Commons Sitting of 29 October 1957

Preamble
The House—after the Adjournment on 2nd August, 1957, for the Summer Recess—met at half-past Two o'clock.
PRAYERS
[Mr. SPEAKER in the Chair]
DEATH OF A MEMBER
Mr. Speaker: I regret to have to inform the House of the death of the Right Honourable Richard Rapier Stokes, M.C., Member for Ipswich, and I desire on behalf of the House to express our sense of the loss we have sustained and our sympathy with the relatives of the Right Honourable Member.

WRITS ISSUED DURING THE ADJOURNMENT
Mr. SPEAKER acquainted the House, that he had issued, during the Adjournment, Warrants for new Writs, namely:
For Gloucester, in the room of Moss Turner-Samuels, esquire, Q.C., deceased;
For Ipswich, in the room of the Right Honourable Richard Rapier Stokes, M.C., deceased.

ORAL ANSWERS TO QUESTIONS
  SCOTLAND

    Cigarettes (Automatic Machine Sales)
    Mr. Rankinasked the Secretary of State for Scotland, in view of the increasing number of automatic machines which supply cigarettes, what steps he proposes to take respecting the sale of cigarettes to young persons in this way because of the dangers of cigarette smoking to their health.
    The Joint Under-Secretary of State for Scotland (Mr. Niall Macpherson): Under Section 18 of the Children and Young Persons (Scotland) Act, 1937, courts of summary jurisdiction already have power, if application is made to them, to order the owner of an automatic machine for the sale of tobacco, or the person on whose premises it is kept, either to take such precautions as the court specifies to prevent the machine from being extensively used by persons apparently under the age of sixteen years, or to remove the machine.
    Mr. Rankin: In that case, can the Joint Under-Secretary tell us how the Secretary of State is seeking to fit what has just been said into the campaign he is carrying on throughout the schools of Scotland to advise children not to smoke cigarettes? In what way is he fitting that into the law as it has just been stated?
    Mr. Macpherson: We are bound to presume that people are aware of this law. I think the Answer I have given will bring it to the attention of many people.

    Welfare Orange Juice
    Mr. Hannanasked the Secretary of State for Scotland if he has now considered the recommendation of the Central and Scottish Health Services Councils that welfare orange juice should be discontinued for children after two years of age; and what decision he has come to.
    The Joint Under-Secretary of State for Scotland (Mr. J. Nixon Browne): As announced on 30th September, my right hon. Friend and my right hon. and learned Friend the Minister of Health have accepted the recommendation of the Joint Sub-Committee of the Central and Scottish Standing Medical Advisory Committees and have decided to discontinue the supply of welfare orange juice to children over the age of two from 1st November next.
    Mr. Hannan: Is the hon. Gentleman aware of the utter dismay among responsible authorities that such a mean, parsimonious and wretched proposal should be accepted? Does it mean that the Secretary of State believes that the economic problems of the Government can be solved by depriving children of orange juice?
    Mr. Browne: This is not a question of economic policies at all. We had the recommendation of this Sub-Committee and have accepted it.
    Mr. Woodburn: Can the hon. Gentleman tell us how science changes with the Government? It seems that when a Government are in office during war-time and children are required to be preserved the Government discover that orange juice is good for them, but that when a Government want economy they discover that orange juice is not good for children.
    Mr. Browne: This is a case in which science seems to have changed with the Government. The difference is that this was a war-time measure when the diet was limited and sources of Vitamin C were scarce; but under the present Administration ample food is available.

    Polton—Rosslyn Castle Right of Way, Midlothian
    Mr. Prydeasked the Secretary of State for Scotland if the right-of-way from Polton to Rosslyn Castle in Midlothian is now fit for pedestrian use.
    Mr. J. N. Browne: My right hon. Friend is informed that the Penicuik District Council is satisfied that the right-of-way is now free from obstruction and fit for use.
    Mr. Pryde: If district councils in Scotland do not earn sufficient under the system, would it not be far better to face the question in a straight way and place the finances of district councils on a more solid, sane basis?
    Mr. Browne: I think the hon. Member should put down a separate Question on that, as it is far removed from the question of Polton and Rosslyn Castle.

    Tay Road Bridge
    Mr. G. M. Thomsonasked the Secretary of State for Scotland what further consideration he proposes to give to the construction of a road bridge over the Tay at Dundee in view of the uncertainty of the employment position in the city.
    Mr. N. Macpherson: My right hon. Friend cannot say when the construction of a road bridge over the Tay at Dundee could be fitted into the road programme, but he has agreed with the local authorities concerned that there should be a joint examination with them of the technical questions involved.
    Mr. Thomson: Is the Minister aware that unemployment in Dundee is five times worse than in the United Kingdom as a whole and that all the prospects are that it will grow even graver? Is not this the time to get a move on with the road bridge over the Tay at Dundee?
    Mr. Macpherson: In reply to the first part of that question, unemployment has dropped a bit in the last month in Dundee. In reply to the second part of the question, we are getting on with the study of the technical problems involved.

    Committee on Diligence (Report)
    Mr. Hamiltonasked the Secretary of State for Scotland whether he has yet received the report from the Committee on Diligence.
    Mr. N. Macpherson: No, Sir. My right hon. Friend understands that the Committee is making good progress but that there is still much to do.
    Mr. Hamilton: How long has the Committee been sitting on this report? It seems an exceptionally long time. Meanwhile, great hardship is being undergone by the people who are suffering by the arrestment of their wages for hire-purchase payments, and so on. Will the Government make recommendations to the Committee with a view to speeding up the report?
    Mr. Macpherson: The Committee was set up in July, 1956. A great deal of oral evidence has had to be taken—I understand that most of it has been taken—and has to be considered.

    Valuation Appeal Committees (Appointments)
    Mr. Hamiltonasked the Secretary of State for Scotland if he is aware of the dissatisfaction of certain local authorities concerning appointments to valuation appeal committees; and what steps he proposes to take to improve the position.
    Mr. J. N. Browne: These appointments are under statute entirely a matter for the sheriff, and my right hon. Friend has no authority to intervene.
    Mr. Hamilton: Is the hon. Gentleman aware that the arguments which were adduced from this side of the House have been amply borne out by the experience of Fife County Council? Is he aware that the county council was in no way asked for nominees for the appointment of landward representatives on this valuation appeals committee, and that there is great indignation in Fife because of this?
    Mr. Browne: I am aware that what the hon. Member says is correct, but under Section 5 of the Act the matter is entirely within the discretion of the sheriff. He is not specifically required to consult local authorities.
    Mr. T. Fraser: The hon. Gentleman will remember that his right hon. Friend the Secretary of State argued for this inclusion in the Act of Parliament because he thought it would be a very good thing. Some of us thought that it would not. Does the Under-Secretary share this dissatisfaction? If so, perhaps he will have to introduce another Bill.
    Mr. Browne: On the whole, the Act is working extremely well and the number of complaints has been very limited.

    Forth Road Bridge
    Mr. Hamiltonasked the Secretary of State for Scotland if he will give an assurance that there will be no further delay in the commencement of the Forth road bridge as a result of recently announced financial policy.
    Mr. N. Macpherson: There is no reason why the Forth Road Bridge Joint Board should not proceed with this scheme as planned, provided that satisfactory tenders are received.
    Mr. Hamilton: In view of the Government's appeal for increased productivity and the development prospects in East Scotland, will the Joint Under-Secretary undertake to try to speed up the development of the bridge?
    Mr. Macpherson: The development of the bridge is going forward as planned. The Joint Board expects to be ready to invite tenders next month for the foundations to the central piers and for the cable anchorages.

    Hospital Building Programme
    Mrs. Mannasked the Secretary of State for Scotland which hospital buildings will be in any way affected by the credit restrictions; and, in particular, to what extent the new Lanarkshire maternity hospital at Bellshill will be so affected.
    Mr. J. N. Browne: There may be some adjustment of the starting dates of the major hospital building projects planned for start in 1958–59, but the programme announced in reply to my hon. Friend the Member for Scotstoun (Sir J. Hutchison) on 12th December last still stands. The works now in progress, including the maternity hospital at Bellshill, will not be affected.

    Afforestation, Sutherland and Caithness
    Sir D. Robertsonasked the Secretary of State for Scotland if he will encourage the Forestry Commission to embark on large-scale afforestation in Sutherland and Caithness on land of no, or low, agricultural value, which is

    7
    in abundance there and will yield an economic return in wood pulp if modern techniques are used.
    The Joint Under-Secretary of State for Scotland (Lord John Hope): The Commission has already acquired 17,000 acres of plantable land in Caithness and Sutherland, which are in process of being planted. Negotiations are proceeding for the acquisition of a further 4,000 acres in Sutherland. As announced in the House on 14th July, 1955, the Commission has been authorised to embark on a new scheme of planting some of the poorer land in the crofting counties and to aim at planting 25,000–35,000 acres during the ensuring ten years. Of the area acquired in Caithness and Sutherland, 5,500 acres are for this special planting programme.
    Sir D. Robertson: Is my hon. Friend aware that there are 1,750,000 acres in these two counties and that the reference to 17,000 acres being acquired and only 8,000 acres replanted indicates slow motion? Is it not time that something was done? Is my hon. Friend aware that his noble Friend the Minister of State held out afforestation as the hope of the Highlands? What a hope!
    Lord John Hope: The answer to my hon. Friend lies in the figure which I have just given him of the programme of 25,000–35,000 acres within ten years. That is not slow motion.
    Mr. Woodburn: Is the Secretary of State satisfied with the progress that is being made by the Forestry Commission? In regard to Sutherland and Caithness, is the right hon. Gentleman carrying out the plan for the other forest land by using it with a view to helping to protect the agricultural soil in the county and to help to redevelop the county as a living place for human beings?
    Lord John Hope: The aim is certainly integration between agriculture and forestry, there as elsewhere—very much so.

    Defence Works (Reduction)
    Mr. Malcolm MacPhersonasked the Secretary of State for Scotland what reply he has made to the memorandum on the reduction in defence work recently sent to him by the Scottish Council (Development and Industry).
    Mr. N. Macpherson: My right hon. Friend has brought the Scottish Council's Memorandum to the notice of his colleagues most immediately concerned. He will reply to the Scottish Council as soon as his consultations with his colleagues are completed.
    Mr. MacPherson: Will the hon. Gentleman also bring to the notice of his colleagues the fact that there is the disquiet about the possibility of the unemployment that is caused being rather more severe proportionately in Scotland than in England and Wales? Will he also bring to their notice the desirability of not losing any further highly-skilled men from Scotland over the Border?
    Mr. Macpherson: Yes, Sir. These are matters that are closely under consideration and are brought regularly to the notice of my right hon. Friend's colleagues.

    Hospital Facilities, Midlothian
    Mr. Prydeasked the Secretary of State for Scotland if he is aware of the increasing necessity for the provision of a general hospital in the Bonnyrigg-Dalkeith-Easthouses area of Midlothian because of the rapid expansion which is taking place in that area; and if he will make a statement.
    Mr. J. N. Browne: My right hon. Friend is afraid there is no prospect of a new general hospital being provided in the near future in this area, which is already reasonably well served by hospitals in Edinburgh.
    Mr. Pryde: Will the Minister explain the meaning of "reasonable"? Is he aware that there is no hospital to the south of Dalkeith except at Cloven Fords, many miles away, that the area is expanding fast, and that all the area between Dunbar and Linlithgow is dependent upon Edinburgh hospitals, especially the great teaching hospital of the Royal Infirmary of Edinburgh? The counties of Midlothian, Fife, Clackmannan, East Lothian, West Lothian and Stirlingshire are all dependent on Edinburgh.
    Mr. Browne: This is a matter primarily for the regional hospital board, which has not thought it practicable to consider a hospital for this area.
    Mr. Pryde: Will they not face the problem?

    Orkney Shipping Services
    Mr. Grimondasked the Secretary of State for Scotland what action he intends to take on the recent report on the North Isles shipping services in Orkney.
    Mr. N. Macpherson: The Orkney Steam Navigation Company has undertaken to give serious consideration to the introduction of an improved schedule of sailings in the spring of 1958, and my right hon. Friend has asked for the company's detailed proposals to be sent to him as soon as possible.
    Mr. Grimond: I thank the Minister for that reply. As regards the more long-term considerations of capital for new ships and the possibility of a different type of ship, has the hon. Gentleman received any protest from the county council? If so, is he acting upon it? If not, who is responsible for taking the next step in the longer term?
    Mr. Macpherson: The question of financial assistance will have to be considered, first, when my right hon. Friend the Secretary of State learns the company's detailed proposals concerning the schedules. Secondly, there is the much more difficult long-term question in which a matter of principle is involved, and that is being considered by Departments at present.

    Prescription Charges (Multiple Packs)
    Dr. J. Dickson Mabonasked the Secretary of State for Scotland if he has concluded his discussions with representatives of the medical profession in Scotland on a comprehensive list of multiple pack prescriptions for the treatment of various diseases; if he will state what these packs are; and if he will give an assurance that the prescription charge for a complete pack is 1s. only.
    Mr. J. N. Browne: Discussions with the medical profession for additional multiple packs to which only the shilling prescription charge should apply are proceeding on a Great Britain basis and are not yet complete.
    Dr. Mabon: Is the Joint Under-Secretary aware that this is causing a great deal of hardship to many people, and that it is now almost ten months since
    10
    the additional prescription charge was introduced? The Department of Health ought really to get a move on to try to get this hardship removed.
    Mr. Browne: We hope soon to have a pack for such conditions as boils, carbuncles and ulcers. We are still working on packs for diabetic, colostomy and T.B. patients, but I must confess that we are finding it difficult to devise one pack suitable for the varied needs of different patients.
    Mr. Woodburn: Would it not save a great deal of the time of medical people if the Government abolished this prescription charge altogether? Is the hon. Gentleman aware that, according to the Press, the latest complaint is that when people get eye drops they must on every occasion buy a new eye-dropper and pay a shilling each time for it? Surely, all this nonsense should be abolished.
    Mr. Browne: I cannot agree with the right hon. Gentleman, but I can assure him that all these minor difficulties are under review.

    Committee on Building Legislation (Report)
    Mr. Rankinasked the Secretary of State for Scotland if he has yet reached any conclusions on the Report submitted to him by the Committee on Building Legislation in Scotland; and how far he proposes to incorporate any of its recommendations in legislation.
    Mr. J. N. Browne: Before reaching any conclusions, my right hon. Friend has asked the local authority associations and other interested bodies for their views. I should like to take this opportunity on behalf of my right hon. Friend of publicly expressing the Government's thanks to Lord Guest and the members of the Committee for their valuable report.
    Mr. Rankin: Is the Joint Under Secretary aware that the Committee has spent almost four years in preparing this excellent Report; and that amongst the many recommendations it makes is the suggestion that, because building provisions are scattered through a great many statutes and byelaws, there should now be a new building Act incorporating them all? Will he say whether or not the Government intend at some early date to bring in such a building Bill?
    Mr. Browne: At this stage, I can tell the hon. Gentleman that this Report is receiving full and careful consideration and we have legislation in mind.

    Farm Surveys
    Mr. Hoyasked the Secretary of State for Scotland how many of the farm surveys carried out by sub-committees of agricultural executive committees during the past three years were found to have been undertaken without the prior approval of the Secretary of State in contravention of the Agriculture (Scotland) No. 2 Regulation, 1950; and what steps he has taken to protect Scottish farmers from this type of action in future.
    Lord John Hope: Agricultural executive committees, under powers delegated to them, are free to carry out such farm surveys as they may think fit, and in their case my right hon. Friend's prior approval is not required.
    Mr. Hoy: Is not the hon. Gentleman aware that, in a reply I had from the Secretary of State for Scotland, he admitted that certainly in many cases illegal notices had been served on these farmers? If the hon. Gentleman wants a reference to that letter, it is dated 1st August. If these inspections took place under a notice that was illegal, what steps is the Secretary of State taking to prevent a repetition of this conduct, and, furthermore, has he sent apologies to the farmers concerned?
    Lord John Hope: I was bound to answer the Question as the hon. Gentleman asked it, in terms of agricultural executive committees. It is true, as the hon. Gentleman knows, that there was a case in which two inspectors of my right hon. Friend's Department, at the request of the A.E.C., carried out this inspection. In that case the notice was formally incorrect, but it made no difference to what, in fact, happened, and, as the hon. Gentleman knows, apologies have been tendered for it by my right hon. Friend.
    Mr. Hoy: I beg to give notice that, owing to the unsatisfactory Answer I have received, I will raise this matter on the Adjournment.

    National Service (Teachers)
    Mr. Rankinasked the Secretary of State for Scotland what further consideration he has given to the recommendation
    12
    of the Special Committee on the Supply of Teachers in Scotland that all men preparing for or trained for teaching be indefinitely deferred forthwith from National Service; and if he will arrange for this course to be adopted.
    Mr. N. Macpherson: Following this recommendation, my right hon. Friend the Minister of Labour and National Service announced on 2nd July that indefinite deferment of National Service would be extended forthwith to all teachers with first- or second-class honours degrees. In view of the continued need of the Forces for men with good educational qualifications, it is not at present possible to extend deferment to other men entering teaching, but the position is being kept under review.
    Mr. Rankin: Are we, then, to understand that teachers are to be conscripted into the Armed Forces for teaching purposes? If so, what did Governments do in the days when recruitment had to be on a voluntary basis? How did they get teachers then? Is it not the case that the Secretary of State appointed this Committee to advise him on what to do about teacher shortage? Now, it seems that he intends to ignore a major recommendation of the Committee.
    Mr. Macpherson: Perhaps the hon. Gentleman would address the question of the need for teachers in the Armed Forces to my right hon. Friend the Minister of Defence, but it is well known that there is need in the Forces for people with degrees——
    Mr. Rankin: So we conscript them.
    Mr. Macpherson: In reply to the second part of the hon. Gentleman's supplementary question, we have three recommendations at present under consideration. We have already gone some distance to meeting the Council's recommendations, and have vastly increased publicity, which was another of the recommendations.
    Mr. Rankin: I beg to give notice that, owing to the unsatisfactory nature of the Answer, I shall raise the matter on the Adjournment.

    Commonwealth Students (Vacational Employment)
    Mr. Malcolm MacPhersonasked the Secretary of State for Scotland what steps are taken to enable students from

    13
    the Commonwealth who are following technical courses at the central institutions to obtain suitable industrial employment during vacations.
    Mr. N. Macpherson: Neither my right hon. Friend nor the central institutions have any duty in this respect, and this is always made clear to prospective students, but where students take sandwich courses extending over the autumn and spring terms and are expected to obtain industrial experience during the summer, the central institutions concerned give them every possible assistance in obtaining places with suitable firms.
    Mr. MacPherson: Can the Joint Under-Secretary give some indication of what success the central institutions have had in that task? Will he also note that the question does not refer simply to students taking sandwich courses? Nowadays, the taking of training during summer vacations is an ordinary part of an engineering course, whether or not it is on a sandwich basis.
    Mr. Macpherson: Of course, the central institutions are not working alone here. There are the Governments of the countries from which the students come, and there is also the British Council. They all work together in this sphere.

    Scheme

    Length

    Started

    Completed or estimated date of completion

    Cost

    1. Reconstruction of A.858—

    (1) between Callanish and Carloway

    7½ miles

    1948

    1954

    £88,600

    (2) between Barvas and Shawbost

    6 miles

    2. Reconstruction of A.859 between Tarbert and Rodel

    5 miles

    1950

    1953

    £67,000

    3. Reconstruction of A.858 between Shawbost and Carloway

    5½ miles

    1950

    1954

    £41,800

    4. Reconstruction and resurfacing on A.859 and A.868 at Tarbert pier

    ¾ mile

    1956

    1958

    £32,000

    5. Surfacing of A.859 between Tarbert and Rodel (completion of scheme 2)

    5 miles

    1956

    1957

    £21,000

    6. Strengthening of six bridges on A.865 in South Uist

    —

    1957

    1957

    £15,500

    North Ford Causeway, Outer Hebrides
    Mr. Malcolm MacMillanasked the Secretary of State for Scotland the estimated cost of the North Ford Causeway, now being constructed in the Outer

    Road Schemes, Outer Hebrides
    Mr. Malcolm MacMillanasked the Secretary of State for Scotland the value and mileage of road of works completed or started under the Crofter Counties road programme between 1945 and 1951 throughout the Outer Hebrides; and what works directly under this scheme have been started between May, 1951, and May, 1957, in this area.
    Mr. N. Macpherson: I shall, with permission, circulate in the OFFICIAL REPORT detailed information about all the Crofter County schemes in the Outer Hebrides started between 1945 and 1957.
    Mr. MacMillan: Will the Joint Under-Secretary kindly say whether he can answer the second part of the Question now?
    Mr. Macpherson: If the hon. Gentleman will study the Answer, he will find that only one scheme was started before 1950 and no schemes were completed before 1953.
    Mr. MacMillan: Is the reply much the same as it was as regards houses, that nothing has been done about Crofter Counties scheme roads since 1951?
    Mr. Macpherson: The answer is that none of these schemes were completed before 1953 and reconstruction has been started in 1956 and 1957.
    Following is the information:
    Hebrides, and what was the estimated cost in 1951.
    Mr. N. Macpherson: The estimated cost of building the North Ford Causeway, based on the accepted tender, is £452,000. In 1949, when a preliminary

    15
    survey was carried out by the consultants, they estimated the cost roughly at £160,000.
    Mr. MacMillan: Has the Joint Under-Secretary yet managed to draw the glaring conclusion that, as with housing, roads and everything else, it is sheer folly to put off transport schemes of this kind where they are essential and where costs have been trebled through the folly of so-called economies?
    Mr. Macpherson: The figures are not really comparable. The original survey was only a preliminary one. The design of the causeway and bridges has had to be modified as a result of trial borings and investigations into the effect of the tides.

    Hydro-Electric Board
    Mr. Grimondasked the Secretary of State for Scotland to what extent development plans of the North of Scotland Hydro-Electric Board are likely to be affected by new restrictions on investment.
    Mr. N. Macpherson: My right hon. Friend is at present discussing the adjustment of the Board's plans to meet the Government's proposals on investments, and is not yet in a position to reply.
    Mr. Grimmond: Will the hon. Gentleman bring to his right hon. Friend's attention the fact that there are several areas

    Name

    Date of First Appointment

    Date of Expiry of Present Appointment

    Age(approx-mate)

    Chairman (part-time)

    Rt. Hon. Thomas Johnston, C.H., LL.D.

    1st April, 1946

    31st December, 1957

    75

    Deputy Chairman (part-time)

    Sir Hugh Mackenzie, C.B.E.

    11th September, 1951.

    31st December, 1957

    69

    Members (part-time)

    Sir George McGlashan (Chairman, Consultative Council).

    9th July, 1948

    31st December, 1957

    72

    Sir John Erskine, G.B.E.

    1st April, 1948

    31st December, 1958

    63

    Mr. G. R. McIntosh, C.B.E.

    9th March, 1949

    31st December, 1957

    69

    Mr. A. I. Mackenzie, C.A.

    1st September, 1951

    31st December, 1959

    46

    Provost A. Macrae, B.E.M.

    11th June, 1956

    31st December, 1958

    53

    Mr. A. D. Millar, M.C.

    1st July, 1956

    31st December, 1958

    43

    Lord Provost William Hughes, C.B.E.

    1st January, 1957

    31st December, 1959

    46

    National Gallery of Scotland
    Mr. G. M. Thomsonasked the Secretary of State for Scotland what arrangements he is making to ensure that the National Gallery of Scotland receives a reasonable share of works of art accepted in satisfaction of Estate Duty.
    on the mainland of Orkney and Shetland and in the outlying islands which are without electricity, and which have been promised it for some time, and that the people there are very concerned to know whether, these being important farming areas, they are likely to receive it?
    Mr. Macpherson: Yes, Sir, that is one of the matters under consideration.
    Mr. Thornton-Kemsleyasked the Secretary of State for Scotland the name, age, date and period of appointment of each of the present members of the North of Scotland Hydro-Electric Board.
    Mr. N. Macpherson: I shall, with permission, circulate the information in the OFFICIAL REPORT.
    Mr. Thornton-Kemsley: In the meantime, does not my hon. Friend think that the time has come for the appointment of younger members to this Board?
    Mr. Macpherson: There are three members of this Board who are in their 40's.
    Mr. Nabarro: Is my hon. Friend aware that the chairman of the Board is 75—much too old?
    Following is the information:
    Mr. N. Macpherson: My right hon. Friend is keeping in touch with my right hon. Friend the Chancellor of the Exchequer on this matter, and I can assure the hon. Member that the interests of the National Galleries of Scotland will not be overlooked.
    Mr. Thomson: What is the difficulty about this matter? Why cannot a straightforward statement of principle be made now, that the Scottish National Art Gallery will have its proper share of these works of art which come into the possession of the nation? Is the hon. Gentleman aware that there is serious concern in Scotland at the fact that the last donation that came in this way was grabbed entirely by the National Gallery in London?
    Mr. Macpherson: Yes, Sir, I am aware of that, but the hon. Gentleman has been in touch with my right hon. Friend, and my right hon. Friend told him that this was a matter of principle which was under consideration, and that is still the case.

    Uncertificated Teachers
    Mr. Timmonsasked the Secretary of State for Scotland the number of uncertificated teachers in Scotland; and what is the percentage to the total.
    Mr. N. Macpherson: The number is 1,507, which is about 4 per cent. of the total number of teachers in public and grant-aided schools.
    Mr. Timmons: Does not the Secretary of State take into account representations made to him by the E.I.S.? Is the hon. Gentleman aware that in Lanarkshire particularly and in Glasgow the ratio is somewhere in the region of 20 to 30 per cent. of uncertificated teachers in many of our secondary schools? Is he further aware that this is having a very serious and damaging effect on the education of our children?
    Mr. Macpherson: I do not accept the figure that has been given by the hon. Gentleman, but I would say that many of these teachers, although not trained to teach in Scotland, have obtained training qualification elsewhere. Quite a large number also have technical qualifications although they do not have the teachers' certificate for Scotland.
    Mr. Timmons: Would the hon. Gentleman give consideration and thought to the representations which are being made by the E.I.S., which is thoroughly acquainted with the facts?
    Mr. Macpherson: Yes, Sir. The greatest respect is paid to the recommendations made by the E.I.S., but, on the other
    18
    hand, it should be remembered that we are short of teachers just now and that these uncertificated teachers are very often used in an emergency, as for example in the recent outbreak of influenza.

    Licensing Laws
    Mr. Timmonsasked the Secretary of State for Scotland what are his proposals for an alteration to the licensing laws in Scotland.
    Mr. N. Macpherson: My right hon. Friend sees no immediate prospect of introducing legislation to make any substantial amendment of the Scottish licensing law. A consolidating Bill is in preparation.
    Mr. Timmons: May I thank the hon. Gentleman for the information that a consolidating Bill is projected? Does he not now believe that the present licensing laws in Scotland are totally obsolescent and do not meet the requirements of the second half of the twentieth century? He only needs to go round some industrial areas to see buses passing in different directions and cars going out at night, including Sunday nights, which are a menace to other human beings. The licensing laws are completely obsolescent and require drastic revision.
    Mr. Macpherson: This is one of the subjects on which it is easier to state the problem than to solve it.

    New Town Development Corporations
    Dr. Dickson Mabonasked the Secretary of State for Scotland when he contemplates a change in the present constitution of the development corporations of the new towns in Scotland; and if he will give an assurance that the spirit of the New Towns Act, 1946, will be observed and that democratically elected municipal councils will be allowed in the near future.
    Mr. J. N. Browne: My right hon. Friend does not contemplate any early change in the present system of creating and managing new town assets in Scotland. The local government of the new town areas will, of course, remain in the hands of democratically elected local authorities.
    Dr. Mabon: Is it not the case that there has been a proposal concerning the creation of a special agency under the Treasury which could well delay the

    19
    emergence of municipal status in the new towns? Is it the case that one of the criteria for a local authority in a new town is population? If so, what size of population must be achieved in a new town before local authority status is considered?
    Mr. Browne: The creation of a small burgh is, under statute, a matter for the sheriff on application made to him, but my right hon. Friend said in July that
    "…it would be premature at the present time to set about evolving an alternative system of management adapted to Scottish conditions." —[OFFICIAL REPORT, 30th July, 1957; Vol. 574, c. 1083].

    Torpedo Experimental Establishment, Greenock
    Dr. Dickson Mabonasked the Secretary of State for Scotland the nature of his latest representations to the First Lord of the Admiralty regarding the future of the Torpedo Experimental Establishment at Greenock; and when he made them.
    Mr. N. Macpherson: My right hon. Friend has been in close touch throughout with my noble Friend the First Lord of the Admiralty about this question and is satisfied that the First Lord is well aware of all the considerations involved.
    Dr. Mabon: Will the Secretary of State continue to make the same vigorous representation as I am told he has in the past, in order that we may keep this establishment in Scotland?
    Mr. Macpherson: My right hon. Friend, I am certain, will do all that he can at all times to keep the interests of Scotland to the fore.

  HOUSING, SCOTLAND

    Interest Rates
    Mrs. Mannasked the Secretary of State for Scotland if he is aware that the increase of loan interest to 7 per cent. will add £126 extra each year to a four-apartment house averaging £1,770 cost; and, as this will make new building impossible to most local authorities, if he will reduce the rate of interest to reasonable proportions.
    Mr. J. N. Browne: The figure of £126 given by the hon. Lady as the extra cost is, in fact, the total annual loan charges
    20
    at 7 per cent. on a house costing £1,774, repaid over 60 years. The increase in the Public Works Loan Board rate of interest is from 5¾ per cent. to 6¾ per cent. This will add approximately £16 9s. a year on a house costing £1,774. My right hon. Friend does not think that this makes new building impossible, and he cannot agree that there should be a special rate of interest for housing loans.
    Mrs. Mann: Since the new town subsidy, which the Minister was so keen to give for the building of houses within new towns, will be seriously undermined by this extra interest, will he not agree to continue on the old basis of interest for the time being?
    Mr. Browne: No, Sir. The large bulk of local authority houses were built at a time of low costs and low interest rates. If local authorities pool their subsidies, they can spread the benefit of them over all their houses.
    Mr. T. Fraser: Does the hon. Gentleman accept that the figures he has just disclosed show that the increases in interest rates since the Government came into office in 1951 have put up the annual cost of a £1,700 house by over £60 a year?
    Mr. Browne: They have put up the annual cost, but without notice I should not like to agree or disagree on the amount.
    Mr. Hoyasked the Secretary of State for Scotland what the interest charges on a house costing £1,500, and repaid over sixty years, were at October, 1951, August, 1957, and now.
    Mr. J. N. Browne: At the long-term Public Works Loan Board rates at the three dates mentioned the annual average interest payments would be £31, £68 and £83, respectively.
    Mr. Hoy: Is the Minister aware that that Answer shows that this means increasing the cost of a £1,500 house by £3,000 over sixty years? Surely that is an atrocious record even for this Government. Is the Minister not hoping to do something about attacking these very high interest rates as a possible solution to the problem of rent for these houses?
    Mr. Browne: The hon. Member really should get the position more clear. Many of these houses were built at low cost and

    21
    low interest rates. If local authorities pooled their interest payments for all the houses, they would find that the present rates would have not too significant an effect on their total housing expenditure.
    Mr. Hoy: Does the Joint Under-Secretary deny figures that he has already given: that under this Government the interest rate for housing has gone up from 3 per cent. to 6¾ per cent.; and that the cost does reflect that rate? That is the bill that the local authorities have to meet. Instead of blaming local authorities for the high rents, the Government should accept their own responsibilities.
    Mr. Browne: I am not denying the figures, but the effect of them on the overall cost of local authority houses.
    Mr. Woodburn: Is it not financial nonsense to have to pay more for the interest than for the housing? And is it not nonsense for the Government to complain of waste when they hand out unnecessarily all this money to interest drawers? Could we not have an inquiry into who gets the interest and whether they have been working overtime for it?
    Mr. Browne: Money has to be paid for. As I have explained, it is perfectly easy for the local authorities to spread the cost over the other houses, and my belief is that the local authorities are glad to play their part in keeping down the cost of living.

    Outer Hebrides
    Mr. Malcolm MacMillanasked the Secretary of State for Scotland the number and estimated total cost of houses built with Government financial aid for Inverness County Council in the Islands of Barra, Benbecula, North and South Uist and Harris between 1945 and the end of 1951, and the number and cost of those built since 1951 under the Government's expanded housing programme.
    Mr. J. N. Browne: Between 1945 and the end of 1951, the county council provided 158 houses on the islands mentioned at an estimated cost of £458,000. Since 1951, the council has built no houses in these areas.
    Mr. MacMillan: Can the Minister tell us why, if a Labour Government in the
    22
    most difficult years immediately after the war could build relatively so many houses, the present Government have not been able to get any built at all in six years?
    Mr. Browne: Yes, Sir. The needs of the islands were substantially satisfied earlier on by the provision of these 158 Swedish houses. Since 1952, the county council has provided 1,445 permanent houses as compared with 903 under a Labour Administration of six years before, and it was for the county council to decide where it should build.
    Mr. MacMillan: May I thank the Joint Under-Secretary for his compliment to the previous Labour Government and ask him why the present Government could not have spared some of the boasted 300,000 houses a year for this area? Why discriminate against this area?
    Mr. Browne: There is no question of discrimination. The matter is entirely in the hands of the county council.

    Improvement Grants
    Mr. Thornton-Kemsleyasked the Secretary of State for Scotland what progress has been made with the general review of the working of the system of improvement grants under the Housing Acts promised by the Government in July.
    Mr. J. N. Browne: This review is in hand, but it may be some time before any statement can be made. My right hon. Friend has asked the local authority associations for their views on the working of the improvements scheme. Account will also be taken of suggestions made by other bodies and interests concerned.
    Mr. Thornton-Kemsley: In the meantime, will my hon. Friend look at two anomalies in particular—first, the fact that there is a larger grant for the improvement of an old house than there is for the construction of a new one; and secondly, that when land is given away to a member of the family the grant has to be repaid in full, plus interest, even if the conditions of the grant are still to be maintained?
    Mr. Browne: Yes, Sir.

  TRADE AND COMMERCE

    Hire Purchase
    Mr. H. Hyndasked the President of the Board of Trade how many firms or societies to finance hire purchase have been registered since 1954.
    The Minister of State, Board of Trade (Mr. J. K. Vaughan-Morgan): Companies engaged in financing hire purchase are not required to register separately, and any statistics collected from the registration of companies would not disclose which companies were engaged in this activity as their main business.
    Mr. Hynd: Is the Minister keeping an eye on this development, which is nothing more or less than a dodge to get round the Government regulations about hire purchase?
    Mr. Vaughan-Morgan: The hon. Member should appreciate the difficulty in giving a statistical reply to his Question. The difficulty is that what is in the memorandum or articles of association may cover hire purchase, but this does not necessarily give the fact whether the company is actively engaged in that business.
    Mr. Blenkinsopasked the President of the Board of Trade if he will set up an inquiry into hire-purchase trading.
    Mr. Vaughan-Morgan: No, Sir. The hire-purchase Acts already give a substantial degree of protection against abuse of hire-purchase trading methods.
    Mr. Blenkinsop: Does the Minister realise that this will be a great disappointment in view of the feeling, I think on both sides of the House, that very many undesirable practices are growing up and that a large number of new credit organisations are springing up with very undesirable practices which are imposing great hardship on large numbers of people, and, in particular, are imposing very high and very harsh terms of loan?
    Mr. Vaughan-Morgan: I would rather look at more detailed information if the hon. Member could give it.

    Textiles (Fibre Content)
    Miss Burtonasked the President of the Board of Trade whether he is aware of the urgent need to clarify the descriptions given to cloths and clothes made from more than one fibre; and what action he proposes to take in the matter.
    Mr. Vaughan-Morgan: The general use of agreed terms in describing the fibre content of clothes and cloth on sale to the public would be helpful to some purchasers. The best way of achieving this is by agreement between the manufacturing, trading and other interests concerned.
    Miss Burton: Is the Minister aware that my information seems to be more forthcoming than his? I gather that suggestions made from this side of the House are to be implemented in the future. Does he agree that the proposed Free Trade Area makes such clarification urgent in order that Continental cloth entering this country will have to conform to the description and in order to prevent unfair competition with our own industry?
    Mr. Vaughan-Morgan: I think the hon. Lady must be overlooking the protection already given by the Merchandise Marks Act.

    Guides to Shoppers
    Miss Burtonasked the President of the Board of Trade whether he will consider enlarging the grant made to the British Standards Institution so that their new publication, "Shoppers' Guide", may be made available to a wider public at a cheaper price.
    Mr. Vaughan-Morgan: I welcome the appearance of this and other guides to shoppers. The future grant to the Institution will be considered shortly when the financial estimates for 1958–59 are prepared.
    Miss Burton: In view of the widespread confusion on the whole question of the law of libel, will the Minister be prepared to make a statement in the next Session as to the effect of these books being sold by the ordinary newsagents, being given publicity on the B.B.C. and being reported in detail in the Press?
    Mr. Vaughan-Morgan: I should like to see that Question on the Order Paper.

    Japanese Painted Toys
    Mr. Jannerasked the President of the Board of Trade whether he is aware of complaints from New York Toy Guidance Council that some Japanese metal toys are coated with potentially poisonous lead paint; how far such toys

    25
    are being imported into this country; and what action is being taken to examine them.
    Mr. Vaughan-Morgan: The latest American reports are to the effect that there is no evidence that painted toys are responsible for lead poisoning in children. Imports of Japanese toys into this country last year were less than half of 1 per cent. of total supplies, but separate figures for toys covered with paint containing lead are not available. In the circumstances, no action seems to be called for on my right hon. Friend's part.
    Mr. Janner: Is the Minister aware that there is deep concern in the United States about these toys, which are cheap and dangerous to children, and that this body which investigated the matter is a responsible body? Will he see that precautions are taken in this country to prevent that type of toy from being brought into the country?
    Mr. Vaughan-Morgan: I have given the facts about the quantity of toys which might involve such poisoning. The first part of my Answer is based on statements in the Press which relate to the opinion of the United States public health service.
    Dr. Summerskill: Would the Minister clarify the matter by telling us the incidence of lead poisoning among children?
    Mr. Vaughan-Morgan: The number of deaths in the United Kingdom of children under five years old ascribed to lead poisoning in the two-and-a-half years to 30th June, 1957, was four, and none of these was attributable to sucking toys.

  BURDEN ON MINISTERS (PRIVY COUNCILLORS' INQUIRY)
  Mr. Donnellyasked the Prime Minister if he is now in a position to make a statement regarding the report he has received from his Advisory Committee on the Burdens of Ministers and the greater efficiency of the working of Parliament.
  The Prime Minister (Mr. Harold Macmillan): I have received the views of the Committee of Privy Councillors
  26
  whom I asked to consider this matter. I would like to take this opportunity of thanking Lord Attlee and his colleagues for the work they have done. I have no statement to make at present, but I hope to inform the House in due course of the action which I have taken or would propose as a consequence of hearing the Committee's views.
  Mr. Donnelly: Can the Prime Minister say what form the progress is likely to take now? Will there be a Government statement or will the report be published, or what?
  The Prime Minister: I do not think it would be the wish of the Committee that the report should be published. I will try to find a suitable opportunity to make a statement.

  FREE TRADE AREA (AGRICULTURAL PRODUCTS)
  Mr. J. E. B. Hillasked the Prime Minister whether, as a result of recent negotiations with the Organisation for European Economic Co-operation countries, he will now indicate the probable methods by which agricultural produce and foodstuffs will be excluded from the industrial provisions of the proposed Free Trade Area in Europe.
  The Prime Minister: I would refer my hon. Friend to the text of the statement on the problems of agriculture made by my right hon. Friend the Paymaster-General to the Council of the Organisation for European Economic Co-operation and to the Resolutions of the Council on 17th October. For convenience, I am circulating both these in the OFFICIAL REPORT.
  Mr. Hill: While thanking the Prime Minister for putting on record these important statements, may I ask him to confirm that, whatever international arrangements may be arrived at to promote an increase in the consumption of food, British domestic agricultural policy will remain directly and wholly within the control of Her Majesty's Government and will not be subject to short-term fluctuations?
  The Prime Minister: Yes, Sir.
  Extract from Paymaster-General's statement.
  I come now to the problem of agriculture. There has been much public discussion on the question: should agriculture be included in the free trade area? This is a misleading question. So far as I know none of the countries represented here, with possibly one or two exceptions, would propose a system whereby their agriculture would be exposed to competition in the way that industrial production will be exposed in the free trade area. We all protect our agriculture in one way or another and intend to go on doing so.
  I would point out that the United Kingdom is the largest importer of food in Europe. We take some pride in the fact that we have been in the van of the movement towards liberalisation in these matters, and we certainly have no intention of changing our policy in them.
  The United Kingdom Government has always played a full part through the O.E.E.C. in European agricultural co-operation, and we recognise that there can be advantages in strengthening and developing that co-operation. We believe that we should now seek amongst ourselves agreement on such further co-operation, and I have some suggestions as to the basis of such agreement.
  First, we want to have Rules of Trade in agricultural products, so that trade can be freer and fairer. Rules on this subject are already contained in the G.A.T.T. and the O.E.E.C., and we must study whether they can be improved.
  We are all of us committed by international agreement to the progressive abolition of quotas, and we are ready to reaffirm that commitment, subject to the practical difficulties which arise for all of us in certain commodities, and whose solution we recognise to be a matter of great difficulty.
  On tariffs our attitude is this. We cannot, for reasons that are well known, accept ourselves any obligation to abandon our tariff protection—but we should not oppose the inclusion within an agricultural agreement of a provision for the progressive abolition of tariffs between the member countries so long as the United Kingdom is granted a waiver.
  We are prepared to discuss means of strengthening the present system whereby all our agricultural policies are subject to detailed scrutiny, examination, complaint and criticism, and where we are all of us called upon to justify our policies. Decisions would continue to be on the basis of unanimity, which is the O.E.E.C. practice. It is our desire in the working out of our agricultural policies to consult with our colleagues in Europe, and to be fully aware of their interests. We also envisage that these arrangements would provide an institutional framework whereby the members of O.E.E.C. could co-operate with the commodity arrangements of the European Economic Community as these are worked out. So far as the United Kingdom is concerned, our attitude would be that when details of these marketing arrangements are worked out, we will be prepared to consider the possibility of associating ourselves with
  28
  individual schemes so long as this would in no way conflict with any of our existing obligations.
  Resolution of the Council concerning an Inter-Governmental Committee on the establishment of a European Free Trade Area.
  The Council
  Having regard to the resolution of the Council of 17th October, 1957, on the European Free Trade Area and problems linked therewith
  On the proposal of its Chairman:
  Decides:
  1.—(a) An Inter-Governmental Committee at ministerial level shall be established under the auspices of the Organization and at its headquarters.
  (b) The Chairman of the Council is instructed to convene the Committee.
  (c) All member Governments and the European Coal and Steel Community shall be invited to take part in the Committee. So also shall the European Economic Community as soon as the Treaty of Rome enters into force.
  (d) The Governments of Canada and the United States may be associated with the work of the Committee.
  2. The Committee shall elect its officers, and determine its plan and methods of work.
  3 The Chairman of the Committee may request any committee, board or other body of the organization to assist it in its work or to express views on any question relating to its task.
  4. The Secretary-General shall assist the Chairman of the Committee in the discharge of his duties and shall be responsible for the Secretariat of the Committee.
  5. The Committee may decide at a later stage to invite other Governments or international organizations to be represented at its meetings.
  6. The Chairman of the Committee shall keep the Chairman of the Council informed of the progress of its work. A meeting of the Council will be convened to consider the results of its work at an appropriate time.
  Resolution of the Council on the European Free Trade Area and problems linked therewith.
  The Council
  Having met at Ministerial level, considered the progress achieved hitherto and having taken account of the aims of the Organisation, of the interests of its individual member countries and of the need to find means of reinforcing the economic solidarity of the members of the Organisation for European Economic Co-operation:
  Declares its determination to secure the establishment of a European Free Trade Area which would comprise all member countries of the Organisation—which would associate, on

  29
  a multilateral basis, the European Economic Community, with the other member countries—and which, taking fully into consideration the objectives of the European Economic Community, would in practice take effect parallel with the Treaty of Rome:
  Declares, also, its determination to reach agreement at the same time on methods of further co-operation between all member countries in agricultural matters with a view to assuring an expansion of trade in agricultural products:
  Declares, equally, its determination in the establishment of the European Free Trade Area to take full account of the interests of the economically less developed member countries in the light of the reports of the Chairman or Working Party No. 23:
  Decides, to these ends, to convene forthwith an inter-governmental committee at Ministerial level.

  LORD PRESIDENT OF THE COUNCIL (RESPONSIBILITIES)
  Mr. Peartasked the Prime Minister the present duties of the Lord President of the Council.
  Mr. G. M. Thomsonasked the Prime Minister what changes he is proposing in the departmental responsibilities of the Lord President of the Council.
  The Prime Minister: The Lord President of the Council, apart from his formal duties in connection with the Privy Council, will, like his predecessor in office, be responsible for the Department of Scientific and Industrial Research, the Medical Research Council, the Agricultural Research Council and the Nature Conservancy.
  Mr. Peart: How can such a Minister combine these very important duties with outside duties as head of a political party machine? Does it not raise a very serious constitutional issue—unless, of course, he is just to be a bellringer?
  The Prime Minister: I think it is in accordance with precedent. It follows the precedent of the administration of my right hon. Friend the Member for Woodford (Sir W. Churchill)—I was about to say "Epping", because I knew him for so long as the hon. Member for that constituency. I remind the hon. Member that there is precedent in the Labour Party. Mr. Arthur Greenwood held office as Lord Privy Seal and, later, as Paymaster-General and Minister without Portfolio, and also, I understand, the office of Treasurer of the Labour Party. I am
  30
  told that when the right hon. Member for Lewisham, South (Mr. H. Morrison) was Lord President of the Council he was generally credited, in addition to his work on the Executive of the Labour Party, with playing some considerable part in party management.
  Mr. H. Morrison: Is the right hon. Gentleman aware that there is no analogy here between the head of the Conservative Party Organisation and the Treasurer of the Labour Party, either then or now? Secondly, is he aware that when I was Lord President I was a member of the Labour Party Executive? I was not in control of the party organisation. The party employed, and still employs, a secretary to do such duties. It is quite untrue to say that I had any special official responsibility for the conduct of the party organisation of the Labour Party.
  The Prime Minister: I did not say there was precise similarity between my noble Friend and the right hon. Gentleman. I said there was an analogy in their functions.
  Mr. Thomson: Is the right hon. Gentleman aware that it is now quite clear that his noble Friend is making a full-time job of being Chairman of the Tory Party? In the light of this, is it not a little undesirable that he should ask the taxpayers of this country, including Labour voters and people of no particular persuasion, to pay his salary?
  The Prime Minister: My noble Friend, like his predecessors on both sides of the House, plays his full part in the Cabinet work as well as in his other special duties of his office.
  Mr. Gaitskell: Is it not perfectly clear that the Lord President of the Council does spend a very large part of his time on purely party activities, and that it is most undesirable, when his official duties are so small, that he should be paid the full rate of salary as he is at present?
  The Prime Minister: No. I think that is a quite unnecessary and rather discreditable remark.

  EARTH SATELLITES
  Mr. Bottomleyasked the Prime Minister if he will arrange for an inquiry to consider why this country, which

  31
  pioneered the development of radar and jet propulsion, should lag behind the Union of Soviet Socialist Republics in launching the first artificial satellite to circle the world.
  Sir I. Fraserasked the Prime Minister what official scientific bodies in Britain have made observations of the Russian earth satellite; how soon they began their observations after its release was announced; if he will make a statement as to the Government's policy in relation to this phenomenon; and how far it is the intention of the Government to carry out similar experiments.
  The Prime Minister: The United Kingdom contribution to the work of the International Geophysical Year, which is being co-ordinated by the Royal Society, consists of observations of the upper atmosphere with the "Skylark" rocket. There has, however, never been any intention that this country should launch an earth satellite and only two countries, the Union of Soviet Socialist Republics and the United States of America, have stated their intention to do so. I do not consider that this situation calls for any inquiry by the Government.
  Observations of the Russian satellite and its accompanying rocket have been made by a number of official and unofficial bodies in this country, including the Royal Observatories at Herstmonceux and Edinburgh, the radio-observatories it Cambridge and Jodrell Bank, the Radio Research Station of the Department of Scientific and Industrial Research, the British Broadcasting Corporation and certain establishments of the Ministry of Supply. These observations began within 24 hours of the launching of the satellite. I understand that our scientists have done very good work in tracking the satellite and analysing its orbit, with a view to adding to the pure scientific knowledge of the earth and the atmosphere surrounding it, which is being sought under the programme of the International Geophysical Year.
  Hon. Members will have seen that within the last few days our great radio-telescope at Jodrell Bank has successfully tracked the Sputnik's carrier rocket.
  Mr. Bottomley: If the Prime Minister will not cause inquiry to be made, will the Government consider the views expressed by Field Marshal Lord Montgomery two years ago that the country
  32
  which launched a satellite that could circle the world would have an immense strategic advantage over all others?
  The Prime Minister: Of course, I always consider with respect the views of the Field Marshal, and I think all members of the House do so, but I think that he was probably referring not so much to the satellite as to the control of the are of the rocket which is part of this operation. That was the part that might have the strategic effect, not the satellite itself.
  Sir I. Fraser: Did the Astronomer Royal's Department take any part in these observations?
  The Prime Minister: I do not know, but I have no doubt he did.

  INTERCEPTION OF COMMUNICATIONS (REPORT)
  Mr. Liptonasked the Prime Minister when he will publish the report he has received on telephone tapping.
  The Prime Minister: The report of the Committee of Privy Councillors on the interception of communications will be published on Thursday, 31st October.
  Mr. Lipton: Can the Prime Minister say how much of this report is not going to be published? Will he bear in mind that the House and the country were given the impression that the Government were not going to censor the report submitted by the Privy Councillors?
  The Prime Minister: I hope to make a full statement on Thursday, but to set the hon. Member's mind at rest, I can tell him the report will be published in full.
  Mr. Lipton: I thank the Prime Minister very much.

  ATOMIC ENERGY ESTABLISHMENT, WINDSCALE (ACCIDENT)
  Mr. Peartasked the Prime Minister if he will make available the findings of the inquiry into the accident to No. 1 reactor, Windscale atomic energy plant.
  Mr. G. Brownasked the Prime Minister whether he will make a statement on the incident at the Windscale

  33
  Atomic Station and, in particular, whether he will set up an independent inquiry into both the causes and the steps taken to deal with its consequences.
  Mr. F. Andersonasked the Prime Minister whether he will make a statement on the accident at the Atomic Energy Establishment, Windscale, No. 1 pile, on Thursday, 10th October; and if he will favourably consider setting up an independent committee to investigate all the circumstances and conditions of this accident.
  The Prime Minister: On 15th October, the Atomic Energy Authority, with my approval, appointed a Committee of Inquiry under the Chairmanship of Sir William Penney, having as its other members, Dr. Schonland, Deputy Director of the Atomic Energy Research Establishment at Harwell, Professor Kay and Professor Diamond, who are members of the Authority's panel of engineering consultants. This Committee began work on 17th October and the Authority received the report yesterday.
  The terms of reference of the Committee were to investigate the cause of the accident at Windscale No. 1 pile on 10th October, 1957, and the measures taken to deal with it and its consequences; and to report.
  The Authority decided with my approval that an inquiry of this kind, concerned as it is with matters of a highly technical scientific character, could best be conducted by a Committee of eminent scientists with experience of atomic energy who are unconnected with the industrial group of the Atomic Energy Authority, under whose control Windscale is.
  I will make a further statement to the House when the report of Sir William Penney's Committee has been assessed. At the suggestion of the Authority, I am asking that the Medical Research Council should give their own independent views on the information collected so far as it affects public health.
  Meanwhile, the Government are fully aware of the public anxiety that has been caused both generally and locally. At the same time I would appeal to the Members not to press me to any premature judgment on the whole matter.
  Mr. Peart: I should like to press the Prime Minister to accept that the House
  34
  really has the right to know the findings of this Committee. I recognise that there may be questions of security and that there are technical issues, but on the broad issue of the findings of the Committee this House should be informed and Members should be able to cross-examine Ministers on this. Will the Prime Minister, therefore, give an assurance that a report will be given to this House?
  The Prime Minister: I will certainly make a full report to this House. I received this report myself only this morning. It is very technical, and not very easy for a layman to follow. I think it is only fair that the Authority, who received it late last night—or yesterday—should have an opportunity of consulting me. I hope to make a further and a full statement early in the next Session.
  Mr. Brown: Without wishing to press the Prime Minister on the details of the report at this stage,—for one does understand what he says about that—may I ask him whether he will reserve judgment on the question whether there should be a further inquiry under the chairmanship of someone who could also be a scientist and also have technical knowledge but who is not as closely concerned as Sir William Penney is with both the security side and the work, which many people think had some influence on the incident, and also with the actual experiment being carried on? Because, in the nature of things, people are told so little about a thing of this kind, is it not clear that the question of those who make the inquiries becomes disproportionately important in people's minds? If their anxiety is to be put aside, may I ask the Prime Minister to consider that further?
  The Prime Minister: Of course, I will consider that. I am very anxious that the public should be fully reassured. Certainly at this stage I can conceive of no man who had the knowledge of Sir William Penney and was not directly concerned with this part of the work, and the object was to get the most rapid report by the most competent investigators. Perhaps the House will be better able to judge when I make a fuller statement.
  Mr. Fort: Can my right hon. Friend confirm that a similar accident could not occur in the types of reactor being built at Calder Hall and built for the electricity authorities as happened at the Windscale plant?
  The Prime Minister: I think that, broadly speaking, that is the case.
  Mr. Anderson: Do we take it that the Prime Minister has not made up his mind yet about the question of an independent inquiry? Is he aware that the constitution of this investigation committee lacks the confidence of the people generally in the West Cumberland area? [An HON. MEMBER: "No."] I have been on the spot and I know. Is the Prime Minister aware that the general impression amongst the public has been such that there has been a complete lack of confidence in the operation of this business? For instance, there was a real lack of information given to the public over so many hours. It was many hours before it was known to the public. Will the Prime Minister see to it that the public's point of view is taken into account as well as that of those people who are concerned with security?
  The Prime Minister: Yes, Sir. As to the public point of view as far as public health is concerned, at the suggestion of the Authority I am asking the Medical Research Council to deal with all that aspect. I think that in itself means an independent inquiry into that aspect, or dealing independently with that aspect which affects individuals and public health. As to the very highly technical character of the scientific aspect of the report, I am studying it, but I hope that the hon. Gentleman and other hon. Members will reserve judgment until I am able to make a full statement. These are very distinguished public servants in all ranks, and I think that they at least deserve from us that we reserve judgment until a fuller statement can be made.
  Mr. Gaitskell: While recognising that it is difficult to pursue this matter until we have further knowledge of what the report contains, may I ask the Prime Minister whether he appreciates the great importance of allaying public anxiety in this matter and assuring the public that nothing that has not got to be hidden on security grounds is kept from the public? Will the Prime Minister, therefore, consider seriously either publishing the report
  36
  or following the suggestion of my right hon. Friend the Member for Belper (Mr. G. Brown) of a further independent inquiry?
  The Prime Minister: I will consider all these things, but I am also interested in maintaining, as I am sure is the right hon. Member for Leeds, South (Mr. Gaitskell), the tremendous, unique reputation of our scientists in this field throughout the world.
  Mr. Brown: To help to allay anxiety, can the Prime Minister consider giving now or in a further statement a categorical assurance that what happened at Windscale cannot in any circumstances happen at the C.E.A. stations? Is the right hon. Gentleman aware that there is a great deal of anxiety because of a misunderstanding about the position of the C.E.A. stations, and that it would help if he made it quite clear that they are something quite different?
  The Prime Minister: I will certainly bear that in mind when I draft my fuller statement.
  Mr. Vane: While the people of the north-west of England are naturally concerned and are anxious to hear the considered opinion of those who are carrying out the investigations, is my right hon. Friend aware that they are in no sense either stupid or alarmist as some hon. Members opposite would have the House believe?

BUSINESS OF THE HOUSE
The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): May I make a short business statement?
After discussions through the usual channels arrangements have been made for a debate on the economic situation to take place today and tomorrow. We propose to move the Adjournment for this purpose before today's Orders of the Day.
The debate on the Report of the Committee on Administrative Tribunals and Enquiries, announced for today, will now take place on Thursday. The business announced earlier for tomorrow will be deferred.
It is expected that Prorogation will take place shortly after 11 a.m. on Friday, 1st November.

U.S.A. AND CANADA (VISIT OF PRIME MINISTER AND FOREIGN SECRETARY)
The Prime Minister (Mr. Harold Macmillan): With permission, Mr. Speaker, I will make a statement about the discussions which I and my right hon. and learned Friend the Foreign Secretary held last week in Washington and in Ottawa.
Much has happened since the meetings in Bermuda last March. It seemed to the President and to me that it would be well if we could meet once more in order to review the international scene.
Hon. Members will, no doubt, have read in the newspapers the text of the Declaration of Common Purpose which the President and I issued at the end of our talks, but for the convenience of the House I will circulate it in the OFFICIAL REPORT.
The main purpose of the Declaration is to establish the principle of interdependence of the countries of the free world. This principle will guide the policies of the Governments of the United Kingdom and the United States. We shall seek to secure the participation of all our allies, and the support of other free nations, in a common partnership. Thereby the resources of the free world can most effectively be used in the maintenance of the interests of all.
Our two countries will pursue this purpose in the North Atlantic Treaty Organisation, as well as with our other allies and with the nations of the free world in the most appropriate way. The House will have read in the Declaration that we will urge at N.A.T.O. an increase of scientific research and development in support of greater collective security, and that the President of the United States will request Congress to amend the Atomic Energy Act as may be necessary and desirable. In conformity with the same principles, we have declared that in their possession of nuclear weapons both our Governments regard themselves as trustees for the defence of the free world.
In Canada, the Foreign Secretary and I had an opportunity of reporting on these discussions to the Canadian Government both in private talks with Mr. Diefenbaker and certain of his colleagues and at a meeting of the Canadian Cabinet
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which we were privileged to attend. The Canadian Government expressed themselves, for their part, most ready to subscribe to the principle of interdependence and to join in the common effort necessary to make it effective.
I do not propose to say more about the discussions which we had in Washington and Ottawa at this time. No doubt there are some differences of opinion. sometimes from curiously diverging sources, about these discussions, but they will be more easily dealt with in debate.
Mr. Gaitskell: It seems clear that the valuable part of these talks related to the exchange of scientific information and the provision for much closer collaboration in that field. I should like to ask the Prime Minister whether he can say a little more on that subject. We appreciate that until Congress is ready to amend the Atomic Energy Act there may be difficulties in the way, but I understood from a statement in Washington that two committees had been set up. Could the Prime Minister say whether it is his hope that the outcome of these talks will be not merely the making available of weapons to this country, but also genuine working together in the scientific field in both research and development? That is the first question.
The second question is about the phrase in his statement:
"…the principle of interdependence of the countries of the free world."
May we take it from that that in future neither the American nor the British Government will pursue an independent policy in, for instance, the Middle East?
The Prime Minister: There is, of course, as the right hon. Gentleman knows, full interchange of information between us and the United States on the peaceful uses of atomic energy, but I think that the signing of this Declaration and the processes which will be set about will extend that and make it more fruitful and also, I hope, find the right method of bringing into full partnership our friends and allies in the various organisations, especially at N.A.T.O.
With regard to the second part of the right hon. Gentleman's question, I hope that he will feel that it is an advantage for the general maintenance of peace in the world that the policies of Great

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Britain and the United States should be brought closer together in full consultation with one another.
Sir R. Boothby: Can the Prime Minister tell us whether it is his intention and that of the President of the United States to attend the next meeting of the N.A.T.O. Council in Paris?
The Prime Minister: My hon. Friend will have observed that the communiqué stated that we had at a certain period of our talks the advantage of the presence of M. Spaak, who happened at the time to be in Washington. While I cannot make an official statement today, if the suggestion is made, as I hope it will be made, that the next meeting should be attended by heads of Government, I would welcome it, and so, I think, would heads of other Governments.
Mr. Shinwell: May I ask the right hon. Gentleman whether, in the course of the discussions at Washington between himself and President Eisenhower, any reference was made to the apparent breakdown of the Sub-Committee on Disarmament, and whether any positive suggestions were made for promoting disarmament?
The Prime Minister: Yes, of course this whole question was discussed, because it is a very important part of world affairs. We regarded with great sorrow the breakdown of the meeting of the Sub-Committee and the unwillingness of the Soviet Government to meet us at all. However, that matter has now been referred to the United Nations, and will be discussed there, and I hope that our two countries will be able to present a common policy towards this problem.
Mr. G. Brown: Does not the Prime Minister think that the very heavy cut we made following the White Paper on Defence earlier this year in our own expenditure on scientific research and development, in support of greater collective security, will make the urging of our allies in N.A.T.O. to do more sound a little bit weak? Does it now mean that the right hon. Gentleman will revise that part of the White Paper which we attacked so strongly?
The Prime Minister: No, Sir. Curiously enough, I think it strengthened the argument, because the United States, with
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their great wealth, found it necessary to make cuts, and, therefore, the idea that, if we did this together it would be better for us all, was easier to argue.
Mr. Patrick Maitland: Can the Prime Minister say whether, in addition to Turkey, there was any discussion about Cyprus and other Middle Eastern problems?
The Prime Minister: No, Sir, not in detail. But in general, of course, the whole Middle East area was discussed.
Mr. Grimond: May we take it from the statement of the Prime Minister that his intention is that there shall be a completely free exchange of scientific information throughout the free countries, not only for nuclear or defence purposes but for industrial and other purposes as well?
The Prime Minister: I think the hon. Gentleman knows that we have an arrangement for the interchange of information on the peaceful uses. That exists already. That was negotiated because it was not barred by the McMahon Act of the United States. There is now the hope of promoting that in N.A.T.O. There is a committee now sitting on the other. It does depend, of course, upon the willingness of Congress to meet the President's wishes, and, while I hope very much that will happen, we must await that, and I hope we shall not find it necessary, in our arguments, to put forward any position which would make it more difficult.
Mr. S. Silverman: Has the attention of the right hon. Gentleman been called to a remarkable statement made twice by the Minister of Defence, the first time at Canberra and the second time at the Conservative Conference at Brighton, to the effect that, having regard to the latest scientific discoveries and achievements, national defence based on national sovereignties and frontiers no longer—I am quoting the right hon. Gentleman—makes very much sense? Having regard to that statement, if it represents the policy of the Government, will the Prime Minister now take steps to extend this pooling of information and resources so that all countries shall share them for the general good of mankind?
The Prime Minister: I think that what my right hon. Friend said was merely an elaboration of what had already been put into the White Paper and discussed fully

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in our defence debates. I think there was a general view that the only real, effective defence against attack of this kind is to ensure that it shall not take place.
Mr. Healey: Can the Prime Minister say whether his reference, and the reference in the official communiqué, to Anglo-American trusteeship in the field of atomic weapons means that Her Majesty's Government and the American Government do not wish to see the possession of nuclear weapons extended to other members of the alliance?
The Prime Minister: No, Sir, not necessarily. It does mean, however, that both our Governments regard the fact that we have in varying degrees this tremendous power should make us think of it not as something which we ought to use for our own interest and benefit, but as something which we can only justify to ourselves if we regard it as held in trust for the benefit of the free world.
Mr. Biggs-Davison: Can my right hon. Friend say how these principles of interdependence and trusteeship are likely to affect our relationship with our Commonwealth partners and with our European neighbours?
The Prime Minister: I have been in close touch throughout with the Prime Ministers of the Commonwealth in telling them what has been happening, and I am happy to say that I think they regard it as a good arrangement. With the Prime Minister of Canada I had one day's discussion, because I was able to go the next day, and I feel that the Canadian Government very much welcomed this Declaration. Just for the record, with regard to our allies, that is the purpose of a heads of Government meeting at the next N.A.T.O. conference, if we can organise it.
Mr. Beswick: Is the Prime Minister aware of one doubt which many people hold when it comes to the sharing of research and development, namely, that in the past the research and initial development has been done by this country and the later development and production has been done by the United States of America? What steps does the Prime Minister propose to take so as not to dissipate our resources, but to ensure that useful production is done in that country and not here?
The Prime Minister: As I have said, all this already exists in regard to the peaceful uses. In this matter we are discussing the defence uses. I do not want to go back over the whole story of the circumstances which led to the McMahon Act. What the President and I hope is that we can turn a new page and make a new start in co-operation together.
Mr. Emrys Hughes: Could the Prime Minister tell us whether he discussed the question of pooling information about Civil Defence? Is he aware that the Government's plans include spreading 12 million people over the country, and that during the Recess we were told that four-fifths of the industrial population were to be transferred somewhere? Did he discuss with the President of the United States the possibility of transferring these 12 million people to the safer regions of the United States?
Following is the Declaration of Common Purpose:
We have met together as trusted friends of many years who have come to head the Governments of our respective countries. These two countries have close and historic ties, just as each has intimate and unbreakable ties with other free countries.
Recognising that only in the establishment of a just peace can the deepest aspirations of free peoples be realised, the guiding purpose of our deliberations has been the determination of how best to utilise the moral, intellectual and material strength of our two nations in the performance of our full share of those tasks that will more surely and promptly bring about conditions in which peace can prosper. One of these tasks is to provide adequate security for the free world.
The free nations possess vast assets, both material and moral. These in the aggregate are far greater than those of the Communist world. We do not ignore the fact that the Soviet rulers can achieve formidable material accomplishments by concentrating upon selected developments and scientific applications, and by yoking their people to this effort Despotisms have often been able to produce spectacular monuments. But the price has been heavy. For all peoples yearn for intellectual and economic freedom, the more so if from their bondage they see others manifest the glory of freedom. Even despots are forced to permit freedom to grow by an evolutionary process, or in time there will be violent revolution. This principle is inexorable in its operation Already it has begun to be noticeable even within the Soviet orbit. If the free nations are steadfast, and if they utilise their resources in harmonious co-operation, the totalitarian menace that now confronts them will in good time recede.
In order, however, that freedom may be secure and show its good fruits, it is necessary first that the collective military strength of the free nations should be adequate to meet the threat against them. At the same time the aggregate of the free world's military expenditure must be kept within limits compatible with individual freedom. Otherwise we risk losing the very liberties which we seek to defend.
These ideas have been the central theme of our conversations which, in part, were participated in by M. Spaak, the Secretary-General of N.A.T.O.
In application of these ideas, and as an example which we believe can and should spread among the nations of the free world, we reached the following understanding:
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1. The arrangements which the nations of the free world have made for collective defence and mutual help are based on the recognition that the concept of national self-sufficiency is now out of date. The countries of the free world are inter-dependent and only in genuine partnership, by combining their resources and sharing tasks in many fields, can progress and safety be found. For our part, we have agreed that our two countries will henceforth act in accordance with this principle.
2. Our representatives to the North Atlantic Council will urge an enlarged Atlantic effort in scientific research and development in support of greater collective security and the expansion of current activities of the Task Force working in this field in accordance with the Council's decison of last December.
3. The President of the United States will request the Congress to amend the Atomic Energy Act as may be necessary and desirable to permit of close and fruitful collaboration of scientists and engineers of Great Britain, the United States, and other friendly countries.
4. The disarmament proposals made by the Western representatives on the Disarmament Sub-Committee in London and approved by all members of N.A.T.O. are a sound and fair basis for an agreement which would reduce the threat of war and the burden of armaments. The indefinite accumulation of nuclear weapons and the indiscriminate spreading of the capacity to produce them should be prevented. Effective and reliable inspection must be an integral part of initial steps in the control and reduction of armaments.
5. In the absence of such disarmament as we are seeking, international security now depends, not merely on local defensive shields, but upon reinforcing them with the deterrent and retaliatory power of nuclear weapons. So long as the threat of international Communism persists, the free nations must be prepared to provide for their own security. Because the free-world measures are purely defensive and for security against outside threat, the period for which they must be maintained cannot be foreseen. It is not within the capacity of each nation acting alone to make itself fully secure. Only collective measures will suffice. These should preferably be found by implementing the provisions of the United Nations Charter for forces at the disposal of the Security
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Council. But if the Soviet Union persists in nullifying these provisions by veto, there must otherwise be developed a greater sense of community security. The framework for this exists in collective defence arrangements now participated in by nearly fifty free nations, as authorised by the Charter. All members of this community, and other free nations which so desire, should possess more knowledge of the total capabilities of security that are in being and in prospect. There should also be provided greater opportunity to assure that this power will in fact be available in case of need for their common security, and that it will not be misused by any nation for purposes other than individual and collective self-defence, as authorised by the Charter of the United Nations.
For our part we regard our possession of nuclear weapons power as a trust for the defence of the free world.
6. Our two countries plan to discuss these ideas with all of their security partners. So far as the North Atlantic Alliance is concerned the December meeting may perhaps be given a special character in this respect. This has been discussed with the Secretary-General of N.A.T.O., M. Spaak.
7. In addition to the North Atlantic Treaty, the South-East Asia Collective Defence Treaty, the Baghdad Pact and other security arrangements constitute a strong bulwark against aggression in the various treaty areas. There are also vitally important relationships of a somewhat different character. There is the Commonwealth; and in the Western hemisphere the Organisation of American States. There are individual mutual defence agreements and arrangements to which the United States is a party.
8. We recognise that our collective security efforts must be supported and reinforced by co-operative economic action. The present offers a challenging opportunity for improvement of trading conditions and the expansion of trade throughout the free world. It is encouraging that plans are developing for a European Free Trade Area in association with the European Common Market. We recognise that especially in the less developed countries there should be a steady and significant increase in standards of living and economic development.
9. We took note of specific factors in the ideological struggle in which we are engaged. In particular, we were in full agreement that:
Soviet threats directed against Turkey give solemn significance to the obligation, under Article 5 of the North Atlantic Treaty, to consider an armed attack against any member of the Alliance as an attack against all.
The reunification of Germany by free elections is essential. At the Geneva Conference of 1955 Messrs. Khrushchev and Bulganin agreed to this with us and our French allies. Continued repudiation of that agreement and continued suppression of freedom in Eastern Europe undermine international confidence and perpetuate an injustice, a folly and a danger.
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The President and the Prime Minister believe that the understandings they have reached will be increasingly effective as they become more widespread between the free nations. By coordinating the strength of all free peoples, safety can be assured, the danger of Communist despotism will in due course be dissipated, and a just and lasting peace will be achieved.
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heath.]

ECONOMIC SITUATION
3.49 p.m.
The Chancellor of the Exchequer (Mr. Peter Thorneycroft): I believe that a number of hon. Members wish to take the opportunity of the Adjournment Motion to discuss some of our present economic problems and possible solutions to them, and I think it may be convenient if I start, Mr. Speaker.
On 19th September certain measures were announced on the part of the Government, and have been elaborated since, designed to deal with out internal and external economic problems. In the course of what I shall say, I propose to deal with both—both the drain on our reserves and the problem of rising prices at home. However, I wish to state at the outset what I believe to be the fundamental truth about them, and it is that they are the same problem. The value of the £ at home and the value of the £ abroad is, in the last resort, the same thing, and one cannot tamper with the one without affecting the other.
If we let the process of decline go far enough, we precipitate, of course, a devaluation. It has happened that way before, and unless we support measures to stop it it could happen again. And if it did, everybody's standard of life would go down. Food would cost more, raw material imports would cost more. One cannot contract out of a situation of that kind, even by pressing for higher wage claims, except at the cost of precipitating devaluation to an even lower level yet.
I know, Mr. Speaker, that some people say all this is due to speculation. In a sense perhaps it is, but I think one wants to look a little deeper to see who is speculating and what they are speculating about. If the world thinks that the German mark is strong and that the £ sterling is weak, and might get weaker, then they will buy marks and sell pounds, and that was what was happening in the recent exchange crisis.
Mr. Ellis Smith: In spite of two world wars.
Mr. Thorneycroft: If people think that the £ sterling is strong and likely to get stronger still, they will tend to sell marks and buy sterling, which is what they have

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been doing this month. Moreover, what determines these matters is not simply and solely the views of foreign bankers or foreign traders. Of course, they are important, but they are not the only, or even the primary, factor in the business.
Mr. Ellis Smith: Who is doing the speculating?
Mr. Thorneycroft: What matters is the judgment of the British people about their own currency. If the British people have no faith in it, no one else will have faith in it either. Over twelve years, with an occasional pause but without much intermission, the British housewife has seen prices going up and the pensioner and the saver have seen the value of their money fall. That is over a twelve-year period. This, then, is what inflation means: a decline in the internal and external value of our money. It is clear that we have got to beat it and it is clear that we must sacrifice other ends of policy to secure that aim.
This objective is not a party issue at all. [HON. MEMBERS: "Oh."] All parties treat the value of the £ as a national asset. The right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) was saying so in a speech only the other day. All parties wish to defend it and our task here, as I see it this afternoon, is to discuss together quietly the best means of defending it.
Before I turn to the nature of the problem and the details of the measures which we propose, I want to be quite clear and to state quite clearly the nature of the struggle which lies ahead. Some people say that there will be a slump. They seek to suggest that all this talk about inflation is really a little out of date and that what is really wanted is the reverse, or something like the reverse, of the policies only recently outlined.
I would say just this about a slump. There may be some levelling off of activity in the world outside. Commodity prices have, in fact, been falling and a great deal turns upon the policy which is pursued by the United States and other creditor Governments. But even supposing that there was a falling off of demand abroad, that would not be an excuse for an inflation here in the United Kingdom—indeed, rather the reverse. A strong £ and the absence of inflation here is a
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prerequisite to riding the rise and fall of demand in the world outside.
I now turn to the problems, and I will start with the foreign exchange crisis. If the root of our problems lies here at home, it was the crisis abroad which highlighted our situation. For the last eight years we have maintained the parity of the £ at 2 dollars 80 cents in very disturbed conditions. There is much to be proud of in that period. Trade has steadily expanded, investment abroad has taken place on an impressive scale, we have given far greater freedom in international trade, there has been rising investment here at home and rising consumption and full employment. But, despite that record, which is a good one and one for satisfaction in all quarters, there has been constant anxiety about the position of sterling.
What are the fundamental reasons for this? The first is the one that the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) mentioned just now. It is that we came out of the war with large debts and diminished reserves. There is no need to apologise for that. [HON. MEMBERS: "Oh."]
Mr. James Griffiths: Say that again.
Mr. Thorneycroft: It is the price we paid for fighting for a long time alone on the side of freedom. The resultant disparity between our assets and our liabilities has, however, rendered us much more vulnerable than we otherwise would have been to movements of opinion abroad.
The second factor is our current balance of payments. Since the beginning of 1952, we have earned an average annual surplus of £175 million a year; but it has not been a big enough surplus to cover our long-term investment, to repay our short-term debts and at the same time to build up our reserves. While most of our economy has improved beyond recognition, we have not achieved as much in the field of our external reserve position.
Finally, and most important, is our own cost-price spiral. If it has made us anxious in this country, it has, of course, made holders of sterling anxious, too. We are not alone in this. Other people in other countries have these problems, too. But we are not in the same position as others; we are very different in many ways. We hold, for example, an

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international currency and we live upon a small island dependent more than, perhaps, any other country in the world upon external trade. Both these facts demand that we maintain confidence in sterling.
The story of what has happened in the last three or four months is one which once more underlines the confidence factor in our affairs. In August, the French Government took certain measures relating to the value of the franc. That set off a bout of speculation. It was thought that the mark might appreciate in value and the £ decline. In three months, we lost £189 million from our reserves, or a little less than one-quarter of our holdings at the end of June. In part, of course, it was due to the German situation. Prudent finance, the influx of young workers from the East and the lighter burden of defence expenditure all combined to strengthen the German economy. [An HON. MEMBER: "Slave labour."] In part, therefore, it was due to the strength of the mark. Essentially, however, it was a matter of judgment about the relative strength of sterling.
This is not a matter of guesswork, but of demonstration. The external results of the announcement of the measures of 19th September are now to be seen. The exchange markets strengthened immediately. The speculative losses have ceased and apart from the settlement of the September E.P.U. deficit, we have been gaining reserves almost daily since. So much for the external scene.
We are holding the value of the £ at 2 dollars 80 cents, and we intend to hold it there. It is in our interests that we should do so. It is worth while remembering, however, that it is in the interests of other people, too. We are all bankers in this country. We hold the reserves of other countries, of our partners in the Commonwealth and other countries, too. Our history and our own efforts have given us that position. It brings to us a great deal in the way of wealth, strength and prestige. Anyway, it is not a position that we can contract out of now. If the £ fell, the value of all those holdings would fall, too; and so our interests, responsibilities and, indeed, our honour demand that we should take all steps to prevent it.
I want now to turn to the subject of inflation at home. What new measures
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or what reinforcement of old measures—for much has already been done—can be found to deal with it? The fall in the value of our money has been going on, under all parties, since 1945. It has been going, on at a rate unprecedented over such a long period in modern times. It is something which, if we do not halt it, would bring not merely inconvenience, but disaster.
There should be no illusion about the nature of the picture that we have been beholding, when the colleges, the charities and the churches are all scrambling on to the band wagon of the equity market, closely followed by Lloyd's and the Labour Party pension scheme; when gilt-edged and equities change hands; when there is in this country and among our own people a disorderly scramble from a foreseen and tolerated spoilation—it is at this stage that the whole machinery of public finance breaks down. [An HON. MEMBER: "A free-for-all!"] We can finance for a time at the expense of holders of fixed interest stocks, but there comes a moment when a Government cannot raise further money either to finance investments or to repay debt and, at that moment, the mechanics of any policy, whether it is Conservative or Socialist, cease to exist.
Quite apart from economics, a steady price and a stable currency are the foundations of social life in any country. If prices in a country continue to go up; if the value of money used in everyday transactions continues to go down; if savings are eroded and thrift of little worth—that is the way to disrupt society.
By these methods society has been disrupted by many countries in our history. These are the perils towards which the nation has been advancing, and many factors have contributed to it, but there is no doubt as to the overriding cause. Since 1948, money incomes have risen by 75 per cent. and output, in real terms, by 26 per cent. The inevitable result has been a rise, in home costs per unit of output, of 38 per cent. I said "money incomes", and I am not concerned at the moment to argue between wages and profits.
It is sometimes said that a declaration of increased profits is an incentive for a demand for increased wages. It is certain that increased wages, at the rate at which they have taken place, by their weight, size and impact upon demand, have

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themselves led to much easier profits in an inflationary world. But, in truth, the two have spiralled up together; the clash is not between them. The struggle is not between the employer and the worker. The challenge here is to the interests of the consumer and the financial stability of the whole nation.
Nor am I concerned to judge between those who call this a demand inflation and those who call it a cost inflation. Whatever brand of economics we prefer, the reason men go on pushing prices up is that they believe that they can get away with it. I make no apology for repeating here the words which I used on 19th September and repeated in America. They appear to me to be the essence of the matter. I said:
"So long as it is generally believed that the Government are prepared to see the necessary finance produced to match the upward spiral of costs inflation will continue and prices will go up."
It is against this background that the Government have declared their specific measures, and I will now say something about those measures and the wage problem with which they are associated.
The purpose of the measures is to limit the availability of money; to serve notice on ourselves and on the world outside that we are no longer prepared to underwrite, through the banking system or through spending by the Government, the consequences of inflationary actions. First, as to the Government. The Government spend about one-third of the national income, largely for current expenditure but also partly for investment. I will take current expenditure first.
Here, the decision to spend—and to spend at rising prices—is often taken when a service is introduced, such as free education, pensions for the old, or the National Health Service. The amount spent depends largely upon the number of children, the number of old or the number of sick—and if prices rise the cost of administration goes up and the demand for some services, such as pensions, is naturally increased. Nevertheless, economies have been achieved and must be rigorously sought. This year's current expenditure already stands 10 per cent. lower, in real terms, than in 1951.
Instructions have been given that wherever possible increased costs, whether
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of materials or wages, should be offset by reduced services or administrative economies. Substantial reductions have been found in the field of defence, and efforts are being made to achieve more in this direction. But the struggle in current expenditure is an annual and a continuing one, and it will be more appropriate to discuss it in detail on other occasions, and when the Estimates have been published. Economy here is, in any event, not enough.
In addition, the Government provide funds for the large investment programmes of the nationalised industries, the Post Office and local authorities. Hitherto, the Exchequer has met these requirements irrespective of the state of the capital market or changes in money costs as the programme and its costs go up. In so far as possible they have been met out of revenue—the above-the-line surplus of the Budget—by the proceeds of National Savings, or by long-term borrowings from the public.
The nationalised industries—and this should never be forgotten—draw heavily upon the taxpayers for their capital requirements. Our first measure has been to limit the investment of all public authorities in Great Britain. In money terms, their investments will be held, during the next two years, at the level of 1957–58, or approximately £1,500 million each year.
Some people have represented this as a cut or reduction in expenditure, or as a turning away from expansionary policies. I must say that I find this a rather odd view of the situation. We intend to devote to our capital resources £1,500 million in 1958–59, and the same again in 1959–60, which is a formidable rate of advance. If prices are held stable we can achieve it; if they rise, we shall be able to do rather less in real terms, but on no interpretation whatsoever can it be interpreted as going backwards.
Instructions are being given to the Departments, to local authorities and to the nationalised industries to make the adjustments that are required. I am not going to give all the details, as in some cases they are still being discussed and settled. This is an occasion, rather, for the broad picture of priorities, and this I will try to give. I shall try to show how we have approached the problem and what sort of priorities we have in mind.

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We can look at the matter by way of four main groups of investment programmes in the public sector, and I will start with power—electricity, coal and gas—which is the basis of an industrial society. Next year we intend to spend about £450 million on investment in this field, and about £480 million in the year after. Next year's figure represents, in real terms, no less than £170 million more than was spent in 1951. No less than four nuclear power stations are in hand and going ahead—at Bradwell, Berkeley, Hinkley Point and Hunterston. No other country is as far advanced in this field.
In the coal industry we shall invest £110 million next year, and £120 million the year after. This will enable the National Coal Board to complete 40 major colliery development and modernisation schemes, and to continue about 100 and start about 60 more during the period.
This programme in the power industries is a large one, and the onus is fairly and squarely upon the shoulders of those who say that we could do more. Admittedly, it involves overall a substantial reduction—nearly 10 per cent, of what at one time was forecast or planned. It will mean a rephasing in the nuclear power programme. It will take perhaps nine or ten years to attain the potential which at one time it had been planned to reach in eight or nine years. It will mean too that the development programmes in other power fields will take longer. But this is not an unreasonable price to pay as part of our policy to secure a stable currency.
Next, as to transport and communications. On the roads, we will be spending nearly £100 million over the next two years—twice the rate of this year. This involves no alteration in the programmes announced. On the services of the British Transport Commission we shall be investing about £170 million in each of the next two years—a substantial increase on what is being done this year. It represents, nevertheless, a slowing down of the rate of investment planned under the railway modernisation scheme, but it should not materially affect the advance of the railways towards solvency.
Next, as to the Post Office, we have been spending a lot on Post Office investment. This has, indeed, been rising
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towards £100 million, and we cannot afford to go on at quite the same pace in the next two years. We plan to spend £95 million next year and £90 million in the year after.
Next, the field of social investment. On the hospital programme we shall, as already announced, spend £23 million next year, and in the year after we plan to spend £25 million. This should allow some increase in the amount of work in 1959–60, but how much will, of course, depend on the movement of building costs.
As to education, the main school building programme will continue unchanged, although some slight rephasing may perhaps be necessary in Scotland. The five-years' programme for technological education will remain unaltered. Minor improvement projects will be severely restricted, and the programme for rural reorganisation in England and Wales will have to be slowed down.
As to housing, housing has over the past four or five years absorbed a very large proportion—between a quarter and a fifth—of our total investment, and some reduction is inevitable. As to house building by public authorities, it is expected that rather more than 150,000 houses will be completed in 1957–58 in Great Britain. There will be a progressive slowing down so that by 1959–60 the provision will be about 80 per cent. of the present level. In Scotland, as in England and Wales, there will have to be some rephasing of investment plans, but Scotland will get her fair share of the large total investment which I have outlined.
The programmes which I have mentioned cover about four-fifths of the public sector and similar adjustments are being made in the remainder. Programmes of this kind present difficult problems of priority. It is sometimes said that we should be selective. We have been selective. We have to meet the growing requirements of the power industries and modern transport, and in these fields expenditure will, in fact, grow. We could not do this and keep up that level of social investment without a reduction in housing—the biggest element in the public sector. That is the broad basis of our choice. There cannot be any serious doubt that this choice is correct.

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Those who challenge it should say how much more money they would spend, where the resources would come from and which programme they would cut in order to extend another.
I emphasise that these limits are expressed in money terms. If costs rise, the amount of work will have to be reduced so that the expenditure limits will not be exceeded. We do not intend to finance the inflation. This total of an additional £1,500 million a year compares with only £1,100 million in 1951—an increase of 37 per cent. in real terms. It is manifestly absurd to talk about stagnation. At the same time, I must emphasise our confidence that this programme is within our power to carry out, and I have every reason to suppose that this will match our real resources. And we are looking ahead. Limits are being fixed for two years ahead, and this time next year limits will be fixed for 1960–61, and so on, year by year. There will be an annual review of long-term investment plans to see that they do not run ahead of the prospective means of financing them.
I now come to the private sector. Here, the source of new money is bank lending, and I have asked the banks to control money supplies as in the public sector by placing a limit on the amount of money that they provide. I recognise that the bankers' task is harder because of the restrictions already carried out in response to requests made both by myself and my predecessors. I am grateful for the assurance of the banks that they will do their best to hold the average level of advances for the next twelve months at the average level of the last twelve months. I know that the banks will do their best to finance exports and other purposes of high priority, but they will do their best within the total limit that is being set. In our present situation, we need to limit the money supply, and no purpose, however good, must outweigh that objective.
The bankers' efforts will be supported by the request to the Capital Issues Committee to intensify its critical attitude to applications to borrow. They will also be fortified by the increase in the Bank Rate to 7 per cent. Interest rates and the quantitative control of money must work in the same direction.
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These, then, are our measures. They are designed to make money scarcer and more expensive. Their purpose is to secure, so far as possible, that where money is taken out that is not matched by work and effort, we should not provide the cash to finance this new income, but should save it by economies in the same or other fields. These measures have, of course, already been widely debated, and different economists, not surprisingly, hold different views about them. The test of them will be, however, not in academics, but in practice; and a million dollars flowing into the reserves is worth a deal of academic argument. It will certainly be in the national interest that every section of the community should give them the best chance to work.
I now turn to the question of wages and profits, and I would say this about them both. Our object is to secure that increases in both are more difficult to get. I am not in this speech appealing to anyone, but I would say, in regard to profits, that restraint in distribution would help our national purpose. What should be our attitude to wages. The rôle of the Government and its policy can be quite clearly stated. First, the Government should state with absolute clarity their own view of the economic situation, and where they consider the national interest to lie. Secondly, they should, by their monetary, fiscal and spending policies, create conditions and an economic climate consistent with this view. Thirdly, they should not interfere with collective bargaining, and fourthly, they should, where they are themselves the employer, seek to follow policies similar to those which they urge upon others.
How should we apply this to the situation today? The Government are not taking over the control of either the wage or the profit levels in the country, and I do not believe that it is seriously suggested that they should. At the same time, no Government, and certainly no Chancellor, can be indifferent to the problem of wage increases. I am not now talking of individual claims, but of the general picture. If wage increases on the scale which they have been given in the past, and are still being today demanded, were, in fact, granted, I have no doubt as to the result. It would be a disaster to this country; it would be a disaster to the firms who gave them and

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it would be a disaster to the men who got them.
Wages increases unrelated to, and going far beyond, the general growth of real wealth within the country are by far the greatest danger we have to face, and we should be deceiving ourselves if we pretended otherwise. Those who ask for wage increases, those who grant wage increases and those who adjudicate about wages should have this fact firmly in the forefront of their minds. Any large mistake at this stage by any of them could do grievous damage to the nation as a whole. It is our duty as a Government to see that, and it is the duty of the Government as employers to act upon it.
The measures which we have taken—[HON. MEMBERS: "Open war."]—in relation to the money supplies are intended to make it harder both to earn profits and to get wage increases. They will operate over a wide area. I have already shown how they apply in the field of public investment. We shall apply them with determination. If costs, including wage costs, go up, activity will have to be reduced, and this will be the policy where the Government are looked to as the source of cash. I include, for example, the case of the British Transport Commission, where the Government are providing the finances required to meet the railway deficit. The Government advances are being made on the basis of the firm plan put forward by the Commission in which it is aiming to break even by 1962.
The Government have no intention of extending their financial assistance to the railways beyond the terms of this arrangement. So that it should know exactly how it stands, the Commission has accordingly been informed that for 1958 the amount will not be in excess of the ascertained deficit of 1957 as certified by the auditors in due course; and that for 1959 finances will be reduced in accordance with the forecast on which the White Paper is based.
Of course, the Government do not operate over the whole field. Of course, in a free society we cannot control the individual judgments and decisions of the whole economy. In this context it is of the utmost value that the Council on Productivity, Prices and Incomes has begun its work under the chairmanship of Lord Cohen. I believe it can make a
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valuable contribution to thought upon this subject. I do not know what advice it will tender, but I am sure that impartial advice from this quarter will help to secure the responsible approach essential to success.
One further question we are asked is: will these measures lead to unemployment? Not on our expectations or our intentions, provided moderation is exercised all round. By that I do not mean that we must stick at any cost to an unemployment figure of 1·2 per cent., nor does any thoughtful person of any political persuasion mean it either. It is, indeed, certain that one cause of inflation since the war has been the attempt to drive the economy at a pace above and beyond what can be justified by our resources of men, money and materials. But the truth about unemployment is this: without the measures which we have announced there would have been massive unemployment within a matter of months. We depend on the value of our £ to buy our food and our raw materials and a stable £ is the prerequisite of full employment. We must, therefore, put it first.
Of course, other policies will be urged; appeals for restraint and the whole armoury of physical controls. But those controls have been tried before. They have been tried with all the machinery of control in full existence and inherited from a major world war, and even then they failed. Some economists are urging us to spend our way out of the present difficulty, and that sounds a most attractive remedy indeed, but I do not believe it is one which will be accepted by the common sense of the House of Commons. In any event, it proposes no remedy for rising prices. Others enlarge on the technical difficulties of any scheme and the problems raised by the velocity of money and the activation of balances and the like. If we listened to all the technical difficulties, no solution would ever be propounded at all.
I believe that these measures will work. We do not intend to let them fail. If more is needed, more will be done. We are by no means at the end of our resources either of monetary or fiscal policy and we intend to hold the value of the £. Already we are winning the opening rounds of the engagement. The £ is strong and growing stronger. Money

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is coming into the reserves and not going out. The nation cannot say that it is going without a lead and the Government are entitled to ask, in return, that these measures be given every chance to work.
4.26 p.m.
Mr. Harold Wilson: The speech to which we have just listened, I must remind the House, is one in a long series. There have now been eight crisis statements, autumn Budgets, little Budgets and all the rest, since February, 1955, which happened to be the month in which appeared those garish posters proclaiming that, "Tory freedom works."
The speech we have heard this afternoon has provided the same weary, turgid analysis—Britain is a small island living on her exports, it is all a problem of inflation—and, clearly, the Chancellor has not got a clue about how to deal with this inflation. He said, for instance, that he is not concerned with the question of whether it is a cost or a demand inflation.
Well, with modern medical science, it is usually considered desirable to find out what is the disease you are curing before you prescribe the remedy. We all know that the eighteenth century quacks did not care about diagnosis. They went in for blood letting and purges, and followed lines very similar to the recent economic policies of the Chancellor.
There was, however, one welcome passage in the speech of the right hon. Gentleman. I was glad to see that, twelve years after the war, he has at last learned some of the facts about the effects of the war on the national economic position; facts which we tried to tell the right hon. Gentleman's party from 1945 to 1951. Let us hope that even the Prime Minister will learn some of these facts in time.
Apart from the usual bromides that we have had, the right hon. Gentleman has announced one or two specific measures, particularly the changes—"rephasing" I think he called it—of investment programmes. He says that these investment cuts have been selective and, of course, they have. They have been confined to the public sector—as always—the only plannable sector in the national economy.
The right hon. Gentleman tells us they are not cuts, but, of course, they are cuts
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compared with the previously announced programmes. Spreading the programmes over a longer period—"rephasing" as the right hon. Gentleman calls it—is, frankly, a cut in any one year. If the Chancellor has not yet appreciated that point, I suggest he tries rephasing his salary for the next two years over the next three years, and see whether he then realises that it does involve a cut in any one year.
The right hon. Gentleman told us that there is to be a much tighter control of minor building projects in education and we shall certainly want to press the Government about that. He has told us that the housing programme is to be cut. What he said about monetary policy and about wages and unemployment and production I propose to come to later, but many people will take his statement this evening, or some of the sentences he uttered, as a declaration of war.
Mr. Cyril Osborne: Was that written down before the right hon. Gentleman heard the Chancellor's speech?
Mr. Wilson: I had no idea what the right hon. Gentleman was going to say. He does not take me into his confidence before he makes these announcements.
This debate provides an opportunity for a frank discussion about the sterling position, the sterling area, and the internal economic and financial position. I will begin, as the Chancellor did, with the external position, which drove the Government into the panic measures of 19th September. I think I can fairly claim that, over the past year, the Opposition have shown great restraint in its discussion of the sterling position, more restraint perhaps than was shown by present Government supporters in 1948 and 1949.
Last December, for example, the Prime Minister, who was then Chancellor of the Exchequer, in order to make good the ravages in our reserves caused by the Suez policy, which we bitterly opposed, announced a massive programme of borrowing and of mobilising of reserves from abroad. On that occasion we immediately pledged the full support of the Opposition and of the Labour movement for any measures properly directed to strengthening sterling.
That would have been a very easy occasion for making party capital. We

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did not do that. [Laughter.] This is on the record, and I challenge any hon. Gentleman to find any time in the past year when we have made party capital out of the position of sterling and of the £. I challenge them also to look at their own record in 1949. What we did was to warn the Government that they must use the borrowed money and borrowed time on which they were living to strengthen our economic defences and make them secure and fast against any attack that might come from abroad.
The Government ignored that warning. We told them that what was needed was not merely further twists of the monetary screw or more vicious little jabs at the social services, but a comprehensive, radical series of policies at home and abroad, some involving action upon an international scale and some involving action by this country in regard to its overseas policies. Certainly, there was needed a complete change in our internal policies. For two years and more these warnings have fallen on ears that have been deafened by complacency.
There can be no doubt about the gravity of the warning which we gave in the Budget debates about what was going to happen this summer. We were accused of being too gloomy. By July, the Prime Minister, in his "never-had-it-so-good" speech, was boasting about the improvement in the reserves in the first half of the year.
Let us look at the figures for the first half of the year, the seasonally favourable period for sterling. The reserves rose by 248 million dollars. That is the figure of which the Prime Minister was boasting. It included special borrowings, the American waiver, and German aid. These amounted, in the six months, to 332 million dollars. So over that period of six months, the seasonal period for sterling, the out-turn was less by 84 million dollars. I have just said that there were 332 million dollars of special aid in the first half of this year; they came on top of the 591 million dollars borrowed or mobilised by the Government in the last quarter of last year.
I ask the House to weigh the importance of these figures. The sterling area has had, since Suez, a year ago this week, borrowings or special aid amounting to a total of 1,060 million dollars, and yet our
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reserves at the end of last month, allowing for E.P.U., were nearly 600 million dollars less than at the same date last year. That means there has been a real loss on the gold and dollar reserves of more than 1,600 million dollars over the past 12 months.
That is the out-turn of the Prime Minister's stewardship at the Treasury and of the Suez policy. That loss far exceeds the loss in 1951, the year of the world financial crisis which followed Korea, and the year which provides the inspiration for almost every speech that the Prime Minister makes on economic affairs.
Yet, when we debated economic affairs on 25th July, what had the Chancellor to say about the external position? I will quote his exact words. He said:
"The external outlook is good."
He went on:
"The cause for concern is neither industrial stagnation nor a balance of payments crisis."— [OFFICIAL REPORT, 25th July, 1957; Vol. 574, c. 641.]
The right hon. Gentleman said the same thing in a very complacent broadcast on television in the same month. Eight days after 25th July we had entered August, a month in which we lost one-fifth of our total sterling area gold and dollar reserves, despite the receipt, in August and September, of £75 million of German aid—Adenauer aid—in the form of a ten-year advance debt payment.
Speculation has been blamed. The Chancellor has fairly said that there must have been a reason why the £ was singled out for that speculation. I believe that the major reason was the complacency and utter paralysis of leadership which the Government showed in the debate of 25th July. The Chancellor's only contribution was the appointment of three distinguished elderly gentlemen to prepare sermons to be addressed to the trade unions, though not to the landlords.
It was the Prime Minister's speech on that occasion which caused the despondency. The nation, and indeed the world, were looking to him for a lead. We had a very serious debate and most of the speeches were serious and constructive on both sides of the Chamber. A serious debate was changed by the winding-up speech of the Prime Minister into his usual knockabout act. It was brilliant, amusing and very encouraging to his supporters, except to one hon. Gentleman

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who announced that he was not going to vote, but it was utterly devoid of responsibility or leadership.
We all remember what the Prime Minister did. He seized upon an announcement made by my right hon. Friend the Leader of the Opposition a minute before that we should divide the House. Seizing upon that, the Prime Minister said he regretted that he was now forced to regard the debate as a party political occasion, so he took from his pocket a carefully typed political oration. [Interruption.] I have not suddenly announced a change in my attitude to the debate as the Prime Minister then did. If we cannot congratulate the Prime Minister on his leadership and grasp of economic realities we can at least congratulate him on the speed and efficiency of his typist.
From then on, during the rest of his speech, we had the 1951 saga and a description of the shortages that the nation was facing in the years immediately following the war. That is the sort of thing that the Spectator meant when it said, on another occasion:
"Faced with the choice of being a small-sized statesman or a large-sized party politician, Mr. Macmillan chose the latter role."
We had not a word from the right hon. Gentleman on that occasion about the serious external position of the country. Yet within eight weeks following the speech the gold reserves fell—if we allow for the E.P.U. settlement and for German aid—by more than a third.
This extraordinary complacency about the position continued even in September, when the Chancellor of the Exchequer went to Gloucester to make a not unsuccessful intervention there on behalf of the Liberal candidate. I have studied his speech in the local Press. It was not a serious analysis at all of the present position. Then, of course, we had, on the very day that the Bank Rate went up, the document "Work for the Nation" published by the Conservative Central Office.
This complacent, self-satisfied document must be taken as supporting the Lord Chancellor's contention that no one in the Tory Central Office could have known what was in the Chancellor's mind. It says—and this was in September, after this heavy loss of gold:
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"The return to a sound monetary policy in itself did much to restore confidence abroad."
I suggest that it is time that the Government and the House faced up to the real realities of the sterling position.
I have said that we on this side have shown restraint in our discussions on these matters and indeed two days before the Bank Rate went up, as the Chancellor fairly commented, my right hon. Friend the Leader of the Opposition, in a speech at a very big international business gathering, came out strongly against those who were trying to talk down the £. He attacked speculators and said, with great firmness and vigour, that there was no suggestion at all that our prices were out of line with the markets of the world.
In view of the temporary respite in the position of sterling—the Chancellor has said today that sterling is getting stronger and that we are winning the battle—I think that we are entitled this afternoon to state the full facts about the sterling position.
We believe that, looking ahead, sterling can be saved only by frank recognition of the size of the problem and of the steps that need to be taken. Let us look at the last three years. In 1955, under the Lord Privy Seal—and we are all glad to see him back and, we hope, fully recovered—we lost 642 million dollars for the year. As the Prime Minister hastened to tell us shortly afterwards, that was one-quarter of our reserves.
In 1956, when the Prime Minister was Chancellor of the Exchequer, and when we allow for all his borrowings, the real loss of gold and dollars was 734 million dollars. This year, so far, again allowing for borrowings and the German contribution, we have lost 866 million dollars. So the total loss in the three years—we hope that we shall get some back this month and in November—was 2,240 million dollars.
I think that the House must be reminded that but for all these borrowings and special aid the total volume of the reserves today would be about 500 million dollars. That is about one-third of the figure at which they stood when Sir Stafford Cripps devalued the £, four years after the war. I think that this needs to be stated. Perhaps I might put it in another way, and I am sorry if this is likely to destroy the oratorical stock in

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trade of a number of hon. Members opposite.
In the last three years the real loss of gold and dollar reserves was over 2,200 million dollars. In the last three years of the Labour Government, including both 1949 and 1951, about which we hear so much, the reserves net rose by 261 million dollars, compared with a fall of 2,200 million dollars under this Government over the last three years. These are comparable figures. [An HON. MEMBER: "Dollar loss."] There was no dollar loss in 1949 to 1951. I have taken fully into account the whole receipt of Marshall aid during this period and the figures are on a strictly comparable basis.
I hope that the Government will not be complacent because of a short run improvement in the exchange rate. I thought that the Chancellor seemed a little complacent about that today. This has happened in the last three years, every time we have had an increase in the Bank Rate or a crisis statement. If it were not for wearying the House, I could quote the figures in each case and the complacent utterances from a member of the Government every time the exchange rate went up immediately following the Bank Rate, and then quote the exchange rate fall again in a few weeks, or, at most, three or four months.
By July, 1955, the £ was back again at its support price. In October, 1955, Ministers were claiming credit for improvement—" we were winning the first round of the battle"; but by February, 1956, the run on sterling was such that the Bank Rate had to be put up to 5½ per cent., which was then considered high. By 26th July, 1956, it was down again to just over 2·78, and that was the day before Suez.
I hope, also, that there will not be any complacency either about what we hope will be the more reassuring gold and dollar figures for October and November. This is bound to happen. The extent of bear speculation and the postponement of trade payments was so great that there must be considerable covering. The further the tide goes out—and it went out a very long way in August and September—the higher it usually comes in. The speculation in August and September was the action of thousands of individuals at home and abroad who were hedging against devaluation, and so they hastened
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their out-payments and deferred their in-payments.
When devaluation did not occur at the expected date—that was the Washington International Monetary Fund Meeting—the short accounts had to be closed and, of course, bears began to cover. I believe that without the 7 per cent. Bank Rate this would have happened, once it was clear that the Government were determined to maintain 2·80 dollars. It happened in September, 1955, and every other time, and each time the Government complacently assumed that the problem had been solved and that all would be well.
For this reason, I believe that the immediate position of sterling ought to be safe enough. First, there is the bear covering, which has still a long way to go, especially after those who went into the bear position on a three month basis, maturing in November; and, secondly, the country is moving into the seasonally favourable period for sterling.
I think that we must be frank about the dangers that lie ahead. Suppose there is another crisis of confidence next autumn. In this connection, I wonder whether I might suggest to the Chancellor that, since devaluation fever usually takes hold on the eve of the International Monetary Fund meeting, could it not be arranged that these meetings should take place during sterling's seasonally safe period instead of during the period when sterling is under heaviest pressure? That is a reasonable suggestion. It is not only to Britain's advantage, as sterling is a world asset: other currencies, too, are prone to speculation.
Speculation may also come—many people are talking about it—from the fear that the Government have it in mind to widen the margins between which sterling may move. Many people believe that the Government would like to widen it, but they feel it can only be done from a position of relative strength and not a position of weakness. I hope that the Chancellor will deal with these rumours once and for all and make it clear that he is dealing with them for a long time ahead.
The second danger comes from the changing nature of the sterling area. I had things to say about this during the Budget debate. When countries like Ghana and Malaya achieve manhood, we not only give them a latchkey, we give

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them a cheque book as well, with the free right to draw on their sterling balances, in dollars, if they wish. Most of these countries have big development programmes which are of the highest political, economic and social priority, as we have seen in the case of India, and these programmes will not be sacrificed in order to maintain the level of sterling balances.
There is now a new and very ominous development. That is the fall in commodity prices which gravely affect their current earnings of the very countries that we are talking about. If cocoa prices are low, Ghana may draw on her balances simply to maintain expenditure. If rubber falls any more—in fact, rubber prices have only been maintained during the past week or two by the utterly fantastic Russian purchases—Malaya may also draw on her sterling balances. For these reasons, unless the commodity position is reversed, we must expect sterling balances to be run down, and, perhaps, partly run down in dollars. Whereas last year this running down of the sterling balances was offset by a very favourable Australian surplus, it looks rather doubtful whether that will continue this year because of the fall in wool prices and the effect of the drought on Australia's export earnings.
The third danger is, I think, in the minds of all of us this afternoon. That is the great change in world economic conditions. For five years we have been free from the world dollar shortage. This year the world dollar gap has re-emerged. Although that gap has narrowed after the emergency oil purchases it is still there, while added to it has been the effect of the Deutschmark position in drawing off world liquidity. On top of that we have some menacing signs that world inflation is giving way to possible world deflation. I think that too much attention is being given to Wall Street in this connection and too little attention to the very serious slump in commodities and freights. What some of us have been saying for some time has been powerfully reinforced by the letter in The Times today from a number of Oxford and Cambridge economists, showing a remarkable degree of unanimity in the economic profession.
We know that classically a world commodity recession has been followed
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throughout the decades by a world industrial depression. I remember working, in the years before the war, with Lord Beveridge—then Sir William Beveridge—in some research into the trade circle. We found that practically every trade depression began with a collapse in world commodity prices. Let us hope that this will not develop further; America may reactivate her immense purchasing power, but the actions of the Government, over the 7 per cent. Bank Rate and the credit squeeze are pushing that along.
If it continues we must expect three stages to follow. The first effect will be one which appears favourable to us, an improvement in Britain's terms of trade, import prices will fall and export prices will be maintained, or rise. This, in fact, is already happening and it will generate more Governmental complacency. They will tell us about this increasing paper surplus on current account, but there is nothing to be complacent about in the present situation.
The terms of trade are improving because import prices are falling, world primary commodity prices are falling, but our export costs are still rising at a time when the export prices of our main competitors—the United States and Germany —are now beginning to fall. I agree with the Chancellor that if we are entering possible world deflation that means that more than ever we cannot afford to be an island of inflation in a deflationary world. I said that last week in the Manchester Guardian. Nevertheless, if our main competitors are reducing their export prices and ours are still rising we may face a still more competitive position.
I think that in the second stage sterling primary commodities suffer most. The effect there, of course, will be that we shall begin to lose dollars as the Commonwealth countries get fewer and fewer dollars for their exports to the dollar area. Also—I think this ought to be said—invisible earnings, which are fairly strong at the moment, stand to suffer if freights remain low and oil prices fall. The third stage, if commodity prices go much further in this direction and the present movement is not reversed, will be selling difficulties for our exports abroad. That has happened in every internal depression for a century and a half. Unemployment

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in this country always began in the export trades and the export trades lost their markets because of monetary depression in the primary producing countries.
Suppose that happens with the inevitable consequences to our dollar position. I do not know what the Bank Rate is likely to be by that time, but, if it is still high, we shall have the Government still relying on monetary policies and interest rates without a shot left in their locker. Turning to the internal measures——
Mr. Osborne: Before the right hon. Member leaves that point, will he tell the House how he thinks we can get our export prices down?
Mr. Wilson: I said that I was now going to turn to the internal measures which are necessary. I shall be glad to send the hon. Member some very full accounts of things I have said on this subject recently.
We are concerned here chiefly with both the Bank Rate and the statement made by the Chancellor on the day on which it was raised. We have Bank Rate at 7 per cent., the highest since 1920 and representing a jump of 2 per cent. which, I understand, is the highest increase in the Bank Rate in peace time since 1847.
That, of course, was a panic measure, however much the Chancellor may have sought afterwards to rationalise it as being part of a well thought out internal policy. It was dictated by speculation against sterling which the Government never did anything to avoid. We must regard it as the price which our national trade and industry and our future investment have to pay for the rash moves made to convertibility during the time of the Lord Privy Seal as Chancellor, and the freeing of the exchange market and the speculative commodity market, which were once covered by the proud boast that "Tory freedom works."
It is also the price that we have to pay for the stubborn over-reliance on monetary weapons in dealing with the internal economic position. I think that we have not been backward at any stage in the last six years in warning the Government of the probable consequences of each of these actions. Those warnings are all on the record. I have suggested that the speculative drain would have been
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halted within a few days once the world accepted that 2·80 per cent. would be maintained, but the Chancellor insisted instead on having his 7 per cent.
In referring to the Bank Rate it is inevitable that in this context I must refer briefly to the question of the leakage of information. We deplore, and I believe that the country and very many people in the City, deplore, the refusal of the Government to order a full inquiry, with power to take evidence on oath and secure access to the papers and trading records of the firms concerned. There is no doubt, as The Times, the Manchester Guardian and the Daily Express all said on the Friday morning, that there was inspired selling on the Wednesday night.
Gilt-edged had been rising, consols ended the day—that was Wednesday—slightly up, but heavy sales occurred after hours, mainly on War Loan, at a time of very wide dealing margins in circumstances which suggested that someone knew something. There are many responsible people in the City who believe that something improper had occurred, even if some of the people who knew what happened have hung back because of City loyalty to a Conservative Government.
There are very many questions left unanswered. Some of the most pointed were summarised by the City Editor of the Daily Express last Wednesday. So far as I know he is not a supporter of the Labour Party. There may or may not have been prior information of the Bank Rate increase. I do not know and I never said that there was such a disclosure—only that there was a case for inquiry—but I do know that some people dealing in gilt-edged knew on Wednesday afternoon that the Chancellor was to make what was described as a blistering statement on the Thursday morning and "going to put the screws on."
To most City men such a statement on the Thursday could only mean one thing. Was there at least careless talk about the Chancellor's statement? Was there perhaps some over-enthusiastic public relations expert who thought it was his duty, on political grounds, to prepare the Press for bad news—perhaps someone not in the confidence of the Chancellor on the Bank Rate issue?

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On the question of the Lord Chancellor's researches, I will only say this: we are not privy to them and I cannot properly comment on them. He has satisfied himself on the particular items of evidence we brought to his attention. I would only say that the original allegations which gave rise to the Lynskey Tribunal were proved to be utterly fantastic, yet an inquiry was held in that case. We believe that despite the eminence and reputation of the Lord Chancellor an inquiry without power to send for records of dealings and to take evidence on oath was inadequate to the purpose and that the public have not yet had the reassurance to which it is entitled. I will leave that matter there, because we do not want this unfortunate question to divert us from the real issue at stake this afternoon, the economic effects of the Chancellor's policies.
As I have said, his policies were in three parts, Bank Rate, credit squeeze and the investment cuts. I will take his monetary measures first. The House is aware of our past criticisms of previous high Bank Rates. I can summarise in one sentence, what I said on 9th May, 1956, when I referred to the high cost of the Bank Rate. I referred to the increase in the National Debt charge—that is now another £100 million a year as a result of the Chancellor's latest move—the heavy payments across the exchanges of interest charges—another £50 million—we are now a debtor and not a creditor nation as in the classical times of Bank Rate; the effect on the Commonwealth through driving colonial and other borrowers to foreign financial centres; the loss of acceptances and other financial business abroad, the effects on the finances of local authorities, on house purchase and on the small business man. Those, in brief, are the main disadvantages and costs of a high Bank Rate policy.
I want for a moment to refer to the problem which local authorities are facing as a result of the Chancellor's action. Even for seven days they are now having to borrow at a rate of 7⅛ or 7¼ per cent. I ask the House to think what that means in terms of council house rents as well as the level of local rates. Some local authorities have already cut their housing programmes because the rents which would have to be charged at the present
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rate of interest would be far beyond the means of the families in greatest need of rehousing.
Does the Chancellor really believe that forcing up council house rents as well as the rents of landlord-owned houses, which was done earlier this year, is the way to secure wage restraint? With the Bank Rate the Chancellor combines a freeze on bank lending. It is a rather crude attempt to control the economy. He thinks that he will be able to solve the problem by freezing the supply of money.
From where is the right hon. Gentleman getting his economic advice these days? Was he really advised on these lines by the highly qualified and distinguished economists in the Economic Section of the Treasury, or is it true, as one hears in the City, that the Chancellor is getting his advice privately from some outside sources, some of those discredited laissez-faire economists whose notions of economic policy are about as outmoded as the Prime Minister's crossbow is in this nuclear era? If there are to be these eminences grises, these economic Rasputins advising the Chancellor, then I would be prepared to settle for the Parliamentary Secretary to the Ministry of Education once again.
The whole trouble is that the Chancellor is trying to fight what is a cost-push inflation, a wage-price-dividend-profit spiral with the crude techniques which classical theory considers appropriate to a demand inflation. Production is a long way below capacity, yet the Chancellor sets out to cut it further. It would take too long to deal with all the fallacies behind the Chancellor's approach, but perhaps I may mention one or two of them briefly.
The right hon. Gentleman thinks that he will solve the economic problem by freezing the volume of bank deposits. Has he never heard of "velocity of circulation", the habit of money to circulate more rapidly if the demand is there, the activation of idle deposits? Since the Government embarked on monetary controls, in the last six years prices have risen by 30 per cent. but the amount of money, bank deposits plus coin and notes, has increased by only 10 per cent. That shows that merely to freeze the supply of money does not of itself freeze prices. Indeed, the Chancellor knows this, because he told us in a debate on

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25th July, when referring to those optimists who thought that prices could be kept stable by freezing the value of the banknotes in circulation, that
"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."—[OFFICIAL REPORT, 25th July, 1957; Vol. 574, c. 644–5.]
Of course, he was quite right, but that is exactly what he is doing today. He is trying to cure the fever by holding down the mercury in the thermometer, except that he is now taking bank money and not banknotes as his test.
The second fallacy is the extraordinary notion that a high Bank Rate somehow miraculously separates inessential from essential investment. We used to have that view expressed from this Box. It was put on 2nd November, 1950, by Lord Chandos, then Oliver Lyttelton, who gave us this memorable quotation:
"If the industrialist thinks that a 5 per cent. interest rate for borrowing his money will still leave him with a profit, the plants will be built, but the marginal capital investments will be discarded."—[OFFICIAL REPORT, 2nd November, 1950; Vol. 480, c. 332.]
He was thinking of a Bank Rate of only 5 per cent. We did not have the present Chancellor then. The same theory was supported by the authors of the Conservative Central Office document to which I have referred, "Work for the Nation," because they say:
"…higher interest rates…help to control borrowing and to select the most necessary investment."
Will an hon. Gentleman tell us some time how it is that a high interest rate by itself selects between essential and inessential investment? It does not. It selects the most profitable, and very often the most profitable investment—one thinks of the high rates that the hire-purchase companies are able to afford—is the least essential.
Now I turn to the Chancellor's investment cuts. One of the main charges against the Government is that to deal with an external crisis, Which, on their own claim, was caused by short run speculative factors from economic sources, they have made investment cuts which will have a lasting effect on national productivity and our ability to compete in the markets of the world. We shall need time to study what the Chancellor said this afternoon about individual industries,
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because we need to compare that with figures already announced, but he has announced a very serious retardation of the railway modernisation programme compared with the one announced earlier this year.
I repeat the two arguments against the Chancellor. Why hold back essential public investment and refuse on doctrinaire grounds to cut back the quite inessential private investment, the vast office blocks and the totally inessential factories producing goods for an artificial home market whipped up television advertising? Secondly, does the right hon. Gentleman not realise, with his emphasis on the Free Trade Area, that European free trade, as we have urged many times, makes it vitally necessary to convert this country from a low investment economy to a high investment economy? The figures given in the Manchester Guardian yesterday of international comparisons of investment underline that warning.
Now I turn to production. Does the Chancellor want production to increase or decrease this year? He has not made it plain. In the 1956 Budget the Prime Minister set out to reduce industrial production and he succeeded—I will give him credit for having succeeded in that. The Chancellor applauded his predecessor's restrictive policy, but in July he said that production must increase. He recognised, for a moment, at any rate, that that was the only way to get costs down, but in September he set out to cut production again. What does he want? The country, and above all industry, has the right to know what he is after.
There were cryptic references to unemployment in Washington and again this afternoon. I do not suggest that the Government are out to make Stockton-on-Tees a depressed area once again. Of course they are not, but I think that if the Chancellor is faced with a choice between stable prices and full employment he is prepared to see to it that it is employment that has to give way. We believe that that is not the choice facing the country. It is the choice only if we refuse to have selective controls and if we refuse to try to plan the economy as a whole. It is the choice only if we have this blind, groping system of overall monetary control.
We must warn the Chancellor that the policies which he is now pursuing will

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lead to unemployment if he presses on with them. Quite apart from social considerations and social hardship—and we all accept the Prime Minister's sincerity on this point in the many speeches he has made—a little dose of unemployment is not the way to bring down prices.
If we get unemployment, factory overheads are spread over lower output; firms hoard labour; there is work-spreading; restrictive practices develop on both sides of industry and production investment is cut. A little unemployment, a little retardation of production, is the one certain way of increasing costs. [Interruption.] We saw this quite recently in the cotton industry, where there was quite heavy unemployment but no improvement in productivity.
Or is it, as the whole of the Establishment is proclaiming, the prelude to a showdown with the unions in the matter of wages? The Chancellor used some very strange words this afternoon, which the trade union movement in particular will want to study. We must warn the Government, as we have warned them before, "Do not run away from your own responsibility for the crisis; do not seek refuge in this new alibi policy of blaming the unions for the fact that they have sought to protect their members from the effects of the Tory free-for-all."
This is the Suez mind all over again. This demand for a showdown can be just as dangerous, just as costly and just as ineffective a policy as was the other Suez policy of a year ago this week. If this is what is in their minds, and we have all heard Lord Hailsham—I say this very seriously, because I do not speak of the more buffooning parts of his performances, but of the very serious pronouncements made by the Lord President of the Council and Chairman of the Conservative Party—then I have to say that this is not the way to lower prices and to raise productivity. It is the way to the most bitter industrial strife that we have known for a generation, and the road to industrial and economic disaster.
Hon. Gentlemen opposite delude themselves when they put the blame on wages, and I will give some figures to show this. Since 1950, money wages—that is, hourly earnings—have risen in this country by 61 per cent.; in Germany, by 59 per cent.; in America, by 42 per cent.; and,
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in France, by 96 per cent. On the other hand, prices have risen more here than in any of those countries. They have risen by 43 per cent. here, and by 14 per cent. in Germany. So, if we take real wages—hourly wages discounted for prices—we find that since 1950 real wages here have risen by only 12 per cent., whereas they have risen by 39 per cent. in Germany and by 24 per cent. in the United States of America in the same period. There is wage restraint, but it is not wages that explain the problem—it is productivity due to higher investment and greater efficiency in German industry.
I began by saying that we need radical new policies. We have not had any of them today. We have had just the same weary round to which we have been listening for the last three years. It is, therefore, our duty to make suggestions to the Chancellor. I shall do so very briefly, and hope that there will be other occasions to elaborate them.
First, overseas. We must first deal with the problem of ensuring adequate liquidity in international payments. This means more funds available to the International Monetary Fund and to other international monetary institutions. I want to make this constructive suggestion to the Prime Minister. Let the Government now propose an economic conference between Great Britain, the United States, Canada, Germany—and France, if she has a Government at that time—to examine the problem of liquidity, and the key position of sterling, the dollar and the deutschmark. Indeed, I go further and say let them examine internal policies in the creditor countries. I believe that it would help the world greatly if the Americans would cease their own umbilical preoccupation with interest rates and the domestic price level and embark on a good-creditor expansionist programme. And the same is true of Germany.
Secondly, let the Government take the initiative in calling urgent international talks on the commodity problem. The United States may now be more willing to agree to international commodity agreements. We have them for tin, sugar and, after a fashion, for wheat—why not have them for cotton, rubber and cocoa for a start? This is not just idealism; it is not merely to stabilise prices; it is

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not only plain common sense for Britain and for the sterling area, it is a measure of self-protection for all the industrial exporting nations.
Thirdly, I suggest that we should have a real sterling area conference and work out with these developing countries a planned programme for drawing on sterling balances—as my right hon. Friend did in the Colombo Plan—economic aid and, if necessary, a support price policy for sterling area commodities such as cocoa, rubber, jute and the rest.
Fourthly, let us recognise now, as we have urged for a long time, that we must reduce our dependence on the United States. We hope that there will be no American recession, but if there is an American recession our dollar earnings will suffer as well as sterling area dollar earnings. Let us have plans ready now. It will be no good, in six or nine months' time, trying to introduce panic measures of import licensing. But, at the same time, we must expand our trade with the Commonwealth. That, as we have urged, means bulk buying and long-term contracts. In making this appeal to the Government, we say to them "Do not go on sacrificing our own future and Commonwealth interdependence to this doctrinaire preoccupation with the speculative commodity markets."
Fifthly, and last, I say that the Government should go much further in expanding East-West trade. After all, Russian gold shipments have been a very valuable corrective to the dollar drain. The partial easement of strategic controls in 1954 did not go far enough then; it is strategic nonsense today. In a war that the experts say would last 48 hours what is the use of controls of cargo boats with speeds of not more than nine knots? The same applies to control of many machine tools—it is simply forcing the Russians to extend their own shipbuilding and machine tool capacity. Is that strategic?
At home, our policies have been made plain. I will not repeat what we said in July about how budgetary or monetary weapons should be used or our concept of the use of the public section—including Royal Ordnance factories and dockyards—for essential civilian work and exports, and such controls over private industry as building licensing. But, once again, I repeat—and the 7 per cent. Bank Rate underlines everything we have ever said
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on this—that the Government will not solve these problems, will not get the goods produced for export and get an adequate level of essential investment, unless they are prepared, by controls and purposive planning, to hold back inessential investment and production so as to give not merely a green light, but positive encouragement to essential investment and to export.
With this I conclude. There is no future for this country on the basis of conflict between the Government and organised labour. It may or may not meet Lord Hailsham's need to satisfy the "blimps" of his own party, but neither threats, nor force, nor bluster will solve the problem. Trade union co-operation in national economic policies was the asset that every Government of this country had enjoyed since the war, until the Prime Minister, in 1956, destroyed the very basis of that co-operation by his policies, and by his wanton disregard of the advice given to him.
We indicated in July the conditions which, in our view, are necessary to any understanding between the Government and the trade union movement. We re-emphasise that now the position is even more urgent than when we put these suggestions forward in July. The nation's economic problems—so dramatically brought to a head a month ago cannot be solved by a state of open conflict, or even of cold war between the Government and the mass of the producers of the nation's wealth, nor can they be solved by the posture of economic abdication that we had from the Chancellor today.
5.9 p.m.
Mr. Angus Maude: With the best and most charitable will in the world, it would be impossible to pretend that the speech of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) did not fall a little below the level of events. He devoted the first quarter of his speech to one of his celebrated slapstick, knockabout turns, during the course of which he accused the Prime Minister of having done just that in a speech at the end of July. He devoted a substantial part of his speech to an analysis, sometimes partly irrelevant, sometimes obviously shrewd and acute, as to the nature of our economic problems; but anyone who had hoped to hear any solutions from him, as the

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official spokesman for the Opposition, was disappointed.
This was perhaps the most remarkable thing about the right hon. Gentleman's speech, because it boiled down, in the end, to three things. There were the usual innocuous references to calling economic conferences, to getting support prices for primary agricultural products, and all the rest of it. For the remainder, there were only two proposals in the whole of the speech, which we must assume represented the economic policy of Her Majesty's Opposition for dealing with inflation. There was a repetition of the plea of the Leader of the Opposition for help from the world in general. The right hon. Member for Huyton said that sterling can only be saved by the widest international co-operation.
The right hon. Gentleman the Leader of the Opposition, when he was asked for his views a month or two ago, said that we should go and ask America to help us out, and that we should ask Germany to help us out. All the world owes sterling a living because we are such fine people; we are the bankers of the sterling area and it would be such a bad thing if sterling crashed. Try and tell that to the Zürich bankers and see how they react to it. Nobody owes sterling a living if the internal economy of this country is not such as to provide international confidence in sterling. This was true during the lifetime of the last Labour Government, and it is as true during the lifetime of this Government.
The only other proposal which the right hon. Gentleman put forward related to something which he called "selective controls." The phraseology of Socialism, of course, changes with every party conference and with almost every meeting of the national executive for drawing up policy resolutions. "Planning" is no longer a very fashionable term. "Socialism" has gone out. There were once "physical controls." Now they are "selective controls." That is an admirable phrase. Nobody knows what on earth it means, and it can, in fact, be made to mean anything if the time ever comes when the measures have to be deployed.
The only clue that one could get from the right hon. Gentleman as to what he means is that he wishes to reintroduce
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physical controls on the building of everything except houses—on offices, factories, new plant and, what is the stock-in-trade of his political speeches, those cinemas and petrol stations which grow up like mushrooms all over the country.
Mr. H. Wilson: I did not mention them.
Mr. Maude: That is precisely the point. The right hon. Gentleman did not mention anything concrete in his speech at all. If he had, we might have understood what were his proposals for the conquest of inflation. But it seems to me that this speech, just like the speeches of other right hon. and hon. Gentlemen opposite, has been a continuation of what we have had in this country for the last twelve years—and I do not exonerate my own party. For the last twelve years there has been a general conspiracy in this country, which the Press has encouraged, and which I am sure politicians at election time have intended to encourage, to persuade people that inflation was something which was not so bad after all and that it could be cured without anyone getting hurt.
This has never been true. There was no indication from the right hon. Gentleman that he thought inflation was a bad thing. During all his economic slapstick at the beginning one did not hear any whisper of the suggestion that there were people in this country to whom inflation meant perpetual worry, poverty, anxiety, the inability to see how their savings or their pensions would enable them to live until the end of their days. We would not have gathered that the right hon. Gentleman thought inflation was a thing which ought to be conquered for the sake of the human problems involved in it. I could have understood it if the right hon. Gentleman had said, "In fact, the price you will pay for getting rid of inflation is too high for the economy." That is at least an honest line to take and it is a line which is arguable.
Mr. Wilson: This really is a most fantastic misrepresentation. Not only did I say today that we cannot afford to be an island of rising costs in a deflating world. If the hon. Gentleman will look, he will see that I dealt with this matter fully for 40 minutes on 25th July, when we on this side of the House insisted on having a debate on the evils of inflation.

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If the hon. Gentleman is still interested, he will also find some 5,000 words on this subject in last week's Manchester Guardian.
Mr. Maude: There are limits to the number of 5,000-word articles by the right hon. Gentleman that I can take, even at intervals of three months. When he spoke about this question today he was not talking about the domestic effects of inflation on individuals. He was talking about the external effects and the general economic effects of inflation. In the debate in July, to which I listened, at no time then was there any concrete suggestion as to how this should be dealt with, except the general thesis that the world has got to do something about it for us and that selective physical controls were a good thing.
Let us look at this question. Is it, in fact, true that inflation is a tolerable thing? I believe that the majority of the people in this country have, whether consciously or only subconsciously, thought that inflation was a tolerable thing for a great many years since the war. I could perfectly well understand it if the right hon. Gentleman were to say that—and there was a time in his speech today when he was coming very near to it; that, while it may be true that an expanding economy should not be encouraged at the price of the ruination of people on fixed incomes and pensions owing to the price inflation which is generated, it might also be too high a price to pay for the removal of a price inflation of perhaps 2 per cent. or 3 per cent. a year if, as a result, we were left with a stagnant economy in which investment ceased and the expansion of our economy, which during the next twenty-five years is going to be vital to our survival, were thereby prejudiced.
That is an arguable line, and I have heard it argued. It is, in fact, a line that is taken by people who do not belong to that section of the community which suffers as a result of a continual price inflation, and it is a very palatable line to put forward to those who are doing well enough out of inflation and can usually manage to contract out of the results of it. But at every stage there has been in this country a sort of cosy tendency to feel that all that was necessary was that "they" should do some-
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thing about it. I am by no means exonerating the Conservative Party from this. I think we tended to do this while the Labour Government were in power, and I think that Labour politicians have tended to do it after 1951 in exactly the same way.
Mr. Sydney Silverman rose——
Mr. Maude: I do not think I had better give way now. I do not wish to detain the House too long.
There has been a feeling that the Government hold in their power some mystical key to the solution of inflation which they only have to turn and everything will be all right and the price level will be steadied. Yet when we look at the alternative methods of dealing with internal inflation there is not one which will not hurt someone, and hurt him pretty hard.
It is no good saying, "It will all be solved if you cut Government expenditure", as certain organs of the Press are perpetually saying. I believe that the volume of Government expenditure could probably be cut by rather more than Government Departments are ever willing to admit is possible, but it is certainly true that beyond perhaps £150 million or, at the most, with the most radical and ingenious probing, £200 million a year, there can be no substantial cut in Government expenditure which does not involve a substantial change of policy, which must fall in the field of either Government investment or defence or the social services. I know of no substantial change of that kind which would not cause just as much resentment among those middle classes who at the moment are so indignant about the Government as among any other section of the community. Everyone has their own favourite cuts, and they are always the cuts which hurt other people.
It is equally no use saying that inflation can be solved by imposing physical controls on wages or on profits. Right hon. Gentlemen opposite proved to us conclusively after the war—if we had needed such proof after six years of war—that the effect of physical controls is not to contain inflation. The pressure of inflation invariably builds up behind the controls and sooner or later they have to be changed; sooner or later the pegs

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have to be taken out and the line moved further in the direction in which the inflationary pressure is pushing.
This has always been so. Price controls do not keep down prices, wage controls do not keep down wages and in the long run profit controls do not keep down profits. What they do is to have an extremely selective and often an extremely adverse effect on individual groups of wage earners and profits earners. They cause great injustice between one group of equity holders and another and between one group of wage earners and another. Uniform, blanket physical controls on wages and profits would not solve the problem of internal inflation. They might, indeed, make the problems of production and productivity considerably worse. The same can be said of almost all the other easy solutions which are provided.
The right hon. Member for Huyton apparently thinks little of the Chancellor's decision to raise the Bank Rate. He gave vent to one of the most remarkable truisms which even he has ever produced in a political speech when he said that sterling could have been saved if only the world had been convinced that the Government were able to maintain the rate at 2·80 dollars to the E. With that, at least, I think we can all go along. But, he said, the Chancellor intended to do nothing as simple as this; he had to have his 7 per cent. Bank Rate.
I think it is true, and I think that it can be said in criticism of the Government, that it appeared to the world, when the figures for the gold and dollar reserves were disclosed after the raising of the Bank Rate, that this measure had been taken purely as an emergency measure to safeguard sterling against external pressure and to stop the drain on the gold and dollar exchange reserves.
In my view, it is also the right basis for an attack on internal inflation, and my only complaint is that it has come rather late, that the conspiracy of cosyness, of pretending that the position was not so serious after all—for which all parties have shared the blame—has gone on for too long. It was only when the outcry from the individual sufferers from inflation became so loud that it could not be ignored that at last politicians of both parties began to talk at the top of their
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voices about the need to conquer inflation. It will need a little more than a 7 per cent. Bank Rate to convince these people, after virtually twelve years of steadily rising prices, with only about eighteen months intermission, that the job can be done, and, what is more, that the Government intend to do it.
Obviously, there are risks in a policy of very dear money. It is true that there are signs in the world which could be interpreted as suggesting that there might be a significant trade recession on the horizon. I will not go further than that. It is also true that about every two years we have had precisely or very nearly the same signs on the other side of the Atlantic and that that recession has never developed into anything so serious as to threaten the arrival of a world slump. It could be true, of course, that if there were the makings of an industrial recession already, then a 7 per cent. Bank Rate might accelerate it and might, on the classic analysis, so damage the confidence of business men that they would clamp down on their investment, cancel the expansion of plant and factories which they had planned, instead of trying to hold on to their labour force, turn it off at the earliest possible opportunity.
I think that, looking at the industrial scene in this country today, this is not the most serious risk. The right hon. Member for Huyton said that the approach of the European Free Trade Area makes it even more essential that we should change our industry from a low investment to a high investment economy, but he is overlooking one factor of equal importance: the approach of our entry into the European Free Trade Area also makes it essential that British industry, whether as a whole or in those sections which are most prone to it, should no longer be coddled into the belief that profits can be easily earned without matching increases in productivity and quality.
There is not the slightest doubt that in many sectors of industry profits have been too easy to earn. There is not the slightest doubt that the public in this country genuinely believe—in the case of some industries they are wrong, but in many industries they are perfectly right—that there has been what amounts to a conspiracy between management and workers to let costs rise and to pass the entire cost inflation on to the consumer

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in higher prices. Until there are some signs that that process will cease—and, frankly, I do not see how we can get it to cease except by making it impossible to finance the conspiracy—then I do not believe that confidence in this country or abroad will recover. Heaven knows, it is bad enough for dealers in sterling abroad to have to view the remote possibility of a Labour Government in two years' time, without our having to ask them to bear the additional worry of continuing price and cost inflation in this country. It must be stopped if they are to be reassured, if sterling is to be saved and if we are to claw back any significant amount of our lost gold and dollar reserves.
For all the talk of selective controls and of world international conferences, the soundest basis which I can see to meet the problem of internal inflation is a moderate credit deflation, or at least the prevention of continued inflation of the credit base on which this cost inflation has been built.
What the country will want to know is what is to be the reaction of the Government's policy not merely among the trade unions but among the employers. Of course, it is perfectly true, as I said before, that the employers could make nonsense of this if they were thrown into a panic and began to see a major slump on the horizon and took the sort of measures which traditionally before the war employers did take when they saw a slump coming. Therefore, I do not think that the Leader of the Opposition does the country any service by making the sort of speeches he has been making in the last week or two. It would equally be true that if a major trade union, having put forward a wage claim which was not justified in the terms of the Government's policy and which was turned down, decided to strike, it could do grave harm to the economy of the country.
I wish we could get hon. and right hon. Gentlemen opposite, particularly the right hon. Gentleman the Member for Huyton, who never ceases talking about declarations of war against the trade unions, to see precisely what is the distinction here. It is one thing to go around saying, as, I have no doubt, some foolish people do, that the Government must have a showdown with the trade unions and must force them to toe the line. It is another thing altogether to take what steps one honestly believes to be right—and it is the
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duty of the Government to do what they honestly believe to be right—for the salvation of the country's economy and to take the financial measures necessary, and then to find that a large trade union, a substantial body of workers, deliberately challenges the operation of the Government's policy by industrial action and through strikes.
If this were a matter simply of insulating the trade union movement against inflation it would be bad enough, because there are sections of the community who have no means at all of insulating themselves against inflation, not even that of petitioning the Government to raise National Assistance benefits and retirement pensions; but, of course, that is not what has been happening. It has become customary, if the cost of living goes up 3 per cent. in a year, for the next wage claim to be not 3 per cent. but 5 per cent., or 6 per cent. for luck.
The right hon. Gentleman himself cited the figures, that there has been a 61 per cent. increase in earnings and a 43 per cent increase in prices. He went on to say that the increase in real wages thus shown had been less than in other countries and then deduced from that the extraordinary proposition that this showed that productivity and expansion was the key to our problem, because productivity in Germany and the United States had been going up. The precise complaint is that real wages have been increasing here without a matching increase in productivity and without a matching expansion of the economy. Really, to define the symptom of the disease and then put it forward as the cure is pretty rich even for the right hon. Gentleman.
It is quite clear that this is a process which cannot continue. It is quite clear that the Government have now decided that it is a process which cannot continue, and they have taken the first steps towards ensuring it cannot continue. But the crisis has not yet come. Obviously, the crisis comes during the next round of wage claims, and it is during that crisis that the determination of the Government to halt—not merely to arrest, to slow down, but to halt—internal inflation will be judged. It is on the judgment which the people of this country make of the Government's determination that political support for the Government in other matters will

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depend but it is also on the determination so evinced that the future of sterling in the foreign exchange markets of the world will depend, and that is something which, we could all agree, is more important.
5.45 p.m.
Mr. J. Grimond: I certainly would agree with the hon. Member for Ealing, South (Mr. Maude) that no one owes sterling a living. On the other hand, I am not certain that that was a relevant comment on the suggestions made by the right hon. Member for Huyton (Mr. H. Wilson), who, as I understand it, was not saying we should borrow more from other countries, but that we should try to get together with other countries to discuss the general situation which faces the Western world. That seems to me to be a perfectly reasonable suggestion, and it seems to me to be all the more reasonable because, although in a slightly weaker and more garbled form, no doubt, I made it myself on 25th July. Many people do not believe that either this country or any other country can pull itself out of a recession—if by any chance we slip into a recession—by its own bootlaces.
Another thing I would say to the hon. Member for Ealing, South, is that I agree entirely with him about the importance of stopping inflation and the hardship which it inflicts on many of the poorest and most deserving people in the community, and I think he would agree with me that there is as well as the danger of under-estimating inflation also the danger of assuming that we can work an expanding economy only if we have inflation. That seems to me a most dangerous illusion. It is not historically true, and there is no reason why it should be true in the future.
The difficulty with the unions arises from the fact that the Government are both referees, so to speak, and taking part in the game. This is a grave difficulty which arises from nationalisation. The Government and the financial authorities should be seeking to fix the financial climate of the country in accordance with what suits our needs and saying it is for individual managements then to argue out with the unions, with their employees, wage rates and so forth. But the Government are almost in the position of
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being employers, in the case of the nationalised industries. So we get all the language of warfare coming in when there is a clash with the unions about wage rates.
I would make one or two comments about what the Chancellor said about the nationalised industries. As I understand it, there is to be no change in the method of financing the nationalised industries; the amount available to them will be reduced—and I agree with the right hon. Member for Huyton that this is a cut although it is called "rephasing"—but the method of financing them remains. But the methods of financing the nationalised industries should be reexamined, and they should be forced to raise money out of genuine savings. In July, their outstanding deficits were about £140 million or £150 million. The position in the nationalised industries seems to me very unsatisfactory, if the Government believe the main enemy is inflation.
The Government in September took action which, if it was inevitable to prevent devaluation and a flight from confidence in the £, should have been taken, but I must say that I agree with the right hon. Member for Huyton that it does look very odd indeed when one reads the speeches made in July.
The Chancellor seemed to me to speak again today as though inflation were a new phenomenon in this country, something to which the country has only just had to pay attention. I do not think he intended to, but that is the impression he often gave, although in fact inflation has been going merrily on ever since the end of the war at much the same rate. The right hon. Gentleman said, for instance, "that men go on putting up prices because they believe they can get away with it." Of course they do, but the reason they get away with it is because Government after Government let them. I hope that we are reaching the stage when Governments not only take responsibility fairly and squarely for the present position but admit that it has been their responsibility for a great number of years and that they have failed to discharge it.
Emphasis should be loud in the debate on the need to raise productivity and production. The current Bulletin of Industry contains some rather encouraging figures, but production in this country is not nearly so favourable as many

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people believe, and, so far, we have had no suggestion as to how it is to be improved. We have had suggestions for off-setting the lack of confidence in sterling and for reducing the fever in the economy, but to meet the fundamental need to raise production we have not yet had anything very concrete.
The first thing to be said is that our resources are not fully employed, and there I agree with the right hon. Member for Huyton. We may have comparatively few men on the unemployment registers, but our machines are not fully employed. This again is mentioned in the Bulletin for Industry, and emphasis is laid on the need for more shifts in industry, because, if we cannot have new investment, at any rate we must make sure that the investment we have is fully used. If we are moving into the electronic age, with immense investment in machines, we must work them round the clock, because otherwise, instead of being an aid to the economy, these machines will be a drag on it. Secondly, there appears to be an inordinate number of people on National Assistance. About half of them, of course, are old-age pensioners, and we know why they are on National Assistance. But who are the others? Why are they on National Assistance, and is the number a moving figure or a static one?
Then Colin Clark points out that the real total of goods and services available for the consumer per man hour worked in this country rose by only 1 per cent. between 1948 and 1955. Between 1937 and 1954, production per man hour expanded by only 18 per cent., which means that we have not been doing significantly better than we were doing in the 1920s and 1930s, and we have been doing worse than many of our competitive countries. This again emphasises that inflation is not essential to rising productivity.
We are not holding our share of world trade. It was inevitable that we should lose some of our share as the Japanese and the Germans come into the market, but the time when we should hold our share must surely have arrived.
These facts have a considerable bearing on the type of cuts the Government should make, and also on the similes they use. If our resources as a whole are under-employed, then to talk
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about pruning the roses, knocking off the over-ripe pheasant and pulling out the plugs is beside the point. The point is to get more electricity to flow, to get the roses to bloom more profusely though we need not necessarily plant any more. The thing is to make machines work harder. Do not cut out production expenditure but cut "unproduction" expenditure very hard.
We shall get the trade unions to accept shift working and working the machines harder if they believe that they are going to get a fairer share of the proceeds. The Queen's Speech two years ago made a great point that partnership in industry was part of Government policy. But nothing has been done. Certainly it is part of Liberal policy and we want to see something done. Suggestions should be examined for making it effective in industry. Secondly, in spite of what the Chancellor has done, we must still adjust taxes to allow us to write off machines more quickly. I do not believe that the historical basis is good enough today, and I feel that a great deal more weight should be put on getting new machinery and getting it used.
Further, if increased productivity in this country is achieved, it will be of use to consumers only if it results in a fall in prices. At the moment, we have competition in everything in this country except in prices. There is competition in coloured wrappers, in advertising, and in all sorts of ways of getting at the consumer, but in prices there is not nearly enough competition.
The Chancellor of the Exchequer took a very honourable and lengthy part in setting up the Restrictive Practices Court. Perhaps it is too much to ask him to introduce a Bill to strengthen that court still further, but I regret very much that it has not been given more power than it has, including power over monopolies as well as price rings and other forms of restriction. The Chancellor is one of those in the Conservative Party who from time to time is smeared as a crypto-Liberal, especially at by-elections. I appeal to that side of him once again. If productivity is to be increased, it must be reflected in a way in which the consumer can benefit, that is to say in lower prices.
As the Chancellor has said, the counsels of the economists are darker than ever.

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Half are shouting "Back, back" and the others are shouting "Forward, forward." Some think that we are going to plunge into a terrible slump and the others are fighting inflation for all they are worth. The Bulletin to which I have referred makes it clear that money income is still outstripping production, and there are no signs in this country yet that inflation has been curtailed, far less stopped. But if we are going into a situation which is more deflationary, I would say that it is all the more necessary that we should set our house in order.
I do not believe that we can take Keynesian measures about inflation if our house is out of order and there is complete lack of confidence in our ability to manage our monetary affairs. Be it said again that that lack of confidence is political as much as economic. If there is a failure in demand, one reflates, one reduces the Bank Rate and increases public works, but we cannot do that if we have no reserves and the rest of the world is strengthening its currencies against us. Therefore, if we are nearing deflation that does not reduce our obligation to get our finances in order, to get our reserves built up and the current inflation curtailed. In any case, as the Chancellor has said, for the sake of the mere ability of the Government to raise money on the market it is essential to have more confidence than there is in our finances and politics here today.
I return to the matter with which I began, and that is the international position. Are we taking any steps to deal with the fall in commodity prices internationally? I thought on reading the letter in The Times this morning that the best thing we can do if we want to help underdeveloped countries is to earn and save a surplus ourselves, but surely that is not the end of it. There is a case for considering with America and the Commonwealth what other steps can be taken. There might be a rebuilding of stockpiles, though that would be difficult with the high rates of interest in this country at the moment. But what steps are being taken to consider the international difficulty of a fall in raw materials, with all the possible results to which the right hon. Member for Huyton referred—the call on balances in this country and great social
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unrest in the Colonies, in India and in Asia generally?
Secondly, are we even discussing the European and Atlantic aspects of the possibility of a slump? There are points in N.A.T.O. which could be used to enable some joint effort to be made by the countries concerned if it should prove that the slump in raw materials passes over into an industrial recession. My own feeling at the moment is that September showed up in its most stark and alarming form our continued failure to manage our financial affairs successfully. We should not only restrict credit but stop borrowing short and lending long and stop the easy habits we have fallen into. We must take positive measures to increase productivity and confidence in industry.
Thirdly, whilst to my mind there is still the danger of inflation, we should be, with our friends overseas and the Commonwealth, putting ourselves in a position in which we can meet a recession without undue hardship if it should come.
My last question to the Chancellor is this. Has this matter been discussed with the Finance Ministers of the Commonwealth? Otherwise we may find ourselves in the position that each country of the Commonwealth, as has happened before, begins raising its tariffs to protect its own market and economy, with the result that we all cut our own throats.
I hope that by the end of this debate we shall have had answers to some of the questions which have been raised about the events of the last two or three months.
6.1 p.m.
Sir Ian Horobin: Without speaking at equally intolerable length, I could not follow all the points made by the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) in his speech, some of which have already been demolished by my hon. Friend the Member for Ealing (Mr. Maude). Most of the rest were either fantasy or irrelevance. The figures given by the right hon. Gentleman purporting to be a calculation of the real level of the reserves showed, as far as I could follow them from him, that they now did not exist at all: his "fall" was greater than the original total.
The short answer to most of his speech seems to me to fall into two broad propositions, and both of them are relevant to

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any useful consideration of this problem of inflation. First, in spite of all the misery-mongering, if we compare 1957 with 1951—indeed, if we compare the plans for the next year, as cut—we shall find that this country is producing more in real terms, it is consuming more in real terms, it is saving more in real terms, it is investing more in real terms. And anything which attempts to disguise or deny those elementary and fundamental facts is doing a grave disservice to both the international position of this country and to any useful consideration of the grave problems which confront us.
Not only so, but I will add two other facts which it seems to me the Government should use all their powers to put before, and keep before, the country. It is just not true that even as regards social services we are not doing far more. There are more school places, there are more teachers, there are more nurses, there are more hospitals. Even the tragically low real level of pensions is higher than it was in 1951. Wherever one touches the social services, both in what we are doing and what we propose to do even with the cuts, we are doing far more than we were doing even a few years ago. This country is still developing, both in its production and in its welfare services to its citizens, at a rate of which we none of us have any reason to be other than proud.
I will make one further point before I leave that part of what I shall say in answer to the niggling misery of the right hon. Gentleman the Member for Huyton. Even in the nationalised industries, of which we on this side of the House are supposed to be such bitter doctrinaire enemies, we are doing far more. Even with the proposed cuts we shall still be doing far more in every one of the nationalised industries than the Socialists ever did. The capital programmes of every one of them, whether in transport or coal or power, are far safer under a Conservative Government than they are under the administration of hon. and right hon. Gentlemen opposite.
Mr. S. O. Davies: The same applies to steel, of course.
Sir I. Horobin: The second thing which we must never forget in any useful debate on inflation is that whatever Socialism may have done—and no doubt it did some very good things as well as,
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from our point of view at any rate, some very bad things—whatever it may claim to have done, it neither stopped inflation nor did it stop foreign exchange crises.
Even if, for the sake of argument, we accept the extraordinary proposition which the right hon. Gentleman the Member for Huyton put before us, that in fact there has been a far worse foreign exchange crisis in the last three years than there was in the time of the Socialists, surely on a moment's consideration that argument turns heavily against him? For if we have been able to deal with that without bread rationing, without devaluation, without any of the other things that went on, surely he could hardly have given a more flattering testimonial to successive Conservative Chancellors?
I will make one technical point, which I think should not be overlooked, as to the difficulties which have faced both Socialist and Conservative Governments in dealing with this matter of foreign exchange in the altered situation of this country since the war in its balance of foreign assets and debts. As has been pointed out over and over again, and tonight by the right hon. Gentleman, before the war we were a heavy creditor nation. We came out of the war, for reasons of which none of us have any reason to be other than proud, a heavy debtor nation. But it is really the height of impudence—I must use the word—to speak as if this were something new, and for him to proffer advice to the Government, to talk of Ghana and the rest.
If there was one tragic error of financial judgment made by the Socialists which has bedevilled us ever since—and it had nothing to do with Socialism—it was the failure to deal with the sterling balances after the war when they could have been dealt with. If they had been at least funded, if not reduced, we would not have been in this appalling position, which was just as difficult for Sir Stafford Cripps to deal with, as it has been for us. Therefore, I think we on this side of the House need stand in no white sheet, and are in need of no advice from the Opposition, who failed to deal with it when they could have done.
So much for the right hon. Gentleman. I first came into this House over twenty-five years ago, and I seem to have been preaching ever since the elementary, classical doctrine that the foundation of

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any defence against inflation is dear money. Therefore, I know that the Chancellor and the House will not be surprised that, as far as I am concerned at least, the recent governmental measures in that respect have my heartiest support. Indeed, I will go so far as to say that the purely foreign exchange side of our problems is really solved. This will be greeted no doubt as mere complacency. According to the right hon. Gentleman the Member for Huyton, we are always either complacent or in a panic. If sterling can stand up to Suez, to the devaluation in the franc and the deutschmark market in the last twelve months, it can stand up to anything—no, I apologise, it will not stand up to the right hon. Gentleman. That would be asking too much.
We are left—and that is what this debate is supposed to be directing itself to especially—with the problem of home inflation. I can go further. Not only is it the problem of home inflation, but most of the other parts of that problem itself have already been dealt with. For instance, over and over again we have had arguments from the benches opposite, I think always much exaggerated, that a large part of the monetary demand was due to capital appreciation.
Well, the Chancellor has done more than even the most vicious and unfair capital gains tax could do to deal with that aspect of the problem. There have been precious few capital gains wandering about since the seven per cent. Bank Rate. The same thing applies to a large extent, if not completely, to profits. Every company return we see day by day now shows that already the profit margins are melting away. The day of easy profits has gone. It went on much too long, but now it has gone.
Anybody who faces the situation impartially and with a clear mind will realise that we are left with only one large remaining pressure of monetary demand in this country, wages and salaries. It is a matter of arithmetic. The figures have often been given. Unless and until we deal with the problem of the ceaseless automatic reflex demands, at twelve monthly, six monthly, three monthly intervals, for wage increases, totally unrelated to production or anything else, the inflationary problem will remain unsolvable.
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The trouble, of course, is that unfortunately anyone who says that is immediately faced with the accusation that he is declaring war on the trade unions. That is nonsense. If anybody has declared war on anybody the boot is on the other foot. We have had statements—I do not want to exacerbate the position—but we have had some unfortunate statements from certain trade union secretaries, from the Boilermakers' Union, for instance, saying in set terms that the public interest came a very bad second to the private interests of the members of that union. I have not quoted exactly.
Mr. Walter Monslow: I have had occasion to speak to trade unionists whose rents had been increased from 10s. 6d. to £1 5s. 3d. Would not the hon. Gentleman regard the notorious Rent Act as some cause of inflation?
Sir I. Horobin: No. This is not a debate on housing. We discussed the matter over and over again when dealing with that Measure. Perhaps I can refer the hon. Member to my speeches on the subject. I am perfectly prepared to deal with it on another occasion.
Many people are still very worried about the way in which the Government's policy is working out. Just as it is impossible to plan everything from A to Z, as the Socialists try to do, and to leave out T.U.C.—wages and labour—so I am afraid that this dear money policy may be treated not as the starting point but as an alibi. I am certain that no monetary policy by itself can avoid dealing directly with wage claims at their present rate. To rely on its doing so would only produce chaos, and might well produce the slump about which hon. Members and right hon. Members opposite have been speaking.
In the recent campaign we heard some promises from the Government that the time had come to say, "No". However, there have since been some very disturbing statements. I hope that I am not reading too much into them, but they suggest that the Government are trying to slide out of saying "No" and are hoping that by putting on the monetary squeeze sufficiently now they will be able to contract out of their responsibility in respect of wage demands.

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That is both economically and politically impossible. It may be possible in the case of the railways because they are dependent on the Government for their weekly wages cheque, and if the Government will not write the cheque the railways cannot pay the wages. At the moment, I am not concerned with whether that is the right way. It may work there. If, however, to take another example, if in spite of opposition from the farmers there is an independent award for agricultural workers, the Government can refuse to make any adjustment in agricultural payments. That would be nice for Saffron Walden, but it would not stop the effects of inflation and there are other classes of wages where the power of simply not providing the money does not exist.
There is another reason why it is economically impossible for the Government to contract out of their responsibilities. Anyone in business, certainly in the City, will agree with me that when we saw on our desks "Bank Rate 7 per cent.", even those of us who had been asking for a higher Bank Rate for ages said "Goodness!" They really mean it!" It had never occurred to us that the Government did mean it. We thought that they would continue to lecture and go to the "Three Wise Men" or to the three blind mice, but we never expected that the Government would show that they meant it by raising the Bank Rate to 7 per cent.
Exactly the same thing applies to saying "No" to wage increase demands. This is partly the answer to the legitimate point of the right hon. Gentleman for Huyton about the velocity of circulation. The reason why money went much faster although the total volume did not increase proportionately was that nobody believed that inflation would stop. As soon as it is believed that inflation will stop, the velocity of circulation will decrease. Anybody who was in Germany in the time of the great inflation will admit the truth of what I am saying.
The point is that as long as British employers do not believe that we can or will stop the ceaseless rise in wages, they will not be deterred by anything short of a completely catastrophic Bank Rate, because if they believe that it will cost much more to install new machinery next year than now, they will put up with almost any Bank Rate.
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As long as the Government try to contract out of dealing with wages, businessmen will not believe that inflation will be stopped, just as they did not believe that the Bank Rate would be increased to 7 per cent. until it was increased to 7 per cent. It is economically impossible for a Government in the modern State simply to take monetary action, however strongly, and then to try, for reasons good or not so good, to avoid saying "No" after having given a strong lead.
It is also politically impossible, because there is no doubt, desirable and necessary as these steps are, that what we have done so far is to complete the ruin for a time at least of anybody and everybody who has ever voted Conservative or ever will. The thoughtful young man trying to build his own house has been hit. The young, active businessman without huge liquid resources who has been building up a business has been hit. The poor, desperate, struggling grandparents trying to send a boy to his father's school out of heavily depreciated savings have been hit. If the Government then continue to let the trade unions get away with it, they will produce a political situation which will make Gloucester look like a unanimous vote of confidence.
The Government say to trade unionists and wage earners that if they want more wages they must earn them. If the Government want more votes, they must earn them. This winter will be their last opportunity. Time is running against them in this matter, not only in the very obvious sense, but in a much more fundamental sense. If new wage claims are injected into the industrial system this winter, in a year's time we shall need a credit squeeze of an outsize measurement enjoyed by an hon. Lady opposite.
Mr. Victor Collins: What is the hon. Gentleman's view of the situation of some 4 million workers whose wages are tied to the cost-of-living index and who do not need negotiations to get a rise? Their wages will increase in any case if the cost of living increases. Does he expect other workers to sit still and not to apply for wage increases when their fellows get increases automatically?
Sir I. Horobin: That shows the complete unreality of the country's present wage system. I am grateful to the hon. Member. What he has said only

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strengthens the case I am making. It is not possible, in 1957, with the Government so much in it, as employer, paymaster and controller, for them not to have a wage policy, and for them not to say what it is. I do not think that the country is bothering very much with the alternative proposals, such as we have heard from the right hon. Member for Huyton; we have had all that, and we do not want any more if we can help it.
The practical question is whether this policy will be worked to its logical conclusion. I believe that there is a great body of opinion, not by any means confined just to Conservatives, which is sick to death of this silly, slovenly, self-defeating catch-as-catch-can which has been going on for twelve years and is a disgrace to a business-like country. It can be stopped; it ought to be stopped, and it must be stopped. But it will not be stopped unless the Government, this winter, take the necessary steps not only to make money scarce, but by all the means in their power, in tribunals, negotiations, and as employers, to see that the one remaining large contributory cause of inflation—wage demands—comes to an end.
If we can only do that, not only shall we be able to point to years of real genuine progress—and we have had progress in the last twelve years; there were very great improvements in many ways under the Socialist Administration—but we shall be able to continue it upon a sound foundation. But, without that sound foundation, all will be lost.
6.22 p.m.
Mr. Frederick Lee: I am pleased to be able to follow the hon. Member for Oldham, East (Sir I. Horobin) because he has dealt with certain aspects of these problems with which I also want to deal. First, over the years since 1952 many hon. Members on this side of the House have suggested that the type of economic policy which the Government have pursued has been completely inappropriate to the conditions through which the nation has been passing. We have said that we felt that the effects of that policy upon industrial production would be rather deplorable and prejudicial to the long-term interests of the nation. Today, those prophecies are seen to have been right.
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I do not wish to go through the economic arguments again, but it is now quite obvious—no matter whether the Government believe that those policies were right from the point of view of their own political philosophy—that their effects upon the national position has been deplorable. Most of all, we have sought to emphasise the fact that the effects of those policies upon industrial relationships would be catastrophic, and the speech which the hon. Member for Oldham, East has just made certainly shows that the present position in industrial relationship justifies everything that we said by way of criticism of the Government's financial policies.
Those policies have driven the most responsible and constructive trade union movement that the world has ever seen into a position of having desperately to defend the living standards of its people against the encroachments of the Government. In consequence, the co-operation which existed for ten years since the end of the war between the trade union movement and Governments of both parties—the co-operation which played a vital part in bringing a war-torn nation through the greatest crisis in its peacetime history—has now been rejected out of hand. It should be made perfectly clear, in the midst of the campaign which is now being waged to damn our trade unions, that that campaign is being directed against those whose low record for lost time in industry, through strikes and similar action, is the admiration of practically every other nation in the world.
It should also be made clear, when we hear these speeches about wage demands, grabbing, and so on, that the living standards of our people are now well below those in many other countries. From the facts of the present situation it would not appear that they had been very successful in their attempts to do as the hon. Member suggested.
Much of this destructive criticism, which approaches the dimensions of a kind of disease, seems to consist of howls of anguish about taking advantage of full employment to hold the nation to ransom. It seems to emanate, in the main, from sections of the community which have always held that that sort of activity constitutes sound business practice. To those British Tories, so many of whom are

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joining in this criticism, I suggest that it is a little late in the day for them to discover that there is a basic immorality in the law of supply and demand. I do not agree that the trade unions have embarked on anything of that kind; as I see it, it certainly does not lie in the mouths of those who have preached the law of supply and demand for so long to condemn the unions on that ground now.
We are facing a most serious situation —a situation probably more serious for industry than any in the last thirty years. I listened to the Chancellor with great interest today, but I am still asking what the Government are proposing to do about it. Do we now take it for granted that they are just going to sit back and allow the storm to break? Theoretically, they are still in a neutral position, but it would appear from the attitude which they are now taking that they accept themselves as part of the opposition to trade unions. We are entitled to know whether they have any constructive moves in mind to bridge the immense disagreement which is now so obvious to us all.
I want to ask a straight question, following the Chancellor's statement today. Are all wage advances in the nationalised sector to be refused? Is it a fact that the Chancellor's declaration means that no more wage advances are to be agreed to in that sector? If so, it means that we have reached the most deplorable crisis. Ministers who continue to pay lip service to the principles of collective bargaining have, in fact, broken down all those principles.
About sixteen months ago, when I suspected that this sort of policy was in contemplation, I wrote a letter to The Times, published on 9th July, 1956, in which I said that such action would appear to force strike action against Government decisions. I returned to that theme in a letter which I wrote to the Manchester Guardian a few days ago, specifically upon the issue of the London busmen's wage claim. I would like the Minister of Labour—who, I understand, will speak tomorrow—to address himself quite specifically to these issues, which concern the future of our collective bargaining system. In my letter I said:
"Our industrial bargaining arrangements flow from the proposition that the two sides of a given industry are free to arrive at decisions
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on wage rates, and that in the event of a failure to agree they may obtain the assistance of the Ministry of Labour for purposes of arbitration and conciliation. This procedure applies whether the industries are members of the private or the public sector…The matter becomes even worse when we examine the position of the Ministry of Labour. Apart from the fact that the Ministry does not offer its assistance until the machinery of negotiation within an industry has been fully used, it is impossible for a Minister who is party to the refusal to pose as a disinterested and neutral seeker after justice. Such a situation would appear to invite not only strike action but strike action against the Government."
Today, it was noticeable that the Chancellor himself was obviously addressing his remarks, as he himself said, to those who work for wages, to those who pay them, and also to those who adjudicate on them. Is it then the fact that the Government have now abdicated their position as the authority which holds the scales of justice in these matters? Is it now the fact that those who sit on tribunals to arbitrate in any way are being told in as many words—for that was my interpretation of the Chancellor today—that they are not to agree to any future wage advances?
Mr. Osborne: Will the hon. Gentleman allow me? Surely, he is not being fair to my right hon. Friend the Chancellor? The Chancellor said that no wages increases were justified unless accompanied by increased productivity. Surely, the hon. Gentleman remembers that the late Sir Stafford Cripps laid down that principle time and time again? If it was right for Sir Stafford Cripps to say so, surely it is right for my right hon. Friend?
Mr. Lee: I am pleased that the hon. Member for Louth (Mr. Osborne) has made that intervention, because it is a point to which I want to come almost at once. I want to act on the assumption that the Government are as concerned in these matters as I am, and this is partly the answer to the hon. Gentleman. I want them to make their position quite clear during this debate, because much will depend on how they answer these questions. I am putting these questions because throughout the country at the moment people are confused as to what their policy really is in these matters. I am asking which stand do they take on this issue. Is it the fact that in the nationalised industries no more wage

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advances can be given? The Chancellor has now said that the employer in the private sector of industry might come along and take the same stand along with him, and that those who adjudicate on tribunals should follow the same line of thought.
I come now to the point which the hon. Member for Louth was making. He said that the Chancellor's point was that only by giving increased production could anyone, in fact, expect to get increased earnings. I put the question now to the Minister of Labour. Is that the position? If so, let us have a look at it again. The Government in their policy and arguments are running two completely contradictory propositions. First, the Chancellor says that the great need of the moment is to damp down on industrial expansion; in other words, to curtail the ability of the workman to increase his production at all anywhere. Secondly, it is that, as the hon. Gentleman opposite put it, increased earnings are now to be tied to increased productivity. "The economics of a madhouse" is really a mild way of describing this policy.
I now introduce another issue. I have said on a number of occasions in this House that the policy of tying increased earnings to increased production really cannot function as a long-term policy at all. I well remember the late Sir Stafford Cripps making the statement to which the hon. Gentleman has referred, and it was never intended to be anything but a short-term policy. Let me show the hon. Gentleman where it gets us.
Firstly, it presupposes that everybody working in industry is employed on a payment-by-results basis. Unless people are employed on a payment-by-results basis, they cannot increase their earnings by increasing their production. Throughout practically every manufacturing industry in Britain—the large type, any way—there are many thousands of people who cannot possibly increase their earnings by a single penny by increasing their physical effort. Indeed, I go further. We are now going into a phase in which automation and that kind of thing is the order of the day, and more and more we are thereby taking away from the individual the power over his own rate of production. Therefore, this policy does not stand up to examination at all, and I
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hope that the Minister of Labour, when he speaks tomorrow, will give his point of view on that matter.
We heard from the Chancellor today his defence of what the Government are doing in the way of capital cuts. He said that it was a matter for congratulation that they were maintaining capital development at something like the pace of last year. When we examine what is happening among our competitors, we realise that merely to aim at the levels of last year, while doing it on a bigger industrial basis, is, in fact, the equivalent of a cut in capital expenditure. Failure to expand is the way to invite a recession and extremely serious injury to our economy.
I was reading the other day that the United States Department of Commerce estimates that further high levels of plant and equipment expansion are now taking place there. The total capital investment in United States business in 1957 is anticipated to reach the peak level of more than 37,000 million dollars, an increase of 6 per cent. over 1956. It is not merely a question of quantitative change. We are going through a period of intensive technical change where plant is concerned, and in that process of technical development very many jobs disappear. That is what the operation is all about. To introduce what we could describe as a stagnation economy—an economy which is not expanding—at a time when we have this intensive technical change, is indeed a prime way of inviting a recession and unemployment.
On these matters, the Chancellor's assurance—which is what it was intended to be—that the level of investment will not fall sounds very much more like a threat than a promise to me. Those of us who argue that the State must take a more active part in the ownership and control of industry must ourselves face the logic of what we are asking for. Industry cannot function in a vacuum. These huge blocks of economic power must exist to serve the nation as a whole, and, while this might appear more obvious in the case of the nationalised industries, I hold that private industry also has an enormous responsibility to the public.
For my part, I do not argue that the Government are wrong to concern themselves with the pattern and structure of

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wages and salary payments. It may well be that we have reached a position in which an interest in these matters has become a prime condition of the ability to govern. Therefore, I do not criticise because the Government are taking a more than usual interest in matters of wages and salaries. My argument is that it is quite wrong for the Government to intervene merely to take the negative action of ensuring that, irrespective of merit, wage demands are rejected. That is not a policy; it is an entire negation of policy. It does not propose the setting up of machinery to take the place of what we have now. It destroys what we have and puts nothing else in its place. It means—indeed these are almost the words of the hon. Member for Oldham, East—that if the Government decide on a type of financial policy which may be inconvenienced by our existing machinery of negotiation, we are to push a bulldozer through the whole issue. That is not even democracy; it is dictatorship. It is with that kind of issue that I wish to concern myself.
Sir I. Horobin: I do not want to interrupt the hon. Gentleman, but I know he would not wish to misquote what I have been saying. Certainly I would not accept what he has just said as a fair statement of what I was proposing. If he will read my speech, I do not think he will be able to construe it as a demand for a dictatorial destruction of the whole present system of wage negotiation. He should either quote me or say something which I agree represents what I said. The hon. Member should do one or the other, but he must not put words in my mouth.
Mr. Lee: I think the other way. If the hon. Gentleman reads what he said, he can hardly fail to attach that meaning to it. I may be putting the matter rather bluntly, but I have a habit of doing that. I take it that the words he uttered meant that, irrespective of the fact that there are now extensive agreements and arrangements under which negotiations about wage increases or reductions are conducted, the Government must come down flat-footed and refuse to sanction any wage demand in any industry over which they have any control at all. That was the inference which I drew from what the hon. Gentleman said.
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I noticed that yesterday the Manchester Guardian gave the Government some advice about this. It stated
"No doubt the Government would find itself in hot water politically if it were now to declare its intention to resist wage increases in the nationalised industries; but it might be the way of avoiding greater hardship in the long run."
If that be the new Liberalism, I begin to wonder where we are going. I have tried to make abundantly clear that I am not opposing the idea of the Government intervening in a constructive way to try to regularise the arrangements and agreements appertaining to great industries. I do object to the Government merely being destructive and being a bulldozer that is driven through all agreements without bringing the parties together or substituting anything for what exists already. That is tantamount to complete chaos.
What is the position regarding the three or four million people whose wages move with the cost of living? How does this policy apply to them? Do we take it that from now on there will be a sort of order issued by the "Minister of the Interior" declaring that such agreements are the devices of deviationists and are hereby prescribed? That is the whole logic of the situation, and precisely where this policy gets us.
I know, or I feel, that there is a sector of industry which is a "blind spot" in our negotiation arrangements, and I believe it is this sector which is causing the Government considerable apprehension. What do we do about those industries which in the main, from their very nature, are in the nationalised sector, which are vital to the nation's economy and which cannot make a sufficiency of profit? I am thinking of railways and that sort of thing. I wish to remind the Minister of Labour and National Service of the Cameron Report of January, 1955. It is a report of a dispute between the National Union of Railwaymen and the British Transport Commission. I wish to read part of a letter sent by the then Minister of Transport and Civil Aviation —now the Minister of Pensions and National Insurance—to the National Union of Railwaymen:
"After making full and careful examination both of the Commission's statement and of the views of the National Union of Railwaymen, the Government consider that, inasmuch as the normal processes of negotiation and

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arbitration have not been exhausted, they could not intervene without dealing a serious blow to the negotiating machinery in this industry and indirectly in the rest of industry as well. The Government could not properly substitute themselves for the British Transport Commission as parties to the wage negotiations. They are strongly of the opinion that the National Union of Railwaymen should take part in further discussions with the British Transport Commission in order to see whether agreement cannot be reached. They are convinced, however, that in the event of agreement not being reached, the right course for the National Union of Railwaymen is to take their claim to the Railway Staff National Tribunal in order that it may be considered, in the Commission's words 'on its merits'."
Have the Government departed from this? Do they still agree that if they now intervene and place themselves in the position of one of the nationalised boards, they are, in fact, dealing
"a serious blow to the negotiating machinery in this industry and indirectly in the rest of industry as well."
We should like to know precisely where the Government stand on this issue. As I understand their policy, they are now completely contravening not only the spirit but also the letter of the communication which was sent in 1955 by the then Minister.
May I go a little further and quote again from this very interesting Report, because I believe that much of the trouble today stems from the fact that the Government did not do something about this Report in 1955. The following is a quotation from something said by Sir Brian Robertson when the wage negotiations had broken down:
"We do not regard the proposals we have put forward as being ideal or final. When you say to us that people who work on the railways are not paid as well as those in other industries and are not paid enough, you will find a broad measure of agreement from our side. It is when it comes to finding the answer to that dilemma that we are unable to reach a settlement with you. …It is a question of money. I said that our proposals are not regarded as being ideal or final."
In other words, we have to remember the industries—and this Report refers to a type of industry which is representative, and that is why I have quoted from it—which could not function were they dependent upon the profit motive.
My last quote from this interesting Report is something the Commission itself said. It reads:
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"Where…the employer is bound to keep his business going and can neither show a working profit, nor shift the scene of his operation, nor reorganise his capital structure, nor be wound up by his creditors, then the factors which are understood by all as affecting the wage rates in normal industry are absent."
I suggest to the Government that in this sector, which I am certain is the one causing them so much apprehension, there is no clear understanding about the Government's position. I do not know in what way the Government propose to tackle this. There has never been any clear definition of the function of the Government in respect of collective bargaining in those industries. As I have said, the principles necessary for successful collective bargaining are not present. Unless we can now get a constructive approach to that problem, we are in for—I will not say what I was about to say—a lot of industrial misunderstanding.
I say to the Government that I am frankly apprehensive about the next few months regarding British industry. I believe that the Government are to blame for having broken down the spirit of cooperation which was theirs for the asking and which was enjoyed by the Labour Government for six years. It is not now sufficient for the Government to sit back and say, "We refuse to consider wage advances. We believe the trade unions are wrong. It is for them to disprove what we are saying." Surely it cannot be too late to make an attempt to determine the principles upon which we can reconcile these very real differences.
It has never been my purpose to argue that the methods of industrial relations of the nineteenth century represent the last word in perfection, any more than I believe that the methods of production of that period should be made static. If it can be shown that our present methods of negotiation are not appropriate for the circumstances of today, it is for the Government to say what should replace them. The great tragedy is that the Government have now broken down the trust necessary for such a major operation.
Nevertheless, I ask them to make a constructive approach to the trade unions rather than take the negative attitude of the Chancellor of the Exchequer today. Let them find out if there is a basis upon which there can be a proper working arrangement for wages in the nationalised industries. That is vital. It would be

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criminal for the Government to refuse to take such action and merely to sit back and let matters drift. If they do that, there can be no answer to the charge that they are more concerned with opposing the trade unions than they are in getting an agreement to tide us over a very difficult period in the economy of this great nation.
6.43 p.m.
Mr. David Price: I am tempted to follow the line taken by the hon. Member for Newton (Mr. Lee) and to discuss wage negotiations. If we pursued his argument, I think we should find that there is far less difference between us than may appear superficially from the hon. Member's remarks. I believe the hon. Gentleman has not really got the point of what my right hon. Friend the Chancellor is trying to do. We are not trying to interfere with the machinery of negotiation. My right hon. Friend is laying down general principles for the regulation of the supply of the money by which alone wage and profit increases can be paid. That seems to be a very proper function of the Government and should receive the support of all sides of the House.
The right hon. Member for Huyton (Mr. H. Wilson) once again quoted certain figures about the balance of payments and I tried on a number of occasions to intervene to challenge them. It was clear during two or three recent debates that whoever had done the right hon. Gentleman's homework for him had done it wrong. The right hon. Gentleman declared that between 1949 and 1951 on our balance-of-payments account we had an addition to our reserves through a surplus on our balance of payments. From my back bench position I interrupted him and asked, "What about foreign loans?" He said that he had taken those into account. I should be delighted to send him my figures to show his error. In fact over these years there was a net loss of 1,603 million dollars. In these debates we should try to find as much common ground as possible, but we should not go on repeating figures that are demonstrably wrong.
I have a horrible suspicion as I go round the country that people of my generation feel that in Parliament we are rather a fractious lot, more keen on pursuing party differences and our own
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careers than on advancing the nation's interests. We here know that that is not the truth, but that impression is abroad. The more common agreement we can get on these great issues the better for the country; so let us try to see where we can agree. The first thing is to recognise the background conditions which affect our economy.
I was a little surprised that the right hon. Member for Huyton dismissed rather contemptuously the proposition that the United Kingdom consists of 51 million people in an overcrowded island capable of producing only 45 per cent. of their food requirements from their own soil; that we have practically no raw materials, excepting some iron ore and some limestone; that there is an increasing shortage of indigenous fuels relative to our growing energy needs and that we live on our imports and exports. It seems essential to remind the country that we are a nation not so much of producers, but of converters of raw materials, of merchants and manufacturers. It is not a question of "production at any cost," but of production in relation to all import factors in production, of which I may add labour is only one.
The second fact is our lack of reserves. I have quoted in this House before a figure which I venture to repeat. In 1938, every man, woman and child in this country was owed £75 by some foreigner. That simple calculation is arrived at by taking our external assets and liabilities and dividing them by the total population. By 1955 the position was reversed; every man, woman and child in this nation owed some foreigner £59. I was glad to see in a recent publication that the right hon. Member for Huyton quoted figures which bore out that statement. Whether he took them from my earlier articles I do not know, but two minds can think alike even when they sit on different benches.
We are behaving like children when we start attacking each other across these benches because there has been short-term speculation in sterling, and try to make party capital out of it. I ask the two front benches to make the position clear to the country. However well we do in the battle of inflation we are still, in building up our reserves, facing a hopeless position. We cannot balance our

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total assets and liabilities. When we come to our working reserves and the maintenance of our gold and dollar reserves, which finance the trade of the whole sterling area, let us not argue about individual fluctuations. From the end of the war we have had only enough reserves to finance about 5½ weeks' trade within the sterling area and ten weeks if we take imports alone.
The world we live in is so much smaller now than it was formerly. Phineas Finn and Mike Todd went round the world in 80 days, but the Sputnik now goes round it in 80 minutes. This is a world in which economic isolation is impossible, although we still get the unrealistic invocation from that satellite of Lord Beaverbrook, the Daily Express, that we should go into economic isolation. We are in a world where isolation is no longer possible. The pace of modern science demands that we change the pattern of production in this country every year. The backward nations of the world are on the move, wanting their places in the sun, and they are in a great hurry to get them. They are all short of capital. Above all, there is the economic dominance of the United States of America.
In that situation there are four economic objectives upon which we ought to agree. The first is to maintain the external viability of our country on current and on capital account. The second—and this connects with the remarks of the hon. Member for Newton—is to maintain a sufficiently high level of investment to ensure that in an age of rapid technological change British industry remains competitive. The third is to maintain the value of our currency internally, as well as externally. The fourth is to ensure the full employment of all our resources. I believe these are objectives upon which we could all agree.
If, following from that, we look at the problem of inflation which is the immediate cause of this debate, then only do we get it into perspective. It is only one of our economic objectives. When people ask for the halting of inflation, they forget that that is only one of our economic objectives, and that we have to get the balance between them right. If the halting of inflation were our sole economic objective, and be damned to all the remainder, we could go in for a strong
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deflationary policy and we should certainly get stability of the currency. I do not think that there is any doubt about that at all.
But once one goes into the problem of balancing these four objectives and the policies necessary to secure their maintenance, one faces a very difficult problem. When anyone in this House or in public suggests that that is an easy thing to do, he is failing to face up to the problem. I suspect that some of the falling away in political support from my own party and the fact that it has not gone to the party opposite is due to people looking for an easy answer to inflation. They know that neither of the two major political parties have a gimmick to offer.
As my hon. Friend the Member for Ealing, South (Mr. Maude) said, there is no painless method of dealing with inflation. I think that we all agree that we cannot achieve any of these other three objectives which I have suggested if we go on inflating at the rate that we have been doing since the end of the war, whereby in the last twelve years we have had a 60 per cent. depreciation in our currency. There are important economic reasons, quite apart from the social damage which occurs to certain sections of the community, as all my hon. Friends speaking before me have pointed out to the House, why we must halt inflation.
When we come to deal with inflation there are only two alternatives. The first alternative, which I believe that my right hon. Friend has been trying, is to relate the supply of money, and relate it accurately, to the volume of resources being produced in the country. I emphasise the word "accurately" because the Government have nearly done it. There are those who say that the problem is only marginal. But it is an important margin. It is rather like a clinical thermometer where three degrees may make all the difference between good health and Asiatic flu.
I am sure that economists would agree with me that when one looks at the political economy as a whole, and gets away from academic exercises, it is almost impossible to work out an ideal balance between money and resources. Yet, in practice, we have either to do that or go

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in for a fully planned economy, by which I do not mean planning as right hon. Gentlemen opposite understand it, but as it is done in the Soviet Union where all the factors in production are planned and controlled. If one goes further than my right hon. Friend in planning through monetary incentives and certain controls such as C.I.C., and restricting dollar imports, one has to go the whole way. If one attempts to plan economic resources in detail, then one has to plan labour in detail. In other words, one has to have a national wages policy and be prepared to enforce that policy against those who oppose it.
I know that right hon. Members opposite would not like that, and I do not accuse them of proposing it, but it seems to me that it is a little disingenuous for them to attack as strongly as they have been doing the monetary policy of my right hon. Friend without saying what they would do about the problem of relating money to physical resources.
I would ask whoever is to reply for the Opposition, what would they do if they were sitting on the Treasury Bench at the present time? What would they be doing in regard to monetary techniques? Would they have a 5 per cent. Bank Rate or a 2 per cent. Bank Rate? What would their policy be towards controlling the velocity of the circulation of money. Would they indulge in the policy of the right hon. Member for Bishop Auckland (Mr. Dalton) of cheap money? There is a comment in a book which I hope hon. Members opposite have studied. Professor Brown in "The Great Inflation, 1939–1951" said of the right hon. Gentleman's policy:
"The cheap money policy of the time swelled stocks of cash, since it was implemented through the encashment of substantial quantities of privately held Government securities."
I am sure that none of us on this side would claim that monetary techniques are the complete answer, because they are not. At the same time, I think that we would agree that in an inflationary situation, if the Government lowered interest rates, they would not be making things easier for themselves. It is also true that the monetary policies of a series of my right hon. Friends who have sat in recent years on the Treasury Bench have not failed to control the supply of money, but have not succeeded in controlling adequately the velocity of circulation. I believe that
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we have yet to evolve additional monetary techniques to deal with this latter problem. It is quite disingenuous for Members of the Labour Party to attack out of hand the use of monetary techniques.
The right hon. Member for Huyton himself in his recent article, in the Manchester Guardian, which I am sure we all read with interest, said of his own party's policy:
"We should not hesitate to use monetary controls ruthlessly, if necessary, as one in an armoury of weapons."
I should like to ask him how he defines "ruthlessness" in the present context.
I think also that we can agree, whatever may be the other causes of inflation, that last year the rise in net incomes by £800 million was inflationary. I say that simply as a doctrinaire statement of fact.
I read with interest the other day a speech made in 1951 to the Trades Union Congress by the right hon. Member for Leeds, South (Mr. Gaitskell), who, I understand, aspires to be our Prime Minister. In a most able analysis of the then economic situation to the trade unions, he observed:
"If incomes go up more than production goes up, then prices will rise."
He went on to say, talking of the need for restraint,
"Can anyone seriously challenge what I was saying a little time ago, the conclusion that wage and salary increases above any rise in productivity are as a matter of fact passed on overwhelmingly in higher prices."
None of us would disagree.
Mr. Sidney Dye: The hon. Gentleman did at that time.
Mr. Price: I did not disagree and I am only answerable for what I say myself.
Mr. Dye: Others did.
Mr. Price: I would ask the right hon. Gentleman the Leader of the Opposition whether he has gone back on that statement and how, having said that, he can now get up and say that when we put in policies to implement restraint, this is war on the trade unions, while his statement in 1951 was not war but peace with the trade unions. It simply does not make sense. It is very disingenuous. Let us look at the Manchester Guardian to see what the right hon. Member for Huyton, the new "Iron Chancellor," in

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his three articles on inflation, said that he was going to do. He said:
"For a Labour Government, no less than for the Conservatives, success or failure in the battle against inflation would depend upon its ability to secure an understanding with the unions which would make wage restraint possible."
He also said:
"In advance of the discussions which would be necessary, it is impossible to lay the kind of conditions required."
Really that is not good enough. It sounds as if he intends to negotiate with the trade unions as with a foreign State. He cannot commit himself in advance. He must be completely free to negotiate. Surely the Government are entitled to lay down the general economic policies for the nation. It smacks rather of Mussolini's corporate State.
I do not think that in practice the right hon. Gentleman would really mean that, but if this debate is to have any meaning I should like to know what measures he would take that we are not taking, that would stop wage inflation. I do not think that the proposals in his articles would stop inflation, but rather that inflation would go on and that the best one could hope for from the policies of the party opposite would be continued incipient inflation. We would be doing very well if it was not inflation at a rate greater than that which we have experienced during the last twelve years.
Hon. and right hon. Gentlemen opposite must come to the House and tell us of what more solid measures they intend to take than merely fobbing off the trade unions with a few food subsidies and a capital gains tax. If anybody had authority with the trade unions it was the late Sir Stafford Cripps. He, by his personal austerity, commanded respect. I do not share the views that one or two of my colleagues hold about him. I had the highest admiration for him, but even Sir Stafford Cripps could not get the unions to continue with his policy of wage restraint. Therefore, we have to get stronger forces than voluntary restraint to work in the economy. It may be regrettable, because as humanists we would like to believe that people always acted sensibly, but the fact is that they do not.
We are then left with two alternative methods to beat wage inflation. One
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method is a national wages policy enforced on the people, as it is in Russia. The other is to go through with a really tough monetary policy. There is no other alternative. Were the party opposite in office it would have to face that alternative. It is running away from the problem not to say so, and to call our monetary policy waging war on the trade unions, or for that matter on the middle classes—or even on the Stock Exchange—is a gross misrepresentation.
We do not want to divide the nation. I think that in front of us we have a great future, if we can only work together. However, the Biblical story of the Tower of Babel haunts me at the present time. If we all talk the same language our tower of prosperity can go on being built, but if we all talk in different voices and squabble amongst ourselves as to how much each is getting; more particularly if we say that it is the other chap's fault—never our own—or the fault of one section of the community and never our own, then, because of our precarious external position, we shall destroy the prosperity and progress than we have built up so successfully since the end of the war. In such circumstances only one person would gain, and that would be Mr. Khrushchev.
7.13 p.m.
Mr. J. Idwal Jones: I hope that the hon. Member for Eastleigh (Mr. D. Price) will not expect me to follow him in great detail. I tried to follow his argument, but I was sorry that he sought to put before the House the idea that the alternative to a Tory Government was a Communist regime. I am sorry that the debate has gone on those lines.
Since the Second World War—and even between the wars—we have had debates on the economic situation at frequent intervals. We seem to move from crisis to crisis every two years, on an average, and somehow or other we are able to shoot the rapids. We are really very fortunate to get in due course into calmer waters, but it is not good for our economy that we should have to shoot the economic rapids at very frequent intervals.
This economic malady expresses itself differently from time to time. For example, in 1955 it was a speculator's

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boom. It has now assumed another character, though the fundamental cause is, of course, the same. I do not want to labour the point, but it is the fact that we have waged two major wars. The end of the second one, in the course of which we stood for twelve months on our own, found this country denuded of her private income from shipping, investments and insurance. We had been stripped of that private income.
It is the gravamen of the charge from this side of the House that the Administration which came into power in 1951 did not tune up the nation to the seriousness or the magnitude of the task that confronted us as a people. Indeed, there was a tendency in the 1951 General Election to offer things too easily—bringing down the cost of living, or, perhaps, offering red meat to the people and so on. I fought in that Election, but I, in common with my party colleagues, never made such offers or promises because we felt then that if we could stabilise prices we would be doing something. We did not see any very clear possibility of bringing down the cost of living.
This inflationary situation is not a British phenomenon only. The ogre of inflation casts its shadow over the whole world. America faces the same problem. A darker shadow may be cast over some countries than over others, but it is-present in most. What is the economic situation? For myself, I find it very puzzling. For example, we are continually being reassured that our trading position is essentially sound. I am prepared to accept that reassurance, although we on this side maintain, of course, that our trading position is not as sound as it should be or as it could have been had other policies been pursued during the last six years.
I am prepared, however, to accept the statement made last December by the Prime Minister, then Chancellor, that the United Kingdom's trading position had been and continued to be essentially sound. We are now told that our balance of payments for the first six months of this year are very good; that they then amounted to £125 million, and to £86 million for the last six months of last year, making a total of £211 million. We are now further told that we can expect a bigger surplus next year.
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This is reassuring, but what is very disturbing is that the size of sterling balances and the enormous volume of a trade carried on in sterling do not appear to move in harmony with the strength of the £ as currency. For example, at the present moment we have a picture of improved balances but at the same time a weakening of the £ as currency. It is true that there has been a serious drain on our reserves during the last six months.
That is our present problem, but what we must beware of is that, in trying to overcome our problem of reserves, we do not weaken the economic fabric of our country; that in seeking to strengthen the £ we do not weaken that which is essential to its value, namely, the maximum productivity of which we as a people are capable. The picture we get of our external balances is that they persist in swinging like a pendulum from a sizeable surplus at one moment to a sizeable deficit at another. That there will be these oscillations, we can expect. The unfortunate thing is that our balances seem to oscillate at too low an average. The average is not adequate. I think we will all agree that it is essential at the present time if, possible to raise the average of our balances. What we are afraid of is that the policy which the Government are pursuing at the moment is not conducive to increasing the average level of our trade balances.
Turning to the question of the gold and dollar reserves, these fluctuate around an average which is too small, and we would all agree that we want higher reserves. That is perfectly understood. We know also that to achieve higher reserves is very difficult. But the position is less satisfactory with regard to our gold and dollar reserves than it is with our trade balances. In spite of the waiver of last December, and in spite of our drawing on the International Monetary Fund and our sale of Trinidad Oil assets, the reserve which accrued to the United Kingdom is about as low as it ever has been since the war.
As the Red Queen said to Alice,
"…it takes all the running you can do, to keep in the same place."
We are victims of international speculation on our currency, and it seems wrong to me that the productive capacity of this country and the standard of living of our people should be held in jeopardy by speculators on our currency.

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Be that as it may, we are now entering the thirteenth year after the war, and there is one essential difference between our position in 1947–51 and our position now. In the first period, we were moving ahead faster than our European neighbours. Today, we are falling behind. In 1947–51, we were lengths ahead in the race. Now, we are lengths behind. It is so easy to blame the working population and to say that if every man pulled his weight all would be well. The fortune of this country ultimately depends upon the domestic policy of the Government, and the domestic policy of the Government will, of course, reflect the outlook of the Government.
We are faced with a policy which is no different in principle from the policy adopted at the end of 1951, over six years ago. There is no difference at all in the policy, except that it is more extreme in character. If this policy does not succeed, the Government will have nothing left in their locker. This is a kill-or-cure operation. The Government think they will cure. We think there is a danger that they will kill, unless, of course, public opinion should kill the Government in the meantime.
What is the essence of this policy? There is in the first place to be a control of the supply of money. The control of money is the first point. Previous speakers have already referred to this. This suggests that the Government believe in the quantitative theory of money. Everybody will agree that there is an element of truth in that theory. We all know that there an element of truth in every theory, for that matter. But if inflation means too much money chasing too few goods, the Government say "Control the money; reduce the money and all will be well."
Does not the House believe that it would be nearer the truth to say that if there is too much money chasing too few goods the answer to the problem is not the cutting down of money but the production of more goods? That, to me, is the sensible answer. But the fact is, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) said this afternoon, that in 1956 the money supplied in Great Britain was lower in relation to the volume of national income than at any time since 1927 and was about 18 per cent. less than in 1950. The significant
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fact is that there has been a continuous contraction in the supply of money in this country in proportion to the volume of national income in the past ten years; yet the malady of inflation continues and is in many respects worse.
I now turn to the other aspect of the problem, namely the wages question to which many references have been made this afternoon. It is assumed that once we control or freeze the money supplied, we will have conquered the problem of wages. It is assumed that once we say there will be no more money, there is no point in the working people asking for more. The employers can say, "There is no money in the till for you, so you cannot have an increase in your salary or wages"—except on one condition, and that is unless there is greater production.
We are not told, however, by what magic means the increase of production is to be measured. How is a fully employed bus driver going to increase his production? How is a Post Office worker or a railway guard to increase his production? Underlying this policy of the Government is the assumption that wages are the major factor in the inflationary situation. Indeed, it is too readily assumed that wages are the major cause of rising prices. Some Members will say that that is the major cause of increased prices. That is a theory which I question. We use the phrase "Wages—price spiral" and "Wages—cost spiral." They have become part of our everyday language, the assumption being that high prices are due to high wages.
The diagnosis, however, is not quite so simple as that. Indeed, as the Economic Survey for 1957 makes quite clear, although wages went up, there was no increase in the demand for goods. That is a very striking confession in the Economic Survey for this year. On page 8 we read:
"among the various classes of expenditure, the most striking development in 1956 was the absence of any significant increase in consumers' expenditure."
This would suggest that although wages have gone up there has not been a demand inflation, and that is to be found in the Economic Survey for 1957.
I make this proposition—I do not know how many Members will agree with me—that rising costs do not automatically follow rising wages. Indeed, paradoxical

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though it may appear, it is possible for costs to fall at a time when weekly earnings are rising. This happened in 1949–51, to take an example it happened also in 1952–53, to take another example. Perhaps the House will allow me to read a quotation from Lloyds Bank Review for October. This is a very interesting quotation:
"Contrary to a widespread impression the upward movement then slackened considerably, the further increase over the twelve months to April, 1957, being only2½ per cent. With manufacturing output rising again, the indications are that labour costs may actually have been falling in the current half-year from April to October, 1957."
That is a very telling quotation, and it is true not only of this country but of America. An article in the Lloyds Bank Review referring to America, by a different writer, reads:
"It should be made clear that for a large part of the price inflation since the end of the second war, the successful demands of labour unions cannot be held responsible in any major degree…increase in general level of wages went along with the increase in general level of prices, but it was clearly not a case of cause and effect.…"
If wages are not the cause of inflation, what is the cause? This is the explanation offered:
"With the abandonment or breakdown of war-time controls both individuals and companies rushed into the market to make long-postponed purchases. But in classical inflationary manner—too many dollars chasing too few goods—prices were bid up."
That is exactly what has happened in this country. No one wants controls, nor does anyone want war, but given war, controls are inevitable. No one wants the aftermath of war, but given the aftermath of war a measure of control is inevitable. As we move in time from war, then all controls can be abolished.
In 1952, the Conservative Government were committed to the slogan, "Set the people free". There was a sudden relaxation. As we all know, it is far easier to remove control than to reimpose it. The egg cannot be unscrambled. Faced with the impossibility of putting Humpty Dumpty together again after they had deliberately pushed him from the wall, the Government have had to resort to monetary methods of which the outmoded Bank Rate expedient is an example.
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The tragedy is that it has not worked. Not only has it not worked in the past, but it will not work in the future, because the policy of the Government, while assuming the garb of positive action, is essentially a negative policy. All that it seeks to do is to prevent something here, to check something there, to restrict the volume of money, to check economic expansion, to put the brake on wages, to raise the Bank Rate, to restrict the banks—it is a negative policy seeking positive results. On the constructive side the policy is silent. There is not a word, not a syllable, on the crucial problem of increased productivity, and meanwhile we can see the weakening of the economic foundations of the country, brought about ostensibly to strengthen the£. It does not make sense to me.
If inflation is our enemy, then the enemy should be attacked at its weakest point. The weakest point in the inflationary front is production, and we should break through at that point. This is just what the Government have not done and what they do not propose to do with their policy.
I was shocked by what I read in today's newspapers about the Bulletin for Industry. I tried to get a copy of the Bulletin from the Vote Office but failed. We are told that most of the Bulletin reflects what bad luck it was for Britain that the Chancellor had to clamp down on more investment when he did, because the picture given by the Treasury is that Britain was about to break new post-war records. In other words, we were on the point of breaking through on the production front when the Chancellor put the brake on just for the sake of saving the £.
The Economic Survey for 1957 makes pathetic reading in many parts. For instance, on page 9 we read that
"the increase in expenditure on plant, machinery and vehicles was considerably smaller than in the previous year.…"
That has been Government policy, checking production. Again we read,
"From the amount of information available, it appears that over 1956 as a whole stocks rose, though rather slower than in 1955.…
We read further,
"Fixed investments again rose in 1956 although the rate of expansion began to slacken during the course of the year. The increase is estimated at £80 million at 1955 prices compared with £160 million in the previous year."

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That is what we call an Irishman's expansion.
Even 1955 was not a glorious year, because we read in the Economic Survey for Europe, 1955,
"The ratio of new investment to national income in Britain is the lowest in Europe."
That is the result of Government policy. In the same publication we read,
"In most European countries, the ratio of gross fixed investment to gross national product has been higher since the war than it was before. The only country in which it has fallen is the United Kingdom.…"
The Government are responsible for that. On page 46 of the same Report, we find that in 1951 our investments were £249 million, in 1952 they were only £193 million and in 1953 only £191 million. In the modern world, the producer can produce more on only one condition—that he gets the best equipment that the modern world can provide. Give the British workman the tools and he will finish the job. At the present time, home production is at a standstill, as page 7 of the Economic Survey substantiates. As far as I can see, this defeatist policy is to be allowed to continue. Indeed, the restrictions are to be increased. This is not a policy for a great Britain. It is a broad highway to a little England.
When the Government assumed office in 1951 they should have carried on where the previous Government left off. By 1951, after rebuilding destroyed factories and bombed cities, the production of this country was half as much again as before the war. Its exports went up by two-thirds. The Tory Government's policy could have improved on that because we are moving further from the war, but since then we have gone downwards.
I should like to conclude with the words of the right hon. Member for Woodford (Sir W. Churchill) when he addressed a joint Session of Congress in America in January, 1952, a few weeks after he had become Prime Minister.
"In all, since the war, as the late Government affirmed, we have lent or given to European or Asiatic countries £1,300 million in the form of unrequited exports. This, added to the cost of turning over our industry from war to peace and rebuilding homes shattered by bombardment, was more than we could manage without an undue strain on our life energies, from which we shall require both time and self-discipline to recover. Why do I say
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all this?…Not to claim praise or reward, but to convince you of our native and enduring strength, and that our true position is not to be judged by the present state of the dollar exchange or by Sterling Area finance. Our production"—
as a result of the Labour Government—
"is half as great again as it was before the war. Our exports are up by two-thirds. Recovery has been continuous, and we are determined that it shall go on."
Unfortunately, since 1951, the Tory Administration has not gone on and we are in a worse position today than we were then.
7.40 p.m.
Mr. John Eden: The hon. Member for Wrexham (Mr. Idwal Jones) is certainly entitled to indicate that he thinks that the saving of the £ is a small matter, but bearing in mind the injection of some £800 million into the incomes of the people of this country, I cannot believe that he is entitled to say that wages in this country have fallen.
Mr. Idwal Jones: I did not say wages had fallen. I said that costs need not rise with increased wages, and I gave evidence to show that it is possible for costs to go down even when wages are rising.
Mr. Eden: Surely what we on both sides of the House want is to see that costs remain at least steady; and we should endeavour to reduce them if we possibly can. What some of us have been trying to indicate is that if increasing demands are made for more and more money, from whatever source they may come, without trying to earn that money through greater production of goods, we are bound to be faced with a continuing rise in prices.
I spend most of my time nowadays with people who have been extremely hard hit by the inflation which has been going on for the last twelve years, people of the sort known to many hon. Members of the House, retirement pensioners and others with small, fixed incomes, people who have not been able, in the current phrase, to contract out of the consequences of inflation. The attitude that many of those people exhibit might surprise many hon. Members opposite. It might surprise the hon. Gentleman the Member for Newton (Mr. Lee), who made a speech defending the trade

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unions. I can quite well understand his attitude, but he must try to understand the attitude of some of the people who have been suffering for years and who have not the help of the powerful voices which he and some of his colleagues can raise. He must realise the share of responsibility upon his shoulders and upon the shoulders of his hon. and right hon. Friends for the conditions and situations of these people I am talking about.
We should try to stop this process by which the purchasing power of their money continues to decline and the costs of the goods they wish to purchase continue to increase. If we can change that we shall be doing extremely well for those people and for everybody else in this country. I cannot understand the attitude of the hon. Gentleman the Member for Newton when he seems to regard it as a matter almost of right that wages should constantly go up year after year, and that nothing should be done to stop this. I cannot understand why he should wish wages to be increased each year when he himself must realise that this must greatly interfere with the cost of living and of the standard of living of those people.
Mr. Collins: My hon. Friend's point was that the Government policies which constantly put up prices compel trade unionists to apply for more wages to protect themselves.
Mr. Eden: It is easy for one side and the other to say, "I am not responsible for the present position," or to say, "You are responsible for the present position." The fact remains that the present position is as it is and that somehow it must be put right, and that that is in everybody's interest.
I do not believe that we shall get it right if money incomes continue to increase out of all proportion to what is being earned; nor do I believe we can have greater money incomes and more social security on the one hand and lower costs and a higher purchasing power of money on the other hand. I do not think we can have the two things together. I do not think, for example, that while we have full employment, while we are continuing to try to increase our production and to modernise our methods in industry, while we are continuing a considerable—indeed, a vast—expense on social security,
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we are going to find it at all easy to get rid of inflation.
I noticed that my right hon. Friend, in opening this debate, hinted that we might have to put aside some cherished part of the programme of social security or development, or something like that. I should like to know whether he is prepared to develop that argument. I think it is an important one. It is one on which I have certain strong views.
I think a large part of the trouble with which we are faced today arises just because of the vast development of social welfare which has taken place in the postwar years.
Mr. Percy Shurmer: Pity, is it not?
Mr. Eden: It is a great pity when the State interferes in the activities of the individual——
Mr. Shurmer: The workers are coming into their own. That is what is the matter.
Mr. Eden: —to the extent that the individual feels he has no further responsibility for his own welfare.
Mr. Shurmer: It is not the fact that it does.
Mr. Eden: We are getting to that point. That is the danger. I know that I shall probably not carry many hon. Gentlemen opposite with me——
Mr. Shurmer: The hon. Member certainly will not.
Mr. Eden: —or even, perhaps, many hon. Friends of mine on this side of the House, when I say this, but I think that this is a matter we have to face, because as the number of the elderly increases, and as the number of children increases, and the cost of sending them to school goes up, and as the housing programme develops, the charges being made against the State are bound to increase year after year. We have to recognise that these are some of the biggest forces contributing to the present inflationary situation.
Obviously, I expose myself to the challenge, "Are you going to slash the social services wholesale? Is that what you would do if you were on the Treasury Bench and had responsibility?" My answer is, of course not. What I would endeavour to do would be to encourage

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much more private saving, encourage much more the present insurance system, for example, rather than encourage the State pension scheme. I should like to see a much greater incentive given to individuals to save money for themselves through a more lenient taxation policy.
Mr. Shurmer: They are saving.
Mr. Eden: One of our greatest difficulties today is that we have this high taxation. If we could see that reduced, and reduced in a way which gives strong encouragement to individuals to save and to invest their savings securely, that would be of very great benefit to all those people and to this country. If we go on thinking, "The State will provide," we shall go on thinking in terms of inflation and of high costs. I do not see how we can go on expecting everything to be found for us by the State and not expect to have to contribute to the financing of it.
My view of housing may be very different from that of hon. Members opposite. My belief is that the first interest of local authorities is to try to house those people who financially are not in a position to house themselves. Yet many local authorities are housing people who are eminently in a position to finance their own accommodation and to look after themselves. It seems to me that those authorities are completely breaking away from the real purpose and original conception of the Welfare State. If the Welfare State is to be a universal godmother to dole out welfare regardless of need we shall continue to have inflation. Therefore, I should like to hear a development of this thesis, which was hinted at by my right hon. Friend the Chancellor of the Exchequer. I do not suppose that he would go the whole way, but I should like to know how far he would go with me on these lines.
Can we go on spending large sums of money increasingly year after year, as we have been doing, on housing, education, health and pensions, at the same time expecting to pay out more and more in wages for less and less work, and then crib about inflation? I cannot see how these things can be balanced. If we want to try to stop costs going up and the value of our money going down, surely the answer is fairly simple. It is not to try to chase each other around and say, "I am going to have more because you have
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more", or "I am going to have more of yours because you should not have as much". We shall not get out of our difficulties in that way. The only possible way out is by recognising, each in his own sphere, our personal responsibility for the position of the country.
Mr. Shurmer: Top as well as bottom.
Mr. Eden: Personal responsibility can be carried out in every walk of life, on the employers' side, which has been mentioned by the Chancellor and some of my hon. Friends, and on the wage-earning side, and also on our side in realising our responsibility when advocating the extension of the social services. If we can reduce the demand we make on the production of money, we shall get some way in reducing the inflationary tendency.
The right hon. Member for Huyton wanted to introduce controls. My right hon. Friend is introducing monetary weapons to achieve the same end. Right hon. Members opposite represent an attitude of mind which says, "Very well, if you declare war on us we will jolly well fight you back". That is not very constructive. Cannot the right hon. Member for Huyton, or any hon. Member opposite who takes some share in supporting the demand for increased wages, see the simple fact that if we are to pay increased wages during an inflationary period such as we have at present, it will not be long before that increase is absolutely meaningless? They are saying that we should pay more wages to meet the existing situation, knowing perfectly well that in a short time the value of that increase will be lost in increased costs and a lower purchasing power of the £, and that later there will have to be a demand for a little more all over again.
Surely, the sensible and honourable thing to do would be to advocate a halt in this process now, for the time being at any rate, to let us get on top of the situation. Let us make certain that when money increases are granted they are worth something in real buying terms and that we do not go through the dishonest process of handing out vast sums of money to people who are in a position to demand them, whilst knowing perfectly well that by the mere fact of having granted those increases they will be pretty well meaningless in a very short space of time.
Mr. H. Wilson: I am not saying anything of the kind. On 25th July, at some length, I indicated the conditions which I thought would make possible an understanding with the trade union movement to make real wage restraint possible. On that occasion, and in articles in the Manchester Guardian last week, I indicated the means of securing increased productivity, but we cannot do it by holding production down, as the Prime Minister did last year and as the Chancellor is trying to do this autumn.
Mr. Eden: Nobody will hold production down to the extent that those who sell at home and overseas cannot compete with other countries. That is not in the interest of anybody outside, or on either side of the House.
Mr. A. S. Moody: Before we examine the simple facts, will the hon. Member for Bournemouth, West (Mr. J. Eden) take into consideration the simple fact that in the West End of London tonight hundreds of pounds will be wasted not by those who produce but by those who live on their backs?
Mr. Eden: That is a direct consequence of inflation and of money becoming increasingly valueless. That is why measures must be taken to try to dissuade these people from squandering vast sums of money. That can be done only through the credit squeeze, the higher Bank Rate and things of that kind.
I was indicating that this is not a battle of one side against the other. It is not a case of my taking an hon. Member opposite outside and hitting him on the head because he is a trade unionist or of his doing the same to me because I am an employer. I cannot understand why people do not recognise their responsibility in this matter. I cannot understand why hon. Members opposite, instead of encouraging this theory of industrial warfare, do not make full use of their position as hon. Members and realise the part that they can play in making those with whom they come into daily contact appreciate their share of responsibility and appreciate how worth while it would be to them, as well as to everybody else, if we were able to conquer this inflation.
Mr. Stan Awbery: The whole trend of the hon. Member's speech is to divide the country into two
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classes. His attack has been upon the producing class. He has made no reference to the other people who produce little or nothing but spend the money.
7.58 p.m.
Mr. George Darling: I am glad to have the opportunity of following the hon. Member for Bournemouth, West (Mr. J. Eden), because in his speech, if I may say so in a friendly way, he displayed remarkable ignorance of what is going on in the industrial system in this country. I was astonished to hear even a Conservative Member, who obviously has no contact with factories and workshops, saying that we cannot obtain better incomes from less and less work. The assumption behind that remark, and behind most of the hon. Member's speech is, first of all, that the workers and the trade unions are not co-operating as they should do to increase production; and although I do not suppose that the hon. Member would say it in this Chamber, I imagine that he has said it outside, that the workers of this country are not working hard enough. I am sure that he will correct me if I am wrong.
I should like to give him some of the facts about the industrial system. First of all, I ask the hon. Member, and any right hon. Member opposite who may be taking part in the debate, to name the industries in which trade unionists, faced with a reasonable request by employers for the introduction of machinery and new methods and automation have turned down that request or have refused to negotiate or play their part as they should do constructively in that introduction. I should like to be given one example of that kind of non-co-operation which was declared to exist at the Conservative Party Conference by some of the back-woodsmen without any evidence being produced.
I think it is generally agreed that, when there is a complete change in conditions of work and new methods are introduced, wages and working conditions must be re-negotiated. Nowadays, I think it would be generally agreed that trade unions are being reasonable when they ask for some agreement about any redundancy and severance pay that may arise as a result of the introduction of new methods. I know of no case, and I

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still challenge anybody to produce any evidence of it at all, of a trade union resisting the introduction of new machinery and new methods on unreasonable grounds.
There is another assumption behind the kind of speech we have just heard, that the trade unions are in charge of industry, are running industry. In fact, an article written by the hon. Member for Ealing, South (Mr. Maude) in the News Chronicle a day or two ago was headed "The Unions are the Bosses now." Of course the unions are not in charge of industry. The management is still in charge, and it is in charge of one of the most important aspects of the managerial function, investment. The management decides what kind of machines go into the factories. The management decides whether there are to be new methods. The management decides about automation and technical progress, not the trade unions.
The point I want to make, and to make seriously, is that throughout British industry, for every example which it may be possible to find of trade unions refusing to co-operate in the introduction of new machines, I could bring a thousand examples of employers refusing to introduce new machines when asked to do so, or when asked to adopt new methods by productivity councils and similar bodies.
I will give a few examples. I am sure that the Minister of Labour and National Service will agree when I say that the trade union of the boot and shoe industry took the initiative in setting up a productivity council to try to induce the boot and shoe manufacturers to introduce new machines and new methods. Indeed, the first chairman of that council was the secretary of the trade union.
The same is true in the pottery industry. The trade unions there have never opposed the introduction of the new continuous kiln process and the new machine methods. Again, in the steel industry there has not been an atom of opposition to new methods; indeed, the trade union encouraged them. One could go through all our industries and find the same thing.
Now I will turn to the employers' side. I was hoping that by the time I had
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reached this point someone would have said something about shipbuilding and the trouble at Birkenhead, about which unions should bore holes in wood having aluminium plate on top of it. That was a stupid dispute over demarcation of labour. But let me deal with the employers' part in that kind of attitude. I have said this before in the House, I say it again, and I will repeat it as often as I can. In 1946 the engineering unions went to the employers and asked for the introduction of a new wages' system. I forget the exact number, but there are, I think, between 50 and 70 different grades of labour in the shipbuilding and engineering industries. The trade unions wanted to cut down these grades of labour to eight or nine.
A wonderful opportunity was presented there to the employers to introduce new methods and perhaps to introduce a new apprenticeship system, by which fellows coming into the industry of shipbuilding would be apprenticed not to a craft in the industry but to the industry. The employers missed that opportunity. They turned down the new wages system. They turned down any negotiations upon that proposal. They were asked by a Ministry of Labour court of inquiry to agree to the unions' proposals for negotiation on a new wages system, and they have not yet carried out the terms suggested by that inquiry.
In the course of the article written by the hon. Member for Ealing, South he suggested that one of the improvements that could be created in industries such as engineering was that there should be plant agreements, factory agreements, rather than national labour agreements. He tried to give the impression, which is quite misleading, that the trade unions are opposed to plant or factory agreements. It is not true. It is the employers who are opposed to them. The National Federation of Engineering Employers is opposed to them, but the trade unions are willing to have factory agreements provided that there is a national minimum, a condition with which I think all hon. Members here would agree.
I will give the House an example of how the reactionary policy of the engineering employers works. The recent strike at de Havillands of the supervisory staff and draughtsmen was not about a three weeks' holiday. It was about the right to negotiate a three weeks' holiday. What

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the unions wanted was a factory agreement, a plant agreement, a concern agreement, a company agreement, with de Havillands, but they were not allowed to speak to the representatives of that company. They had to negotiate with the National Federation of Engineering Employers. That is the kind of thing which is going on throughout industry where there is a reactionary employers' association in charge. I use the word "reactionary" deliberately because of the refusal to accept new ideas and new conditions.
Although I have appealed, without success, for evidence of the unions behaving stupidly in sections of the engineering industry, it is true on the other side that as long as we allow labour negotiations in the engineering and shipbuilding industries to be run by those who represent the least efficient and most backward employers, which is the case now, we shall never get the proper wages' system and the all-out technical progress that this group of industries should have.
The pattern has been set in good industries, such as steel. We have the pattern set now in some of the nationalised industries because improvements are taking place in the coal industry and so on. Yet there is far too much managerial inefficiency in British industry, and it must be dealt with. I will give the hon. Gentleman another example.
A little while ago I had the good fortune to be in Western Canada. When the buying agent of a group of department stores learned that I came from Sheffield, he asked, "What can you do with the Sheffield cutlery industry?" Then he proceeded to tell me his problem. Being a Britisher he wanted to trade with Britain. He wrote to the British cutlery firms for information about the goods they could supply him for resale in Canada. He told me that he received merely a typewritten sheet of paper showing the prices in pounds, shillings and pence, with no proper illustrations. He added, "I wrote to the American manufacturers and they sent me beautifully illustrated catalogues, with prices in dollars, an indication of deliveries and the rest. I also wrote to German firms, and their Toronto agent came over on the next plane to see me in my office." He asked me finally, "What can I do?"
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When I returned home, I wrote an article in the Sheffield Telegraph, repeating this conversation and appealing to the cutlery industry, which has the finest craftsmen in the world and produces the best cutlery in the world, to get together to sell their products to the world. They will not have any co-operative selling organisation, and yet every constructive proposal for new methods in the industry, for a joint selling organisation, for co-operative activities, is supported by the Cutlery Workers Union, which is now the Cutlery Section of the Municipal and General Workers Union. These reactionary employers are exploiting the finest craftsmen in that world by deliberately refusing to set up the kind of selling agency which would allow them to expand their trade abroad.
This kind of horrible managerial inefficiency which runs through many of our manufacturing industries is all wrong. In fact, Mr. Deputy-Speaker, if I were not tied down by Parliamentary language I would say something other than that it is misleading to make these charges against the trade unions and workers of this country. If anybody wants to throw responsibility on the trade unions for employment, for production, for the introduction of new methods, for capital investment and so on, then put the workers where they ought to be in order to share that responsibility, in the board rooms. Let them run the factories. As long, however, as they are hired hands, as they are now, they cannot accept responsibility, and it is wrong that they should be asked to accept responsibility for the managerial policies of these companies.
I am worried about another aspect of the wages difficulty. So far as I can understand from the speeches made by hon. Gentleman opposite this afternoon, Tory freedom will work only if wages are controlled in some way. In a vague kind of way the Chancellor said that restraint of profits would be helpful, but he did not say anything more, and there has been no indication that hon. Members opposite think that there should be any kind of restraint on profits, unearned income, dividends, or even luxury or unnecessary expenditure.
The Government, however, are beginning to produce some form of wages

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policy which I find very disturbing. Hon. Members opposite would probably deny that the Chancellor or the Minister of Labour would tell any group of workers what their wages ought to be, but by saying categorically today that busmen and railwaymen ought not to have a rise in wages, the Chancellor has said that the present wage of busmen—a basic wage of £10 a week for London busmen—is satisfactory and should not be increased unless, using the usual formula, their productivity is increased.
I do not know how a busman increases his productivity, unless it is suggested that he should work a longer shift each day, or more shifts a week, irrespective of whether that will be bad for road safety. I do not know how one increases the productivity of a railway signalman or a railway clerk or a guard unless one increases his working hours, which is probably what the Government have in mind. One cannot increase his productivity in the sense that he can manufacture more goods.
If the Government say that a basic wage of £10 a week for a London busman is satisfactory and should not be increased, then they have to face the problem of relating that to other wages. As my hon. Friend the Member for Shoreditch and Finsbury (Mr. Collins) pointed out in an intervention, some wages are tied to the cost-of-living index and if they are increased the wages of busmen and others ought to be increased merely to be fair all round. There is also recruitment. If wages are kept down by a deliberate Government policy of wage restriction, then the kind of bus drivers whom we ought to have, the skilled and responsible men, will leave the transport service for other industries where they can get a better wage. As the Minister of Labour knows, in many parts of the country road transport services are experiencing great difficulty in getting suitable staff because of their low wages in relation to other wages. That is particularly true in Sheffield, where a bus driver can get a much better wage as a labourer in a steel works.
That is the kind of problem that has to be faced. Transport and other services can be run only by paying the men on the job the kind of wage which bears some relation to the wages paid in manufacturing industries. Until the Government face up to that problem, merely to
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say that there will be no increase in wages will land them in great difficulty. I am desperately worried, too, about the categorical statement on behalf of the Government—because that is the form it is taking—that responsible arbitrators, called in to give a final decision on wage claims, should not allow wages to go up, because it will mean a breakdown of our whole system of collective bargaining. It is no longer free bargaining if the Government intervene to that extent. It cannot be free bargaining if one knows that at the end the arbitrator is more or less under instruction not to allow any wage increase to be given, whatever the merits of the case.
In the interests of industrial peace I hope that two things will happen, that these misleading and, in many cases, dishonest attacks on the trade unions for not co-operating as they should in increasing productivity will cease, and that the trade unions will be given the praise due to them for the co-operative work which they have done to raise productivity and to get new machines and so on introduced. Secondly, I sincerely hope that the Government will think twice before instructing those who take part in wage negotiations on the employers' side and the arbitrators to say "No" to all wage claims and to refuse to have the merits of claims properly, honestly and independently considered.
8.15 p.m.
Mr. William Shepherd: I agree with the hon. Member for Hillsborough (Mr. G. Darling) that there is often much ill-informed criticism of the British worker by people who would not know a factory door from the entrance to the Ritz, but that in no way detracts from the reality, that we are not doing as much as we can do in industry. I have no doubt that if a conscientious effort were made by both managements and workers we could increase the sum total of production within twelve months, without any increase in capital expenditure, to the tune of about 10 per cent.
Do not let us assume from what the hon. Member for Hillsborough said that all is well. By a united national effort we could get ourselves out of our present difficulties without recourse to further capital investment.
I would not say for one moment that all workers accept new ideas and welcome

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developments as they should. I look with some concern at the shipbuilding industry. We are now slipping down to third place as the builders of world shipping. There is no need for that. Capital resources have been poured into shipbuilding for four or five years and should have given us a premier position. It is one of the saddest reflections that the inefficiency in the shipbuilding industry is made possible only by the subsidies which workers and management get from steel prices. If British shipbuilders, workers and employers, had to pay Continental prices for steel they would no longer be in a position to adopt their present attitude towards production. I agree that there is much ill-founded criticism by those who do not know their subject, but there is still a wide margin which can be made up by increased productivity. Nevertheless, there is a tendency by hon. Members opposite to decry what we have done to improve productivity.
I listened to a long speech by the hon. Member for Wrexham (Mr. Idwal Jones) and by the right hon. Member for Huyton (Mr. H. Wilson), who always talks about our being bottom of the table. He seems to take a perverse joy in our being bottom of the table and never tells the House that we are top of the productivity table for Europe, as we are. In no other country since the war has productivity increased as much as in the United Kingdom. The Germans have increased their productivity by 15 per cent, and we have increased ours by 35 per cent. The Germans get praised for bringing bodies in from all over Europe and setting them to work. They are praised as if they are doing something miraculous, but with a much smaller number of workers we are turning out more goods and improving our position relative to 1938.
I do not say that all is satisfactory, but it is extraordinary that the hon. Member for Wrexham should say that our investment, expressed as the percentage of the gross national product, is lower than before the war. I urge the hon. Member when quoting statistics at any rate to get the right ones. It is perfectly obvious that our investment today, expressed as the percentage of the gross national product, is not lower than it was pre-war. In fact, it is twice as high as it was pre-war. Despite the moans of
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hon. Members opposite, last year was the best for investment in British history. It was the year in which we came nearer to competing with the Germans in our volume of investment than in any year since the war.
Mr. G. Darling: Still not enough.
Mr. Shepherd: As the hon. Member says, it was still not enough. I shall deal with that proviso later; as a bald statement it can be exceedingly misleading.
First, I want to refer to the position of sterling. When the right hon. Member for Huyton started talking about sterling I thought that he was going to say something interesting. I am afraid that he did not. The time has now come for some basic reconsideration of the position of sterling. Unless there are very material changes elsewhere, I doubt whether we can maintain the position of sterling as a world currency for an indefinite period.
There is one figure which demonstrates the extreme difficulties to which we are subjected by this process. The difference between the leads and lags is of the order of £400 million. If one's gold and dollar reserves are not twice that amount it is difficult to carry on a currency which is subjected, through leads and lags, to a strain of £400 million. It is almost impossible for a country with those resources and reserves to sustain such an impact as it gets from the difference between the leads and lags.
During the last year or so we have had a fairly favourable turn in our balance of trade. I do not want to boast, but when hon. Members opposite were in power this country had a deficit of £800 million in balance of payments, and since we have been in power we have gained £800 million in balance of payments. [Interruption.] It was no more difficult to sell goods at the time of the first Labour Government than at the time of the first Conservative Government; in fact, I should have thought that it was easier to sell goods just after the war.
Despite the fact that we have had a favourable balance of trade during our term of office, overall, of £800 million, sterling is still subjected to intense pressure, and we still have speculative runs against our currency. Whether we can maintain the present position of sterling

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with safety to our country is a question which needs careful consideration. Twelve months ago the Government moved our monetary troops into the front line, with the intention of making a dash for convertibility. That may or may not have been a wise move, but, having moved those troops into the front line, in this exposed position, we ought to be thinking whether that position is one that we ought to maintain. I shall not go further than that this evening, because it is outside what I want to say, but the House I think should devote its serious attention to the matter at some time.
One of the heartening features of the debate is that hon. Members on both sides of the House—and I hope that this applies to an increasing extent to the country as a whole—realise that this is not a crisis but part of a process that has been going on for forty or fifty years. The sooner we get out of people's minds the belief that this is a crisis the better we shall be able psychologically to condition ourselves to face the problem in front of us. It is not a question of having a Bank Rate of 7 per cent. and dashing off next week to a football match in the belief that everything is all right. I hope that we at last realise that the problems today are not a result of six years of Socialism or five years of Conservatism, but have been going on for forty years and are a result of economic trends which we cannot very easily reverse.
Indeed, we should congratulate ourselves upon the fact that we have in a limited measure reversed those trends, in terms of trade. If, during the last ten years, we had had the same sort of trading balance in our world trade as we did before the war, we should have been bankrupt and finished long ago. I hope that we will now face the fact that this is a long-term haul, which cannot be got over by any gimmick.
The right hon. Member for Huyton did not put forward any concrete policy to deal with this situation. I believe that Socialist planning just cannot work. I certainly think that an arrangement whereby one has a very easy monetary policy and at the same time tries to keep the resulting bulges in check by means of physical controls makes nonsense. It cannot be regarded as a policy.
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I now want to pass a few comments upon what the Chancellor has recently done. I entirely support the increase in the Bank Rate to 7 per cent., but I do so with the knowledge that this alone will by no means cure the present situation. I am quite convinced that within six months businessmen generally will have absorbed the 7 per cent., and that 7 per cent. will prove no more of a barrier than 5 per cent. did twelve months ago. Therefore, we must not rely upon the idea that the monetary policy itself can give us the price stability we need. We have to keep a close watch upon every section of the economy, and we must not be wedded to any dogmas.
If we find in three or four months' time that the economy is again tending to get out of hand there will be a case for further restrictions upon expenditure, and even a case for putting some sort of restriction upon the spate of office building which one sees when one walks through London. [An hon. Member: "Controls."] Not controls—but if we see an obvious waste of resources in the economy at a time when we cannot afford it, there is a case for trying to deal with it. General controls do not offer a way out.
I now turn to something which is very important but to which little time has been devoted. My right hon. Friend said that he did not care what kind of inflation we said it was. I do not like that, because I regard the question of the kind of inflation that exists as very important. I want to deal with the point put by the hon. Member for Sheffield, Hillsborough and the hon. Member for Wrexham, who said that we must produce our way out of inflation. In general terms I have no objection to the idea of producing our way out of inflation; obviously, no nation can exist on the basis that it must contain itself all the time. There must be an expansionist mood amongst businessmen if they are to be progressive and effective. But I very much doubt whether expanding our way out of inflation is the right policy under present circumstances.
I would say that the expansion of production—that is to say, the provision for the expansion of production in terms of capital goods plus defence expenditure —has been the main cause of our present difficulties. As I see it, the danger is that we are apt to say that we must have an

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increase in production and an expansion of our capital resources at all costs. There is no doubt that in 1956 we had too rapid an expansion of our capital resources, which caused us to take some counteraction because prices rose.
This is the crux of the whole situation. If, as a result of the combination of heavy defence expenditure and capital expenditure, we get so much pressure upon the economy that we get rises in prices, we then have to do one thing; that is, to try to depress the volume of demand. In fact, the situation in 1956 was that we had at that time a higher investment than we had ever known in the history of our country, and yet we had a situation in which there were increases in prices. Because we allowed the economy to get a little out of hand in the years before 1956, we had to out down our rate of production, which we ought not to have been doing; we ought to have been getting the results of that capital investment. Instead, we had to start cutting down.
If we do not keep the economy under careful control, we find ourselves in the position that pressure causes the level of prices to rise, and although we ought to be getting increased production from increased resources, we have to cut down the volume of production because we have allowed the price level to get out of control. Therefore, I say to my right hon. Friend that the important thing is not to get production at any price. On the whole, I would prefer to see a restraint in expanding capital resources, and instead get the full benefits of our existing resources rather than pile on the capital investment and then have to put the brake on a little later. If we put the brake on production, as a result of our capital investment being too widespread, we get a result entirely different to what was expected.
One hon. Gentleman has said that we were not investing enough, but, as far as I can see, that statement is entirely wrong. Today, we have an investment in industry of about 16 per cent. of the gross national product and an investment in defence of about 8 per cent., Which together make 24 per cent., whereas before the war we had a total investment in industry and defence of about 10 per cent.
I want now to say a word or two about restraint. One hon. Gentleman has said that the problem of inflation is a matter of wages. I do not think it is a question of wages. I believe that the trouble today
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is due to expansion of demand, and that wages are not the cause but an effect of inflation. Nevertheless, I believe that wage restraint and profits restraint both have a part to play in dealing with this problem. If we abandon all hope of securing voluntary restraint, it will mean that we shall have to knock the economy much harder than otherwise would be the case. If we get a measure of co-operation of restraint from the trade unions and businessmen, we can then knock the economy less hard than otherwise would be the case. If employers say, ".We are not going to play," if the T.U.C. say "We are going on producing all kinds of wage demands," then the result will be that we shall have to deflate the economy much more harshly than ought to be necessary.
I hope that both employers and employed in the next few months will realise that only inflation can rob us of a bright industrial future. We are not a derelict and bankrupt nation. We have an industrial potential which can serve us much better than it is serving us now. We have a good position in world trade. We have many assets, despite the fact that we have a few liabilities in forms of sterling balances. If the united effort is made by employers and the Government to ease the strain on our economy and to maximise production from our existing resources, I am perfectly satisfied that we can win our way through.
If, on the other hand, both employers and employed say they will not cooperate, the result will be that the Government will be compelled in the course of another three or six months to indulge in a further measure of deflation which may be harmful to the long-term interests of our economy. Therefore, I urge both employers and employed to realise that by exercising some measure of voluntary restraint during these next six months they will avoid the need for more harsh deflationary measures. That will make it possible for us once more to start on the right road, to increase our production and to keep stable the level of prices of our products and correspondingly improve our standing in world markets. That is our objective which we can achieve if we co-operate. I hope that the Government's action will be approved by the trade unions and the employers' associations, and that we may get from the country the measure of support which this policy demands.
8.35 p.m.
Mr. Roy Jenkins: I find the hon. Member for Cheadle (Mr. Shepherd) a most bewildering speaker. In the middle of his speech the hon. Member made the most sensible and realistic point which I have heard from that side of the House during this debate, about the position of sterling as an international currency, and I want to say something about that at a later stage. On the other hand, his opening remarks, I thought, were without exception the most unrealistic I have heard during the debate. He said we had paid no tribute to the great progress in productivity which had and could take place, and that what we wanted was a co-operative effort. I should have thought that the Chancellor had given a great clarion call for higher production, when all difficulties would disappear; which is, of course, a completely distorted picture of what exists at the present time and of the position which the Chancellor should put before us.
Let us leave aside for a moment the point about the level of investment made by the hon. Member, though there are different views one might take about that. The position as it exists today is that we are by no means gaining the maximum production out of the level of investment which has been going on over the last few years. If the Chancellor's speech and his policy mean anything at all, they mean that we shall depart still further from getting the maximum production from the investment we have already had. In those circumstances I do not know what is meant by talking about the need for co-operation in productivity.
In the third part of his speech—which was neither unrealistic nor realistic as such, but was just wrong—I understood that the hon. Gentleman was in favour of a deflationary policy at the present time, because he took the view, as he said explicitly and clearly, that there now exists a demand inflation. As I think the hon. Member himself pointed out, the Chancellor was inclined to say that it does not matter whether there is a demand inflation or a cost inflation, there is an inflation of some sort, and he proposes to deal with it in a firm way. I should have thought the general opinion of the House to be that it is desirable to know what sort of inflation one is trying to deal with. I
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do not know what evidence there is for saying that a demand inflation exists. I do not know what are the thoughts of the Economic Secretary on the subject. He is a great influence on economic policy these days. In fact, the Economic Secretary seems to reign supreme, but I do not know what are his views about the reason for thinking that a demand inflation exists at present.
After all, what is the present position? On the latest Ministry of Labour figures we see that, concerning the number of unemployed compared with the number of vacancies, the position in mid-September—the latest date for which we have figures—was a shade, not very appreciably but a shade, more deflationary than it was this time a year ago. Yet we were then clearly at the beginning of a period of stagnant production in which nobody for a moment thought that we were using our resources to the full.
Whatever view one takes of how adequate or inadequate the level of investment has been in the past year, it is clear that investment is now showing substantial signs of falling. That is a new factor of great importance. It recently reached the lowest level for four years, which is a good indicator of the position in the near future. We have accurately balanced our position in the United Kingdom, and that is a good indicator of whether or not demand inflation exists.
This point brings me back to the comment which I made on the remarks of the hon. Member for Cheadle that production is running a good deal lower than it could run if the economy were running smoothly. The latest figure is that we are about 3 per cent. up on the level of a year ago, after two years of stagnation combined with a pretty high level of investment. We had a comparatively high level of investment and have had production damped down. If the process had been allowed to go ahead at full speed we could now be working, not at 3 per cent. but at something much nearer to 10 per cent. over last year.
I do not think the Chancellor of the Exchequer should sweep out of the way differences in diagnosis quite so airily as he did. It is important to know whether we are suffering from cost inflation or from keeping the economy going at too high a level of activity. Let us all realise

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what it means to say that we are suffering from a demand inflation, even if we throw aside the four indicators which I have tried to put before the House. It means that after two years in which our production has been stagnant this is still not enough. We could have a level of activity at which there would be no demand inflation. This seems to me not only a diagnosis at variance with the facts of the situation but extremely depressing indeed, if it be true.
I follow the Chancellor's difficulties. Perhaps not unnaturally he finds it difficult to adjust himself to the very rapid changes which have taken place in the world economic climate. During the debate in July we all thought in terms of inflation. The Chancellor, then having behind him six years of Conservative policy, steeled himself, in a sense rightly in the circumstances, into saying, "The main thing I am going to do is to stop any further rise in costs. I shall stand out against the continuing world inflation." He was going to nail himself or his colours to the mast and prevent any further rise in prices.
Unfortunately, from the Chancellor's point of view, as soon as he got himself into that position changes took place in the circumstances which had made hint take it up. The circumstances changed extremely dramatically. We are now debating in very different world conditions from those in which that decision was taken. I do not think for one moment that the major problem which confronts the country or the free world is that of inflation. Various events have liken place; let us see what they are.
There is a substantial question mark over the immediate future of the United States' economy. Very few people would he rash enough to say that the United States will not have a recession on the 1953–54 scale during this year. but we can be clear that the conditions which, by chance, made the 1953–54 recession comparatively harmless to us, to the sterling area and to Western Europe, will not exist again in 1957–58. If there is a United States recession on the 1953–54 scale, we shall now suffer worse than we did then. There are some people who think that it may well be worse, and we shall suffer even more.
The other factor to some extent associated with this United States develop-
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ment has been the dramatic movement in world commodity prices. I do not think that any of us should under-estimate the importance of this. We have had over the whole field of commodity prices a 10 per cent. fall already, and the indications are that this will go still further. A 10 per cent. fall in itself means something like 1,500 million to 2,000 million of all foreign exchange earnings of the primary producing countries. That is more than all the economic aid given to backward countries at the present time.
The movement of commodity prices in the last few months has more than cancelled out all the aid that has been given. If it goes further, it will have a still more striking effect. There is no doubt at all that whatever may be the case in the present and future, in the past, at any rate, a brake on this scale in the world commodity markets has tended to bring with it a general condition of world depression. Let the Government not be too unconcerned about this position in saying that it is a question of world factors and has nothing to do with the British Government.
When we talked about the fact that in 1951 the Labour Government had to deal with rising world prices and that subsequently the Conservative Government had to deal with falling world prices, it was a great argument for the Treasury Bench that it was not an act of God, but the result of the statesmenship of the new Government. The Paymaster-General made, I think, particularly effective use of that argument. I thought that he exaggerated it at the time. Obviously, in circumstances in which one of the most disturbing factors in the world is the break in world commodities, if we are going in for a tough disinflationary policy in this country, we shall intensify that position and there will be nothing to counteract it.
While the fall in world commodity prices helps the balance of payments of the United Kingdom, unless it goes so far that it greatly damages our export market, it does nothing of the sort so far as the trading position of the sterling area generally is concerned. As we are primarily concerned at the present time with the gold and dollar reserves of the sterling area but not with the United Kingdom balance of payments, it is by no means a general benefit so far as we are concerned.

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We in this country have had for some time quite substantial falling import prices. The movement in terms of trade in this country this year alone has given us £200 million. There has been a situation for some time working naturally in favour of falling or stable prices in this country. I am certain that we should have the prospect over the next few months, independent of anything that the Government do, of falling food prices in this country. Therefore, I believe that the Chancellor has got himself into the position of, in one sense, tilting at windmills, but it is also a very dangerous piece of tilting in which he is going to engage.
What is the objective of the Government? If the primary objective is to maintain a stable price level, that would be very desirable, of course. But is the objective primarily to gain a prestige victory over the trade unions? I am perfectly willing to accept that it is the former objective, but the position which has in fact arisen is that, in present circumstances, if the Government had had any skill at all one might say that last year's policy, with a little better luck than the Government had last year, without any 7 per cent. Bank Rate or without further inflation, they would have got away with a stable price level in the coming winter and beyond.
What I do not feel sure about when I read the speeches at the Tory Conference at Brighton, and listen today to that of the hon. Member for Oldham, East (Sir I. Horobin), is whether the Government have not got themselves into a position in which a stable price level would not in itself be enough if accompanied by, say, a 3 per cent. increase in wages; that they would have to have a prestige victory —perhaps over the railway unions more than anyone else—so as to make it appear to their supporters that they have really won a victory worth having. That does seem to me to be an extremely dangerous position for a Government to get themselves into.
Let us realise how hard a road is this policy of producing price stability through breaking the wage-prices spiral—by whatever means. I find it extremely difficult to understand what the Chancellor means when he is talking about anything to do with the supply of money at present, so I will not define it too closely, but will
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merely say how hard and difficult the road will be that leads to breaking the wage-price spiral by a variety of monetary means. Let us make no mistake about it. In the earlier stages, this policy of choking back production still further must be a policy tending, of itself, to put up prices and not to bring them down. If there is to be a winter of short-time working, of unused capacity, of falling demand and of falling production, the inevitable result will be that, in the short run, the unit cost of production will go up.
I do not deny for one moment that, in the long run, such a policy, if applied with resolution—and I would have thought with a good deal more resolution than the whole Treasury Bench put together in fact commands—would produce, at a price, and probably at a very heavy price, at least a stable, and maybe a falling price level—but only in the long run, and at a heavy price in production. I am extremely doubtful whether, in fact, the Government would be likely to go through with such a policy.
It may well be that by the early spring that would lead to a position in which we would have a far more deflationary world situation than we have had for several years—conceivably one more deflationary than we have Lad at any time since the end of the war—and a position in which the Government will have embarked on this policy and will already have got the evil results of further decline in production, increased unit cost—and perhaps some industrial trouble—while the pressure to not go on with the policy will be enormous. I can imagine the Lord Privy Seal, and perhaps others, being anxious to run a little fifth column inflationary policy.
It seems to me that the Chancellor's policy will, in a sense, prove a sort of economic Suez, in which we embark on an unnecessary adventure and then, when we get halfway through we have people, from a prestige point of view, saying that we should go on even though failure stares us in the face. The prospect that faces us at present is, indeed, extremely discouraging.
Before I finish, I must just comment on the speech of the hon. Member for Cheadle, who spoke of the position of sterling as an international currency. The present crisis is one of currency. It is

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true that our balance of payments position is not as healthy as we would like it to be, nor has it achieved the target set by one Chancellor or another some time ago, but it is reasonably healthy. It is not a question of United Kingdom balance of payments that has caused this autumn crisis, but a question of confidence in the sterling area. I am extremely sceptical about the general view that our primary economic interest, something so obvious that it can never be discussed in rational terms, is that sterling must be maintained as an international currency.
The Chancellor said this afternoon that we hold an international currency which brings to us a great deal in the way of wealth, strength and prestige. I wonder what exactly that sentence means. Certainly the operations of the City of London in the foreign exchange markets and in other ways earn foreign currency for this country which, in itself, we are certainly glad to have. How much does this amount to? I would think that at most the foreign currency earnings of all the operations of the City of London amount to £30 million. It is worth having, but if we did not have it, it would not be a loss. It could be cancelled out by a fairly small movement in the terms of trade. It was more than cancelled out this summer by the working of the Kuwait gap. I wonder how many years foreign exchange earnings by the City of London were lost by the Kuwait gap alone. I would guess that nearly four or five years' earnings were lost.
We cannot and should not wind up the sterling area, but the Chancellor's policy is pursued without any discussion or challenge, in the belief that one of our primary economic objectives must be to maintain sterling as an international currency which, as far as I can see, means in practice that one has the maximum amount of loose sterling lying about all over the world for anyone to speculate against whenever he wants to. We do not do a great deal of financing in highly desirable products in backward areas, but we try to cover dollar deficits. I am extremely doubtful whether this policy of having loose sterling lying about all over the world, because of some vague, undefined belief that it serves the economic
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interests of this country, is a policy which we can follow any longer. We should look into it extremely closely, for it merits the closest possible inquiry.
My general feeling about the Chancellor's policy is that it is impossible to have any faith in what he is doing because I cannot believe that it is not founded upon a false diagnosis. He was in an intellectual mood this afternoon. As my hon. Friend the Member for Orkney and Shetland (Mr. Grimond) said, half the economists are usually on one side and half on the other. Curiously enough, this was not so much the case on this occasion as it has been in the past. One of the few achievements of the Chancellor's policy is that it has ranged the economists against him in a way which neither he nor any of his predecessors have succeeded in doing before.
I must say it was a little arrogant of the Chancellor this afternoon to say that he would rather have £1,000 million flowing into the gold reserves than have academic support. It would be more impressive if his policy had succeeded in getting that amount of sterling. In fact, he has not even had any academic support, but £1,000 million has been flowing out.
I see that the Chancellor is now with us. I am sorry that he was not here earlier. I believe that this policy which he is now determined to carry through with courage and determination is founded upon a completely false diagnosis of our situation. I believe that it is more dangerous than most previous mistaken policies —and we have had a number of them in recent years; we have had a continual and rapid lurching from one mistaken policy to an even more mistaken policy over the past few months.
This is more dangerous because it is at least possible that forces are at work in the world today which the British Treasury and the Federal Reserve Board in the United States may find more difficult to counteract than anything that we experienced in the years before the war. I therefore hope that the Chancellor will change his policy which may on some assumptions have been well chosen to deal with the situation of July, but which is certainly not well chosen to deal with the situation of October. I hope that he will change it before it is too late.
9.1 p.m.
Dr. Donald Johnson: I have been induced to intervene in the debate by the alarm which I felt as I listened to the right hon. Member for Huyton (Mr. H. Wilson) expounding the Opposition's case this afternoon. It seemed to me that in the accusations which he was making against my right hon. Friend the Prime Minister and others we had the familiar technique of accusing one's opponent of an aggression which one has every intention of perpetrating oneself. That is a technique which we are seeing at the moment in the Middle East in another sphere of politics.
What I read plainly in the right hon. Gentleman's speech, and what he said in so many words to my right hon. Friend. was, "You cannot expect co-operation from the trade unions unles you introduce a policy of controls." Linked with that was the very thinly veiled threat of industrial strife, a threat which is an entirely new feature in our political life in its link with economic policy. That was the measure of alarm which I felt as I listened to him.
There was, however, one feature of his speech which pleased me very much, and that was when he plainly admitted that during the lifetime of this and the previous Conservative Government the real value of wages in this country had risen by 12 per cent. It needs only a slight calculation, which I recommend to hon. Members opposite, to show that if the same rise occurs during the succeeding years as has taken place during the last five or six years we shall not be far off the promised doubling of the standard of living in 25 years.
Naturally, this debate has centred a good deal around the question of wages. That is inevitable in present circumstances, for the simple and obvious reason that we are approaching the time of year when we face a fresh round of wage demands on the part of the largest unions in the nationalised industries. As I represent a city where a large number of railway workers are employed, that is naturally of particular interest to me. We are faced at the moment with the initiation of the railwaymen's demands by both their unions, the N.U.R. and A.S.L.E.F., at the same time.
It seems to me entirely reasonable that we should tell these people that they
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have had this rise of 12 per cent. in their standard of living during the past six years—it may not have been as much as we should have liked—but now is the time to hold their fire for the time being in their fresh demands until prices have been stabilised, until we get the national economy on an even keel and until we see production going forward again. When that has been achieved, we can once again go forward in raising the standard of life of the people as we wish. I hope that I can claim to represent as many working people in my constituency as any hon. Member opposite represents in his, and it is my intention to put the situation to the working people in my constituency in that way. I am satisfied that they will accept the case.
It is plain that if we are to avoid inflation—and this is wholly agreed—we must relate production with the supply of money in circulation in wages and, as we perfectly well agree on this side, in profits also. I agree entirely with the hon. Member for Hillsborough (Mr. G. Darling) when he says that we must not forget people like the bus drivers. We must, of course, not forget people like the railwaymen and the workers in the distributive trades, who take no immediate part in any rise in production. Thus we cannot apply this standard of increased production in individual industries.
What is essentially necessary is to look at the overall index of production throughout the country, to assess the increase in wealth, and to distribute it both throughout the workers in the productive industries and in the distributive industries, the bus men, the railwaymen and so on. What at the same time we have not to forget is that out of the annual increase in production, whether it is 3 per cent. or 5 per cent. or 10 per cent., we have to provide also for the old-age pensioners and the disabled people. What has to be recognised on all sides, not only by those whose responsibility it is to arrange these things but also by the people in general, is that increased pensions, increased disability benefits, can come only out of increased production.
What alarmed me perhaps more than anything in the speech of the right hon. Member for Huyton in putting forward the Opposition case was its complete deficiency, except for the almost casual mention of controls, in any kind of policy,

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any statement of what he and his hon. and right hon. Friends would do about the present situation. In default of hearing this case we can look in only one direction, and that is at the Labour Party Conference and the resolutions passed there. What do we see there? We see a plan for housing that will cost at an estimate £2,500 million and a pensions plan which is equally inflationary. To cap it all, we see this curious plan of the Government's going on to the Stock Exchange and buying shares. I have the greatest difficulty in imagining what could be more inflationary than a step like that.
It seems indeed that in curing the economic illnesses of the present day the Labour Party believes in that old cure of a hair of the dog that bit one—as a cure for our economic ills. The Opposition have no alternative to put forward to the policy put forward by my right hon. Friend in his speech today, which is a policy of restraint and of common sense, which, we have every confidence, will appeal to the people of this country.
9.10 p.m.
Mr. John Cronin: I hope that the hon. Member for Carlisle (Dr. Johnson) will forgive me if I do not follow his arguments in detail. The House might feel it an excess of professional esprit de corps. As the Chancellor is here, I propose to pay him the compliment of some delicate criticism of his recent policy. His action economically in the last month or so consisted of a tripod, one leg of which was the raising of the Bank Rate, the other the standstill on Bank advances and the third the cuts in the nationalised industries. The House ought to consider these acts in some detail.
I will deal firstly with the Bank Rate. Before one goes into the actual policy of Bank Rate, it might not be entirely improper to advert to the reputed leak, to which some reference has been made today. The Chancellor must appreciate that it is very unfortunate for the Government that there has not been a proper investigation of this allegation of a leak. It may well be that there has not been a leak at all, but a Government must be above suspicion in that respect. There is a rather gloomy miasma of suspicion hanging over the Government at present, particularly in view of the way they have
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declined an investigation. The Chancellor is probably aware that it is said freely in certain quarters in the City and Press circles that the leak might have been due to a personal indiscretion of his. I do not believe that for a moment, but obviously it would be to his advantage if the matter were investigated.
The first effect of the rise in the Bank Rate is that firms must pay a good deal more interest on the money that they borrow. It is quite clear that there must be very few firms who are in such a marginal position that they can make a profit by paying 6 per cent. on borrowed money but they cannot by paying 8 per cent. All a firm has to do is to pay the extra interest and pass the extra cost on to the purchaser. That is precisely what has been happening in the past when the Bank Rate has been raised, and that is what will continue to happen. We cannot secure a real reduction of investment purely as a result of a Bank Rate rise. The rise in Bank Rate will, therefore, take the form of a rise in prices. In other words, this raised Bank Rate will have a direct inflationary effect.
I need not take up much time on the actual direct inflationary effect of the additional cost of servicing the National Debt. It will now require another £150 million a year. That goes into people's pockets without any production being shown for it.
It would be interesting to inquire into the relevancy of the increased Bank Rate to the balance of payments. We know, of course, that it will cause an adverse change of £50 million a year in the balance of payments. That may seem a small matter, but it is substantial in our present difficulties. Obviously, the raised Bank Rate will attract capital to the United Kingdom from other countries, but this is short-term capital. It is "hot money", and the first time there is speculation in sterling again that capital will be withdrawn. Therefore, there cannot be any decisive benefit from it.
It may well be that the raised Bank Rate has had some effect on people who have speculated against the £, but as the Chancellor well knows, short-term speculation can go on only for a limited time. The speculators must cover their bear positions sooner or later. It is quite likely that there would have been an improvement in sterling if there had been no increase in the Bank Rate.

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The most unfortunate effect of the rise to 7 per cent. is the psychological one. It suggests that there is an atmosphere a panic in the Treasury. A Bank Rate of 7 per cent. has not been thought of for years, and it can do nothing but harm to us in circles of foreign finance. I would like the Chancellor to answer this question at some stage of the debate: What will he do if there is another run on sterling early next year? Will the Bank Rate then go up to 9 per cent. or 10 per cent.? Where will the process end?
I turn now to the standstill in bank advances. The Chancellor made a very strong point this afternoon that he will decrease the supply of money. His purpose is to ensure that bank advances do not rise higher in the next twelve months than they did in the past 12 months. I will quote a few figures from page 252 of the current issue of "The Banker." In 1951 total bank advances amounted to £1,824 million, in 1954 to £1,803 million, in 1956 to £1,897 million. In other words, for all practical purposes bank advances have been more or less stationary since 1951. The Chancellor is calling out "Halt!" in the most strident tones to a squad of soldiers who are stationary.
I agree that there has been some increase in the note circulation, but that has been more than compensated by the increase in the gross national product. It is clear that in relation to the national income the supply of money this year has been less than for any other year for many years, indeed it is said since 1927. There cannot be an excess of money, and in attempting to decrease the supply of money the Chancellor is attempting something which seems to have no relevance to the situation. It may well be that the right hon. Gentleman hopes to decrease the velocity of circulation. I know that he regards these as rather intellectual points which should not be pressed too strongly, but it is useful to know of what we are speaking.
Now I turn to how the standstill in bank advances will affect industries generally. Large firms are to a great extent self-financing, so it is not likely that they will be affected. About half the firms of medium size are self-financing, and the remainder can increase their fixed capital
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by hire purchase, by obtaining credit from manufacturers, by borrowing from merchant bankers and from industrial and investment finance houses. So the only persons who are really affected by the Chancellor's dramatic rise in the Bank Rate are the small business people, who have the least effect on the economy. It is a pity that the small businesses have to pay for the Chancellor's insistence on freedom. His conception of freedom is that the small business man shall be controlled not by the Government but by his own individual bank manager, a complete abdication of responsibility.
I now turn to the cuts in the capital investment of nationalised industries. This is the one quarter where the Chancellor would certainly be successful in decreasing investment, because they simply cannot get their capital from any other source.
It is worth considering why we have a much higher standard of living than the vast majority of countries. The answer is not because we have any natural resources in excess of other countries or that we are more industrious. It is because of the very large amount of fixed capital which has been built up in the course of the last 150 years—I give hon. Gentlemen opposite the point that it was built up by the capitalists of the last century, but that is immaterial to my argument.
The Chancellor's purpose is to decrease investment. We could certainly afford to decrease investment if we were not a country actively competing with other countries. It is worth comparing our position with that of our rivals. The United Nations Statistical Papers for January, 1957, show the average proportion of gross domestic capital formation as a proportion of the gross national product for the last six years. In the United States it was 19 per cent.; Italy, 20 per cent.; Western Germany, 20·7 per cent. and the United Kingdom, 14 per cent. That shows that we are dropping well behind our principal competitors. The figures, according to the Federation of British Industries Review, October, 1957, for fixed capital expenditure per head of population in 1955 were for Western Germany, 189 dollars, for the United States, 298 dollars and for the United Kingdom, 168 dollars.

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Over the last few years our capital investment has been less than that of our competitors and the Chancellor wants to reduce it still further. Why does he want to decrease capital investment which will obviously, ultimately, decrease production? His only consolation must be that this frightful harvest will be reaped by the next Government. Production can only be raised by more and better machine tools, machines and factory buildings, in fact, fixed capital investment. In his efforts to control inflation the Chancellor will cause a serious deterioration of our future competitive position. The Chancellor is giving a classic example of throwing the baby away with the bath-water.
It may well be that we shall be severely embarrassed when we take an active part in the European Free Trade Area. We are entering that with considerable misgiving on the part of many people and the Chancellor is stripping us naked of capital investment to meet the competition of countries like Germany, which are already ahead of us. We are extremely vulnerable.
It is very easy to criticise what the Chancellor has done so far, but one ought to make some constructive proposals.
Mr. Gerald Nabarro:Hear, hear.
Mr. Cronin: One would be very happy to hear some constructive proposals from the right hon. Gentleman the Member for Kidderminster—[HON. MEMBERS: "Not yet right hon."]—instead of those rather bovine noises which so often punctuate our debates.
My right hon. Friend the Member for Huyton (Mr. H. Wilson) made several very useful constructive suggestions—calling an economic conference to examine exchange problems, a sterling area conference to deal with the sterling area balances, agreement to stabilise prices of primary products and increased East-West trade. All those were excellent suggestions, but there was one which he did not suggest, no doubt an omission out of politeness. It is simply this: that the best service the Government can render is to have an early General Election.
The Chancellor and his predecessors, the Prime Minister and the Lord Privy Seal, have perpetrated an uninterrupted series of blunders so uniform that it had the appearance of destiny. They have
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lost the co-operation of the trade unions; they have incurred the suspicion and distrust of the country, and they have even lost the confidence of their own supporters.
Mr. Nabarro: Not me.
Mr. Cronin: By continuing in office the Government are themselves suffering continual misery; they are achieving nothing; they have no hope, and they have no plans. They are a stranded wreck about to be submerged by the tide of public opinion. The very best service the Government can possibly render themselves and the country is to go as quickly as possible.
9.26 p.m.
Mr. Gordon Walker: The more I have pondered and considered the words spoken by the Chancellor this afternoon, the more depressed and alarmed I have become. It is very difficult to avoid the conclusion that he had two main purposes in his speech. The first was really to declare war on the trade unions. My hon. Friend the Member for Newton (Mr. Lee) pointed out how calamitous that would be.
In this connection, the Chancellor said that it was not the intention of the Government to intervene in the negotiating machinery between trade unions and employers, but we must very carefully read that part of his speech. As I heard it, it seemed to me that he got very close to giving public instructions to those whose job it is to adjudicate in these arbitrations. As I heard him, it almost seemed to me that he was telling them that it was now their duty, in the public interest, to turn down most of the claims that came before them.
If that is really the case, it will undermine all our negotiating machinery. I believe that the Minister of Labour is speaking tomorrow, and I hope that he will clear up this matter and expound to us, on the text of what the Chancellor said—and not what he thinks ought to be the case—what other meaning can be attached to the words used by the Chancellor in this connection this afternoon. Can the trade unions continue to expect fair and impartial arbitration, or are they going to feel, with justification, that the system is rigged against them, on the instructions which the Chancellor now gives

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in public speeches, made in the House, to those whose job it is to arbitrate?
The second purpose of his speech was to make a propaganda preparation for the attack upon the trade unions. He elaborated what he first said in the United States, namely, that his policy was so to arrange things that wage increases, if unaccompanied by increased productivity, would result in unemployment. As my hon. Friend the Member for Stechford (Mr. Roy Jenkins) and others pointed out, the economic theory behind this policy is defective, if not nonsensical. But the policy that it contains is rather clever from the Government's point of view. Its purpose is to try to shift on to the trade unions the blame for the unemployment that will result from the Government's own policy, and to make the trade unions the scapegoats for the Government's own sins.
I can see a certain short-run party political attraction in such a policy from the Chancellor's point of view. It certainly pleases the Hailshamites of the Conservative Party, who are only too eager to respond to the bell-ringing evangellism of their leader, calling them to a holy war against the trade unions. The hon. Member for Oldham, East (Sir I. Horobin) said, during the Chancellor's absence—so I think that I should repeat this to him—that if there were no attack on wages, and if the Government flinched from attacking the trade unions, there would be a revolt in the Conservative Party that would "make the Gloucester by-election look like a unanimous vote of confidence in the Government." Those were his words.
The frightening thing about the Chancellor's speech is that he seems to have put these internal party political considerations before the national interest. At any rate, whatever his motives, he has now told us and the nation quite openly that he is prepared for policies which may create unemployment. I think that is a fair way of stating his policy. He is prepared to carry out policies the result of which may be unemployment. If that is his policy, we are entitled to ask him how much unemployment and how far would he push this policy? Perhaps the Minister of Labour will answer tomorrow.
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The Financial Times in a recent article calculated that we would need at least 5 per cent. unemployment in this country before there would be any effect on prices as a result of unemployment. The Chancellor himself clearly knows that this policy has to be pushed very far indeed to be effective. In a speech which he made on 12th July to the National Production Advisory Council of Industry he said,
"It is one thing to run the economy in balance. It is another deliberately to unbalance it upon the side of depression in order to control wage claims. Moreover, I am not altogether satisfied that those economists and others who argue for this course quite realise the degree of unemployment that may be necessary for this policy to prove even partially effective."
The Chancellor knew the degree of unemployment that would be necessary for this policy to be even partially successful, and yet he has started on such a policy. Therefore, the Chancellor does know what he is doing. He is now adopting the policy which he then rejected because it would cause so much bitterness, misery and disturbance. He denounced that policy on the 12th July last, but it is now the policy which he has adopted, and he is embarking, open-eyed, upon this policy of despair.
The Chancellor attempts to justify this new policy by economic theories and arguments, but they seem to me to rest on a number of very gross over-simplifications. He keeps on telling us that the trouble is due to what he calls an increase in the supply of money. How, then, does he account for the fact, which my hon. Friend the Member for Loughborough (Mr. Cronin) pointed out, that the supply of money has remained practically stable since 1954, and yet wages and prices have gone up? If his theory is that all the trouble is due to increases in the supply of money and that wage increases and rises in prices could only be cured by that method, how does he account for the fact that wages and prices have increased since 1954 while money supplies have remained stable? If he answers that it is because of the velocity of circulation then I ask him—how do any of his measures affect the velocity of circulation in the slightest degree? The fact is that they do not affect it at all.
The greatest over-simplification of all is this view of the Chancellor that the prime cause of inflation is wage demands

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There is, of course, as everyone will admit, a relationship between wages, productivity and prices, but it is a far less simple relationship than the Chancellor appears to think. The Chancellor is so eager to point out the mote in the trade union eye that he quite forgets the inflationary beam in his own eye. A prime cause of inflation today is this suicidal policy of deliberately holding down production. This policy of drastic rephasing —a word which will begin to be an ugly word in the country, and which is only another word for cuts and slashes—with its control of local authority building, the credit squeeze and the Bank Rate—the aim in all this is to cut down and hold down production at a level below what it could otherwise be. We had production practically unchanged in this country since the end of 1955. It then goes up a point or two and the Chancellor immediately cuts it off again and cuts it back. We are now having underproduction in this country. With our physical equipment we could be producing more than we are, and this is the deliberate policy of the Government.
To me it is an extraordinary thing how quite false economic ideas can get established and be accepted almost universally. In the 1929–31 crisis it became accepted by almost everybody that the way to cure unemployment was through economies and balanced Budgets. This was taken for gospel by everyone, both on this side of the House and on the other. It was thought that the way to cure unemployment was by balancing Budgets and stopping spending. This was a remedy which made the disease worse. It seems to me that the idea now abroad, and taken for granted by everyone, is that the way to stop inflation is to cut production. That has become the parrot cry. It seems that just as the idea of balanced Budgets in 1929–31 made worse the disease it was meant to remedy, so this idea that we cut production in order to cope with inflation also is a remedy which worsens the disease.
As was pointed out by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) if we hold back production, that, at any rate in the short-run, is inflationary. The failure to use capacity to the full means a rise in prices by increasing the unit cost of industrial output. The overheads are spread over a smaller output. Even if in the long run this policy
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would produce a reduction of prices, as my hon. Friend pointed out, it can do so only at a level of far lower production of goods and a considerable amount of unemployment.
The most important point in connection with this new doctrine that the way to solve inflation is to cut production is that the cutting of production actually increases the inflationary effect of wage increases; because if production is kept down, it makes it impossible to increase productivity to absorb wages. The reason why wage increases can be absorbed in Germany without grave inflationary effects when they cannot be so absorbed in this country is because in Germany production has been going up all the time. When the Chancellor and other hon. Members opposite say that wages can go up only if productivity goes up, they forget that the increase of productivity is, at any rate in the first line, the job of management. It is the job of management to increase productivity by new machines, better layout of production, and so forth.
If the Government hold down production, it makes it impossible for management to increase productivity and we get into a vicious circle. Wages cannot go up unless productivity goes up, and holding down production makes it impossible for management to increase productivity. It is therefore, in part at any rate, the Government policy of holding down production which is responsible for making wage claims inflationary. The Chancellor has the whole thing the wrong way round. If we have full-out production today, we could absorb considerably greater wage increases than we can at the level of production which the Chancellor proposes to enforce.
To us it seems that these policies of the Chancellor and his theories are arid and antediluvian. We must get away from them and make a radically different approach to this problem of home inflation. I think we must start by frankly accepting what is the root cause of inflation. Full employment automatically produces inflationary pressure. It is two ways of describing the same thing. A full employment economy is an economy which is under inflationary pressure. Because if we have full employment, it means that the economy is being exercised at full stretch; resources both human and material are being fully used.

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It follows that if nothing is done whatever to control the economy and then we try to do something new and try to increase exports and increase investment, there are only two ways of making room for this increase in an already fully stretched economy, which is what by definition a fully employed economy is. One is that prices go up, and that makes room, because people who cannot raise their wages and salaries quickly enough have to lower their demands upon the economy. We increase production in a full employment economy by pushing up prices, but everybody on a fixed income loses a bit, and that is how we make room for it. I agree with the hon. Member for Bournemouth, West (Mr. J. Eden) that this process weighs very heavily upon people with fixed incomes, especially small fixed incomes. It weighs most heavily on the old-age pensioners who are the real victims of this policy of the Government.
The only other way to make room for an extra activity, if we leave full employment alone, is to raise imports. We bring goods in from abroad to meet the increased demands that we cannot meet by our own economy. Then we get into balance-of-payment difficulties. That is why we think that a Government which will not do anything to control matters properly must alternate between two positions. We get a slight spurt forward, a slight increased productivity and a slightly increased investment. Then we get a balance-of-payments crisis. Then the Chancellor reduces production again, and prices keep on going up because that is an inflationary thing to do. We are getting the worst of both worlds in falling production and rising prices.
So full employment tends towards inflation by its very nature, and the Chancellor's solution of this dilemma, as he tells us quite frankly, is to get rid of the inflationary pressure by getting rid of full employment. We are not forced to accept the Chancellor's solution; there is an alternative policy. We can say, "We will accept that full employment means inflationary pressure but we have to find ways to make use of this inflationary pressure for the good of the economy." It means that we have an economy with a constant head of steam. We should not be frightened of that. We can direct and canalise our economic activity when there
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is a head of steam in a way that we cannot if we have a good deal of unemployment, as we had between the wars.
We can only do this if we have what the hon. Member for Ealing, South (Mr. Maude) and other hon. Members derided, that is selective controls. That is not doctrinaire Socialism but is a logical necessity if we want to keep our full-employment economy. Selective controls make room for essential activities, extra imports and extra investments. They do not choke off activity, as the Chancellor's policy does. It is always easy to find new outlets in an economy that is always under pressure. If we are to fight inflation we must keep our economy in top gear. The Chancellor has not produced any solution of that kind.
We must have selective controls which discriminate between the more essential and the less essential. The sort of thing we have in mind is building controls which not only check less essential building but automatically concentrate it on the more essential. If we have an economy with a head of steam, building activity will then flow into the more essential lines. The hon. Member for Cheadle (Mr. W. Shepherd) made a most thoughtful speech. He seemed to laugh at controls and then he advocated building control. I could not follow that part of his argument.
Mr. Shepherd: I said that I thought that my right hon. Friends ought not to be dogmatic, as hon. Gentlemen opposite were. If psychologically it would help the country to have some restriction on office building, they ought not to avert the issue.
Mr. Gordon Walker: I am very glad to hear that. I think that there are more important things than psychological reasons, though I agree that psychological reasons are also a factor.
Discriminatory investment allowances could help to influence the demand on plant and machinery. Building is now dropping off and plant and machinery going up. Building controls alone would not give proper controls over the general flow of industrial activity. I think that we have to give careful thought to the idea of dual investment rates. One could be low for vital investment and another that is variable. That would enable the use of monetary policy. We on this side are not dogmatic and against having

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monetary policy used for damping down certain investments.
Another thing that seems to me to he essential is that the large companies—the 500 very great companies—must be made more accountable and more responsive to Government policy and investment. One of the characteristics of these great companies is that to a very considerable extent they invest from their own resources, and this makes them immune, to a large extent, to the sort of policies which the Chancellor is now working out. The right hon. Gentleman has certainly in his speech and actions hit the local authorities and the nationalised industries very hard by all this rephasing. He can also hit the small company that has either to go to the Stock Exchange or to the bank to get an overdraft, but he cannot really reach the great company that is investing through its own built-up reserves. Such companies do not have to go to the Stock Exchange and so they are not controlled by the Capital Issues Committee; nor do they have to go to the bank for overdrafts.
If the Government's policy is to be made effective in the control of investment, which even the Chancellor wants, then the great companies must be made more answerable and more responsive to Government policy. These are examples of policies which. I believe, would help to keep full employment and avoid this constant rapid inflation. Obviously, one cannot know exactly how far by such means one would be able to bring down the rise in prices. One cannot be certain about these things, but one can certainly bring the rate of increase of prices down a good deal. Whether one can get a position in which prices do not move at all for decades. I am rather doubtful.
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One could certainly stop by this sort of means this constant rapid inflation and keep full employment and the economy going at much nearer top gear than the Chancellor can.
These selective controls also fight inflation, as the hon. Member for Cheadle said, in another way. They have a psychological effect and help to create a different sort of social and industrial atmosphere. It is, of course, true that Governments alone, whatever their policies, cannot fight and cure inflation. The can do so only if the people as a whole co-operate with them. But the people will not co-operate unless the Government create conditions that make co-operation possible. I do not think that we shall get the co-operation that we need to fight inflation, very widespread national co-operation—the sort of united action of which the hon. Member has spoken—unless we have a far more purposive economy and unless it can be seen that the economy is being guided at any rate to a certain extent in the general and public interest and that the fiscal policy of the Government ensures that the burdens that may have to be borne, are reasonably and fairly borne.
The worst possible atmosphere and the one which will make it quite impossible to get the popular response that we must have if we are to fight inflation is the atmosphere created by the general selfish free-for-all that the Government steadily and deliberately encourage, and the unfair fiscal policies that have now been carried out for four or five years. The Government have only themselves to blame if, in these circumstances, no one listens to their appeals and if, in these circumstances, they suffer one by-election disaster after another.

WORCESTERSHIRE REGIMENT (CAP BADGE)
9.50 p.m.
Mr. Gerald Nabarro: Mr. Speaker, I seek, on the Adjournment, to switch from the economic and financial matters that we have been debating to the subject that you were kind enough to allot to me a few days ago. The subject I raise is derived from the White Paper "The future organisation of the Army" —Cmd. 230, presented to the House only a few days before we rose for the Summer Recess. Unfortunately, there was little or no opportunity to debate that White Paper within the broader issues of the reorganisation of defence arrangements and policy.
A great deal of distress has been caused in many counties in England, Scotland and Wales by the proposals in connection with the cap badges of the county regiments. I seek to draw the attention of the House only to a relatively narrow section in paragraph 12 on page 3 of the White Paper, which reads:
"In order to establish a sense of common loyalty and unity, all regiments in a brigade will wear the same cap badge. The Army Council will now consult with Colonels of Regiments about the nomenclature and insignia of the amalgamated regiments and of the brigades."
In common with a large number of other county regiments, the Worcestershire Regiment is gravely affected by this suggestion——
Mr. Frederick Gough: What about the Royal Sussex? I am grateful to my hon. Friend for giving way and I will not keep him for more than a moment. I noticed that he had put down for the Adjournment debate only the Worcestershire Regiment, which is one of the most famous of the line regiments, with its motto of "Firm." I hope that it will stand firm. But I would say that there is also the Royal Sussex Regiment, and a regiment with which my family is concerned, the Royal Irish Fusiliers, of which the Chief of the Imperial General Staff is a member.
Mr. Nabarro: The 35th of Foot, the Royal Sussex Regiment, is no doubt possessed of a regimental history comparable with that of the Worcestershire Regiment, but I sit for a Worcestershire
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constituency and I raise the matter of the Worcestershire county regiment's cap badge because much of what I have to say applies in principle to all those county regiments which are to have their cap badges submerged, irrespective of regimental traditions and the long history of many of these badges which are being worn by officers and men, in some instances stretching back into history for three hundred years.
The Worcestershire Regiment's cap badge was brought into general use as long ago as 1773. It has been used, therefore, for a period of approximately 184 years, and followed only by a matter of eighty-odd years the first raising of the regiment in 1694. It was known as Farrington's Regiment of Foot. later converted to the 29th Regiment of Foot, named the Worcestershire Regiment, and the similarity of the Worcestershire Regiment's cap badge to that of the Coldstream Guards was based on the fact that Colonel Farrington, who raised the regiment, was himself a colonel of the Coldstream Guards.
Of course, most county regiments can claim some special distinction in respect of their respective cap badges, and all will desire to retain it. I plead a special case for the Worcestershire Regiment, but that may apply equally in other contexts to several other line regiments. The Worcestershire Regiment has served successive sovereigns for 250 years, maintaining throughout a very close link with the County of Worcester. In fact, it is said in the county that the great majority of the officers, warrant officers, non-commissioned officers and men of the regiment, have been recruited within the county's boundaries for as much as 180 years past.
It is certainly the case today that the overwhelming majority of men serving in the Regiment are recruited from the county. They express a special preference to serve in their county regiment. They believe that there is special lustre and pride associated in serving in that regiment, and I believe that the emblem of ail regimental tradition and pride is the regimental colour in the first instance, and secondly the regimental cap badge worn by all ranks.
This proposal to replace the regimental cap badge by a brigade badge, save only

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in the instance of the Brigade of Guards, has been very badly received all over the United Kingdom. It is not only a question of one regiment, the Worcestershire Regiment, and of the people who live in that county making stern protests on this issue; it has been brought to my notice from nearly every county in England that the same considerations apply and that the matter has been treated by the War Office with a little less regard for regimental spirit and tradition than should have been shown by senior officers who, I believe, were employed behind the scenes to make their recommendations in this matter.
The particular cap badge of the Worcestershire Regiment has been compared by many in the county with the position that is evidently to obtain with the Brigade of Guards and to which the hon. Member for Dudley (Mr. Wigg) referred, somewhat disparagingly, I thought, in a speech that he made on defence matters on 31st July last. He is right in one respect, that evidently the Brigade of Guards had been singled out for some special treatment. He said:
"…I associate myself with the protest of a senior officer who wrote to me that once again the Brigade of Guards have been given a special privilege. I had the pleasure of broadcasting with the hon. and gallant Member for Worthing (Brigadier Prior-Palmer), and he was not surprised when I observed that the Guards were keeping their cap badges while the poor old county regiments were losing theirs. Having made my protest on behalf of the Worcestershire Regiment. I think that the Secretary of State's policy on this matter is right. We certainly do not want to have these arguments across the House. We would not get very far that way.—[OFFICIAL REPORT, 31st July. 1957; Vol. 574, c. 1352.]
I am not quite sure what the hon. Gentleman meant by that. I am not sure if he supports retention of the Worcestershire Regimental cap badge or not?
Mr. George Wigg: What I mean is this. I understand the War Office's difficulty, and if in fact they are to substitute a brigade tradition for a regimental tradition, then clearly there is a great deal in what they said. At the same time, I would have thought that, as the hon. Gentleman said, there was need to pay more careful attention to the reactions in particular areas.
Mr. Nabarro: That seems to me to be a singularly equivocating intervention.
Mr. Wigg: If the hon. Gentleman had studied the subject a little more carefully he would not have talked the nonsense that he has already talked. While there is violent protest from the Worcesters, there is practically no protest from the Staffords. When the hon. Gentleman says there is protest all over the country, he is talking arrant nonsense.
Mr. Gough: May I intervene? The hon. Member for Dudley (Mr. Wigg) is quite wrong. I mentioned the Royal Sussex Regiment, but I have also had letters from the Royal Warwickshire Regiment and from a large number of other ex-officers. True. I have only had letters from ex-officers, but I know it is a fact that amongst these regiments this thing is felt most bitterly.
Mr. Nabarro: The hon. Member for Dudley is evidently ill-informed in these matters. He is not the only ex-Regular soldier serving in the House at the present time; many of us have contacts with county regiments in all parts of the United Kingdom, and I know that what I say about the Worcestershire Regiment is generally the ease with all county regiments, whether it is the Sussex Regiment, the Dorset Regiment with the proud motto "Primus in Indis" on its cap badge, whether it is the back-and-front cap badges of the Royal Gloucestershire Regiment or the cap badge of any other county regiment. It applies to practically all of them. I think that the War Office has had less than usual regard for regimental pride and tradition in this matter.
It being Ten o'clock, the Motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wakefield.]
Mr. Nabarro: For my part. I cannot understand why it is necessary to abolish the cap badge in favour of a brigade cap badge while saying that some form of regimental patch or regimental shoulder flash or mark of that kind may be embodied on the regimental soldier's uniform elsewhere. It seems to me that that is exactly the reverse of what all of us wish to see. [HON. MEMBERS: "Hear, hear."] It seems to me that the greatest efficiency and the greatest regard for regimental spirit and esprit de corps could be achieved by allowing county regiments to

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retain their own individual cap badges in their present form, and the brigade nomenclature worn in the form of a shoulder flash or patch.
Alternatively, and we had an admirable example from a senior officer who is generally supposed to have been a principal protagonist of a corps of infantry and of the elimination of individual regimental names on the basis that we have understood them during the last few years —namely, Field Marshal Lord Montgomery, who set quite a fashion in the last war by wearing two cap badges in his beret. I see no reason at all why the brigade badge and regimental badge should not be worn side by side in the cap, or the beret, or whatever is the headdress of each regiment, which would give exactly the sense of uniformity which is evidently required to serve the interests of the brigade formation while at the same time satisfying all the regimental traditions to which I have alluded, and allowing each of these regiments to retain its own badge.
What I want to say, with the greatest regard for my hon. Friend the Under-Secretary of State, is that it seems to me that the reply sent from the War Office to protesting bodies in this matter was a trifle curt, peremptory and even ham-fisted. I do not think that it is necessary for the War Office to behave in this way. I think the War Office could have expressed itself a good deal better. This is what the Secretary of State has circulated to nearly all the complainants in all parts of the country:
"Mr. Hare regrets that, although he has much sympathy with the feelings of regiments over this step, there can be no question of its being reconsidered or abrogated. The reasons which impelled the Army Council to take this decision were long and earnestly considered."
I repeat the words,
"there can be no question of its being reconsidered…".
It seems to me a trifle dictatorial. The final arbiter in this matter should be the House of Commons and not the War Office. The War Office presented its proposals in the White Paper for the future organisation of the Army. As far as I know it was not a dictat; it was a matter which should have been debated by the House. Many controversial points in the interest of the Service and the public interest should have been weighed
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and considered by right hon. and hon. Gentlemen in all parts of the House. Evidently Parliamentary time made it difficult for such a debate to take place before we rose for the Summer Recess, but a good deal of Parliamentary time is available between now and Christmas to bring this matter under close scrutiny.
While, no doubt, it is desirable that the colonels of the respective regiments should consult with one another—that is, the colonels of the Cheshire Regiment, the Worcestershire Regiment, the North Staffordshire Regiment and the South Staffordshire Regiment, which are to form the Mercian Brigade—on this matter of the cap badge and endeavour to reach the highest common factor of agreement, there will be one point on which they will all founder, if I know the colonels. That point is, of course, that they will each demand the retention of the insignia and the cap badge of their own county regiment, and on that there will be no reconciliation whatever.
Does my right hon. Friend pre-suppose that the colonels who are discussing this matter should resolve that the new badge common to the brigade shall be a compendium of the existing badges? Is it suggested, in the case of the Mercian Brigade, that the North Staffordshire regimental cap badge, the South Staffordshire regimental cap badge, the Cheshire regimental cap badge and the Worcestershire regimental cap badge shall be arrayed in a line as part of one composite badge, or a compendium of all existing county cap badges? If that is not suggested, how are we to reconcile this extraordinary difficulty which confronts the colonels of the regiments?
My hon. Friend the Member for Worcestershire, South (Sir P. Agnew) can thank his lucky stars that he is a retired naval officer having worn a single badge, a single Crown and anchor, all his life, and is not confronted with the extraordinary problem with which we are confronted in debating this proposal.
Sir Peter Agnew: Although, as my hon. Friend rightly says, I have worn only one cap badge, I feel just as strongly on this matter of the Worcestershire regimental cap badge, because I know my constituents are very exercised about it and are anxious to preserve the regimental tradition intact.
Mr. Nabarro: I am very grateful to my hon. Friend. Of course, my hon. Friend sits for a large part of the county, South Worcestershire. I sit for a large part of the county, Kidderminster. I should say that between us we sit for the greater part of the county. I am very glad we are directly in opposition to the hon. Member for Dudley who poured such derision upon our desires to retain the Worcestershire regimental cap badge.
I want to put an important point to my hon. Friend the Under-Secretary of State about the effect upon recruiting. It will be difficult enough for my hon. Friend and his right hon. Friend, in the period between now and the next General Election and after that, to recruit enough Regulars for the 14 brigades of infantry and one parachute brigade without putting additional difficulties upon the shoulders of those responsible for recruiting matters. Not only are there to be the disabilities to which I have alluded this evening, but there is to be the removal of the regimental depot from the county, other than a small nucleus staff, which means that Norton Barracks, Worcester, which has for 70 years been the headquarters of the 29th and 36th Regiments of Foot, the Worcestershire Regiment, is to be taken outside the county area and put in some town which may be thirty, may be fifty, may be seventy miles away. It may even be in Cheshire. It may even be in Staffordshire.
There are other counties between Worcestershire and Cheshire. We may even find that the brigade depot of the new Mercian Brigade is at Church Stretton in Shropshire, or alternatively we may find it as far away as Leek in North Staffordshire, a matter of over a hundred miles away from Worcester. What is that going to do to recruiting for the county regiment?
For what has always been a source and centre of regimental pride and tradition within the county has been the regimental depot, nearly always to be found in the principal town of the county. Hence the depot of the Gloucester Regiment is in Gloucester, the depot of the Worcestershire Regiment in Worcester, the depot of the Royal Hampshire Regiment in Winchester, the depot of the Royal Warwickshire Regiment in Warwick, and so on. The removal of the regimental depot
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to some foreign part —for the man who wants to serve his county regiment regards places in any other county as quite foreign to his own military interest and traditions —is going to have in future a very damaging effect up recruiting. Therefore, we add to the difficulty of the cap badge the difficulty of the regimental depot, and to a lesser extent we add, of course, the fact that the county regiments are to lose a particular object of pride and affection in the form of their own regimental bands. There is to be one brigade band, and Worcestershire and other county regiments will evidently lose their own regimental bands.
I suggest that this proposal in connection with the cap badge, along with the other matters I have alluded to, will have a gravely detrimental effect upon recruiting, and difficult as it is already to contemplate where sufficient Regular recruits were to come from for the 14 infantry brigades and the one parachute brigade by 1960 or 1961, I suggest these additional difficulties may well make the task nearly impossible.
I now want to say something about the inconsistencies of what my hon. Friend is now proposing. Under the re-organisation of regiments, the Worcestershire Regiment will be put in the Mercian Brigade. Mercifully, the regiment is to retain its identity and is not to be amalgamated with any other regiment. The Regular battalion of the Worcestershire Regiment will have the brigade cap badge, but the Territorial battalion, that is the 7th Battalion of the Worcestershire Regiment which has its headquarters in Kidderminster, will continue to wear the Worcestershire regimental cap badge, and so will the Army cadet and school cadets within the county. Therefore, we are denying to the Regular battalion of the regiment the right to wear its own county regimental cap badge so long hallowed in the tradition of the county and we are continuing to allow the Territorial battalion of the regiment and the cadet units to wear it. That seems to be quite incongruous and insupportable, and I hope that an arrangement will be made to end that invidious distinction.
I twitted the hon. Member for Dudley about the Brigade of Guards. I feel quite as strongly as he does about this matter. I see no reason whatever why the Brigade of Guards should be considered superior to the 60th Rifles, who are losing their

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cap badge, to the Rifle Brigade who are losing theirs, to the Royal Hampshire Regiment who are losing theirs, to the Royal Warwickshire Regiment who are losing theirs, to the Worcestershire Regiment who are losing theirs, to the Royal Sussex Regiment or to all other county regiments who are losing theirs.
Mr. Gough: I should like to point out, as an old Rifleman, that it is very important to remember that the Rifle Brigade cap badge is part of its battle honours.
Mr. Nabarro: I quite agree. My hon. Friend is steeped in regimental tradition. He will know that both the 60th Rifles and the 95th The Rifle Brigade carry no regimental colours and that inscribed on their cap badges are their battle honours. I do not know what my hon. Friend the Under-Secretary will propose. He cannot advocate regimental colours for these regiments. That would be more damaging to tradition than the removal of the cap badge. I am saying that there is evidently preference and discrimination in favour of the Brigade of Guards.
Who did it inside the War Office? Was it a majority of Guards colonels who managed to bludgeon the colonels of county regiments into accepting a position of inferiority? Although it means an unhappy association with the hon. Member for Dudley—one of the rare occasions when we shall be associated with one another—I intend to press that if this preference is to be given to the Brigade of Guards in the retention of its cap badge, an equal preference shall be given to regiments of the line.
Mr. Arthur Moyle: I wish the hon. Member for Kidderminster (Mr. Nabarro) would not look so sceptical when he looks across to these benches. There are at least two hon. Members on this side of the House who are in sympathy with his case, and if they had had an opportunity might have expressed themselves in his support. They are my hon. Friend the Member for Sheffield, Park (Mr. Mulley), an old Worcestershire Regiment man of the last war, and myself.
Mr. Nabarro: I am grateful to the hon. Member for Oldbury and Halesowen (Mr. Moyle). He must settle his differences with the hon. Member for Dudley, who
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disagrees with us, but we are now in a majority in the county. My hon. Friend the Member for Bromsgrove (Mr. Dance) supports me, and so do my hon. and gallant Friend the Member for Worcestershire, South, the hon. Member for Oldbury and Halesowen, and a late sergeant of the 7th Battalion Worcestershire Regiment, the hon. Member for Sheffield, Park (Mr. Mulley). I am grateful to these hon. Members for forming a majority supporting the county regiment and placing the hon. Member for Dudley in a minority of one.
Mr. Wigg rose—
Mr. Nabarro: I have given way twice already.
Before I conclude, I want to make clear the great volume of support which there is in the county of Worcestershire for what I am pleading this evening. The Worcestershire County Council has sternly expressed its support for my views upon the retention of the cap badge, the Kidderminster Borough Council, the Stourport-on-Severn Urban District Council, the Worcestershire Regiments' Association, the Old Contemptibles Association, Worcester Branch, the Worcestershire branches of the British Legion have all expressed support. In fact, practically every Service and ex-Service representative body in the county is supporting the plea I am making this evening. Now I will give way to my hon. Friend the Member for Bromsgrove.
Mr. James Dance: All I wish to say is that not only do I support my hon. Friend, but I also represent quite a large portion of Worcestershire. I can assure him and my right hon. Friend, the Under-Secretary of State for War, that every word said this evening is fully supported by the whole of my constituency.
Mr. Nabarro: I am grateful to my hon. Friend. We are doing well in the county. We have only a minority of one, the hon. Gentleman the Member for Dudley.
Mr. Wigg: On a point of order, Mr. Speaker. There are certain matters which are carried beyond a joke. The hon. Gentleman the Member for Kidderminster (Mr. Nabarro) knows perfectly well that what he is saying is untrue. If he had come here on 31st July and given me support, we might have been able to change

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the War Office decision. What he has done is to wait, then to make capital out of it, and then to try to misrepresent me.
Mr. Nabarro: I am sorry, but that could not be a point of order. Mr. Speaker——
Mr. Wigg: I got it in.
Mr. Speaker: It did not look like a point of order to me.
Mr. Nabarro: The hon. Gentleman the Member for Dudley said clearly in July:
"I think that the Secretary of State's policy on this matter is right."—[OFFICIAL REPORT, 31st July, 1957; Vol. 574, c. 1352.]
In other words, he favours the scrapping of the Worcestershire regimental cap badge. I do not. I have made my protest tonight in the strongest terms——
Mr. Wigg: Three months too late.
Mr. Nabarro: I have been supported by other county Members except only the hon. Gentleman the Member for Dudley. I hope that the plea which I have addressed to the House tonight will cause a recantation on his part during the passage of the next few weeks.
10.17 p.m.
The Under-Secretary of State for War (Mr. Julian Amery): I have listened with respect and attention, as I always do, to the arguments which my hon. Friend the Member for Kidderminster (Mr. Nabarro) has deployed with his usual skill and force. He and I have been associated in defence of a number of minority causes in the past, of which I think we have reason to be proud. Therefore, I hope that what I say will reconcile the apparent gulf between our opinions this evening.
I am grateful for his intervention. It gives me a chance to put on record in greater detail than has hitherto been possible the reasons that have led the Government to their decision on the cap badge, and the process by which that decision has been reached.
Under the Cardwell system which prevailed until the last war the infantry was organised in regiments, each two battalions strong. One of these battalions was usually stationed at home at lower establishment; the other overseas at higher establishment. It was the duty of the home battalion to furnish the overseas battalion with the extra officers, N.C.O.s and' other ranks it might require,
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to provide necessary reliefs, and to make good such gaps as arose from accident or posting to extra-regimental duties.
Under this system the individual as well as the unit could expect a proper balance between home and overseas service. There was no cross-posting, except between the two battalions—that is to say, within the regiment.
The war and its aftermath transformed the structure of the infantry. It left us with regiments only one battalion strong. On top of that, the international situation obliged us to keep a much larger proportion of the Army overseas than we had before the war. The strain on the infantry was further increased by the growth in modern times in the number of extra-regimental duties to be performed. With regiments only one battalion strong, these things inevitably led to cross-posting on an unprecedented scale and I doubt whether even the old Cardwell system could altogether have avoided this. We might well have had to go to a three battalion regiment to enable officers and men to make their career without any cross-posting at all.
I do not know whether even my hon. Friend the Member for Kidderminster realises how far the evil of cross-posting has gone, and I am sure that the country at large has very little idea of the extent of the problem. So may I give one or two examples? The East Lancashire Regiment was recently brought to higher establishment for service overseas. Of its 800 other ranks, 144 were posted from the Manchester Regiment; 100 from the Lancashire Fusiliers; 50 from the Border Regiment and 100 from the King's Regiment. Thus, nearly 50 per cent. of the regiment's manpower was drawn from other regiments.
That is an extreme example, but by no means an isolated one. The Cheshire Regiment, for example, was built up to go to Malaya to a strength of 668 other ranks. Of those, 110 came from the North Staffordshire Regiment and 125 from the South Staffordshire Regiment. That represents a cross-posted clement of between 30 and 40 per cent. of the total strength of the battalion.
The effect on individual officers and senior N.C.Os. has been almost as far-reaching. It has been by no means unknown for an officer to be posted to as

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many as four or five different regiments in the period since the war.
I say nothing tonight of the effects of cross-posting on units or individual morale, nor of its impact on the problem of recruiting. I want to draw attention on this occasion only to one aspect of the problem. What happens when an officer or man is cross-posted? What is the mark—the outward and visible sign —of each cross-posting? As hon. Members will know, every time a cross-posting takes place the officer or man concerned has to change his cap badge. My hon. Friend and others inside the House and outside have dwelt on the psychological shock and morale effects of forcing a man to change his cap badge. But this has been happening for years and as long as regiments are only one battalion strong it is bound to continue.
In 1947, the so-called Group system was introduced in an attempt to mitigate the evils of cross-posting. Under this, cross-posting was limited to regiments drawn from the same general area. The Group, however, has remained a rather amorphous entity. It has hardly developed a corporate spirit of its own. In particular—and the point is significant for our debate—it left officers and men under the obligation to change their cap badges each time they were cross-posted.
The reorganisation of the Defence Forces announced in the White Paper earlier this year left the War Office with a choice. We could have solved the cross-posting problem by reducing the number of infantry regiments to 20 or 25, but bringing each regiment up to a strength of two or three battalions. From the point of view of administration and training there may have been something to be said for the solution, but we decided against it because we believe that it would have taken the heart out of the British infantry. The infantry is rooted in the regimental system. Its territorial links, its recruiting appeal, on which my hon. Friend dwelt, even its fighting spirit are bound up inseparably with its regimental traditions. We decided, therefore, to keep in being as many regiments as we could. I have no doubt that our decision was right, but it meant that each regiment could be only one battalion strong. The problem of cross-posting was, therefore, left unsolved—or, rather, it would have
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been left unsolved but for another decision which we took and which has commanded general assent. This was the decision to transform into brigades the rather amorphous regimental groups, in which regiments had previously been associated.
The brigade is to be responsible for the depot and all cross-posting is to be within the brigade. Senior officers and N.C.O.s will find their chance of promotion on a common brigade roll. The brigade is thus to have definite functions to perform, and while in no way superseding the regiment, it must clearly command a common loyalty and develop a corporate spirit.
This brings me to the crux of our controversy tonight. This is the further decision to give symbolic recognition to the new rôle of the brigade by transferring the cap badge from the regiment to the brigade. The natural question which my hon. Friend asked tonight was: "Why choose the cap badge? Why pick what has been pre-eminently the symbol of regimental tradition? Why not have common flashes, or common collar badges?"
There are two main answers: I hope that my hon. Friend will agree that they are simple and compelling. We chose the cap badge, first and foremost, because in the inevitable cross-posting resulting from the one-battalion system—sometimes amounting, as I have said, to 40 per cent. of a battalion—it was precisely the cap badge that had most often to be changed. We wanted to put an end to what my right hon. Friend the Secretary of State has described as an
"appalling indignity for any man, that is, to have to take off his cap badge when posted from one regiment to another."—[OFFICIAL REPORT, 31st July, 1957; Vol. 574, c. 1426.]
We were determined to put a stop to this and, instead, to give a man a cap badge which he would keep for his whole Army career.
The second reason only reinforced the first. The decision to amalgamate thirty regiments of the line meant that thirty cap badges would have to be changed anyhow. Would it really have been wiser to have produced fifteen brand-new cap badges and then left the officers and men concerned to change those cap badges at each cross-posting, that is to say, almost

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before they had come to recognise them, let alone to feel an affinity or affection for them?
Mr. Moyle: Without gainsaying at all the main contention put up by the War Office, for the life of me I cannot understand why organisation cannot make it practicable, within the brigade, to give symbolic significance to the importance of county traditions in relation to county regiments.
Mr. Amery: The answer is quite simple. We are saying that every other embellishment or distinguishing mark apart from the cap badge shall be retained by the regiment. Only this one mark, which in any case the officer, the N.C.O. and the man has to change again and again, are we transferring to the brigade.
My hon. Friend referred to the position of the Brigade of Guards. The essential difference here is that three of the five Guards Regiments will remain two-battalions strong. The problem of cross-posting does not therefore arise for them. The Welsh and Irish Guards, it is true, are only one-battalion strong. Throughout our reorganisation, however, we have avoided breaking national boundaries within the Kingdom. We have in no brigade English and Scottish or Welsh and Irish regiments together. We thought it best to apply this same principle to these two Guards regiments.
I want to make one other point in the time that remains to me. My right hon. Friend the Secretary of State and I take full responsibility for the decision which has been taken, but I want to make it
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clear that this issue was not a thing which was thrust on the Army by Ministers or civil servants, or even by the legendary theorists on the General Staff. It was one of a number of recommendations proposed for the infantry by a representative cross-section of infantry officers of varying ranks drawn from all the different regimental groups in the Kingdom.
We are clear in our minds that this decision was right, and that is why I am afraid that I can hold out no hope that it will be reconsidered. We are fortified in this decision not only by the professional advice that we have received but by the attitude to our proposals of the Army as a whole. The great majority of serving officers and men have accepted these proposals and agree that they are right.
Two brigades have already submitted their design for a cap badge, and I understand that another half dozen have reached agreement on the design they intend to recommend to us. We hope to have all the recommendations to hand by the end of the year.
We share the regret that many will feel at parting with regimental cap badges. But we do not doubt that the new brigade cap badge will provide inspiration to those that wear it just as the regimental cap badge has clone on so many famous fields in days gone by.
The Question having been proposed at Ten o'clock and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at half-past Ten o'clock.