 1930's or even the 1890's. The floating debt should be partially funded at low interest rates by such measures as the creation of Treasury deposit receipts. In our view, a rational and effective monetary policy need not mean high interest rates nor should we rule out the possibility—I put no higher—of a two-tier interest rate system with a lower rate for public and essential investment.

Fourthly, and lastly, as part—but only as part—of the real policy to stop the cost/price spiral, we should be prepared to consider, as a short-term measure, arrangements by voluntary or, if necessary, statutory control to keep prices for a period from rising above their present level in return for real assurances about costs. And prices, of course, are not all we need as a permanent measure of protection of the housewife and the consumer against short weight and debasement of the food package on the lines recommended in the second Hodgson Report.

To control inflation which we all agree, I am sure, is the major economic evil of the post-war world will mean sacrifices—sacrifices by everyone—and the biggest sacrifices will be preconceived ideas and doctrinaire refusals to consider new approaches.

If we can agree the conditions—and I have set out what, I believe, to be the minimum conditions—we can fairly and honestly make the appeal that must be made to the whole British people; but appeals with the hope of material gain cannot of themselves succeed. I make no apology for reminding the House of what Sir Stafford Cripps said just ten years ago in the memorable debate of August. 1947: The quality of effort that is needed in the next few years is not such that it can be evoked by mere material considerations or by the intensification of self-interest or competitive self-seeking."—[OFFICIAL REPORT. 7th August. 1947: Vol. 441, c. 1764] A Government that is replacing social purposes by concessions to vested interest and private gains, which has sacrificed economic purposes to economic frivolities has, in our view, forfeited the right to make such an appeal. But until such an appeal can be sincerely made and backed, not with words but with deeds, we shall not conquer the evil of inflation.

5.0 p.m.

The Chancellor of the Exchequer (Mr. Peter Thorneycroft)

The right hon. Member for Huyton (Mr. H. Wilson)has ranged fairly widely over the problem and touched on one or two of the panaceas that have been offered. I do not propose to follow his speech in detail, because I would rather devote myself to getting straight down to what I think the problem is and where the solutions may lie.

If I say something about the nature of the problem, I hope nobody will accuse me of mere diagnosis. It is, after all, worth while identifying the disease before we specify the cure. Before I sit down, I certainly intend to say what policies we are pursuing and intend to pursue and to deal with one or two of those referred to by the right hon. Gentleman which are, perhaps, somewhat inapt to the problem which confronts us.

I start with the paradox which makes things so fatally easy for the critic—the paradox of prosperity, on the one hand, and a decline in the internal value of the currency, on the other hand. With that paradox before us, it is easy to make a cheap criticism of almost any comprehensive statement on this subject. I repeat, therefore, that the immediate and urgent problem which confronts us is not something like the balance of payments problem which confronted us in 1951, when internal demand was holding back exports and sucking in imports—far from it. The external outlook is good.

Exports are up, £85 million higher in the first half of 1957 than in the first half of 1956, and they have been rising faster than the imports. The reserves are up, an increase of £88 million in the first six months of this year. Invisible earnings are moving upwards and production is going up. At one time, it was thought that on external current account from mid-1956 to mid-1957 we might just about break even. Now, we expect, we will prove to have had a surplus over the period of £125 million or more. There is no reason whatever why in the coming year we should not do better still.

All these benefits are against the background of prosperity in this country, probably—indeed, I think, certainly—greater and more widespread than ever before. Look where we will. There is a vast change from a quarter of a century ago. The cause for concern is neither industrial stagnation nor a balance of payments crisis. There is cause for concern because these great advances have been matched at home by a steady depreciation in the internal value of our money, and that process has gone steadily on for twelve years. It has been going on virtually without interruption, under all Governments, since the war.

The first thing I ought to say about it is this. I make no apology whatever for having stated in two recent speeches that this is an evil thing, that it does us damage economically and socially and that it should be our joint purpose to bring it to an end. I was, and I am, quite well aware that if a Chancellor of the Exchequer calls attention to any economic ill in the system, particularly one the cure of which has proved particularly intractable, some measure of criticism will follow and some markets will be affected. I say frankly, however, that I am not in the least dismayed by that criticism or those effects.

What would be far more damaging in the long run would be to ignore the facts or pretend either that they were different or that they did not exist, or even to pretend, as some would have me do, that there is some slick economic solution which the Government can apply which will obviate any effort from anybody else. This is a problem, unlike some others, in which public discussion is essential, for while the Government have their part to play—and I shall describe it—there is not, as some appear to think, a neat tap inside the Treasury by which we can regulate the movement of prices as we wish.

If inflation is to be checked, the first essential is to have a country which really wants to check it and is prepared to accept the discomfort of any cures that may be involved. Until quite recently, I very much doubt whether this has been the case. The truth is that too many people have seen the benefits of inflation without observing any of its dangers or its disadvantages. Wage earners have enjoyed their wage increases and employers have enjoyed their bigger profits, but many have regarded these things as manna from heaven and as having no connection with the fall in the value of money, which they dislike as much as anybody else.

It is not an easy thing to cure people of a disease which they do not recognise. I begin, then, on the assumption that it is our joint aim, on all sides of the House, to halt inflation and that, while we may differ as to the means, we all recognise that we are not likely to find a simple painless solution.

One more thing which I should like to say before I speak of policy is that many other people suffer from inflation too. The same sort of debate as is raging in this country is raging in America and in France, Italy, Sweden and many other places. Indeed, this is in some ways fortunate for us, for it helps to preserve the relative external value of the £. It is not, however, an excuse for failing to tackle it ourselves. The social injustices of inflation are no less evil because they are being suffered by other people as well as by ourselves.

Furthermore, to those who take comfort from what is happening elsewhere, I would say this. We are a great industrial country depending for our very life on imports. We are international bankers and investors, with responsibilities to other countries as well as to ourselves. Therefore, we have much more severe limitations in our room for manoeuvre. We must be competitive if we are to pay for our imports. We must always strive to ensure that nobody, at home or abroad, loses confidence in our ability to manage and sustain a currency which is so widely held.

I want to divide what I have to say about policy into two parts. I want, first, to say something about certain forms of action, which are sometimes thought of or spoken of as cures for inflation, which, in my judgment, are either harmful or irrelevant or, at least, inapt for the problem which confronts us. I want to get them out of the way—some of them were referred to by the right hon., Gentleman—so that I can concentrate on what I conceive to be the real issues. Secondly. I wish to describe a policy or group of policies which, if pursued with vigour and good sense, will, in my judgment, control or radically check the growth of inflation.

I start, then, with the polices which, in this connection at least, seem to me to be of little help. First, import restriction. I mention it because it has been referred to many times. From time to time, hon. Members have said that they would rather like to see it adopted. In my judgment it would be irrelevant and harmful in the context of inflation. It would make it worse and not better. It would decrease the amount of goods without decreasing the amount of money. It would hamper production at home, it would decrease competition and it would raise prices. I therefore reject it.

I now want to say something about controls in general. Controls in general, which were referred to in a fairly detailed manner by the right hon. Gentleman, tend to deal not with the causes of inflation but with their effects. To depend upon them is rather like stoking up the fire beneath the boiler and sitting on the safety valve. That was the disaster which happened to the right hon. Gentleman in 1951. There are two types of control which are, in general, particularly referred to. The right hon. Gentleman referred to them in his speech, and I should now like to answer what he said.

First, there is price control. It seems to me that price control is no answer whatsoever. I do not believe it ever was. I saw it in operation six years ago when I was first appointed to the Board of Trade. Prices had risen steadily under a system of price control in the preceding years. They had risen not because the right hon. Gentleman wanted them to rise but because this system of price control does not, in fact, control prices. If one presses it home it drives the goods off the market, and that means rationing, and if one does not press it home, as generally happens, it is merely a dangerous illusion.

Secondly, there is building control. About building control I would say, "Do not do by controls what you can do by other means." If one wishes to stop building in the public sector, then the answer is not to put up the schools or the hospitals, or not to put up so many of them. If one wishes to reduce the impetus of house building, one can remove the subsidy. In the private sector one can make use of credit restrictions. I admit that one could by bringing in the whole apparatus of building control stop probably a few cinemas or one or two blocks of offices or some of the garages which were referred to the other day, but it would be a great effort for very little purpose. It would have no identifiable effect upon a cost inflation, and it would be dealing with the effects and not the causes.

Another possibility sometimes mooted in the Press is what I might call the "little Budget" technique. We could introduce further cuts in consumption, put up the Income Tax or restrain particular industries, have a little more Purchase Tax or another tightening of the hire-purchase regulations. If the trouble was that our expansion was going on too fast and we thought it might get out of hand, such measures would be appropriate, and at time in the past they have been appropriate, but, like import or building controls, I think they would be irrelevant in the present situation. Frankly, I am not attracted by the idea of trying to tackle what is in the main a wage-cost inflation by taking marginal amounts out of the housewives. They suffer quite enough from inflation already without adding to their burdens.

Then there is what I might call the "tranquilliser school," the belief that one can do it quite painlessly so far as the majority are concerned, that one can adopt some such device as limiting the note issue or taxing the rich. One does not stop inflation by refusing to print bank notes any more than one cures a fever by trying to hold down the mercury in the thermometer. Nor do I suppose there are many people left, except the right hon. Member for Battersea, North (Mr. Jay), who seriously imagine that the bulk of the purchasing power in this country is in the hands of those with incomes over £2,000 a year. All these methods or policies, some of which I am sometimes asked to adopt, seem to me to obscure the realities of the picture which confronts us, and most of them deal with the effects and not the causes.

Mr. Harold Lever (Manchester, Cheetham)

In what respect do the right hon. Gentleman's financial controls differ from the other controls in respect of the charge which he has made against controls in general, namely, that they deal with the effects and not the causes?

Mr. Thorneycroft

If the hon. Gentleman will wait, I will deal with the financial controls in a moment.

I now turn to the policies which I think are relevant. I agree with the right hon. Gentleman in one thing. There is clearly no simple act of policy which is a remedy for inflation. If there had been, it would have been discovered a very long time ago. The policy to deal with inflation must be, as my right hon. Friend the Prime Minister said the other day, in the nature of a combined operation. The Government, the private employers, the trade unions and the nationalised industries all have a part to play. I have met on many occasions the representatives of these various sections in the National Production Advisory Council for Industry, and I shall be meeting them again very soon.

Parts of that combined operation are directly and parts much more remotely under Government control. I want to start with something which is right under Government control. The first duty of the Government is to see that the economic climate is right, or the balance 'of payments suffers. The balance of payments is bound to suffer where there are more jobs than there are people to fill them or where we are trying to do too many things at the same time. For this purpose, the Budget is the principal instrument of Government financial policy. It is central to this problem, and, in my judgment, the recent Budget was well designed to play its full part in meeting it.

At the time we framed the Budget we were urged that stagnation was the problem. We were told in some quarters that tax should be slashed at all costs and that the credit squeeze was too severe. We rejected all this advice. We forecast a rise in consumption, investments and production, which has now taken place. We budgeted for a surplus of £460 million, adequate to cover all the investment in the public sector by taxation with the addition of small savings without adding a penny piece to the floating debt. So we can take development in that sector, if not comfortably, at any rate without inflationary pressure and in our stride. We stuck to that policy. We rejected Amendments put down by the right hon. Gentleman and his hon. Friends which would have cost £300 million more than we proposed. Talk about an assignment with inflation. The right hon. Gentleman wooed it like a lover during the Committee stage.

Mr. H. Wilson

We knew that the right hon. Gentleman would produce this argument, as his predecessor did last year. Is he not aware that we voted against practically all the taxation give-aways in his Budget? Also, he knows that we proposed planned acts of taxation—reductions here and increases there. However, our Amendment which would have achieved a corresponding saving by, for instance, widening the tax base was out of order.

Mr. Thorneycroft

I have listened with sympathy to the right hon. Gentleman's explanation of a very difficult position.

We refused in existing circumstances to give a further upward fillip to investment by restoration of the investment allowances. There was no cause of inflation, therefore, in the Budget, but it was a powerful instrument against it.

Now I turn to Government spending. The 1957 Budget provided for a surplus above the line of £462 million compared with a surplus of £290 million realised last year. This surplus was after tax remissions of £98 million. This was only possible by constant pressure to restrain all forms of Government expenditure. As I said in my Budget speech: … the improvement in the budgetary position which the figures indicate has not been achieved just by luck. They are the outcome of considerable efforts by my two predecessors and recently by myself, with the co-operation and support of our colleagues, to keep the level of Government expenditure under control."—[OFFICIAL REPORT. 9th April, 1957; Vol. 568, c. 977.] These efforts are painful, but they are also necessary, and they will continue. If we go on holding back Government expenditure while production rises we can give great benefit to the economy. We can do something more. We can continue safely to reduce taxes. [Laughter.] This is a serious statement on a matter which affects millions of people, and it is no laughing matter. We shall continue safely to reduce taxes which, however necessary they may be, make their own distinctive impact upon prices. But we certainly will not hold back Government expenditure without the full support of the House of Commons. Education, health, grants to local Government authorities, defence and many other items have powerful claims upon the public purse.

We are entering a period in which we are examining next year's expenditure, and I hope I judge the temper of the House rightly that it would wish to have the most stringent scrutiny of this. I am sure that I can count on those interested in limiting inflation to give us their full support in holding back Government expenditure, however unpopular that process may prove to be.

Next, I wish to say something about investment in the public sector. Investment in the public sector is fundamental to increased production. If we are to produce and sell, we need the coal, the steel, the power and the transport, and if we lag behind we cease to be a great industrial Power. Such investment raises two problems. It raises, first of all, the problem of the demand on our resources, and, secondly, it raises a very considerable problem of how to finance it. Both of them place some limits on the pace that we can go.

Production is necessary, but not production at any level, no matter what the cost or the strain upon the economy. Nevertheless, few industrialists would say today that we were over-investing in the basic industries—rather the reverse. I said recently to the National Production Advisory Council for Industry: Investment is going to be large; it has got to be large if we are to attain the production which we need in other fields. But investment in the public as well as in the private sector must be matched with the savings which are available. I am not speaking here of sudden panic slashes; I am speaking of the long-term phasing of investment. I repeat that here. In the short-term our plans appear to be well within our resources. Over the year we cover the basic public investment without inflation, that is to say, we cover it by taxation and savings—we cover it without adding to the floating debt. That is the path of financial rectitude and the one we should go on following. But, in the long-term, it is the responsibility of Government to make as certain as can be that the combined investment programmes of the basic public sector do not rise to a point at which there is real danger of overstraining the economy, or at which intolerable financing problems might arise.

We do not intend to let this happen, and for that purpose it may well he necessary to rephase some programmes to see that not too many reach the same peak at the same moment. We shall not hesitate to make the necessary adjustments.

Mr. Nabarro

Before my right hon. Friend leaves investment in the public sector of industry, would he not agree and tell the House that, in view of the magnitude of that investment in the aggregation, there are very great dangers of extravagance in spending by the nationalised industries? What does he propose to do to eliminate that extravagance which makes no direct contribution to increased production in these basic industries?

Mr. Thorneycroft

I would say just this to my hon. Friend. I dare say that if we searched the investment programme of any industry, public or private, we should find some examples of extravagance. The point I am making is that there have to be large programmes of investment in that public sector, and it is unrealistic to think that we can solve our problems by slashing them in the short-term, though, in the long-term, it is the duty of any Chancellor to see that they do not reach an intolerable peak at any point in time. In my judgment these programmes are not the cause of inflation; they are the necessary basis of the expansion of production which is needed to overcome it.

Now as to the credit squeeze. The credit squeeze has operated, is operating and will go on operating. It has, indeed, been strengthened. The Capital Issues Committee now examine to see not only the purpose of the lending, but the manner of the lending. Bank overdrafts are not normally available for capital purposes, but only for short bridging operations. It is not working only on the small firms; it is working on many of the large ones too.

The truth is that these Government measures have worked much more successfully than is generally realised in reducing demand, in restoring our balance of payments position, which has swung over from a deficit into a surplus, and in providing the basis for renewed expansion this year. How far or how much further should the Government press these policies? Should the credit squeeze be tighter? Should Government expenditure on such things as health, education or defence be restrained still further? There are some who feel that part of any solution is to be found in deflationary action of this kind, and, of course, it is true that economy by Government and restriction of credit by the banks have their part to play.

I would just say to those who urge these actions that they must have the courage of their convictions. When we see, as we may see in certain areas and as a result of these reductions and restrictions already in operation, some increase in the number of unemployed or some decrease in the number of unfilled vacancies, we must recognise that it is the corollary of reducing the pressure of demand. Cutting back by Government has its contribution to make, and it is certainly our intention to keep up that pressure. Nor do we complain if others keep up the pressure upon us.

Another school of thought, with which I do not find myself in agreement, is that we could find a solution by deflation alone. Such a view would demand a change of method which would differ not in degree but in kind from what I have been speaking of. We could put up the taxes. We could cut down investment. We could make credit much dearer and much scarcer either by the technical methods proposed by the right hon. Gentleman in his speech or even by more direct methods. We could no doubt organise our own slump and force up unemployment to a figure needed to end wage claims. But to do all these things would be a drastic departure from the object for which all of us on all sides of the House have been struggling since the war. What we have been seeking is full employment in a free society, and it would be a sorry reflection on our society if in search of stable prices we could only find them by throwing away the full employment or by throwing away the freedom.

This brings me to the centre of this problem, namely, the question of incomes and prices. I want to state the facts about this problem as I see them quite plainly because I think that on all sides of the House we have to face them together. In 1956 production was very little up. Wages and salaries were 9 per cent. up on the year before, or an increase of £900 million. Profits were 3 per cent. higher, an increase of £110 million. Of this £110 million increase in profits, about half was undistributed. Of the other half about 50 per cent. was paid in taxation, leaving no more than £25 million extra in the pockets of the shareholders. Of the additional £900 million in wages and salaries, rather more than £100 million was taken in taxation, leaving between £700 million and £800 million extra in the pockets of the earners.

Extra purchasing power on this scale, unmatched by increased production, must have a powerful effect upon the economy. If I might put it in perspective, this is the equivalent in a year of trying to run two or three additional navies. That is the measure of it. It is more than all the rents and all the rates in the country. It is the equivalent of another, a bigger and a better Health Service. If we put that into the economy then, quite obviously, it will have some quite remarkable results.

Since then, the last round of wage increases will, of course, add several hundred millions more, There is no kind of increase in efficiency which could absorb that £900 million in costs, and if that kind of money is put in it can only come out, in whole or, at least, in large part, in higher prices. We cannot subsidise or fake prices on that scale. It is simply not possible to raise taxes on that kind of level. It is out of context with the sort of things about which we talked in the Budget debates.

What we are seeing here, therefore, is the result of wage movements over the last eighteen months coming out in the form of higher prices—in the price of coal, the price of transport, increased postal charges, in the price of electricity and of gas some of the regional gas boards have announced increases, and others, no doubt, are to come. These price increases are the result of the past. If we seek to meet them by further wage increases it will certainly start to happen all over again. In part, those price increases reflect some contribution to capital expenditure. These is nothing wrong with that. There is every reason why those industries should contribute to their capital development. But, in the main, they reflect increased wage costs.

These price changes clearly have their effect in other sectors. The steel industry is acknowledged to be very efficient. Its productivity increased by 20 per cent. in the five years to 1956. But, even with this, cost increases cannot fail to be reflected in increased prices, and today the Chairman of the Iron and Steel Board has announced such increases. They arise, broadly, from the same causes as I have mentioned, though, in the case of steel, provision for capital development is a more important factor, as the plans for the future development published by the Iron and Steel Board clearly indicate.

One way or another, however, the question always comes back to this. How does one approach the problem of wages? I think that the first thing in answer to that question is to say that we can neither fix them nor freeze them. To seek to fix all incomes in this country—and if we fix wages we clearly fix dividends and everything else as well—is not, I imagine, a solution which would appeal to anybody, and I think that we can reject it.

Nor does anybody seriously contemplate trying to freeze wages. Wages should move up in an expanding economy. Men should share the benefits of their increased production, and it is certainly not inflationary for them to do so. What has gone wrong is that we have sought to pay wages out of relation to production, and if we are to have any hope of dealing with inflation we must stop doing it.

The rôle of a Government is not to interfere with collective bargaining—that is quite right—but it is carrying that doctrine too far to say that the Government should be indifferent to the relation between incomes and production. It is really the task of Government to say plainly that if higher wages are paid, unmatched by what we as a nation produce, we are quite deliberately creating our own inflation.

Nor, at this moment, can anyone seriously believe that a solution to our problems is to be found in the converse of that proposition, namely, by working less for the same amount of money. Of course, we are all in this—the Government, the employers, the trade unions and the consumers—but it is my duty to state these facts as plainly as I can—

Mr. Nabarro

Hear, hear. Rub them in.

Mr. Thorneycroft

These matters of wages, prices and profits are bound to be controversial. No one will readily accept what anyone else says about them. One contribution which we think can be made, not as a solution but as some help in the problem, is the establishment of an independent and impartial council on Prices, Productivity and Incomes, and we intend to go ahead with it. That council will have the following terms of reference: Having regard to the desirability of full employment and increasing standards of life based on expanding production and reasonable stability of prices, to keep under review changes in prices, productivity and the level of incomes (including wages, salaries and profits)and to report thereon from time to time. I shall be announcing the names of the chairman and other members of the Council as soon as possible.

Mr. H. Wilson

Will the Chancellor now answer my question? Will the Council have the right also to deal with the question of the level of rents in the country, as it has with other incomes and changes in costs?

Mr. Thorneycroft

Perhaps the right hon. Gentleman will wait. I was about to describe what the Council could and could not do. Our hope, at any rate, is that it will create a fuller appreciation of the facts, both in the public at large and amongst those more immediately concerned with prices and cost matters.

I want to make certain things quite clear. The Council is not there to arbitrate. It is not a wage court. It is not concerned with specific wage claims or disputes as is a wage-fixing body. Its purpose is to survey past experience and to deduce from it some guidance for the future. Clearly, it cannot concern itself with every aspect of economic policy. But it would, for example, be covering some of the matters to which I have been referring in this speech.

It will be free to comment on general problems inside the scope of the terms of reference, such as the effect of increased costs and prices on the competitiveness of United Kingdom exports, and on the ability of the United Kingdom to pay its way abroad; and on the relationship between incomes, profits, investment and productivity. I repeat, we do not put this forward as a panacea, but I am confident that the Council has a useful rôle to play, and I am also confident that all those who wish to tackle inflation will co-operate with it and will pay heed to its reports.

Meanwhile, the policy should be plain. It is, first of all, that Government spending must be held down—as it was this year. That means some difficult decisions as the stage is set for next year's Estimates. Secondly, that investment over the years must be planned to match savings and, if necessary, revised. Thirdly, that the credit squeeze continues so as to prevent a boom, and that means continued pressure by the banks. Fourthly, that wage and profit increases must be related to production.

I recognise that this means adopting, on occasions, an old-fashioned policy of saying "No", and if saying "No" leads to some measure of disagreement, so be it. It would be better to disagree than to drift. For our part, we intend to press home these policies. They may be unpopular, but they are right, and they provide the best road yet suggested for dealing with the problem of rising prices.

Mr. H. Wilson

Before the right hon. Gentleman sits down, will he now tell us his policy for dealing with inflation, be cause he has not announced a single new policy?

5.39 p.m.

Mr. Harold Finch (Bedwellty)

Much has been written and said in the last few weeks about the increasing dangers of inflation, and this debate is the outcome of the anxiety which we all feel at the trend of events.

Coal prices have been referred to, and attacks have been made on the National Coal Board and on our mineworkers. It is quite evident that criticism of the mining industry is being used as a smokescreen to cover the failure of Government policy—a policy which has resulted, as we all know, in increases in Purchase Tax, cuts in food subsidies and in certain sections of the welfare services, in increased rents and increased health contributions.

We are asked to forget these factors. It is too much to ask the workers to make these sacrifices and to exercise restraint when, at the same time, these burdens are being placed upon them and they know that relief is being given to Surtax payers. The Government say on the one hand, "We must make sacrifices", while on the other, the Chancellor relieves the Surtax payer. That is the root of the discontent in the industrial community. Example is better than precept, and the worker wants to know what sacrifices are being made by the wealthier classes.

We are asked to ignore these factors and to direct our attention more to the mining industry. I do not say that there should not be discussions in this House about the nationalised industries. I am among those who believe that from time to time we should review the workings of the nationalised industries, and I am sure that the Coal Board or any other publicly-owned industrial organisation would always be prepared to consider any helpful criticism that may be made by hon. Members.

But when allegations are made about the "unreasonableness" of the miners' demands, the lack of productivity and bonus turns, what contribution does this make to the solution of the serious economic position in which we find ourselves? None at all. What it does is to create a feeling of bitterness among miners and their families, and it also discourages Coal Board officials and mining engineers who are carrying out a difficult and onerous task in winning coal for the nation.

It is about time we turned the searchlight upon the private sector of the economy. We have committees inquiring into nationalised industries. I welcome debates upon the coal mining industry. I hope we shall have an opportunity to debate the coal industry in the very near future, but we must also give equal attention to the private sector. What about the prices in the private sector? One only has to look at the price index of commodities issued by the Board of Trade for the period 1949–57. I will quote some of these commodities at random

Coal prices have gone up 76.5 per cent. between 1949 and 1957. But what about the other commodities? Sulphuric acid has gone up by 81 per cent.; benzole by 93 per cent.; aluminium by 80 per cent.; wool top by 79 per cent.; Harris tweed by 81 per cent.; carpets and rugs by 75 per cent.—slightly less than coal—and rubber tubes by 88 per cent.

I mention these factors to indicate—and this is the problem with which we are faced—the rising prices which, in turn, give rise to demands for higher wages. I mention these increases to emphasise that when people complain about the mining industry they should look more closely at the situation in the private sector. Evidence has been given before the Monopolies Commission to show that prices of commodities were being maintained artificially. We had the well-known example of television tubes, which were produced for £4 each and the retail price of which was £15 to £20. There were other examples, including tyres and electric lamps. I am not dealing with coal now; these commodities are produced as a result of private enterprise.

It was interesting to listen to the Minister of Transport on this matter. He said that increased freight charges had been due in considerable measure to the price of coal, steel, higher wages, and other factors, but he went on to say: … it is worth noting, to be fair to the Transport Commission, that many of the Commission's suppliers did not try as hard as the Commission itself to hold down their prices."—[OFFICIAL REPORT, 10th July, 1957; Vol. 573, c. 401.] There we have a confession.

Let me deal with the question of coal, which is causing so much stir among hon. Members opposite. Industrial coal is being sold relatively cheaply. Let me quote not from any party political periodical, but from The Listener of 3rd March, 1957, which published a broadcast by Mr. John Raven, Director of Coal Trade Associated. He said: The British miner produces more than the German, French, Dutch or Belgian miner on both shift and year basis. The coal he produces sells for 30s. per ton less, quality for quality, than that mined in those other countries. Because our coal is so much cheaper than any other obtainable in Western Europe, British industrialists have a great advantage over their competitors on the Continent—an advantage none the less real because it is so seldom acknowledged. I think that the Chancellor said some time ago that we have to be very careful that we do not price ourselves out of the foreign markets. Coal has not priced us out; it is being held at a cheap price. Industrial coal is making a valuable contribution to our economy. That is all the more reason why an inquiry should be made into the private sector.

The price of domestic coal has gone up, and we are all very concerned about it. It has gone up 6s. 6d. a ton on the average, the Government have some responsibility for this. How is this sum of £66 million, which is responsible for the increase of 6s. 6d., made up? First, there is £5 million in respect of mining subsidence. I am glad to sec the Parliamentary Secretary to the Ministry of Power in the Chamber. We on this side of the House pleaded with the Government not to put the extra 6d. on the ton of coal. We said that it was not the full responsibility of the Coal Board. We said that this matter ought to be considered by the Chancellor, having regard to the fact that subsidence was due largely to the old coal owners and not to the present coal owners. But the Government put an extra 6d. a ton on the price of coal for the domestic user to pay.

What is the other factor which makes up this 6s. 6d.? Over a period of time it is made up of £10 million in respect of the Mines and Quarries Act. That is to improve the safety and health of those employed in the industry.

Mr. Nabarro

A Tory Act of Parliament.

Mr. Finch

When I think of my own comrades and friends who died from pneumoconiosis, who gasped for breath in the mining valleys of South Wales, when I remember the explosions which have occurred in the industry in the years gone by, is this extra money too high a price to pay for the safety of those who work underground to hew coal for the nation?

I do not believe that people would begrudge the miners that amount. I would like hon. Members to come to my constituency and see men gasping for breath. They have given years of labour to win coal for the nation and there should be no doubt whatever about allocating this £10 million to improve health and safety measures in the mining industry.

Consider the wages in the industry. It is true that there has been an increase in wages—

Mr. Alfred Robens (Blyth)

Tell them the basic rates.

Mr. Finch

The minimum rate for a man working underground is £9 10s. 6d. The figure for the man on the surface is £8 10s. 6d.

Can any right hon. or hon. Member maintain that that is a high wage, with the present cost of living and high prices? Let us try to be impartial about this. It is true that the average wage is higher. The Chancellor said, and I agree, that the more a man produces the more he should be paid. The average wage in this industry is about £15 a week, because the more coal a piece-worker produces the more he receives. Is there any complaint about that?

It may be asked: how is this figure of £15 arrived at? A large amount is earned by working on the voluntary Saturday shift. I do not criticise those who like Saturday off. I think that we should all have Saturday off. There are a large number of workers who do not work on Saturdays. But many miners are working on Saturdays and during that voluntary period they produce 12 million tons of coal a year.

Where should we be without that coal? Facing the possibility of serious unemployment. The average pithead price for coal is £4 3s. 6d., but what does the consumer of domestic coal have to pay? In London, for Grade 2 coal the price paid by the consumer is £9 13s. 4d. It costs more to distribute the coal than to pro duce it. We agree with the Chancellor that we cannot continue in this way, but this is the foundation of the problem. This is what the consumers of domestic coal have to pay. In Southampton, the price is £10 5s.

Mr. Nabarro

Surely the hon. Gentleman wishes to be fair in this matter. The British Transport Commission, in the form of the railways, distributes 180 million tons of coal traffic each year. The difference between the pithead price of £4 3s. 6d. and, for example, the retail price in Southampton, a difference of £6 a ton, is very largely accounted for by the charge by Transport Commission for freight.

Mr. Finch

I have already referred to freight charges. Is the hon. Gentleman saying that the difference of £6 should be the fair difference between production and distribution? The same thing applies in Bristol where the price is £9 5s.

Let us now turn to output. There has been a great deal of criticism of the mining industry which has been blamed for inflation. In the first 28 weeks of this year output was increased by 2¼ million tons over the corresponding period for last year. In the circumstances that is quite an achievement. Since 1946, the overall output has gone up by 30 million tons. It may be argued that recently there has not been an appreciable increase in the overall output and that is true. It is due to the extra holidays granted to the miners.

Statements have been made in the House, and Questions were asked the other day, about the lack of productivity. In 1946, the productivity figure per man shift was 1.03 tons. In 1956, it was 1.23 tons. At the coal face, in 1946, the figure was 2.76 tons, and today it is 3.33 tons. That is a considerable increase. We must remember, when we are discussing this industry, that we are not dealing with factories. Development has to take place. One has to sink a pit and start to extract the coal and as soon as that happens the pit begins to die. It dies a long, lingering death and its length of life depends upon the proper development of the industry. Therefore, development is a very important matter.

We have been importing coal, which is a charge on the Coal Board, but imports of coal are declining. In 1955, the figure was 11 million. In 1956, it went down to 5 million and this year it will be down to 3 million, which should be a source of encouragement to this House having regard to the existing difficulties.

When the coal industry was nationalised 50 per cent. of the mines were unprofitable, and, had we followed the pattern of the old coal owners, many of these pits would have ceased to produce coal. We should have been producing about 140 million tons, whereas production has gone up far higher than this. The problem which faces us is not one of production, but of consumption, which is increasing week by week. As the Chancellor reminded us, for the last ten years there has been full employment. Industry has been expanding, and month by month more and more coal has been consumed. Every month the demand for coal is growing in order that industries of the country can be kept going.

Had the miners been unreasonable, if there had not been able leaders in the National Union of Mineworkers, we might have been faced with serious stoppages of work. I say frankly that the miners have shown great restraint. I am not for a moment justifying unofficial stoppages and neither do the leaders of the Union. I admit that there is a great deal of absenteeism, some of which cannot be justified. But do not let us exaggerate the matter. The miners' leaders are grappling with these things. 'They meet the men every week and discuss these problems with them, so do not let us exaggerate.

A miner is no different from any other member of the community. He likes to have a day off sometimes. Why should we regard the miners as being different from any other members of the community? The miner likes to go to the races on occasions, and why not? He likes to go to a concert, or to some other event; and there are always things like family bereavements, which are regarded as voluntary absenteeism. I beg the House not to inflame the miners and make things more difficult for this great industry. I believe that the miners can help to pull us out of the present difficulties if they are given fair play.

I regret it, but I must say this to the hon. Member for Kidderminster (Mr. Nabarro). He and his industrial friends are getting cheap coal. At the same time, the hon. Member is making cheap gibes at the industry and the people who are producing that cheap coal.

6.0 p.m.

Mr. John Hobson (Warwick and Leamington)

I must ask for the indulgence of the House on this, the first, occasion upon which I have had the honour to address it. I hope that if I trespass against any of the traditions or niceties of the House I may be forgiven, and that I shall do better on another occasion. I am bound to confess that I feel precisely like the novice on the high dive, and that the only solace I have is that, suitably for the occasion, at least I know that the waters into which I am about to plunge are deep.

I know, of course, that on such an occasion I must not say anything which is controversial. I should have thought that on this particular subject it was almost impossible to say anything that was not controversial, but at least I hope it will be understood that I shall try to say nothing which is provocative and to address the problem in the spirit of the Epistle for last Sunday, and not render raillery for raillery.

The distinction on the question of the cost of living which is borne in mind by very few people, and certainly by very few constituents of mine, is the distinction between the standard of living and the cost of living. The standard of living concerns only the actual material benefit which the people enjoy as a result of their earnings, and the cost of living which we are discussing today, is a problem only of the value of the £. Since the £ has lost its value as a permanent measure of how we are doing, it has become very difficult for all of us to assess exactly where we are getting.

A large number of the constituents who live in my division are employed either in the neighbouring divisions of Coventry and in the motor industry, or in my own division, working on ancillary parts required for the motor industry. I may, perhaps, be forgiven, therefore, for suggesting that we should look for a moment at the standard of living of this country against—not a gold or £ standard—but a motor car standard.

Between 1947 and today, the number of passenger vehicles per 100 of the population has more than doubled, and when we are considering the position of this country upon that basis, as compared with other countries, we stand high in the international league. America has three persons per passenger vehicle. This country has 13 persons per passenger vehicle. In Europe, other than Iron Curtain countries and the United Kingdom, there are 35 persons per passenger vehicle, and it is estimated that in the Republic of China there are probably about 30,000 persons per passenger vehicle. I quite appreciate that this is not an absolute or final test in any way, but it is an indication of the standard of living which we are at present enjoying.

Over the whole of our economy there falls now the shadow of the rise in the cost of living. People are beginning to feel the greatest possible anxiety. They ask: what can be done about it? The ordinary housewife, the ordinary wage-earner, the common man, in whose age we now live, have at last seen that it is a vital problem which this country has to face. I do not desire to expatiate on it, but there are really four vital reasons why it must be dealt with.

In the first place, all hon. Members realise that it presses hardest upon those who can least afford to bear it—ithe poor, the unorganised and weak, and those who cannot catch up with the rise in prices. Secondly, even those who have the illusion that they are keeping abreast of it are probably not doing so, because they forget that by increasing their dividends, or profits, or wages, they are, in fact, lifting themselves up into a higher tax group, so that the net real earnings left in their pockets are substantially less.

In 1947, a person with £500 before tax was deducted could buy certain goods and services. It was his standard of living. Today, before tax is deducted, to buy the same quantity of goods and services he requires nearly £800, but, in the interval, he has raised himself into a much higher level of tax payment, and, therefore, his net real standard of living, in the end, is less than it was in 1947.

Further, there are the risks of pricing ourselves out of the international market, the risk that we may ultimately have to devalue the £, and possibly have to have a floating rate for the £. If inflation becomes galloping inflation we may arrive at the disasters which overtook some Continental countries before the war where the disasters and distress were widespread and serious.

I should like to address myself not to what Government policy should be to meet this problem, but to what message the Government, I hope with the support of many hon. Members, can send to the ordinary people on how they, individually, can assist in fighting the battle of inflation. I am sure that there is an anxious desire not only in this House, but throughout the country as a whole, to deal with this question of inflation.

Very largely, the demand at the moment from the Press and the public is that prices should be pegged, but merely pegging prices is like trying to remove the rash without curing the disease, and it is necessary, in my view, to see what can be done—by ordinary people especially—to stop inflation, because rises in prices are only a symptom of inflation and not the cause of it.

I should like to suggest that, with the concurrence of hon. Members on all sides, a message should be sent out from this House that there are two things which the ordinary people can do, and two ways in which they can help to deal with the root causes of inflation. First, that higher costs, wages, profits and salaries can only be met either by greater efficiency or by higher prices; and, secondly, that we must, by our own personal savings, secure the industrial future of this country.

I did not understand the right hon. Member for Huyton (Mr. H. Wilson), who opened the debate, to disagree with either of those propositions, though he qualified his acceptance of them by saying that it was not what the Government have said. All I say is that I hope both sides of the House will join in telling the ordinary people that these are two essential things which must be done by them. Perhaps I should deal for a moment or two with each of them.

I have recently visited two factories in my division which are not directly concerned in the motor trade, but in making ancillary parts for it. Each management separately told me that between 1947 and today the actual labour cost of producing their articles had not increased at all, despite the fact that the wages of their employees had risen in line with the high standard of wages of the motor industry in the Coventry area. That is a very remarkable record.

It is not that the proportion of the cost of labour had not risen; it was the actual labour cost of producing their goods which had not risen at all. That had been achieved by mechanisation on the most extensive scale, by the employment of machine tools of every kind and of the most extraordinary ingenuity, by expanding the production of these factories steadily over the years, by good co-operation between employees and management, and, of course, by the efforts of the workers themselves.

That shows that by increased efficiency and increased production it is possible to produce at the same labour cost and yet pay considerably increased wages. That is the method by which, in the future, I hope it will be possible for the wages of the people to be increased without there being, at the same time, increases in cost to the general public who have to buy the goods,

The increases in basic wages over the last few years have been remarkable and the rate of increase of basic wages has been constantly growing. I speak of the basic weekly wage rates and not weekly earnings, which, hon. Members will realise, are larger than the basic weekly rate. Those figures increased in 1954 by £185 million, in 1955 by £265 million and in 1956 by £343 million, and in the first five months of this year they have increased at the rate of £396 million a year. If increased efficiency in production is to absorb increases in wages of that nature, the efforts that must be made will have to be considerable indeed, in all industries and by both sides of industry.

Is not the problem, however, either that those increases of that scale must be absorbed by increased efficiency or that those increases must be postponed for a while until efficiency can absorb them, unless costs are to rise? On that aspect, therefore, I hope that all hon. Members will join in telling the public as a whole that wages can rise with increased efficiency, but that if efficiency is not increased costs must inevitably rise if wages themselves rise.

The other matter upon which I desire to expand a little is the question of savings. It is, as the right hon. Member for Huyton said, vital that we should continue to lay the foundations of our industrial prosperity for the future. There is much to do in roads, in railways, in nuclear power stations, in research, in the re-equipment of industry and, if the money can be spared, in helping capital development in the Colonies and the Commonwealth overseas and in all the under-developed countries. That huge programme for our development in the future can come only from the pockets of the individual people.

I hope that the Government will make it clear to everybody that thrift is still a humble but vital virtue and that savings are as important now in the battle of inflation as ever they were at the time of the Battle of Britain. After all, as we look back into history, the capital accumulation of the ages has always come from the pockets of those who had the money. In the medieval times, the Church had concentrated in its hands the power of the purse and it has left its memorials behind it. From the sixteenth to the eighteenth centuries, the farms, the barns and the mansions that we see scattered around the country spoke of the agricultural wealth of England.

In the nineteenth century, the industrialists took over and I need not remind hon. Members what effect they had upon the appearance of the country. But what is to be said of the accumulations of capital of the ordinary wage earner? Is his only memorial to be the multiple stores and shops which are the spending palaces of the people, or can he not, from his savings, produce something which will secure a better future for all of us hereafter?

It is estimated that the country is spending over £500 million a year on gambling. Whenever I stake my money, my bookmaker tells me that I have invested it, but I should have hoped that a good deal of that money could have been diverted into a flutter on the future of the country and that by steady savings by all the people, it might be possible in a small degree to deal with the inflation.

It is obvious that the savings cannot come from the pockets of those who pay tax, and those who are below the tax level obviously cannot be expected to any extent to be able to save, but at present the vast weight of the money after tax has been paid is with the wage earners who have gross incomes of under £800 a year.

From the national Blue Book issued by the Commissioners of Inland Revenue, it can be seen that after payment of tax on individual incomes, those with incomes before tax of under £800 a year enjoy 72 per cent. of the net income of the country after payment of tax and another 10 per cent. of the net income after tax is enjoyed by those with gross incomes of between £800 and £1,000 a year. It therefore appears that 82 pet cent. of the income available for savings from personal incomes after payment of tax is enjoyed by people who have a taxable income of under £1,000 a year.

I hope it will be noted that the National Savings Committee has recently launched a campaign to secure regular weekly savers in industry and commerce. It has the support of the British Employers' Confederation and of the Trades Union Congress. I am sure that one thing that all ordinary people can do to assist in the battle against inflation is to become regular savers, to divert even a small weekly part of their income towards savings, and thus, by multitudinous though small amounts, to increase the total amount of capital available to fight the battle of inflation. In those circumstances, savings might well indeed be a saving for the country.

6.18 p.m.

Mr. Herbert Morrison (Lewisham, South)

May I first, as the House would wish, congratulate the hon. and learned Member for Warwick and Leamington (Mr. John Hobson)on an excellent and encouraging maiden speech? [HON. MEMBERS: "Hear, hear."] He follows in the representation of the constituency of a distinguished Parliamentarian and former Prime Minister whose departure we were all sorry to have to experience because of grave illness.

The hon. and learned Member has spoken on a subject of great importance and he has spoken with ability and knowledge. He said that it was his duty not to be controversial. We therefore look forward to hearing him again, when it will be his duty—at least, his privilege—to be as controversial as he wants and to put up with what comes back at him. Anyway, we have enjoyed his speech, and we hope to hear him again. In my maiden speech I did not ask for indulgence. I was controversial and thoroughly aggressive, and I did not get any nice comments afterwards, except from a then Independent Member of Parliament, Mr. Austin Hopkinson, who said, "It is the tradition of this House to congratulate an hon. Member on his maiden speech. Sir, I do so." Maybe it was characteristic of him, but I must say I deserved it, for it was not a very good speech.

The Chancellor this afternoon delivered a speech with his customary physical vigour, but I was rather disappointed that there was no indication and no announcement of Government action or policy to deal with this matter, except the appointment of the Independent Economic Advisory Committee. That is a new decision on the part of the Government which they have taken on their own responsibility, and I shall have some comments to make about that later on. I hope that the Prime Minister will indicate later whether this wilt have an effect on the work and functioning of the Economic Planning Board, over which Sir Edwin Plowden used to preside, because there is some relationship between the work of the two bodies.

I am glad that my right hon. Friends arranged for this debate to take place. It is on a subject of very great importance and, I think, considerable danger to our country. We are drifting. It is the drift of a hard-pressed nation, and it is for that nation that we should all try to speak today and advocate lines and views which we think are for its good.

The depressing thing is that nowadays we hardly open a newspaper without reading of increases in prices. It should not be assumed that all increases in prices are in nationalised industries. That is not the case. There are plenty of rises in private industry. Moreover, there are a lot of increases in private industry which are not mentioned in the newspapers at all, but they are nevertheless real. The value of the £ has steadily fallen. One keeps asking oneself "Where will it stop? How low will it go?" I do not think that any good British citizen likes the idea of the £ going down and down in value. We have seen that happen with other currencies, and we always feel sorry for the foreign countries where it happens. The position is becoming alarming.

The Chancellor was at pains to indicate that there was no crisis in the sense of a dramatic crisis, with things coming to a full stop. One must agree that there is not a crisis in that sense, but I think it is deceiving ourselves to say that there is no crisis in the economic and financial affairs of our country. The real point is that the crisis has become so continuous that we are almost tempted to think that there is no crisis because it is not sudden and smashing.

Mr. David Grenfell (Gower)

It is slipping every day.

Mr. Morrison

As my right hon. Friend the Member for Gower (Mr. Grenfell)says, it is slipping every day. It is a continuous crisis, and a continuous crisis is, if anything, worse than a crisis which conies and then goes. Do not let us have any illusions upon that point. The balance of trade is sometimes better and sometimes worse, but if this situation of continuing inflation and continuing depreciation in the value of the £ goes on, then we are heading for a financial and economic crash. This is the business of the Government primarily, but it is equally our business, and we have a duty to make our contributions today. It is the business of employers and the business of the trade union organisations as well.

Let us first try to determine where the outstanding political responsibility lies. I recall the days of the Labour Government. We were determined—we stated it—that the country should not drift into a muddle. Although there were imperfections from time to time, although we had our spots of bother, and although there were lots of troubles going on all over the world, I say that the Labour Government faced and handled with conspicuous ability our economic problems following a great war in which there was much destruction, and that we carried through that transition from war to peace in a way that was creditable to the Government and also creditable to the British people, for without their co-operation ii could never have been done.

The proof of this is that if we compare the way in which we got through the troubles after the Second World War with the difficulties after the First World War, there is no doubt about it that the policy of reasonable control and direction, and, if I may say so, some nationalisation as well, was right, and that the policy after the First World War of letting things drift, in which the Conservative Party would have engaged if it had won the 1945 General Election, was an error and a mistake.

We exercised control. We went in for bulk purchase, with advantage to the Commonwealth and, I think, to the stability of prices. We made a clear effort to hold prices. We imposed on the people, and asked them to accept—which, on the whole, they did—self-denial in respect of goods which were required for the export trade. We imposed import controls, and for the life of me I cannot see why we should not do so today in appropriate cases. If we import more than we can pay for, why do we not cut some of it down? Surely it can be done without all the troublesome things which are sometimes predicted.

We had our troubles, as I have said, and the wonder was that we got through as well as we did during that period. Nationalisation made its contribution. If the coal mines had not been transferred to public ownership, that basic industry would have got into a terrible mess, output would have fallen and trouble would have arisen in the mines.

We did not stop at physical controls. We also went in for the economic education of the people. We took a lot of trouble about it, and there was a response. The people did not know about the balance of payments, the balance of trade, exports, imports, and so on, to the degree which they might have done, and they had to be taught, and we took no end of trouble about it. We did good by educating the people in economic affairs. Sir Stafford Cripps and I and others went all over the country and addressed great mass meetings on the subject, and other means were adopted. One of my complaints is that the present Government have taken far too little trouble about the education of the nation in the economic facts of life.

As a result of all our effort to keep control of things and to ensure that things were fairly done, we were able to speak to the trade unions as friends and colleagues, as a Government who were making their contribution towards maintaining price stability and so on. The trade unions responded, and we had a good deal of help from those quarters.

Then came the change in political direction. The Conservative Party came to power in 1951. I must say that both during the period of the Labour Government and during the period of the Conservative Government the Conservative Party put party politics and party dogma before the wellbeing of the country. The first Minister who contributed to this great change, which was deliberately made, was the present Leader of the House of Commons, who was the first Conservative Chancellor of the Exchequer after the departure of the Labour Government. All this took place after a long period of mischievous propaganda.

What did the Conservative Party say? It said, "Away with austerity," of which it had made fun when Sir Stafford Cripps was Chancellor of the Exchequer. When they say "Away with austerity" it means away with self-discipline, away with self-control. It is all part of their doctrine of "Look after yourselves. Never mind the country." They argued, "Down with controls." They argued, "Conservative freedom is best. Freedom for all to do as they like is the best thing for us." And they acted accordingly.

Even in that little matter of Independent Television there was a deliberate decision of an inflationary character wasting materials, wasting scarce labour, and encouraging advertising expenditure, and so on, in a way which is directly inflationary. Why? Because the Government had not the courage to resist the pressure of about fifteen Conservative Members of Parliament, quite a proportion of them interested in the advertising profession. That was deliberate action calculated to have an inflationary effect.

What were the consequences of this? The Government not only reversed the Labour policy which, as I say, as a whole was markedly successful in getting us through those post-war years—

Mr. Rupert Speir (Hexham)

Was it successful in keeping prices down?

Mr. Morrison

It really was. As my right hon. Friend the Member for Huyton (Mr. H. Wilson)said, at a time when world prices were in the process of doubling we kept them moderate. They did go up. That is true, and we have never denied it, but the increases were relatively small. Under this Government prices have gone up to about the same extent. [HON. MEMBERS: "No."] Yes. They have gone up by about the same percentage—and at a time when world prices were falling. Moreover, the time when the Labour Party was in office was nearer to the end of the war, and then, in consequence of that, production in the world was less. The hon. Member for Hexham (Mr. Speir)is an example of the failure of the Government to go in for elementary economic education of the country.

As I was saying, the result of all this was that things got out of hand, that prices continued to rise, and they ought not to have continued to have risen at the rate they did. It also undid people's economic understanding. They have had very little education or leadership from Ministers. The inevitable consequence of that has been that the sense of social responsibility of almost all classes of the community has deteriorated, and that has been caused by the Government's lack of social morality in handling economic policy.

Let us consider the Trades Union Congress, which I know pretty well, for I am a trade unionist, although I have not had the great honour of sitting on the General Council of the Trades Union Congress. I have, however, sat on its Economic Committee as a representative of the Labour Party Executive. When this Government came in the leaders of the Trades Union Congress straight away said, "The Conservative Government are in as a result of an election. Therefore, we shall be willing to act with the Government, consult and co-operate with them, just as we were with the Government of another colour." It had some critics for saying it, but I think it was right and was public spirited. I know that it genuinely wanted understanding and co-operation between the T.U.C. and the Government of the day for the good of the country and the working people.

The Government's actions and policy have undermined the work which was done during the period of wages restraint, and responsible trade union leaders found themselves facing a losing battle against the increased attacks on the wages restraint policy when they were made at the Trades Union Congress and in other ways. I have heard the arguments at many of their consultations. I think the turning point was probably the meeting of the Trades Union Congress held at Southport. There was a nice tip and run battle between the platform and the floor, and I think the platform just got through, but, despite the victory, one could see that the battle would lead to a reversal of policy within the next twelve months. I think that, perhaps, "reversal" is too strong a word, and I should say a "change" in policy.

Those men did not want to give up wages restraint. I know what their defence was when they talked to one another, let alone what their public defence has been. They argued like this: "What can we say when the Government are letting us down by this anarchistic policy of letting prices rip and deliberately putting some prices up?"

I used to sit on the Economic Committee of the Trades Union Congress. It really was an extraordinary body. As far as I know it still is. I have sat on a good many committees, including committees of politicians, but I have never sat on a better committee than that Economic Committee of the Trades Union Congress. I formed an enormous admiration for it and its members. I think that, like myself, none of them had had a university or public school education, but their quality in discussion and their ability in the end to arrive at an agreement was admirable, and their public spirit was fine. I often felt that those men could be safely left in charge of the government of the country and that they would not make a mess of it, at any rate because of want of knowledge or public spirit.

They wanted to keep stability. After all, the Labour movement has everything to gain from stability being maintained. However, this change took place. It was a change which followed the Government's decision to let things rip, the philosophy of "Look after yourselves."

Moreover, dividends were high and were going up, noticeably going up. I am not talking about profits out of which money is set aside for improving the capital equipment. That is very desirable very often. I am not talking of that; I am talking about dividends going up.

Viscount Hinchingbrooke

Which year was that?

Mr. Morrison

Nearly all the years. They varied. Sometimes they were more and sometimes less.

However, with prices going up and and dividends going up, it was inevitable that there would be a change of feeling in the trade union movement. It was a great pity, but it could not be helped in the circumstances. So wage claims became more frequent, and they became larger.

Now we have reached a new phase, and here we as Labour men and women have to ask ourselves a question, and we really must not hesitate to be frank and forthcoming about it.

Mr. Ellis Smith

We never are.

Mr. Morrison

I do not think we are.

The tendency is for the claims to become bigger and more frequent. Sometimes the trade union movement finds itself backing up the action of the rank and file delegates of the trade unions' conferences, when things get a little bit out of the control and influence sometimes of the official leadership of the unions. Therefore, it is not surprising that some people, including some trade unionists of standing, have asked whether we are outdistancing prices and production. They have also asked whether there is competition between unions. Because if one union puts in a claim it is not too easy for another union, especially if it caters for people in comparable jobs, not to do the same. I think there is now an element of competition.

I think the industrial and political leaders of the Labour movement have been right to criticise the Government, and we as the Opposition must continue to discharge our duty of criticising the Government when we think they are wrong—which will often be the case. However, having said that, I would say that it is not enough for us to criticise the Government. We are the alternative Government, and the country wants to know what our general attitude is. Moreover, we have to look ahead, and we have to try to influence the Government and their policy as best we can, and make our contribution. If the Labour Party is returned next time—and all the signs indicate that it will be—it will be a pity if our predecessors leave us with such a horrible muddle that we are faced with problems still stiffer than we anticipate them to be. We must make our contribution now to save ourselves from such an unpleasant outlook. Therefore, we have to resume as a Labour movement an objective and honest education in the facts of economic life, whether it be popular to do so or not. That is our duty to our people and to the nation. The consumer is being largely forgotten. We as politicians ought not to forget him, because he has more votes than any other section of the community combined. In fact, he is the community. Politicians, trade unionists, and particularly, the Co-operative movement, which in a special sense can speak for the consumer, ought to be watching his interests.

The man who is working in the factory has to take account of the possibility of an internal, vicious, economic spiral. In a way, that does not matter internally, so long as the consequences are confined to the nation, but we have to consider the effect of rising prices on the export trade and on our balance of trade. A million unemployed could be produced directly if our export trade, which is so very vulnerable, were seriously hurt. Indirectly, if we could not afford to import raw materials for our industry it could cause another million to be unemployed. I do not want that to happen, because if it does the employers inevitably will resume their offensive against the trade unions and will try to have wages reduced. History bears me out that it has happened before, and it could happen again.

Increasing prices, moreover, are hurting particularly those who are on fixed incomes, including the large and increasing number of old-age pensioners who are feeling the squeeze very much indeed. We shall be debating that subject next week and I think that the Government will have to do something to improve the lot of old-age pensioners. That is very serious for the Chancellor of the Exchequer, but in the circumstances of these people it is inevitable.

All these matters affect our standing in the world, to which we must give attention. We have got into the habit of assuming that full employment is here and that it will last, but full employment is not safe. I hope that it will remain, but it can be lost. We can go back to the miserable days of the 1920's and 1930's, which were brought to an end for the time being only by a war. I do not want a situation in which we can secure full employment only in a war or immediately thereafter. Therefore, we Socialists are right when we demand that nationalised industry and private industry must be social-minded and that, if necessary, directions will have to be given to them. Working people have a right to fair wages and a decent standard of life. They have a right to their share in economic progress and increased productivity.

We and the unions must be Socialist in outlook, because Socialist philosophy applies to the trade unions as much as to anything else. I want the unions to have a good social outlook on their problems. Let us not encourage within the trade unions a free-for-all competition with each other. It should not be assumed that arbitration in a trade union dispute is a sin. It has worked very successfully in a number of cases, though one side or the other does not always get the result that is wanted. Incidentally, hon. Members have noticed on the tape that the recommended wage increase for the busmen is 11s.

Mr. Ellis Smith (Stoke-on-Trent, South)

A lot of trouble could have been saved.

Mr. Morrison

We cannot condemn arbitration as a principle in trade union affairs. After all, we have always supported it with vigour in international affairs.

There is need to argue the economics of the situation. Employers should encourage joint consultation between managements and workpeople. They have not always done so or done it in a generous and forthcoming spirit. Joint consultation and the laying of the facts on the table are ways of securing a better spirit in industry and of getting increased productivity as well. The Chancellor has declared that the Government propose to go ahead with an economic tribunal.

Mr. Pickthorn

Not a tribunal.

Mr. Morrison

A committee—call it what we like, it is much the same. I do not know whether it will secure the great results that the Government imagine, but it is the fact that one distinguished trade unionist, Mr. C. J. Geddes, a former chairman of the T.U.C., was one of the signatories of this proposal. I do not think that this is the best way of tackling the problem. I like the Swedish idea. Employers and trade unionists in Sweden have an annual contract, lasting twelve months and ending 31st December, so that all contracts come to an end at the same time. It is true that there the trade union movement is more simply organised in industrial unions.

Well before the contract comes to an end, each constituent trade union notifies the Swedish T.U.C. of intended claims. The Swedish equivalent of the T.U.C. General Council then meets and discusses the claims of the various unions. It tries to reconcile one claim with another. The result is an elimination to a great extent of the competitive element and a greater degree of wider thinking and discussion about the problem, together with a study of reports on the Swedish economic situation. The employers also sometimes meet together. This idea is worth thinking about as a means of securing more co-operation and more responsibility in industry.

Mr. R. J. Mellish (Bermondsey)

The idea is also backed in Sweden by a good Socialist Government.

Mr. Morrison

I quite agree. There has been a good Socialist Government there for some time.

A third idea, which cannot be put forward as an immediate remedy. is Lord Beveridge's proposal in favour of the appointment of a Government committee to examine the problem of inflation, to get the facts about it and to endeavour to produce a helpful report. As the noble Lord points out, there was a time when people believed that there was no remedy for unemployment and that full employment was an impossibility. No doubt the reports of various committees, from the Poor Law Commission onwards, have given us helpful guidance and proposals. Therefore, there is something to be said for that idea. Though it should not hold up Government action in the meantime, it is worth thinking about.

This is the situation as I see it. We are facing very grave difficulties and problems which will require efforts on the part of the Government themselves to be more social-minded and to encourage others to be the same. They will require all our efforts to help in the economic education of the nation, including the Labour movement.

6.40 p.m.

Sir Peter Roberts (Sheffield, Heeley)

I was interested to hear the right hon. Member for Lewisham, South (Mr. H. Morrison)going back into the past and patting himself on the back. The only criticism I would make is that he seemed to be a little biased in his own favour. He did not mention the dollar loan which aided the Labour Government so much for such a long time.

Turning back to the debate, I congratulate my right hon. Friend the Chancellor of the Exchequer on what I consider to be a bold and courageous speech, and one which I think will be well received in the country tomorrow when it is read. My right hon. Friend gave a lead to both sides of industry as well as to this House.

There are one or two other matters which I believe the Government should take into consideration, because in considering this problem we have to look at its cause. One or two points stand out clearly. The first is that some inflation in our present economy reflects full employment. We want to maintain full employment, and as long as we do we must expect a slow, steady pressure of rising prices. Secondly, a rising standard of living will also be reflected in an increased demand for goods, and as a result there will be a tendency to increase prices.

As we want to maintain both full employment and a rising standard of living, it is inevitable, whatever Government may be in power, that we shall see some form of rising inflation during the years, although it must be a controlled inflation, because full employment and a rising standard of living are two flowers which we want to maintain in our garden. At the same time we have a number of weeds, though one weed we have not got is the fear of galloping inflation, about which we have heard something. I do not believe that at the present time we are contemplating the problem of the billion mark note, the runaway inflation. That relates only to a country that has lost its assets or has become bankrupt, it does not apply to our country at present.

So having said that some form of inflation appears to be inevitable, although runaway inflation is no danger at the present time—

Mr. Cyril Osborne (Louth)

The Germans thought the same thing.

Mr. Pickthorn

Famous last words.

Sir P. Roberts

There are a lot of misconceptions about it. To my mind, the present inflation is caused primarily—and this has been brought out during the debate this afternoon—by the powerful demand for more wages backed by a strong trade union movement. I am not necessarily complaining of this, but I believe it is a fundamental fact. If we look at the amount of the national income which the wage-earning classes have received over the last ten years, we shall find that relatively this section of the community is better off than are the other sections whose share of the national income has gone down to some extent.

If, therefore, one section of the community has had a greater increase in its share of the national income, it obviously means that another section must have had less. For instance, the share of the very rich has obviously come down, but they are so few in number that it does not affect the economy one way or the other. Then there are the people living on fixed incomes, such as the holders of fixed-interest stocks and pensioners. It is to those people that the Government must primarily direct attention at the present time.

Reverting to the question of the increased part of the national income which the wage earners have received, I believe that is a good thing so long as it is related to productivity. For instance, I believe that Sheffield has never been more prosperous, relatively, than it is now. I do not think that is unusual also in a number of other big industrial towns in the north. Also, I do not believe that it will be possible to reverse this tendency or that the trade unions would allow it.

There is one danger that must be recognised by both sides of the House, and that is when political motives enter into the wage demands. I believe that recently we have seen some of that injected by the Communist Party. It must be watched carefully, because once wage demands have such a political flavour, and become divorced from economics, the situation can become very dangerous indeed.

In addition, during the last ten years of which I am speaking the Government have stepped in and have reduced direct taxation for a large section of the wage-earning population about which we are talking. Both Governments have done it, with the approval of all sides of the House, but it has been another step towards the present disequilibrium.

Now I turn to a point which I want to make to the Chancellor or to my hon. Friend. If the Government are to be fair to all sections of the community, which I am sure is our intention, now has come the time when they must help those people in the fixed income groups, the professional and salaried classes and the pensioner classes. The easiest and simplest way in which the Government can do this, first for those who pay direct taxation, is by a reduction in Income Tax. That is the most easy and essential thing to do. In the case of those who do not pay Income Tax, the pensioners and others on fixed incomes, there is no doubt that in the next few months some added assistance must be given to them.

Let us take direct taxation first. I have been listening to this kind of debate in the House of Commons for just over twelve years. During this time the theory has been advanced that direct taxation is anti-inflationary. I think it was the late Sir Stafford Cripps who first used the phrase "creaming-off surplus spending power."

Mr. Osborne

Syphoning.

Sir P. Roberts

Syphoning off. That is a deeply ingrained idea held by economists on either side of the House and, I believe, by the Treasury. With respect, I believe it to be wrong. Direct taxation in itself is inflationary, and one of the difficulties which the right hon. Gentleman the Member for Huyton (Mr. H. Wilson)was finding throughout his speech was that he would not face up to the fact that the heavy taxation imposed by his Government—and still being imposed though not quite so much by our Government—is the root cause of the inflation from which we are now suffering.

In my opinion, there is a high direct taxation content in the ordinary price of goods. I will explain what I mean. In the capitalist State, as we have it, the manufacturer or the producer who has to invest in capital must expect some return on that capital investment, and a net return of between 5 per cent. and 7½ per cent., depending upon the risk, does not appear to be excessive. Nowadays, however, when we have direct taxation on Income Tax, Distributed Profits Tax and so on, up to 50 per cent. or 60 per cent., it means that a company whose ratio of turnover to capital might have been one for one, in order to get the 5 per cent. or 7½ per cent. now, has to add on to the cost of the product 15 per cent., and in that 15 per cent. there is at least 5 per cent. or 7½ per cent. of direct tax content. When that is multiplied through all the various sub-components of a finished article, a motor car or a television set, the total amount of direct tax in the final price is considerably higher than most people think.

Therefore, if we could attack this problem by reducing taxation in that way it would have the effect not only of helping people in the income groups we want to help, but it would also have the effect of bringing down prices. The Government should approach industry and industrialists with the suggestion that if such a reduction of taxation took place they should use it in the reduction of prices. That is a possible form of argument which the Government could produce. Even if industrialists did not agree, competition by itself would bring prices down.

What sort of amount is necessary? A reduction of 6d. in the standard rate on Income Tax is not tackling the problem. To make an impact we have to have courage and to think of a reduction in terms of 2s. in the standard rate, graded down in the lower rates. At present rates that would cost £540 million, and if we gave something extra to pensioners on subsistence level—because the two go hand in hand—one would need another £60 million, so we are trying to find a total of £600 million.

This is more simple than it appears. This afternoon the Chancellor talked about Government savings. When the Minister of Defence first took office we had a saving in defence. There is still much to be done, and some of it must have been whittled away over the last three or four months. I am one of those who believes that peace will come through the deterrent of nuclear weapons and that we can rely more and more on that, thus reducing conventional weapons.

Further economies can be made in Government Departments. I sometimes think that Ministers seem to be frightened of civil servants. Perhaps Ministers are moved from one Department to another so quickly that they do not have an opportunity to get down to considering possible economies. A permanent commission of Government supporters might well be useful for considering that form of economy. I believe that by savings in defence and otherwise it is possible to effect a saving of at least £300 million.

The second half is gained from the Government surplus above the line. The Government surplus above the line is neither necessary nor desirable. The full estimate for 1957–58 is £560 million—enough in itself to cover the whole of the 2s. reduction to which I have referred. One would not need it all. It is far better for the private individual to save rather than for the Government to save compulsorily with public savings. I do not expect hon. Members opposite to agree with me, but I do expect agreement on this side of the Committee.

I have recently been to the United States in my capacity of Master Cutler. I discussed this topic with United States economists. United States productivity has increased considerably over the last six years. During the first four years of that period the United States was running on a deficiency. It is only in the last two years that the United States total net figure has moved into a surplus. The Americans were operating on a deficit for those four years and yet during that time there was a great increase in their production. This Budget surplus is neither essential nor necessary, and it would be far better used for reducing taxation, as I have said.

Irrespective of what one does with taxation internally, the world must have confidence in our economies, must have confidence in Great Britain, confidence in the Commonwealth and confidence in the sterling area. One of the best ways of combating inflation is by further investment in this country, and investment means production and production takes care of demand. The United States has been a user of investment and capital for many years, but it is now changing and becoming an exporter of capital.

The investment of United States dollars in this country over the next ten years can help our standard of living considerably. I was making this sort of case in New York last week, and I was very disappointed with the Labour Party's announcement about nationalisation, renationalisation and a whole gamut of political interference with investment. With the example of Mr. Peron and Mr. Nasser, investors abroad are very wary of going into countries where politicians have nationalisation phobia. It is doing no service to this country, and anyway it is out of date and out of place to talk about renationalising, for instance, the steel industry or the road transport industry. The Opposition are doing no good to themselves or to the country by reiterating those out-of-date theories.

If we implement Conservative principles, if we reduce taxation, thereby reducing prices and increasing the standard of living of the fixed income groups, if we encourage private and not public savings, and if we use the nationalised industries to hold basic prices—and one of the advantages of nationalised industries is that they can be used to hold basic prices, something not done sufficiently in the last year or two—we can go forward to build a sound and rising standard of living for all sections of the community.

7.7 p.m.

Mr. J. Grimond (Orkney and Shetland)

With a great deal of what the hon. Member for Heeley (Sir P. Roberts)said about the reduction of taxation I whole-heartedly agree. I also agree about the possibility of making good by reductions in the armament programme and by administrative economies in the Government. However, he sang a rather dangerous siren song about controlled inflation. The forces making for inflation in a democracy today are so strong that it is dangerous to feel that one can control them by having a little inflation. What may begin as slow inflation can easily become fast. Inflation is the greatest danger facing democracies all over the world today.

I do not share the belief of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson)that democracies have now learned the technique of planning investment and the general economic system so as to maintain a level cost of living. We certainly hope to get to that stage, but we have not yet done so. Some of his suggestions were reminiscent of Dr. Schacht and of devices which, in a system which was not democratic, might have been valuable for getting over the difficulties of inflation.

When the Chancellor was speaking, it seemed to me that we were driving along in the same old coach in which we had been for the last four or five years. Certainly, we have not solved the problem of inflation in those years. Now, it seems, we are to get a fifth wheel to this coach in the form of the Council which is to give general advice on what is happening. At the end of the Chancellor's speech, I was still in doubt about whether this Council was to be a propaganda machine or a sort of instrument for education in economics—of which the right hon. Gentleman the Member for Lewisham, South (Mr. H. Morrison)spoke.

If it is not to be merely the latter, what happens if it wants to express a view quite different from the Government's view? That may well happen. There will not necessarily be agreement about what the Governmetn should do. Is this to be a Council attempting the difficult if not impossible task of arranging how to have one's cake and eat it at the same time, how to have painless inflation without hurting anybody? Will it not be trespassing on the duty of the Government? It is for the Government to make decisions on economic policy. I do not feel that this Council will be of a great help in meeting our problems.

The Chancellor said that wages had added about £800 million to consumption in the recent years. He spoke as though that was something generated by trade unionists out of the air. Of course, all these wage increases have been granted by industries which, in spite of them, have made large profits. I cannot blame trade unionists for demanding more and more wages. Although we have all cried "wolf", "wolf" has not arrived. At the end of the old story, the wolf did come. It probably will come to us, because we are a great international trading nation and we cannot isolate ourselves from the world: but it has not come so far.

It is very dangerous when the Chancellor gives the impression, as he gave this afternoon, that inflation is outside the control of the Government. In the last resort he controls the credit and the currency of this country. We know that he cannot use that control in as drastic a way as might seem possible at first sight. He is subject to democratic pressures, but he is the ultimate controller, and it is important for the morale of the country and a proper understanding of the problem to appreciate the fact that in this sort of society the ultimate control rests with the Government.

Let us look at the industries under the Chancellor's direct hand. While the credit squeeze has been going on, advances of £243 million have been made to the nationalised industries. The transport and coal industries have been allowed to run up deficits of £140 million between them. We have never been told how this fits in with the general pattern of the economy, or what the Government intend to do about these mounting deficits.

Today, we stand facing the possibility of a severe wage-cost inflation, which will grow worse as recent wage increases work their way through the economy. It is true that production is rising, but not as fast as wages. What I think is sinister, and what has not been emphasised enough, is that our resources are still under-employed. In this connection, we are all apt to be rather bemused by the unemployment figures. With our conditioning to the pre-war world of mass unemployment we are apt to think that if there are not a great many people on the unemployment register all is well.

But there is serious under-employment in industry today—under-employment of capital and labour resources through restrictive practices: through managements hanging on to men they do not need, or people being kept in industries in which the marginal productivity is not as high as in other industries to which they might move, and because of National Service and strikes. Strikes are very alarming when you look at the number of man-days lost this year.

The curious aspect of the situation is that while we have a wage-cost inflation which should be generating an increase of consumer goods and, through consumer goods, of investment goods, we still have under-employment. The Government, although they have not said so, probably have in mind the thought that there are certain deflationary tendencies at work. Commodity prices are falling, and that has traditionally been a sign of coming deflation. Some countries are in financial difficulties and, presumably, demand will fall off there.

Then there is the possibility of the Free Trade Area, and special situations arising, such as the cancelling of the arms contracts and the new regulations for the jute industry in Dundee. These are all deflationary and part of the reason why production has not risen as fast as one might have thought. But they are not the whole reason. If we look at other countries we see the same pattern emerging, although it is moving at a different pace. There is a wage-cost inflation, but not as large an increase in production as in recent years. Some of that is no doubt due to the fact that countries could not keep up the pace of the immediately postwar years. Throughout the free world, production is tending to slow up.

If the Government want to set up more committees—which I do not much favour—they might see whether they can set up an international committee to look into economic and financial policy on the international level. The whole Western world is facing the difficulty of creeping inflation and also the need to make the utmost use of its resources. If we are going into the Free Trade Area of Europe and are to take part in a Pan-European movement it is important that the basic economic policies of the various countries of Europe keep in step. The same is true in the Commonwealth. If we are going on running the sterling area and keeping Commonwealth balances in this country, the Commonwealth countries and the Colonies are bound to demand a bigger say in the way in which we manage sterling.

Mr. Osborne

Surely the O.E.E.C. and the North Atlantic Community give us plenty of reports. We do not want more.

Mr. Grimond

It is true that they give us reports, but we may require new institutions, new financial organisations. This may be necessary, especially if we are going further with the European movement.

What is vital to our internal position is to call back into production all our potential without letting loose a new flood of money and credit which will be inflationary. Our main obstacle is a lack of confidence in the country towards Governments and also in industry itself. Let me give an example of what I mean. There is no doubt that unproductive Government expenditure is inflationary. There is a powerful demand for further economies in Government expenditure. Ordinary people are not at all convinced that those economies could not be made. They see plenty of examples where they think economies could be made. The Government are always saying that they will make these economies, but how will they do it? They have not very much time left.

Mr. Arthur Moyle (Oldbury and Halesowen)

The hon. Member has referred somewhat airily to one or two matters without going into definitions. He has referred to restrictive practices among trade unions, but he did not give particulars. Now he has referred to Government expenditure. In what particular way does the Liberal Party propose to act?

Mr. Grimond

I do not think that there is any doubt that restrictive practices exist in industry. The printing industry, with which I am familiar, is full of them—on both sides of the industry.

Then there is the question of Government expenditure. The hon. Member for Heeley referred to defence expenditure. There is the question of the staffs of the Colonial Office and the Foreign Office and, for my part, I notice the number of inspectors who come to my constituency every summer. All I say is that the public are not convinced that more administrative and general economies could not be made.

Secondly, there is the question of the nationalised industries, which are under the hand of the Government. The capital commitments of these industries are in excess of £5,000 million. That may be right or wrong, but I am sure that no one in this House can be satisfied that the position has been examined by the House, or that we have had those commitments justified, on commercial grounds, as representing the best use of our resources. Then there is the vexed question of the deficit which these industries are piling up. Some Government must tell us, some day, what is to happen about them.

Then there is the question of wages in the nationalised industries. We are told on all sides that wages should be linked in some way with productivity. It is agreed that this is a difficult thing to do, but we have had various suggestions. And the right hon. Member for Lewisham, South suggested that we could have a contract running for a year. I should like to see the Government develop a more coherent wage pattern in the nationalised industries, and try to relate wages more directly to productivity. They could also try the sort of contract which is a common feature of industrial relations in America—a contract between management and labour which runs for some time.

Lastly, there is the question whether the Government will be able to defend and save the currency. My feeling is that what with Premium Bonds and the latest proposals of the Labour Party—which all seem to assume inflation—confidence in the currency and the value of savings is being undermined, which could be disastrous if it spread much further. I am not sure that Ministers do not make the situation worse by giving continual warnings against inflation—by mentioning all the terrible things that will happen if it comes—and then admitting that it is with us. I do not wonder that people say, "We had better get out of sterling." This atmosphere of uncertainty will increase as the Election approaches and may become progressively more serious, because I doubt whether we can stop a flight from our currency, once started. We may be able to do so if we take dictatorial powers, but once such a thing is started it will be difficult to stop by democratic means.

In industry itself it seems to me that a very strong contributory cause of inflation is the pulling of owners and managers against the workpeople because they feel that they have different interests. Until we take steps to give them the same interests we shall have this pull on one side or the other for higher profits or higher wages. Throughout this debate we have continually had expressions like "industrial war breaking out again" and other metaphors taken from war. In the first five months of this year we lost 7 million working days through strikes, whereas in the whole of 1955 we lost less than 4 million.

Various methods have been urged on the Government for improving the situation, for example not only consultation at all levels, which is extremely important, but also the spread of ownership. I do not want to go over them all, but there is co-ownership and there have been other suggestions. I would draw attention once again to the suggestion that the Government should give positive encouragement to the buying of shares in trust companies in quite small amounts by workers in industry.

I know that there are difficulties, but some Government can overcome and the difficulty of expense can surely be met. The Stamp Duty can be repealed, we recognise the expense of handling small packets of shares, but surely the Government could consult the Stock Exchange, the Post Office and big industry to see whether this difficulty cannot be overcome, and whether a campaign to interest the workers directly in the ownership of industry cannot be set under way and shares sold, perhaps through post offices.

Another factor which causes lack of confidence is the old fear of unemployment. It was said in the Daily Telegraph today that it hangs over industry still like a black cloud. That is true. Should we not examine the question of amending the unemployment regulations to make it easier for people to move if they lose their employment? Should we not make retraining easier? Have we not reached the stage when a skilled man in industry must have some form of compensation for loss of office? We have it at the managerial level. I do not know how far we can insure against that, but if we are to take advantage of new techniques and of our huge investment in employment we must get rid of the fear of unemployment.

We are told that we intend to pay officers in the Army large sums of money because of the ending of their careers. I agree with that; I am all in favour of it. If we do it, surely there is at least a case for examining whether we should not extend this principle into industry.

Mr. Henry Usborne (Birmingham, Yardley)

Is not there at least one obvious case where it could be done? It is the custom in most industries that members of the staff have to be given one month's notice. Would it not be perfectly fair to extend that to all members of the firm?

Mr. Grimond

I think it would. It is the sort of method by which one would increase mobility and give a person a feeling that, at any rate, he will not be thrown out of his job and house quite suddenly through a change in technique or merely through a falling off in demand.

There are plenty of other suggestions which could be made, for instance, Treasury deposit receipts and fixed ratios. But the big problem facing the country today is that of getting its resources fully employed and yet keeping currency and credit in step with the process, so that we do not necessarily have rising prices.

Mr. Arthur Lewis (West Ham, North)

Before the hon. Member leaves the argument about co-partnership, may I ask whether it would not be a good thing for the Liberal Party to try this in the News Chronicle, in Cadbury Bros., Rowntree & Co. and Fry & Sons, and all the big industrial concerns which they control? While they probably have not the chance of becoming the Government, why do they not set an example?

Mr. Grimond

They might if they did control those firms. I am in favour of these things. In fact, this principle is spreading throughout industry. That is exactly what is happening.

Mr. Lewis

But the Liberals are not doing it.

Mr. Grimond

Indeed they are. It is happening all the time in industry and a pioneer of it was Mr. Taylor, a Liberal M.P. All I say is that it is a very healthy development. I must finish now, however, because I have continued for too long.

I feel that the fundamental problem is to get full production without galloping inflation. I do not think that we shall achieve that until there is a common interest in this country and until workers and management pull in the same direction. In my opinion, there are ways in which that can be done, but I do not think that it can be done by setting up more committees. Already, we have unions, employers' federations and similar organisations. I doubt, too, whether we can achieve our aim by any quick turn of the wrist in technical management of the currency.

I agree that in a democracy it is difficult for the Government to take a firm line towards inflation, but today the Government might have indicated that they would do much more than they have suggested.

7.25 p.m.

Mr. Kenneth Pickthorn (Carlton)

I am very glad to follow the hon. Member for Orkney and Shetland (Mr. Grimond)because I think that for the first time in my life I very largely agreed with what he said.

It is always difficult, and most particularly in this sort of debate, if one sits in the Chamber for four or five hours before one rises to speak, still to remain convinced by that time that any of the things one means to say are still worth saying. I consoled and cheered myself a little by remembering Clemenceau's principle that war was too important to be left to the generals. I think it may not be unreasonable to think that economics are too serious, and at the same time I would make so bold as to say too simple, to be left to the experts. Certainly if the experts cannot make them a great deal simpler than they have made them recently, it becomes in the strict sense nonsense to talk about democracy. It is important to be clear, first, about the facts; about the policy which the Government are pursuing and intend to pursue; about the areas in which they can operate, and how"— and I take that in its English and not American sense. I hope that the House will have recognised the words of my right hon. Friend the Chancellor of the Exchequer. On another occasion, a day or two sooner, he said: This nation must either squarely face the problem of inflation and accept the policies necessary to check and curtail it or else it must face a continued decline in the value of its currency. I want to invite the House to consider a little what is the problem of inflation. I do not propose to give the answer to the problem I will do that on a later occasion if it should still be desired that I should. I want to begin by persuading right hon. and hon. Gentlemen that they ought to make up their minds what is the problem of inflation. Is it to "check and curtail," or, as my right hon. Friend the Prime Minister said, "can we control?" Again, I am not quite sure what he meant by control. Did he mean, make sure that there is no more inflation, or did he mean make sure that the rate of inflation does not quicken? I think that is a fair question to ask him. Or does control merely mean control in the French sense, ticket inspector, "contrôleur"—to see where the thing is going and to check it up in that sense?

I would venture to suggest that everybody agreed, more or less, with the Chancellor's view that we have to "face this problem." Surely everybody is thereby authorised, and I would say absolutely obliged, to ask Her Majesty's Government, to a less extent to ask the Opposition, and as far as possible to ask the experts, what they think is the problem of inflation? Is it to stop it? Or is it that it cannot be stopped? Or is it that it need not be stopped? Or is it that it should not be stopped? Or is it that it should be more or less willingly accepted at some rate which perhaps we cannot make precise, although for the sake of argument I offer the figure of 3 per cent. per annum. Which is the victory in the battle against inflation or the victory in what my right hon. Friend the Chancellor of the Exchequer, with his gunner's natural feelings about not wishing to be surrounded, called a war on several fronts against inflation? If we do which of these things shall we have victory?

I make no apology for asking the question out loud, because I am sure that if the right answer is not given, and given convincingly, then the worst result becomes very much more likely. What is thought about the clearness of the Government's mind and the firmness of its determination in this matter is one of the greatest factors in this problem. From what we have heard, and on the whole accepted, from the Chancellor of the Exchequer, and still more as it was reduced to parody by my hon. Friend the Member for Sheffield, Heeley (Sir P. Roberts)was: "This inflation is a very nice thing. It goes along, and wages go up and up, while steelworks become more and more valuable. There is no reason why we should not use these very agreeable facts to abolish taxation."

Sir P. Roberts

That is a slight exaggeration of what I said.

Mr. Pickthorn

Nevertheless, I think it is a perfectly fair parody. I have put it much shorter and in a rather more memorable way. It was hardly less than complete nonsense, and my hon. Friend made the poor Chancellor of the Exchequer look slightly absurd.

If we are not to get the right answer, we may take it for granted that anything less than the right answer certainly means something not much better than 3 per cent. per annum. Either the right answer is clearly and firmly given or the 3 per cent. per annum answer must be taken to be the effective answer. I would ask the House to consider that point for a moment. In passing, we note the doubt whether creeping inflation can in fact go on for long. When the gaff has been blown, can it go on? Can it go oil creeping?

My hon. Friend the Member for Heeley is not here now but he said that it was a good thing that individuals should save instead of the State. How does he propose to cause individuals to save when the rate of interest is effectively negatived? I mean for anybody who puts his money into anything except my right hon. Friend the Prime Minister's "gambling" medium. In those one may win, whereas with all the others one is bound to lose.

How, in those circumstances, does anybody suggest that the individual is to be led into saving? I have spoken on National Savings platforms, not very often, not more often than I could help. When I have spoken I have said nothing that I did not think was exactly true. It still is true that if people stop saving and stop putting money into gilt-edged, we shall all be the worse off. If only all the mugs did it and all the wise boys did not, that would be much better for the wise boys. That is a matter which is the Government's responsibility and which the Government have to see stopped.

Do we know, if we are to have this 3 per cent. inflationary world, how the Government will behave in it? We do not know. We do not yet know, and we are bound to ask more questions. How will the Government persuade people to lend money? The Chancellor said he was not worried about gilt-edged. I have always been taught that only very good men and very wicked men did not worry. I do not know which of those the Chancellor is, but I am glad he was not worried; but he ought to be deeply concerned, especially when we remember my right hon. Friend the Prime Minister's remark that "we must save to insert."

Why then save in the form of money, British currency, if investment is only to receive negative interest? I am sorry to say these things, but it is high time that they were said, and it is on the whole important that they should be said from this side of the House. It is great impudence for hon. Members on the Opposition side to come near the subject. When we look back and remember the right hon. Doctor and his issue of something which is now worth under £30 instead of £100, and other things, it is both impudent and silly that they should come near the subject.

Does my right hon. Friend doubt that the only way in which he can exert any lasting influence upon gilt-edged prices will be by ending depreciation of the currency? That is a fair question to put. My right hon. Friend has said that he had his "old faithfuls." I am sure that he counts me among them, and I am sure that it is not overstretching the privilege of an old retainer to hope that this question should be answered: Is there any way of exerting lasting influence on gilt-edged prices except by ending depreciation of the currency?

Nor does it stop with public finance. I do not see how commercial finance is to work even if we can hold depreciation to 3 per cent. per annum. What is to happen to debenture and preference shares? I do not know, but it will make a very considerable difference to the financial management of industry. If the difference is the result of Government action or want of action, then the Government should think ahead what they suppose would be the result and what ought to be done to minimise such of the results as they might not think desirable.

The difficulty is not only the concern of those who may have money to invest, but also of those who have not any money to invest, who have nothing except their expectations from the Welfare State. They now know what inflation is. I wish the right hon. Member for Lewisham, South (Mr. H. Morrison)were back here. We could have joined in singing, "I can't forget the days when I was young." We might have done a Marie Lloyd dance at the end. The right hon. Gentleman very nearly did it, all but singing the tune. He talked as though he had taught economics to England if not to the world.

As for teaching, I too am bound to plead a little guilty to my constituents. I cannot say I have taught them how or why inflation happens or how it should be stopped. But I have never, I think, spoken in my constituency without talking about inflation. What is to happen to all these people who now recognise it? Are there to be always queues outside every Ministry to put their claims for readjusting their expectations from the State? There are the teachers, superannuated or about to be superannuated; the aspirants for so-called "teachers' training colleges"; the students, so-called; the civil servants, central and local; the State employees, direct and indirect; Ministers and Members of Parliament. In this happy world in which inflation is to go on and on all the time, is there to be a queue of these people outside every Ministry? If so, ought we not to have an appointed season or something of that kind? Otherwise, it will be intolerable for Ministers and their Secretaries. We ought to know. Almost everybody, outside Sheffield, has a very deep suspicion of what will happen to the £ till some Government risks its neck, religiously doing their duty to stop it.

We all know what inflation is. The old-age pensioners know and they are all used to having it put right, more or less every now and then, according to the chances and changes of politics. They are beginning to think that that is not good enough; and it is not. They are beginning to think and to insist that if inflation must be taken for granted, so must their gang's right to a guaranteed readjustment. That is what is beginning to happen.

What about the Sterling Area? My right hon. Friend the Prime Minister said the other day that British influence was as great as ever. I hope he is right. It will not go on being so if the Sterling Area is not preserved. How can the Sterling Area acquiesce, if I am right that the answer so far indicated is something like 3 per cent. depreciation per annum? How could the Sterling Area acquiesce in that? As for united Europe they are surely not going to acquiesce. The Germans are very nearly as intolerably foolish about trees as the English are about dogs, and they are very nearly as pathologically frightened about inflation as the English are about unemployment. We are not going to go into, or halfway to, any consortium with West Deutschland on this basis. It is not going to happen.

How long can the City survive with a rotting currency? I hope that no one will tell me that this is crying stinking fish. There are very good noses on Wall Street and very keen ears in Zurich and these phenomena and their natural consequence are all well-known there. I hope that no one will tell me to go back into the twentieth century with Dr. Schacht and Ivor Kreuger. The earlier centuries understood simple arithmetic and even simple morality.

The last part of the subject to which I want to draw the attention of the House is this. I think that no one will accuse me of generally being a moraliser. I hate moralism in politics. I think that few things have done more harm, particularly to hon. Members on the other side of the House than the awful itch to turn every question of convenience and compulsion into a great moral question. I hope that I shall not be accused of having very often done that. But this thing does come to a point, and I think that however much we try we cannot stay very far away from doing that.

I have not yet said anything about world trade, but perhaps I can leave that out. It is no guarantee to our country, and it is only a very partial consolation to our party that the alternative is very much worse. The Socialist Party always was, is, and so far as I can guess always will be inflationist—and if it comes into office once more that will be the end of it anyway. It can hardly be that any of them now really think that the price of that pleasant vice can be avoided by tricks, restrictions, controls and subsidies. That one is out. The old age pensioners and such are not going to be taken in by that. The Labour Party broke its back on inflation. Its claim that it was deliberately planning economic expansion was belied by recurrent exchange crises; prices rose continuously and taxes had to be kept at a level which angered the middle class and even the skilled workers. I hope that hon. Gentlemen opposite agreed with that. It comes from Mr. Thomas Balogh in the New Statesman. [Interruption.] Hon. Members opposite must not jeer at Mr. Thomas Balogh. They must not slip into racialism. They are surely not going to shuffle him off as good enough for the Maltese. They are too closely tied up with that one. Perhaps that is enough for them.

Now I come to the last part of what I want to say. The opinion has got around—there is no doubt about this, and this is certainly not crying stinking fish—that Her Majesty's Government have called off or suspended the battle against inflation. If they still mean what they did mean and what I have always meant, they will get rid of that opinion. How are they going to do it? How are they going to do it? I would say this to them among other things which might perhaps cheer them: let them not despair of help from opposite. I have heard people lately, more than once, using horrible words like devaluation and coalition, which I regard as the dirtiest of all words in politics, because it always means the wide boys versus the mugs. When I say to my right hon. Friend, "Let him not despair of help from the other side", it is not in that direction, coalition, at all that I am looking. This is the direction in which I am looking. We have been told on authority—authority recognised by hon. and right hon. Gentlemen opposite—that they descend more perhaps from Methodism than Marxism. Looking at them it seems about an even chance. I do not think that many of them ever understood Marxism. That is a compliment to them because neither did I nor anyone else. I think that it is nonsense. And I think that almost all those of them who had the tradition of Methodism have forgotten it. They have forgotten, especially, the sense of sin. They have been too much given to thinking that all men can be made happy by all men compelling all other men. That is not how it can be done. The reason that men are unhappy is because they are all miserable sinners. I think that they have rather forgotten their principles. What I have just said is a short definition of Socialism. I think they have rather forgotten their Methodism, but I hope there is enough still there for me to appeal to a little of it.

What does inflation mean? Always Governments are tempted and like to see the value of money go down, slowly, because the Government are always the biggest borrower. When it gets to the point where everyone sees it and knows all about it and where all talk at tea tables and directors' board meetings is about what is going to happen to Income Tax next week and what is going to happen to inflation the week after next—when it comes to this stage it is a gross and may be a mortal vice. It means that people who borrow, especially the Government who are in a position to do things by compulsion, mean to pay back with something worse than that which they have borrowed. If a neighbour borrows a lawn mower meaning to pay one back with a worse lawn mower one's wife does not again ask his wife to tea. And she is quite right.

We may pray to Omnipotence to forgive us our debts as we forgive our debtors. We may; but we clearly cannot when at the same time we resolve that our creditors shall never be paid in full. That makes the prayer a little difficult. We all need some blessing.

Mr. Scholefield Allen (Crewe)

The hon. Member.

Mr. Pickthorn

The hon. Gentleman must not assume that I am not serious because I am not dull; nor assume that he should be heard because he has the itch to be facetious. Who more needs blessing at this moment in the middle of the Twentieth century than those who care about the employment and the prosperity of the masses of this country? We have been taught to pray that our debts may 'be forgiven as we forgive our debtors. I had most need of blessing, and Amen Stuck in my throat.

7.49 p.m.

Mr. A. J. Irvine (Liverpool, Edge Hill)

We have just heard what really, on the final analysis, was a cry of despair. I listened to the speech of the hon. Member for Carlton (Mr. Pickthorn)with a great deal of pleasure even so. It was a stimulating and unexpected treatment of the matter, but I think it bore very little relevance to the practical questions people are asking outside.

I heard the hon. Member intervene in the course of an earlier speech of an hon. Friend of his to say that he was uttering "famous last words". There has been very little sign of cohesion on the part of hon. and right hon. Members opposite on this matter, very little sign of agreement among themselves and very little mark or indication of any constructive policy at all. There is no more important matter in politics than that some party and Government should discover what the answer is to this problem—this persistent problem—of the decline in the value of money. I believe the pressure of that problem is now beginning to be felt to a greater extent than at any time since the end of the war.

I believe that when Lord Beveridge says that inflation is the great social enemy of our time as unemployment was before the war, he is perfectly right. I noticed with interest that Mr. Hawtrey, in his letter to The Times today, used these words: There is now, I think, real pressure among the public for effective action. One party or another, some Government or another, has got to produce a policy to deal with the decline in the value of money.

I agree with those who say that it is not going to be effected by any manoeuvre, or technical twist, or sudden change in monetary policy. There has got to be something in the nature of a social revolution in this country which has to have the result that every section of the community—employers, workers, Government and the rest—takes a new outlook and a new viewpoint upon a basis of liaison and co-operation to save the currency. I believe the problem to be fundamentally a social one. I do not desire to make a party point about this. If I put it bluntly, I hope I shall be forgiven. The great advantage that a Labour Government will have over a Conservative Government in dealing with this problem is the extent to which it is profoundly believed among the producers of this country that a Labour Government will show a greater sympathy and greater understanding in achieving these social objectives than a Government of any other colour.

I believe that to be a rather important and fundamental fact in our situation, but I think that even a Labour Government is not going to be able to encourage the kind of outlook on these affairs which is necessary for us to overcome this problem until we can point to certain practical and specific points in our policy which we can say are designed to counter inflation. Having done that, we can invite the workers of the country, in the context of those practical proposals, to consider the whole problem of wage-claim restraint in a different light.

I desire to mention some of the points I want to see incorporated in such a policy. They are points which will help to overcome this problem of inflation, and when they have been accepted by one of our great parties of the State it will be possible in that context to get a new approach to the problem. The first thing is that it must be possible for a Government of this country in the present state of the law to achieve a far more practical and direct control over bank advances than this Government have been able to achieve in recent months. The machinery is all there. I appreciate the danger that one who is not an expert in these matters might over-simplify but the fact remains that the machinery is there, the power to apply the control is there. If there were any earlier deficiencies in the power of control they were eliminated by the legislation of the 1945–50 Parliament. We did not take over the Bank for ideological reasons. We did it for practical reasons like these. The power of control is there, I should have thought, beyond all doubt.

As that power of control is there, how does it come about that a Government permits a rise in the level of bank advances such as we saw at the beginning of this year? Having allowed that very substantial rise in bank advances and then seen them diminish for a short time in April and May, how does it then allow the rise to be resumed? The first thing I would wish a Government to say to the people—a Government determined really to tackle the problem of inflation—would be that they would apply, absolutely firmly and determinedly, controls upon bank advances.

The second thing I would desire them to say is that capital gains, when they are realised, are shamefully inflationary in character and they should be taxed. I am bound to say that I would not regard a policy which merely stated that and stopped there as being anything like sufficient or, indeed, necessarily very relevant to the problem of countering inflation. I think it is necessary that the income which comes from the taxation upon capital gains when such taxation is imposed, as I hope it will be, should be earmarked beyond question for certain quite specifically non-inflationary or anti-inflationary uses if the situation is still inflationary, as I anticipate it will be.

Of course, no party can commit itself to a particular course of action in relation to revenue at some future time, but speaking for the moment with the policy of my own party particularly in mind, I hope that it will be advocated that if we are to have taxation on realised capital gains the revenue and income from that taxation shall be directed quite specifically and deliberately, if at the time it is coming in there is still inflation in progress, to non-inflationary purposes and funded and comprised in long-dated securities or whatever is regarded as the least inflationary form of use.

I am endeavouring to put forward specific points in the context of which I think we can hope to have a really improved relationship between producer and employer. That is the sine qua non of a real recovery.

The third point on which I wish to place emphasis is the vital importance of reforming the law to ensure that we stop the loophole of escape from tax liability available to companies in respect of their business expenses. I have no doubt whatever that the excessive deductible business expenses of companies is one of the most hotly resented scandals of our time.

I am told repeatedly that the monetary and financial significance of these is comparatively slight, but I do not for a moment believe that it is slight. Even were it regarded as slight and I was told I was dealing only with the fringe of the matter, I still regard it as important to have this reform because of the psychological part it would play, and because I believe the advantages now enjoyed "on the company" are matters about which strong objection is felt.

I should certainly like to see a ceiling imposed on the amount of business expenses which a company or its officers can claim to be free of tax. My wish would be that that ceiling should be calculated as a small percentage of the company's turnover. That would be a very effective disinflationary measure, and it could be made statutory. These ceilings are very effective. A married man and a man with a family knows how, in the preparation of his own Income Tax returns, there is nothing more definitive than the point at which he observes the statutory limit imposed on his personal allowances. There is no getting away from that. I should be in favour of a business executive or a company officer, preparing his claims in respect of deductions for business expenses, coming up against a firm and strict and a low limit fixed by statute, such as the ordinary taxpayer faces in the limit on personal allowances imposed upon him.

I speak with great deference on these matters, because I do not claim to be an economist. But, as we have all agreed, this is a matter of such importance that all of us must bend our energies and abilities to finding a solution to it. I think I observe among transactions currently taking place in our affairs, particularly in the City, a number of highly inflationary processes which, at a time of inflation, the Government should ban, at any rate temporarily. I have in mind the matter of new issues, where existing stockholders buy, say, 50s. for 40s., or benefit from whatever is the particular discount. That is what it amounts to. The new share is immediately realisable. It seems to me the most inflationary transaction. It is an extraordinary thing that it should be permitted to take place at a time when inflation is widely recognised as constituting a great social danger.

It is not as though it is necessary. Unless I misunderstand the situation—and if I do, I should like it explained to me—it does not seem necessary in order to obtain the capital, because the payment of this discount and the consequent advantage to the existing stockholder is taking place in cases where the issues are substantially over-subscribed, and where the evidence is perfectly clear that the capital would be readily forthcoming from investors without any such incentive as the discount which I have criticised.

If we could formulate a policy which has regard to the points I have mentioned, modest points it may be, but practical and significant, we should then be in a position to go to the wage-earners and consider the whole problem of wage restraint in an entirely different climate from that which exists at present, What is vitiating the whole situation today is the knowledge that anti-inflationary measures which it would be perfectly practicable to adopt are not being adopted and the workers are feeling that they are being selected as victims.

I do not wish to develop the point too far today, but there is a belief that a grossly unfair relative advantage is often given to other sections of the community than the wage earners. Whether that view is correctly held or not, the fact that it is held vitiates the whole matter and makes it impossible for the interests concerned to get together and consider what is the appropriate answer. That difficulty and that fault in the climate of opinion can be altered by practical steps being taken in respect of such matters as I have referred to, in particular, I would say, a sound, strong and well-publicised attack on business expenses, which would have a useful and important psychological effect.

When these matters are dealt with we can then discuss the problem in a different and much more helpful atmosphere. Having taken such emergency steps as these, I should be in favour of an inquiry into the causes of inflation and the problems created by it in the manner recommended by Lord Beveridge. It is abundantly clear from the speeches we have heard today that the causes of inflation and the methods of curing it are matters which deserve careful and profound study. I do not believe that the best way of studying them is by the setting up of a Royal Commission, but there is no doubt that study is needed. But study involves delay, and the situation brooks no delay. That is why I, think it desirable to have the kind of inquiry which Lord Beveridge recommends in the context of a situation in which practical measures have already been taken.

I make the same kind of comment on another aspect of the matter. The Chancellor said that he is having a further meeting with the National Production Advisory Council on Industry. He has had one meeting with that body, and I think it true to say that at the behest of a Trades Union Congress delegate he is having another. At the meetings of that body the Chancellor and representatives of the unions, the employers and officials of the nationalised industries get together to discuss these matters on a basis of liaison in study and search for solutions in their common interest. For my part. I think that is admirable and all hon. Members would wish success to such meetings. But that process and the process of Lord Beveridge's inquiry seem to me to have this in common. They neither of them have sufficient regard to the anxiety which now exists. Immediate measures must precede long-term remedies. I believe that there are great social dangers involved in this persistent decline in the value of money. What is wanted are specific practical anti-inflationary proposals which surely a British Government should be capable of producing.

8.10 p.m.

Sir Ian Horobin (Oldham, East)

As we are nearing the end of a rather discursive but important debate, I will only give two sentences to the speech of the hon. Member for Liverpool, Edge Hill (Mr. A. J. Irvine). With regard to a capital gains tax, I think many hon. Members opposite wildly exaggerate the effect of it. I doubt very much whether in the last twelve months any tendency to inflation, such as capital gains may have, has come from that source at all, if we set off the losses on fixed interest securities.

As regards business expenses, I think that there again it is a symptom and not a cause. The reason why there has been such an extension of this process, which is simply bound up with an inflationary situation, is because we cannot reward the senior servants of companies by giving them more money, because it is completely useless owing to tax, and everybody has got to find some other way of paying them for their services. It may be undesirable, but it is a consequence and not a cause of inflation.

We have had a number of debates on inflation, and it may be asked why we are having one at the present time, when the amount of inflation is actually not much more than about half of what it was in the years when we were under the Socialists. Of course, as has been pointed out, I think the reason for that is that we can keep inflation going for quite a long time so long as there are "mugs" about. The trouble is that there are no longer any "mugs" left. Even archdeacons are now putting their gaiters into "Gussies," and everybody is trying to get into equities, and getting their pensions related to the cost of living, so that the game is just about breaking down. I am not altogether sure that it is a bad thing. The trouble is that in that situation there is a tendency for us all to look for alibis, and I would only refer to two.

First, what seemed to me to be a dangerous alibi was started by my right hon. Friend the Prime Minister, who has put himself on record as saying that the real cure for inflation—I am not quoting his words exactly—is an increase in production. Of course, there is an element of truth in that, as there is in all the statements made by my right hon. Friend, but it was a very dangerous statement to make at this moment. After all, the national product has gone up by 20 per cent. in the last four years and production has gone up since the war by an enormous amount, all during the time of the big inflation that we are now talking about. It is only encouraging people to think that they can put off doing the things that are really necessary, and that everything will be all right if only we have more production, bigger nuclear stations and all the rest, but we have to have savings as well, and the trouble is that people have been mortgaging the increased production before we have got it, so that my right hon. Friend's statement, if misunderstood, could be a very dangerous salve to all our consciences in this situation.

The other alibi, and here I think that both sides of the House will agree, is that it is very often said that it is all the fault of the Government of the day. People say it is not the fault of the employers or the workpeople, but the fault of the Government. In a democracy, that is just mad. The Socialists were elected in 1945 to do the very things that made inflation inevitable. They were instructed to do it. They may have been a little spurred on by their own propaganda, but they were elected by the country to do what they said they were going to do, and what they said they were going to do is what has caused inflation. When we were elected, we were told to stop doing some of the things they were doing mostly irrelevant to inflation, but to go on doing most of the expensive things perhaps a little slower—so inflation goes on just a little slower.

The trouble with inflation is that too many people like it. The employers like it, because they get full order books. The Treasury likes it because it always turns out that it gets a few £100 million extra in the kitty. The employees like it, because they can cock a snoot at the foreman. Everybody likes it for a long time, which makes it so very difficult to deal with. It is rather like the true story of a young teacher friend of mine, who said that he had been called upon to give sex instruction in school. He was a bit nervous about the job, and he approached one youngster and said, "You are growing up now. Are you ever troubled by impure thoughts?" The boy made the very charming reply "Oh, no; I rather like them."

That is what is wrong with England when it comes to inflation. We can sum up the whole of our history since the war to a very large extent by a parody of St. Augustine's famous prayer, "Lord, give me a stable currency, but not yet." That does not alter the fact that we have got to the situation when we must stop it, whether we like it or not.

What is rather depressing in this debate is that all the proposals which the other side trot out as if they were something new, are the old ideas that they tried year after year and which failed. The right hon. Member for Lewisham, South (Mr. H. Morrison), in a speech which, with respect to him, I would say was a very valuable contribution from the Labour side, rather got himself into the position of saying that the country was entitled to a change of Government, but that the new Government were not entitled to change their predecessor's policy. The Government do a lot of things which the right hon. Gentleman does not like, but it is no use him saying he is a democrat and will discuss with us provided we agree with him

The fact remains that all this business of controls and licences and all the rest of it landed us in what might be called a conventional crisis in 1947, an atomic crisis in 1948 and the megaton crisis in 1951, which blew right hon. Gentlemen opposite out of office and filled the benches opposite with what I might call poisonous fall-out, but it really is not any good asking the country to go back on all that now. On the other hand, it is a fair comment from the other side that, while we are perfectly entitled to refuse to make their mistakes, there has been extremely little from the Government on what they propose to do now.

Mr. H. Morrison

Is the hon. Gentleman's defence of the Government that because the country likes such a policy, it would not like another Government coming in to stop it? Must we not do something in the public interest?

Sir I. Horobin

That is exactly what I am coming to. If the debate is not to be a disappointing one and perhaps do more harm than good, we must try to make up our minds on one or two fairly straightforward matters.

First, I would submit to the House that we have got to get rid of any idea that we can solve our troubles by technical "tricks", playing about with bank credits or advance limits. We must not go from one extreme to another. In the time of the monetary policy of the right hon. Member for Bishop Auckland (Mr. Dalton), when he was Chancellor, we had absurdly cheap money and an inflationary monetary policy pulling against controls. We must continue the credit squeeze and the policy of reasonably not very dear money. Personally, I think that further steps in hire-purchase control are called for and would be valuable. I really cannot see the justification, when the ordinary working people of the country are better off than they have ever been before, for them running into debt, and that is one of the plain facts of this situation—that people are buying so much of what they do buy on hire-purchase credit instead of for cash. There is scope for certain marginal changes of that kind.

Equally, it is true and quite important that the investment policy of the Government must be strictly pruned and limited. It is not a question of attacking the nationalised industries. The point is that we cannot lend money that we have not got. Lots of people have tried it, including Governments, but it cannot be done for long. I am glad that the Government have refused to loan Mr. Nehru £200 million which we have not got, but they have just given the Minister of Transport £100 million which we have not got. If the Government continue to try to invest, either at home or abroad, more than the real savings of the people, inflation is inevitable.

On the other hand, in spite of furious opposition from the benches opposite, substantial efforts have been made in the past by my right hon. Friend and his predecessor to limit the borrowing of the great corporations and the local authorities. It may well be that some of those programmes should not be cancelled, but should be postponed or spread over a longer period to reduce the pressure on the economy.

My point in that connection is that while we must not conduct a monetary policy which actively hinders the attack on inflation, while we must continue, and even slightly increase, the restrictions on investment, the great and important thing to be borne in mind is that all those things by themselves cannot do much more than prevent the situation from getting worse. For instance I think we shall have a hell of a fight to keep the alleged savings on defence.

It would be extremely difficult to prevent almost all Members, not only on this side but on the benches opposite, urging their various pet proposals for roads, tunnels, hospitals and schools for which exceptions should be made. The Chancellor will be doing very well indeed if he can even prevent the situation on those lines from getting worse.

I will touch only briefly on one appalling inflationary problem which is looming up on us. Hon. Members opposite have produced a pensions and insurance scheme which is wholly bogus since they threw overboard the Beveridge proposals. On top of that rotten foundation, they are now putting forward proposals by which we would run into the "red" to the tune of hundreds of millions of pounds in about ten years. The pressure at the next election will be such that we ourselves will no doubt produce a scheme which would go bankrupt in five years instead of ten. The Chancellor, therefore, has quite a job ahead of him in preventing things from getting worse. It is no use holding out great hopes that in that part of the problem we shall do much more than keep things as they are.

What, then, is the real nub of the whole situation? I put this in all seriousness, and, I hope, not provocatively, but I must put it shortly. The answer is wages. The Chancellor has given some figures and I will give one or two more. Last year, the whole of our domestic capital expenditure increased by only something like £130 million. I believe that every instructed person considered that too small. Hon. Members opposite might think that more of it should go into the nationalised industries and we on this side might think that more should go into the private sector, but as far as inflation is concerned it does not matter where it goes. We all agree, I think, that we should be investing more and not less than we are doing. Everybody is agreed that we ought to be investing more rather than less overseas if we could do it.

The whole of the gross increase in rents, dividends and interest last year was of the order of £100 million. If we calculate the standard rate of Income Tax, plus the very substantial amount of that which is saved, it will be seen that the Post Office settlement alone poured more purchasing power into circulation than the whole of the increase in rents, dividends and interest.

What really is pouring the inflationary pressure into the industrial structure is wages. Last year, wages and salaries went up by something like £900 million. Two-thirds of that is wages. It is really playing with this issue for anybody to believe that we can stop this inflation—I do not say any inflation, at any time, but this inflation now, without dealing with wage claims. This present inflation is caused by unreasonable wage claims. The cost of living today is the cost of Cousins. I do not believe that the right way to deal with that is either by a general wage freeze, nor do I think that very much, although something, may be achieved by a general inquiry such as the Government contemplate.

Our whole tradition of wage arrangements is that each claim is, as far as possible, dealt with on its merits by itself. That is a view held strongly in the trade union movement and it is much better economics than some of the attempts at generalisation which have come from both sides of the House.

Mr. Robens

What advice would the hon. Member give to the many millions of ordinary wage earners, such as shop assistants and others, who have no opportunity of overtime, whose gross income is about £8 10s. a week and who have, perhaps, a wife and two children to keep? What advice would the hon. Member give to them? Would he tell them that they should manage on that money? Can they?

Sir I. Horobin

I am not getting into the giving of advice. I think that people would be very unwilling to take advice from either side of the House on the rate of their wages, and certainly not in response to a sudden question.

My first point is that we cannot do anything practical about this inflationary situation in which we find ourselves today unless we can do something to stop this introduction into the industrial structure of wage claims on the present scale, not backed individually by reference either to the cost of living or to productivity. I believe that we could get over almost the whole of our problems, if not the whole of them, if we could only produce a situation in which wage settlements, so far as they were made by proper negotiating machinery, were, in fact, earned and agreed.

By and large, productivity is going up 2 or 3 per cent. at least. The cost of living has not been going up recently by as much as 4 per cent. There is not a great deal of difference between the two. I believe that it would not be at all difficult to deal with our existing inflationary position if claims, taken individually, which were substantially above that level of 3 or 4 per cent.—although I am not tying myself to a figure—were publicly recognised for what they are, that is, the present main cause of the rise in the cost of living which everybody, in all parts of the country, has come to regard as intolerable.

I do not believe that we are likely to get a general wage freeze—I would not consider it desirable—but I believe that the time is coming when, if there is not agreement by common sense, in the last resort the Government should use all the powers of influence they have to oppose any such wage demands. We must simply stop these excessive wage demands, wage demands which not only have no relation to any increased productivity or are grossly higher than the increase in the cost of living. If we could stop them I believe that we should be near to equilibrium, and should be doing the only practicable thing which can be done to bring ourselves out of our difficulties.

Apart from those difficulties—and herein lies the tragedy of all this situation—we are so near to success. For well over a year in the last Parliament and for the best part of a year in this the cost of living was kept very nearly stable. It would require very little to stabilise it. It would be sufficient if we simply, as it were, cut off the obviously unreasonable and excessive wage increases. I believe that then, with a certain amount of technical adjustment, we could achieve equilibrium and break the vicious circle. The real wealth of the country is increasing. We have only to stop for a very little time mortgaging the future, as we are doing, to achieve an equilibrium which would, for a reasonable period, remain stable. If once we did that for a reasonable period, then, with a little good will on both sides, we could, I think, keep it,

However—and this is my last word. [HON. MEMBERS: "Hear, hear."] Well, I have listened to the whole of this debate and I think that some of the speeches have been less directed to the real problem than my own. [HON. MEMBERS: "Oh."] However, I am perfectly certain that it is impossible by any device to deal with this problem with which we are faced unless we are able and prepared to deal with wages. Unless we are, we may just as well shut up shop, throw in our hand, and let inflation rip.

8.31 p.m.

Mr. Hugh Gaitskell (Leeds, South)

I very much regret that this debate had to be cut short by some forty minutes before it began and has to be cut shorter still by the half hour we lose because of the Guillotine. I regret it because I know that many hon. Members who wished to speak in this debate are unable to do so. I cannot help feeling that it would have been useful to the Government if they had heard more contributions from hon. Members on a matter which is of enormous importance to all of us.

The speech of the Chancellor of the Exchequer struck me as being remarkably complacent on the one hand and, on the other hand, almost entirely devoid of any positive suggestions for dealing with the problem we are discussing. Of course, it may be that, being complacent, the right hon. Gentleman saw no reason for putting forward any measures, but I cannot help having an uneasy feeling that the causal connection is the other way round, and that being unable to think of anything to do in the present situation he thought it better to say there was no need to do anything.

His speech contrasted rather sharply, I thought, with the address which he gave at the opening of the new offices of the United Kingdom Provident Institution, in which he said: The truth is that this nation must either squarely face the problem of inflation and accept the policies necessary to check and curtail it, or else it must face a continual decline in the value of its currency. Those words from a Chancellor of the Exchequer are very grave words, and it is hardly surprising that they caused a great deal of comment and stimulated a certain amount of alarm in the financial Press, and, indeed, in the country generally. It is true that ten days later, perhaps because the right hon. Gentleman felt he had gone a little too far, he was saying, speaking in his constituency of Monmouth: Do not believe all this sad talk you hear about difficulties and problems. Nevertheless, I think that his speech on 10th July was one which was much worthier of our attention than the later reassuring comments which he made.

The Prime Minister, speaking at Bedford, followed the same complacent, reassuring line. He told us that everything was going all right. He said that most of us have never had it so good. An hon. Member says that is true. If he will think for a moment he may, perhaps, perceive that it is bound to be true unless the standard of living is actually falling.

Mr. Osborne

Was not that what the right hon. Gentleman predicted when he was Chancellor of the Exchequer in 1951?

Mr. Gaitskell

The standard of living in 1951 was affected by our increasing expenditure rapidly on a very large defence programme and which had the support of hon. Members opposite. I do not really believe that the hon. Member thinks that we can expand defence expenditure by £500 million a year without making some difficulties for individuals. Therefore, we might leave that subject alone.

It is true, of course, that as long as there is no actual fall and as long as there is the slightest increase in living standards, "We never had it so good" will apply, but I remind the Prime Minister that that is a very different thing from the talk of the Lord Privy Seal when he was Chancellor of the Exchequer. He was not content merely to say that the standard of living might rise. He talked of doubling it in twenty-five years. It was a very different thing from merely remaining more or less stationary, as we have done in these last two years.

Moreover, even if we "never had it so good", that is not contributing to the major problem of the balance of payments, where our object must be, and is acknowledged to be, a surplus of at least £300 million. I ventured to say, speaking in the Budget debate, that when we take into account the drawing down of the sterling balances, as various Colonial Territories become independent and wish to develop themselves and wish to use their resources, when we face that as well as the needs of investment in the Commonwealth, the blunt and rather terrifying fact is that if we are to avoid all danger of crisis, meet all our obligations, accumulate gold and repay debts, we need a surplus of about £500 million a year. That may be an appallingly difficult task. [An HON. MEMBER: "Impossible."] One of my hon. Friends says that it is an impossible task. We shall see. The House will agree that, nevertheless, some move in this direction is what we wish to see.

Though, no doubt, many people "never had it so good", there are some people of whom certainly that is not true. The Chancellor and the Prime Minister know very well that those living on fixed incomes, and certainly old-age pensioners, will not talk that kind of language about their condition. Nor should we. I do not propose to speak about the subject now, because we shall be debating it next week, but it is our duty and that of the Government, when faced with an inflationary situation, to do all we can at least to safeguard the standard of living of the poorer people in the community.

I say categorically that I think there are dangers in the present situation and that the danger of inflation is real. I do not want to go over old ground; we can have a position in which prices are rising gradually over a period of time, 3 per cent. or 4 per cent. or 5 per cent. a year, and it may be that for a time all is well. We have rising production—perhaps not stagnation as we have had in the last two years—and many people "never had it so good", yet there comes a point when people realise that this sort of thing, this steady rise in prices, is going to go on and on. When they realise it, a number of very serious economic consequences follow, because then, as my right hon. Friend the Member for Huyton (Mr. H. Wilson)said, they begin to dispose themselves accordingly.

One example of what happens is the state of affairs in the gilt-edged market. I do not want to go into a rather technical matter in detail, but my point is simple enough—that if people suppose that prices are going to go on rising and the value of money is going to go on falling they are not going to put their money into something which brings back the same amount of money when it is sold. They are going to put it into something which will rise in value with the general rise in prices. The consequences of that for interest rates, for the gilt-edged market are serious enough, and that brings me to the other consequences.

It is not merely that inflation may take a cumulative turn at a certain point. It is not merely, even if some people do well out of it, that it is monstrously unfair to others. It is not only that it may give rise, if it proceeds long enough, to grave social complications, but it also has very serious external consequences.

Nor is this only a matter of the excess of imports over exports, of incomes rising so fast that we bring too much into the country in relation to what we sell abroad. In our case there is something else as well. We have very large sterling liabilities, and those liabilities, resulting largely from the war, put us in a very vulnerable position indeed. If those who own the sterling balances begin to feel that the value of the £ is going to fall continually, we may be quite sure that they will wish to withdraw their money.

Therefore one is bound to say that this is a danger which we must all face; a danger which I know the Government are aware of though, as I say, I thought the Chancellor's speech complacent. There is in this matter no difference between us and I want to emphasise, that we on this side of the House place enormous importance on the preservation of the value of sterling and the avoidance of any threat or possibility of any further devaluation.

There is another thing on which I think we can agree. I certainly would not dispute the Chancellor's comment that there is no simple solution to this problem. There is no gadget, there is no gimmick, which you can pull out and say, "This is the way to stop the rise in living costs." This is not at rock bottom a technical problem. It is a social and a political problem. It is a problem of relations within society, and we should understand that and reject any idea that we can produce a solution out of the hat.

Perhaps the first thing to do is to consider what are the causes of this situation in which we find ourselves. I know that same hon. Gentlemen opposite make a habit of accusing the nationalised industries of being responsible for this. Not many, indeed, I think very few, have spoken today in that sense, but I do not think I am unfair if I say that at Question Time this impression has certainly been created. I am glad that my hon. Friend the Member for Bedwelty (Mr. Finch), in a very forceful and effective speech, probably destroyed in advance any comments of that kind that might have been made. First my hon. Friend showed clearly the facts of the situation and the increases in the prices of private enterprise products compared with the increases in the prices of the nationalised industries. The figures he gave showed conclusively that it is impossible to argue that the prices of the nationalised industries have gone up more.

Secondly, I would say that any idea that the nationalised industries are responsible for starting a wage-price spiral really does not bear examination. I have heard all sorts of industries accused of doing this very thing at one time or another. One year we are told it is agriculture, another year it is roads, another year it is coal, another year it is engineering. The truth of the matter is that we cannot pick on any one point and say, this is when something new started. The process of prices rising and wages catching up and prices going up has been going on for some years and we cannot say at one point, "These people were responsible, these employers or these workers were responsible." It is a continuous process.

What we can say however is this. There have been certain outside influences on this phenomenon. There were some outside influences when we were in power: the rise in world prices, the rise in the prices of our imports, doubling in the six years that we were in office. That was something which the Government could not help, no Government could help, and which undoubtedly made the whole internal position extraordinarily difficult. But it is a fact, which I must repeat, that since 1951 there has been no trouble from that quarter. On the contrary, import prices over the period have fallen, fallen very sharply to start with and then levelled out afterwards.

But something else external to the wage-price-price-wage spiral has intervened, which is the result of the Government's action first of all of deliberately cutting the subsidies and driving prices up, and then other measures, of which the latest and most obvious example is the Rent Act. This is something which the Government have done of their own volition, and the inevitable consequence when this sort of thing happens must be to give an extra twist to the spiral.

It is sometimes said that the nationalised industries should not have conceded wage increases. Are hon. Members opposite saying that the nationalised industries must treat their workers in a way in which other workers are not treated, that they must involve themselves and the country in the risk, of industrial trouble, that they must deliberately create a shortage of labour because they will not pay enough wages? Are they saying that railway workers and miners are to be unfairly treated in this way?

I do not see how that kind of argument can possibly be sustained. It is as well to put the facts of the situation on record. The increase of earnings in the coal industry, which seems to be the main target of some hon. Members, from 1948 to 1956 has been, for face workers 68 per cent., for all workers 74 per cent., while the increase for all industries is 71 per cent. So it is clear that there is no exceptional movement there.

It is sometimes said that the nationalised industries should not pass on the increases in wages in higher prices. We all agree that the nationalised industries should do everything they can to increase efficiency and, therefore, absorb wage increases without an increase in costs, but it is unfair to expect them to do things which private enterprise is never expected to do. Indeed, it is a rather curious comment on the attitude of hon. Members opposite that they now seem to rely on the nationalised industries to do things which they know they cannot impose on private enterprise.

We utterly reject that proposition. We do not think that losses should be imposed on the nationalised industries. We all know perfectly well that price increases have occurred just as rapidly and for similar reasons in other industries. It is not necessary to say more on that subject, and I hope that after this debate we shall have a good deal less sniping at nationalised industries from hon. Members opposite. It does not help, and if they want to take the nationalised industries out of politics they had better begin to alter their Questions on the Order Paper, or at least their supplementary questions.

Sir I. Horobin

Do not look at me.

Mr. Gaitskell

I am looking at the hon. Member's bench, anyway.

Another suggestion about the real cause of the trouble has been made by the Government. We have heard from the Prime Minister in his speech at Bedford that there is only one thing necessary to a solution of the problem of inflation, and that, he says, is to increase production. At first sight it always appears good to say that we should increase production, but I cannot help being a little puzzled when I compare what he said then on the relationship between inflation and production with what he said in his own Budget speech fifteen months ago and what the Chancellor said in his Budget speech this year The Prime Minister was then defending the fact that production had not increased. He was pointing out that it was necessary in order to curb inflation that production should go down, or at any rate be restricted.

The Government should make up their mind on this matter. Do they want production to increase or not? Do they regard an increase in production as a solution? For what it is worth, I do not think that increased production is necessarily a cure for inflation. If it is due to increased productivity, it helps enormously, of course. But if it is simply due to the re-expansion of industry after a period of stagnation, it is then certainly not a cure for inflation, unless, first, we have no trouble about our balance of payments, and we do not get what the Chancellor has warned us about, namely, a situation where, as production expands, imports increase and exports do not rise correspondingly, so that we are back again with a balance of payments crisis. And we shall certainly get no solution to the problem of inflation if, as production expands, prices do not remain stable. We must face the fact that in a free economy, in which hon. Members opposite believe, increased production very frequently accentuates the problem of inflation.

What has happened in the last two years? I do not think that anyone studying the question can doubt what it amounts to. In 1955 we were told by the Government that production was rising too fast imports were coming in too fast there was therefore a balance of payments crisis, and therefore there had to be restrictions and a credit squeeze. There was the autumn Budget of 1955, and then the policy of stagnation. The Government claim that this policy of checking expansion and keeping down production has succeeded in putting right our balance of payments problem. I conceded in April, and I concede again now, that there is some force in that argument. It was, however, at a very heavy price—the price of a severe loss in production and, correspondingly, in consumption and investment.

What is perfectly plain is that, while the Government's policy may have had some success in this direction, it failed completely to prevent inflation, because although we have had stagnant production, we have had also rising prices throughout this period. I have not the slightest doubt that it is because the Government discovered this and came to the conclusion that the deflationary policy in which they profess to believe was not working effectively in keeping down prices that they changed their policy and decided to let production rise.

That is the position in which we are today. Having had this policy of stagnation, we are probably now moving into a boom period. There are certain advantages in that. Production is beginning to go up—about time, too—but if any hon. Member opposite, or the Chancellor, believes that in a free economy and without any Government intervention this is going to evade further rises in prices and eventually, I am very much afraid, a further balance of payments crisis, he has his head very much in the air.

The truth of the matter is that hon. Members opposite have believed—I do not doubt that they have believed very sincerely—in a free economy. "Conservative Freedom Works" was the great slogan of the last Election. Is Conservative freedom going to solve the problem of inflation? I believe that there is only one way in which it can. If you have a free-for-all and a free economy, you can prevent continuous inflation only if you create enough unemployment to prevent the inflationary forces really getting to work.

The interesting thing is that we have had an experiment in this direction. We have had the country going through a period of stagnation with the Government watching the position. But now they have made up their minds, apparently, that the game is not worth the candle. If that is the case—and a great many critics on their own side do not agree that it is; if one reads the financial columns of the newspapers one sees that the criticism of the Government is that they have not continued deflation long enough, and have been too easy on this matter—where in a free society, will the Government turn to prevent inflation?

The answer which we had today from the Chancellor was that this was a combined operation. "We must all work together," he said. "We are all in it." It is not enough to say that we must all work together and that there must be a combined operation. If the right hon. Gentleman believes that cost inflation is the trouble, what does he intend to do to get the collaboration and co-operation of the organised workers of this country? I speak very bluntly, because I think we ought to; and we all know that that is the problem.

What has the right hon. Gentleman offered today? He has offered an independent council. I do not say that there are not some circumstances in which a Government, if they were doing the right things in other ways, might find some body of this kind of value. Personally, I think that it is a mistake to make it an independent council. I believe that the best thing is to get both sides of industry together, and I believe that it would have been more sensible to have allowed this to develop out of the Joint Industrial Council.

Moreover, what worries me is this: will this body be independent? What sort of people will be appointed to it? They will not be people from the union side, they will not be industrialists. Who will they be? Will they be people able to make genuinely independent pronouncements? The fact of the matter is that if they are simply to draw attention to the facts in the economic situation, there is no need for them at all. We have all the facts that we want in the blue books, green books, White Papers and all the rest. If they are to offer advice on policy, then I do not believe that a body of this kind appointed by Conservative Government will be independent at all.

The Trades Union Congress has reserved its position on this matter, but most certainly it has not welcomed the Chancellor's proposals. One would have thought that today he would have taken the opportunity at least to make some gesture towards the unions, but one cannot describe his speech as an olive branch to the T.U.C. There are to be no import restrictions—not that any of us said that import restrictions were a cure for inflation; they are an emergency measure which one may have to take to protect the balance of payments. There is to be no building licensing and no price control. In passing, let me ask the Chancellor, in view of his opinions on this subject, whether he will now say that the Coal Board should be free to fix its prices as it likes, without asking the Government.

The right hon. Gentleman said that there was nothing wrong with his Budget. He said that the Surtax remissions were, of course, in the national interest and have nothing to do with the problem of cost inflation. What a delusion he suffers from! The T.U.C. surely has made it abundantly plain, as we have made it plain again and again, that if you want to get a combined operation you must have policies which appeal to the organised workers of the country. The T.U.C. has made it perfectly plain that the right hon. Gentleman never listens to what it says, that he has rejected its ideas on planning and refused its conception of social justice. The T.U.C. cannot be expected to collaborate in those circumstances. Why should it? Why should we have control of wages and no control of profits and dividends? Why should the unions be prepared to exercise restraint when there is no restraint on tax remissions to wealthy people? Even if the leaders could do it, which I very much doubt, will their members be prepared to exercise such restraint?

The truth is that the Government are now utterly bankrupt of policy. Logically, what they should do is pursue their deflationary policy further. Logically, what they should do is create enough unemployment to weaken the unions, never mind the cost in industrial disputes, in order to prevent the pressure for higher wages and in order to reduce the share of labour in the national product. But they dare not face that, because they know the political consequences. Yet, at the same time, all they can do is to appeal to everybody for help, appealing without the shred of an idea of what policy they should pursue.

Let me tell the Chancellor—and the Prime Minister—that unless he is prepared to throw overboard the doctrinaire ideas of Conservative freedom; unless he is genuinely willing to try to create a society of social justice; unless he is prepared to use fiscal policies which attack the spivs who get away without paying taxation—not the people who pay-as-you-earn, but the people who pay-if-you-care; unless he can introduce such measures as a capital gains tax, for which, in our view, there is an overwhelming case today; unless he deals with the evasion and avoidance of taxation which is taking place today; unless he is prepared to adopt policies which unite the country; then under this Government there is no chance of defeating the powerful forces of inflation. Because, in view of his utterly negative, utterly complacent speech, there is no hope of any move in this direction, we shall be obliged to divide the House tonight.

9.0 p.m.

The Prime Minister (Mr. Harold Macmillan)

We are now reaching the end of this debate and I, like the right hon. Member the Leader of the Opposition, regret that it has been curtailed, because we have had most valuable and useful contributions from all sides of the House.

I confess that I find it rather a strange experience to sit here day after day and listen to the arguments and problems presented by high prices and over-full employment. When I first stood for the House of Commons in 1923, soon after the post-war boom broke, and for the next twelve or fifteen years, including four General Elections, one problem and one problem only held the political field. It was the problem of deflation, violently and rapidly falling prices, and massive unemployment. We debated it, as many of the older Members here remember, week by week and day by day. We put forward all kinds of rival views as to how it should be solved.

Unaccountably, as it seemed to some of us, the Conservative Governments of the day remained faithful, apart from the great measure of Tariff Reform, to orthodox monetary and economic policies. I am bound to say that when the Socialists came in they followed methods almost more orthodox and austere than the Conservatives. Only one man at that time seemed to me to grasp the full character of that problem, and that was Mr. Lloyd George. It was for that reason that I and other Conservatives ranged ourselves to support his movement. At any rate, we all had a go at it, and nobody solved it.

Today, it has somehow solved itself, but this new trouble has come which seems to dog our footsteps. Having solved one problem, we have now the one we are discussing, that of rising prices. Every hon. Member knows, and every man and woman in the country knows, that for the mass of the people—I would say for the great mass of the people—there has never been such a good time or such a high standard of living as at the present day. I repeat what I said at Bedford, they have "never had it so good". Curiously enough, that is what the Daily Herald says, under its revised management. It has chosen today to put an advertisement into the capitalist Press, the Financial Times, urging capitalist employers to use the Daily Herald as an advertising medium. This is the reason it gives, together with a little picture of young children and a car: Thousands of Daily Herald families already enjoy a car, but many more will be planning one in the near future if their standard of living continues to rise at the present rate. I can only repeat that I have been grateful to see the change. I believe that all of us in the House, certainly the older Members, feel grateful that there has been this great change. When I am told by some people, some rather academic writers, that inflation can be cured or arrested only by returning to substantial or even massive unemployment, I reject that utterly.

There can be conditions of over-employment with insufficient mobility of labour and we must not be debarred from taking the appropriate measures to control inflation because some temporary dislocation would follow. Indeed, last year the action I took as Chancellor of the Exchequer had that result and the labour realised was rapidly absorbed in new work, greatly to the public benefit.

Nevertheless, I say this. If the mass of our people ever believed that there was an intention to bring about large-scale unemployment they would set their faces—and, I think, rightly so—against every reasonable and proper measure that this or any other Government might propose. But, as I say, we have now this new problem. As my right hon. Friend the Chancellor of the Exchequer said, it is not only in this country. Every country in Europe and in the New World is affected by it. This is a problem that springs naturally from a bouyant and expanding economy and, somehow, we have to master it.

It is partly an economic problem and partly, as the right hon. Gentleman said, a social one. It is an economic problem in the sense that it may, in a country like our own, where we depend so much on exports, if it is allowed to develop, threaten the whole stability of the economy and, therefore, the lives and happiness of the very classes—the producing classes in the widest sense—who have reached this high standard; this is because it may lead to an external crisis —balance of trade, balance of payments, and all that—or it may lead to so heavy a fall in the value of money as to make savings unattractive and, therefore, the provision of fresh capital resources for industry and production correspondingly difficult.

That is the economic problem. It is not only in the interests of both sets of people—the great mass who have benefited and the people on fixed incomes and all the other classes who have not benefited—but in the general interest that these dangers should be combated.

There is also the social problem. For this, with all the good that it has done to us—and, as I say, I rejoice in it and in the change in the look of the people of our country—it means that those living on fixed incomes, pensions of all kinds, have fallen behind and have not been able, as it were, "to contract out" of the increased price level by increasing their personal incomes. Therefore, whether we regard it as an economic or a social problem, I think we have a duty, all of us, to see whether we can alleviate, we hope perhaps cure, a disease which, although not so dramatic as the one which afflicted us before the war, may in the long run prove equally pernicious.

At any rate, I will give this pledge on behalf of the Government. We will not shrink from any measure, popular or unpopular, which we may feel will be directed towards the solution of this problem. I think I have a right to make this claim, because we have taken many measures, the credit restrictions, the cuts in Government expenditure, the abolition of subsidies and the introduction of a sound measure in the Rent Act, an attempt to reduce the cost of the Health Service, our new defence policy and many other decisions of this kind. None of them was easy to take, but all of them together constitute a massive contribution towards deflationary policies.

The right hon. Member began in a rather more professorial form, but ended by making a great attack and by telling us that he would divide the House, and so forth. I suppose this debate must be treated by me as a party debate. In a sense I regret it, because the first part of his speech was rather more professorial; but if he treats it as a party debate I must have regard to that. I think that we have a right to consider what are the particular policies which have been put forward and are now being put forward—there is no hiding them—on both sides. Here we can learn, not only from what each party preaches, or says, or promises, but from what, in fact, it has done. There have been about twelve years since the war. We each have had about six years of office. Let us take three or four simple tests.

Let us take, first, the balance of trade and the balance of payments. I suppose the right hon. Gentleman would admit that was an important test. During the six years of the Socialist Administration the trade balance reached a cumulative deficit of £800 million. In spite of all the cuts in imports, the controls and all the allocations and rationing and methods of limiting consumption—[An HON. MEMBER: "At the end of the war."]—when they left office, in 1951, the adverse trade balance was running at the rate of £700 million a year.

The right hon. Gentleman talks about complacency. I do not know what right he has to talk about it. In the following six years there has been exactly the opposite. On the trade balance, we have had a surplus of £800 million against a deficit of £800 million, a deficit to which the sort of policies now being advocated certainly contributed and would contribute again.

How has that surplus been achieved? Curiously enough, not by reduction, not by cutting imports lower and lower, but by a great increase in exports. The right hon. Gentleman is always talking about the dollar problem. During the last four years dollar imports have certainly risen. They have risen by 25 per cent., but dollar exports have risen by 50 per cent.

I take as the next test, savings and investment. Take investment. We all say that is very important. Under the Socialist Administration capital investment in those six years was actually lower than in 1938. Under the Conservative Administration it has gone forward rapidly. In 1955, net capital investments in real terms, after allowing for price changes, was 55 per cent. above 1951 and 40 per cent. above pre-war. So we have not done too badly there. The gross investment by companies has increased by one-third in those six years.

Now we come to savings. There was a very interesting speech by the Leader of the Liberal Party on that. Curiously enough, that has not been so bad. We might as well put some of the good side as well as the bad. Personal savings under the administration of the Labour Party were really almost a minus quantity. Of course, we had borrowed a great deal of money then. The right hon. Member for Huyton (Mr. H. Wilson)referred to the defence aid we had last year from the United States and Germany. Yes, we had some, and he is—

Mr. H. Wilson

I did not say it.

The Prime Minister

Well, if it was not the right hon. Gentleman, it was another hon. Member. Perhaps he may have mentioned it.

At any rate, if I am mistaken I am sure that the right hon. Gentleman was very wise not to mention it, because in this period we had 5,000 million dollars from the United States and Canada and 2,700 million dollars from Marshall Aid. Of course, there is a good explanation of why there was so little personal saving then: it was because the standard of the people was not so high and the continual threats of confiscation did not encourage people to save. Anyway, personal savings were, in fact, £160 million in 1950. Last year—this is the other side of the picture to which I would draw the attention of hon. Members—they were £1,500 million, nearly ten times as much.

I have already spoken of the contrast between the standard of living in the inter-war years and now. Although the gulf is not so great, there is a fairly big difference between the way people live now and the way they lived under the Socialist Administration. Then, prices rose faster than wages, and that in spite of controls. Every Budget brought new taxation. The purchasing power of pensions was very much reduced. The ration at times fell below the lowest wartime levels. The housing queues grew longer and longer. It did not turn out to be Utopia after all.

Now I come to the last point by which we can judge these two policies, that of the cost of living, which is the problem today. The cost of living has gone up by 20 per cent. I frankly admit that, and it is our problem. But in the six years of the Socialist Administration it went up by 40 per cent. And then there was the difference that the wages and salaries of the people did not keep up. Now, although prices have risen by 20 per cent., the means of paying them have risen, too, for the great mass of the people, because wages and salaries have risen by 40 per cent. Indeed, the trouble is, perhaps, that they have gone up too far and outstripped production.

There are now two radically opposed policies put forward to deal with this problem. There is the Socialist plan—[Interruption.] Right hon. and hon. Gentlemen get very excited, I notice. They like to "give it", but they cannot "take it". What is the Socialist plan? It is the same medicine which has failed us so dismally before. Higher taxation—we are told that. More taxes, more State expenditure, a return to controls—[HON. MEMBERS: "No."] Yes, it was suggested to us that there were to be fresh taxes. Presumably there will be a return to price control, and if we have price control no doubt there will be a system of subsidies—or perhaps we are not to go back to subsidies—[HON. MEMBERS: "No."] All right, we are not going back to subsidies, but, if that is so, hon. Members opposite should not accuse us of having abolished them.

Against all this—it is the Socialist policy and the country may as well know what it will get if the party opposite ever gets back to office—in contrast to this, we have the policy which my right hon. Friend the Chancellor of the Exchequer expounded today. First, we shall keep down Government expenditure by every means we can, and we have already done a great deal. In terms of 1951 prices this Budget is £400 million down, and that in spite of increases in expenditure on education, pensions and health. We have reduced the total of civil servants by 50,000.

In our new defence policy we shall, at any rate, stop the almost automatic rise in defence expenditure. I believe that we shall achieve real saving in terms of money and, above all, and what is more important, in terms of manpower, and in the scarcest of all commodities, skilled technical and technological experts.

Our second duty is to encourage saving and discourage spending. The credit squeeze and similar monetary methods will be continued as stringently as necessary. Part of this policy of discouraging spending means, as my right hon. Friend said, budgeting for a surplus, but, of course, the positive side of discouraging spending is encouraging saving. We shall continue to encourage savings by every possible method, and I am much encouraged by what even the right hon. Gentleman admitted to be a success—the great success of last year as a savings year. I am not even ashamed of the Premium Bond.

This monetary policy, restriction of credit, acceleration or retardation of the investment programmes over which the Government have control—these are all measures that we must intensify or relax as the situation demands. Of those industries which remain fully nationalised, I would only say this. They are, of course, much debated, but I will try to say what I think the House might regard as fair.

I think that we have got very good men in them, both at the top and throughout the industries, and I do not think we help very much by nagging criticism of them. We must find the best men we can get and help them, but I would go on to say that they are in a really sheltered position. In the old days, we used to have a contrast between the sheltered industries and those not sheltered. The nationalised industries are certainly sheltered, and, because they are, they have a special duty not to exploit the nation.

Similarly, with their investment, they are not able yet—perhaps some of them may be earlier than we think, and I hope they may be—to face the test which faces ordinary industry in the market when seeking public subscriptions of money. It is, therefore, our duty to apply to them a special scrutiny, and this we have done and shall continue to do.

There was one point which the right hon. Member for Lewisham, South (Mr. H. Morrison)raised in his very interesting and helpful speech to which I think I should, in courtesy, reply. He asked what repercussions the new body, to which my right hon. Friend referred, would have on the Economic Planning Board. I think the answer is that the Economic Planning Board is part of the machinery which enables the Treasury to keep in contact with both sides of industry on general economic problems. It does not issue public reports, and it is not directed primarily to problems of prices or wages. This body, therefore, will have quite different functions, and will not, I am assured, cut across in any way the work of the Economic Planning Board.

I have said, and I am not ashamed to repeat, that if we are to solve this problem in a free country—and this is a phrase which perhaps is hackneyed, but, I think, is still true—it must be by a combined operation. There is one thing that I would venture to say to those with very great influence in what, in a period of full employment—and I hope it always will be a period of full employment—must necessarily be a position of great power, those who advise and manage organised labour. In present conditions, when full employment exists, it is those who have labour to sell, whether of hand or brain, who have the greater bargaining strength. I will venture to say to them that since they have this increased power they must also, and I feel sure that they will realise it, have increased responsibility. We believe in freedom, and we have done a great deal to restore it, but freedom does not mean licence, and rights involve responsibilities.

If they use their strength unwisely, they may easily bring about the opposite of what they are seeking. They may even bring about the collapse of the whole structure, and, instead of benefiting their members, may do them great injury. Even if they avoid that, if they are thought to use their position unfairly as against the defenceless classes, they will build up against themselves the same kind of division which many of us remember and so deeply regretted in our country in the period between the wars.

There is, at any rate, a point, and I must repeat this, at which no Government, of whatever complexion, can stand idly by and, in the name of impartiality, be silent witnesses of economic decline.

Mr. Harold Davies (Leek)

What does that mean?

The Prime Minister

I come now to the last point which the right hon. Gentleman made. He rather attacked me for having said that, in the long run, additional productivity by hand and brain and skill was our solution. [HON. MEMBERS: "Production."] Additional production, and, of course, productivity, in all its forms, is our final solution.

It is true that last year there was a pause. It was imposed because there were then developing changes in the balance of payments field. The right hon. Gentleman said that we had solved the problem of the 'balance of payments, but, he added, at how high a price. At any rate, it was not at such a price as we nearly paid in 1951, when the right hon. Gentleman was in charge and took himself and his party out of office and brought the country nearly to perdition.

I do not claim that a Government—any Government—can solve these problems by themselves, but since this matter is to be voted on tonight by a party Division, I ask hon. Members, as I have a right to do—[HON. MEMBERS: "Ask the country."]—to make their decision. If they consider the two approaches put before them, they will know which is the most serviceable to the nation. We have only to ask right hon. and hon. Members opposite—[Interruption.] The right hon. Gentleman cannot shout me down. If he does, he will not get a vote at all, because I will talk it out. For once, I am in a much stronger position. But since the right hon. Gentleman wishes to force a Division, I appeal with absolute confidence to the House to support the Government in the Division.

9.27 p.m.

Mr. Martin Lindsay (Solihull)

It is, perhaps, unfortunate that this debate has lasted an hour and a quarter shorter than usual, because, owing to the luck of your draw, Mr. Speaker, it appeared that all of us on this side were united behind the Prime Minister. It is, however, within my knowledge that certainly three hon. Members, of whom I am one, wished to say with the very greatest regret that we were not able to follow the Prime Minister into the Lobby tonight.

I can speak only for myself and I can but say that in my opinion the Government have not shown adequate leadership in dealing with this problem of inflation. In my opinion, the general statements and warnings given by the Chancellor of the Exchequer serve no purpose unless they are addressed to those who actually have the responsibility of dealing with this matter: that is, the employers, both in the nationalised industries and in the private sector of industry, and also the trade unions. What is necessary is that the Government today should say that they regard it as an unpatriotic act either to formulate or concede wage claims which are not related to higher production or to increase dividends.

I believe that that is a definite policy which the Government should recommend

to those responsible, for a period of perhaps eighteen months, in order to stabilise prices, which are causing despair to large sections of the nation—[HON. MEMBERS: "Divide."]—and, even more important, at the same time, damaging the export trade.

Question put, That this House doth agree with the Committee in the said Resolution:—

The House divided: Ayes 304, Noes 241.

Division No. 175.]	AYES	[9.30 p.m.
Agnew, Sir Peter	Deedes, W. F.	Hirst, Geoffrey
Aitken, W. T.	Dodds-Parker, A. D.	Hobson, John (Warwick & Leam'gt'n)
Allan, R. A. (Paddington, S.)	Donaldson, Cmdr. C. E. McA.	Holland-Martin, C. J.
Alport, C J. M.	Doughty, C. J. A.	Hope, Lord John
Amery, Julian (Preston, N.)	Drayson, G. B.	Hornby, R. P.
Amory, Rt. Hn. Heathcoat (Tiverton)	du Cann, E. D. L.	Hornsby-Smith, Miss M. P.
Arbuthnot, John	Dugdale, Rt. Hn. Sir T. (Richmond)	Horobin, Sir Ian
Armstrong, C. W.	Duncan, Capt. J. A. L.	Horsbrugh, Rt. Hon. Dame Florence
Ashton, H.	Duthie, W. S.	Howard, Gerald (Cambridgeshire)
Astor, Hon. J. J.	Eccles, Rt. Hon. Sir David	Howard, Hon. Greville (St. Ives)
Atkins, H. E.	Eden, J. B. (Bournemouth, West)	Howard, John (Test)
Baldock, Lt.-Cmdr. J. M.	Elliot, Rt. Hon. W. E. (Kelvingrove)	Hudson, W. R. A. (Hull, N.)
Baldwin, A. E.	Elliott, R. W. (N'castle upon Tyne, N.)	Hughes Hallett, Vice-Admiral J.
Balniel, Lord	Emmet, Hon. Mrs. Evelyn	Hughes-Young, M. H. C.
Barber, Anthony	Erroll, F. J.	Hulbert, Sir Norman
Barlow, Sir John	Finlay, Graeme	Hurd, A. R.
Barter, John	Fisher, Nigel	Hutchison, Michael Clark (E'b'gh, S.)
Baxter, Sir Beverley	Fletcher-Cooke, C.	Hyde, Montgomery
Beamish, Maj. Tufton	Forrest, G.	Hylton-Foster, Rt. Hon. Sir Harry
Bell, Philip (Bolton, E.)	Fort, R.	Iremonger, T. L.
Bell, Ronald (Bucks, S.)	Foster, John	Irvine, Bryant Godman (Rye)
Bennett, F. M. (Torquay)	Fraser, Hon. Hugh (Stone)	Jenkins, Robert (Dulwich)
Bennett, Dr. Reginald	Fraser, Sir Ian (M'cmbe & Lonsdale)	Jennings, J. C. (Burton)
Bevins, J. R.(Toxteth)	Freeth, Denzil	Jennings, Sir Roland (Hallam)
Bidgood, J. C.
Biggs-Davison, J. A.	Galbraith, Hon. T. G. D.	Johnson, Dr. Donald (Carlisle)
Birch, Rt. Hon. Nigel	Gammans, Lady	Johnson, Eric (Blackley)
Bishop, F. P.	Garner-Evans, E. H.	Johnson, Howard (Kemptown)
Black, C. W.	George, J. C. (Pollok)	Jones, Rt. Hon. Aubrey (Hall Green)
Body, R. F.	Gibson-Watt, D.	Joseph, Sir Keith
Bossom, Sir Alfred	Glover, D.	Joynson-Hicks, Hon. Sir Lancelot
Boyle, Sir Edward	Glyn, Col. R.	Kaberry, D.
Braine, B. R.	Godber, J. B.	Kerby, Capt. H. B.
Braithwaite, Sir Albert (Harrow, W.)	Gomme-Duncan, Col. Sir Alan	Kerr, Sir Hamilton
Bromley-Davenport, Lt.-Col. W. H.	Goodhart, Philip	Kershaw, J. A.
Brooman-White, R. C.	Gough, C. F. H.	Kimball, M.
Browne, J. Nixon (Craigton)	Gower, H. R.	Kirk, P. M.
Bullus, Wing Commander E. E.	Graham, Sir Fergus	Lagden, C. W.
Burden, F. F. A.	Grant, W. (Woodside)	Lambert, Hon. G.
Butcher, Sir Herbert	Grant-Ferris, Wg Cdr. R.(Nantwich)	Leather, E. H. C.
Campbell, Sir David	Green, A.	Leavey, J. A.
Carr, Robert	Gresham Cooke, R.	Leburn, W. G.
Cary, Sir Robert	Grimston, Hon. John (St. Albans)	Legge-Bourke, Maj. E. A. H.
Channon, Sir Henry	Grimston, Sir Robert (Westbury)	Legh, Hon. Peter (Petersfield)
Chichester-Clark, R.	Grosvenor, Lt.-Col. R. G.	Lennox-Boyd, Rt. Hon. A. T.
Churchill, Rt. Hon. Sir Winston	Gurden, Harold	Linstead, Sir H. N.
Clarke, Brig. Terence (Portsmth, W.)	Hall, John (Wycombe)	Lloyd, Rt. Hon. G. (Sutton Coldfield)
Cole, Norman	Hare, Rt. Hon. J. H.	Lloyd, Rt. Hon. Selwyn (Wirral)
Conant, Maj. Sir Roger	Harris, Reader (Heston)	Longden, Gilbert
Cooke, Robert	Harrison, A. B. C. (Maldon)	Low, Rt. Hon. A. R. W.
Cooper, A. E.	Harrison, Col. J. H. (Eye)	Lucas, Sir Jocelyn (Portsmouth, S.)
Cooper-Key, E. M.	Harvey, Sir Arthur Vere (Macclesfd)	Lucas, P. B. (Brentford & Chiswick)
Cordeaux, Lt.-Col. J. K.	Harvey, Ian (Harrow, E.)	Lucas-Tooth, Sir Hugh
Craddock, Beresford (Spelthorne)	Harvey, John (Walthamstow, E.)	McAdden, S. J.
Crosthwaite-Eyre, Col. O. E.	Harvie-Watt, Sir George	Macdonald, Sir Peter
Crowder, Sir John (Finchley)	Hay, John	Mackeson, Brig. Sir Harry
Crowder, Petre (Ruislip—Northwood)	Heald, Rt. Hon. Sir Lionel	McKibbin, A. J.
Cunningham, Knox	Henderson, John (Cathcart)	Mackie, J. H. (Galloway)
Currie, G. B. H.	Henderson-Stewart, Sir James	McLaughlin, Mrs. P.
Dance, J. C. G.	Hesketh, R. F.	Maclay, Rt. Hon. John
Davidson, Viscountess	Hill, Rt. Hon. Charles (Luton)	Maclean, Sir Fitzroy (Lancaster)
D'Avigdor-Goldsmid, Sir Henry	Hill, Mrs. E. (Wythenshawe)	McLean, Neil (Inverness)
Macleod, Rt. Hn. Iain (Enfield, W.)	Pilkington, Capt. R. A.	Storey, S.
MacLeod, John (Ross & Cromarty)	Pitman, I. J.	Stuart, Rt. Hon. James (Moray)
Macmillan, Rt. Hn. Harold (Bromley)	Pott, H. P.	Studholme, Sir Henry
Macmillan, Maurice (Halifax)	Powell, J. Enoch	Summers, Sir Spencer
Macpherson, Niall (Dumfries)	Price, David (Eastleigh)	Sumner, W. D. M. (Orpington)
Maddan, Martin	Prior-Palmer, Brig. O. L.	Taylor, Sir Charles (Eastbourne)
Maitland, Cdr. J. F. W.(Horncastle)	Profumo, J. D.	Taylor, William (Bradford, N.)
Maitland, Hon. Patrick (Lanark)	Raikes, Sir Victor	Teeling, W.
Manningham-Buller, Rt. Hn. Sir R.	Ramsden, J. E.	Temple, John M.
Markham, Major Sir Frank	Rawlinson, Peter	Thomas, Leslie (Canterbury)
Marlowe, A. A. H.	Redmayne, M.	Thomas, P. J. M. (Conway)
Marples, Rt. Hon. A. E.	Remnant, Hon. P.	Thompson, Kenneth (Walton)
Marshall, Douglas	Renton, D. L. M.	Thompson, Lt.-Cdr. R.(Croydon, S.)
Mathew, R.	Ridsdale, J. E.	Thorneycroft, Rt. Hon. P.
Maudling, Rt. Hon. R.	Rippon, A. G. F.	Thornton-Kemsley, C. N.
Mawby, R. L.	Roberts, Sir Peter (Heeley)	Tiley, A. (Bradford, W.)
Medlicott, Sir Frank	Robertson, Sir David	Tilney, John (Wavertree)
Milligan, Rt. Hon. W. R.	Robinson, Sir Roland (Blackpool, S.)	Turton, Rt. Hon. R. H.
Moore, Sir Thomas	Robson Brown, Sir William	Tweedsmuir, Lady
Morrison, John (Salisbury)	Rodgers, John (Sevenoaks)	Vane, W. M. F.
Mott-Radclyffe, Sir Charles	Roper, Sir Harold	Vaughan-Morgan, J. K.
Nabarro, G. D. N.	Ropner, Col. Sir Leonard	Vickers, Miss Joan
Nairn, D. L. S.	Russell, R. S.	Wakefield, Edward (Derbyshire, W.)
Neave, Airey	Sandys, Rt. Hon. D.	Wakefield, Sir Wavell (St. M'lebone)
Nicholls, Harmar	Schofield, Lt.-Col. W.	Walker-Smith, Rt. Hon. Derek
Nicholson, Godfrey (Farnham)	Scott-Miller, Cmdr. R.	Wall, Major Patrick
Nicolson, N. (B'n'm'th, E. & Chr'ch)	Sharples, R. C.	Ward, Rt. Hon. G. R. (Worcester)
Noble, Comdr. Rt. Hon. Allan	Shepherd, William	Ward, Dame Irene (Tynemouth)
Nugent, G. R. H.	Simon, J. E. S. (Middlesbrough, W.)	Waterhouse, Capt. Rt. Hon. C.
O'Neill, Hn. Phelim(Co. Antrim, N.)	Smithers, Peter (Winchester)	Watkinson, Rt. Hon. Harold
Ormsby-Gore, Rt. Hon. W. D.	Smyth, Brig. Sir John (Norwood)	Webbe, Sir H.
Orr, Capt. L. P. S.	Soames, Christopher	Whitelaw, W. S. I.
Orr-Ewing, Charles Ian (Hendon, N.)	Spearman, Sir Alexander	Williams, Paul (Sunderland, S.)
Orr-Ewing, Sir Ian (Weston-S-Mare)	Speir, R. M.	Williams, R. Dudley (Exeter)
Osborne, C.	Spence, H. R. (Aberdeen, W.)	Wills, G. (Bridgwater)
Page, R. G.	Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)	Wood, Hon. R.
Pannell, N. A. (Kirkdale)	Stanley, Capt. Hon. Richard	Woollam, John Victor
Partridge, E.	Stevens, Geoffrey	Yates, William (The Wrekin)
Peyton, J. W. W.	Steward, Harold (Stockport, S.)
Pickthorn, K. W. M.	Steward, Sir William (Woolwich, W.)	TELLERS FOR THE AYES:
Pike, Miss Mervyn	Stoddart-Scott, Col. Sir Malcolm	Mr. Heath and Mr. Oakshott.
NOES
Ainsley, J. W.	Collick, P. H. (Birkenhead)	Grimond, J.
Albu, A. H.	Collins, V. J.(Shoreditch & Finsbury)	Hale, Leslie
Allaun, Frank (Salford, E.)	Corbet, Mrs. Freda	Hall, Rt. Hn. Glenvil (Colne Valley)
Allen, Arthur (Bosworth)	Cove, W. G.	Hamilton, W. W.
Allen, Scholefield (Crewe)	Craddock, George (Bradford, S.)	Hannan, W.
Anderson, Frank	Cronin, J. D.	Harrison, J. (Nottingham, N.)
Awbery, S. S.	Crossman, R. H. S.	Hastings, S.
Bacon, Miss Alice	Cullen, Mrs. A.	Hayman, F. H.
Baird, J.	Davies, Ernest (Enfield, E.)	Herbison, Miss M.
Balfour, A.	Davies, Harold (Leek)	Hewitson, Capt. M.
Bellenger, Rt. Hon. F. J.	Davies, Stephen (Merthyr)	Holman, P.
Bence, C. R. (Dunbartonshire, E.)	Deer, G.	Holmes, Horace
Benn, Hn. Wedgwood (Bristol, S.E.)	de Freitas, Geoffrey	Holt, A. F.
Benson, G.	Delargy, H. J.	Houghton, Douglas
Beswick, Frank	Dodds, N. N.	Howell, Charles (Perry Barr)
Bevan, Rt. Hon. A. (Ebbw Vale)	Donnelly, D. L.	Hoy, J. H.
Blackburn, F.	Dugdale, Rt. Hn. John (W. Brmwch)	Hubbard, T. F.
Blenkinsop, A.	Dye, S.	Hughes, Cledwyn (Anglesey)
Blyton, W. R.
Boardman, H.	Edwards, Rt. Hon. John (Brighouse)	Hughes, Hector (Aberdeen, N.)
Bottomley, Rt. Hon. A. G.	Edwards, Rt. Hon. Ness (Caerphilly)	Hunter, A. E.
Bowden, H. W. (Leicester, S.W.)	Edwards, Robert (Bilston)	Hynd, J. B. (Attercliffe)
Bowles, F. G.	Edwards, W. J. (Stepney)	Irvine, A. J. (Edge Hill)
Braddock, Mrs. Elizabeth	Evans, Albert (Islington, S.W.)	Isaacs, Rt. Hon. G. A.
Brockway, A. F.	Ferrryhough, E.	Janner, B.
Broughton, Dr. A. D. D.	Fienburgh, W.	Jay, Rt. Hon. D. P. T.
Brown, Rt. Hon. George (Belper)	Finch, H. J.	Jeger, George (Goole)
Brown, Thomas (Ince)	Fletcher, Eric	Jeger, Mrs. Lena(Holbn & St.Pncs, S.)
Burke, W. A.	Forman, J. C.	Jenkins, Roy (Stechford)
Butler, Herbert (Hackney, C.)	Fraser, Thomas (Hamilton)	Johnson, James (Rugby)
Butler, Mrs. Joyce (Wood Green)	Gaitskell, Rt. Hon. H. T. N.	Johnston, Douglas (Paisley)
Callaghan, L. J.	George, Lady Megan Lloyd(Car'then)	Jones, Rt. Hon. A. Creech(Wakefield)
Carmichael, J.	Gibson, C. W.	Jones, David (The Hartlepools)
Castle, Mrs. B. A.	Gordon Walker, Rt. Hon. P. C.	Jones, Jack (Rotherham)
Champion, A. J.	Greenwood, Anthony	Jones, J. Idwal (Wrexham)
Chapman, W. D.	Grenfell, Rt. Hon. D. R.	Jones, T. W. (Merioneth)
Chetwynd, G. R.	Grey, C. F.	Key, Rt. Hon. C. W.
Clunie, J.	Griffiths, David (Bother Valley)	King, Dr. H. M.
Coldrick, W.	Griffiths, Rt. Hon. James (Llanelly)	Lawson, G. M.

Ledger, R. J.	Parker, J,	Strachey, Rt. Hon. J.
Lee, Frederick (Newton)	Parkin, B. T.	Strauss, Rt. Hon. George (Vauxhall)
Lee, Miss Jennie (Cannock)	Paton, John	Stross, Dr. Barnet t(Stoke-on-Trent, C)
Lever, Harold (Cheetham)	Peart, T. F.	Summerskill, Rt. Hon. E.
Lever, Leslie (Ardwick)	Pentland, N.	Swingler, S. T.
Lindgren, G. S.	Plummer, Sir Leslie	Sylvester, G. O.
Lipton, Marcus	Price, J. T. (Westhoughton)	Taylor, Bernard (Mansfield)
Logan, D. G.	Price, Philips (Gloucestershire, W.)	Taylor, John (West Lothian)
Mabon, Dr. J. Dickson	Probert, A. R.	Thomas, George (Cardiff)
MacColl, J. E.	Proctor, W. T.	Thomas, Iorwerth (Rhondda, W.)
MacDermot, Niall	Pryde, D. J.	Thornton, E.
McInnes, J.	Randall, H. E.	Timmons, J.
McKay, John (Wallsend)	Rankin, John	Tomney, F.
MacPherson, Malcolm (Stirling)	Redhead, E. C.	Ungoed-Thomas, Sir Lynn
Mahon, Simon	Reeves, J.	Usborne, H. C.
Mallalieu, E. L. (Brigg)	Reid, William	Viant, S. P.
Mallalieu, J. P. W. (Huddersfd, E.)	Rhodes, H.	Watkins, T. E.
Mann, Mrs. Jean	Robens, Rt. Hon. A.	Weitzman, D.
Mason, Roy	Roberts, Albert (Normanton)	Wells, Percy (Faversham)
Mayhew, C. P.	Roberts, Goronwy (Caernarvon)	Wells, William (Walsall, N.)
Mellish, R. J.	Robinson, Kenneth (St. Pancras, N.)	West, D. G.
Messer, Sir F.	Rogers, George (Kensington, N.)	Wheeldon, W. E.
Mikardo, Ian	Ross, William	White, Mrs. Eirene (E. Flint)
Mitchison, G. R.	Royle, C.	White, Henry (Derbyshire, N.E.)
Monslow, W.	Shawcross, Rt. Hon. Sir Hartley	Wigg, George
Moody, A. S.	Shinwell, Rt. Hon. E.	Wilcock, Group Capt. C. A. B.
Morris, Percy (Swansea, W.)	Short, E. W.	Wilkins, W. A.
Morrison, Rt. Hn. Herbert (Lewis'm, S.)	Shurmer, P. L. E.	Willey, Frederick
Mort, D. L.	Silverman, Julius (Aston)	Williams, David (Neath)
Moss, R.	Silverman, Sydney (Nelson)	Williams, Rev. Llywelyn (Ab'tillery)
Moyle, A.	Simmons, C. J. (Brierley Hill)	Williams, Ronald (Wigan)
Mulley, F. W.	Skeffington, A. M.	Williams, W. R. (Openshaw)
O'Brien, Sir Thomas	Slater, Mrs. H. (Stoke, N.)	Williams, W. T. (Barons Court)
Oliver, G. H.	Slater, J. (Sedgefield)	Willis, Eustace (Edinburgh, E.)
Oram, A. E.	Smith, Ellis (Stoke, S.)	Wilson, Rt. Hon. Harold (Huyton)
Orbach, M.	Snow, J. W.	Winterbottom, Richard
Oswald, T.	Sorensen, R. W.	Woodburn, Rt. Hon. A.
Padley, W. E.	Soskice, Rt. Hon. Sir Frank	Woof, R. E.
Paget, R. T.	Sparks, J. A.	Yates, V. (Ladywood)
Paling, Rt. Hon. W. (Dearne Valley)	Steele, T.	Zilliacus, K.
Palmer, A. M. F.	Stewart, Michael (Fulham)
Pannell, Charles (Leeds, W.)	Stonehouse, John	TELLERS FOR THE NOES:
Pargiter, G. A.	Stones, W. (Consett)	Mr. Popplewell and Mr. Pearson.

It being after half-past Nine o'clock, Mr. SPEAKER proceeded, pursuant to Standing Order No. 16 (Business of Supply), to put forthwith the Questions, That this House doth agree with the Committee in the outstanding Resolutions reported in respect of Classes I to X of the Civil Estimates and of the Revenue Departments' Estimates, the Ministry of Defence Estimate, the Navy Estimates, the Army Estimates and the Air Estimates.

1. CIVIL ESTIMATES AND SUPPLEMENTARY ESTIMATE, 1957–58
1. CLASS I
c731
1. CENTRAL GOVERNMENT AND FINANCE 27 words
2. CLASS II
c732
1. COMMONWEALTH AND FOREIGN 27 words
3. CLASS III
c732
1. HOME DEPARTMENT, LAW AND JUSTICE 27 words
4. CLASS IV
c732
1. EDUCATION AND BROADCASTING 27 words
5. CLASS V
c733
1. HEALTH, HOUSING AND LOCAL GOVERNMENT 27 words
6. CLASS VI
c733
1. TRADE, LABOUR AND SUPPLY 27 words
7. CLASS VII
c733
1. COMMON SERVICES (WORKS. STATIONERY, &C.) 27 words
8. CLASS VIII
c733
1. AGRICULTURE AND FOOD 27 words
9. CLASS IX
c733
1. TRANSPORT, POWER, AND INDUSTRIAL RESEARCH 27 words
10. CLASS X
c733
1. PENSIONS, NATIONAL INSURANCE AND NATIONAL ASSISTANCE 27 words
c733
2. ESTIMATES FOR REVENUE DEPARTMENTS AND SUPPLEMENTARY ESTIMATE, 1957–58 25 words
c734
3. MINISTRY OF DEFENCE ESTIMATE, 1957–58 26 words
c734
4. NAVY ESTIMATES. 1957–58 24 words
c734
5. ARMY ESTIMATES. 1957–58 24 words
c734
6. AIR ESTIMATES. 1957–58 24 words
c734
7. WAYS AND MEANS [24th July] 69 words
c734
8. CONSOLIDATED FUND (APPROPRIATION) 60 words
cc735-9
9. AGRICULTURE BILL 3 words
c735
1. Clause 4.—(APPLICATION TO SUGAR BEET PRICES.) 256 words
c736
2. Clause 12.—(GRANTS FOR LONG TERM IMPROVEMENTS OF AGRICULTURAL LAND.) 132 words
cc736-7
3. Clause 13.—(AMOUNT AND PAYMENT OF GRANTS UNDER s. 12.) 270 words
cc737-8
4. Clause 14.—(REVOCATION OF APPROVAL AND RECOVERY OF GRANT.) 449 words
c738
5. Clause 17.—(AMOUNT AND PAYMENT OF GRANTS UNDER S. 16.) 106 words
cc738-9
6. Second Schedule.—(IMPROVEMENTS ELIGIBLE FOR GRANT UNDER S. 12.) 160 words
cc739-76
10. WHITE FISH AND HERRING SUBSIDIES 14,729 words
cc777-84
11. MERTHYR TYDVIL— ABERGAVENNY RAILWAY 2,751 words