MONETARY SYSTEM

HC Deb 26 November 1959 vol 614 cc574-706

4.0 p.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I beg to move, That this House takes note of the Report of the Committee on the Working of the Monetary System (Command Paper No. 827). The Report that we are considering today owes its origin to the decision of my predecessor, my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), who, about two-and-a-half years ago, announced the appointment of a Committee, under the chairmanship of Lord Radcliffe, to 'inquire into the working of the monetary credit system and to make recommendations. In doing so, he recalled that the last authoritative exposition of the system had been made by the Macmillan Committee, in 1931. As the result of the Committee's labours we now have an account of our monetary and financial system, in all its ramifications and complications, which is as thorough and comprehensive as could be wished, together with a lucid and masterly analysis of its working.

In addition, we have a penetrating commentary on monetary events as they have unfolded over the past seven or eight years, a thought-provoking contribution to monetary theory, a number of important signposts for our future guidance, and some specific recommendations on particular matters both great and small.

I am sure that I am expressing the views of the House as a whole in publicly thanking Lord Radcliffe and his distinguished colleagues for their comprehensive, massive and timely contribution to economic thought. The Report covers a vast field and I am sure that it must be clear to all of us that we cannot expect to reach a final judgment on much of it today.

The process of comment and counter-comment has already started in another place and elsewhere and it is right that the House should now make its contribution. At the same time, there are a number of specific matters on which we have felt that the Government should declare their attitude at once.

The first point that I should like to turn to is what I might call the broad approach of the Committee. It stated very clearly in its concluding chapter, paragraph 980, this broad approach: The aims of economic policy to which monetary action is related are complex: they can be directly in conflict with each other in the short term and only by adjustment can be held in balance in the long. In discussing these objectives earlier in the Report, the Committee acknowledged that the choice between them, where choice has to be made, is one that Governments have to face, and we entirely accept that.

I also agree with the Committee—and I think that this is very important—that all the instruments of economic policy must be co-ordinated in relation to our objectives. All of us in this House, I think, on whichever side we sit, are committed to the pursuit of a number of objectives which are not always easy to reconcile.

First and foremost, we are committed to the defence of the £ sterling, to a stable balance of payments and to seeing that the products of our export trade are available at prices that other countries are willing to pay. I think that that is the most important thing of all.

Secondly, we all want to achieve a high and stable level of employment without having to incur the risks and social injustices caused by a continual fall in the value of money.

Thirdly, we want to achieve a steady increase in the standard of living because, after all, that is the whole purpose for which trade and industry exist. In other words, we accept the broad definition of economic objectives as given by the Radcliffe Committee, and I believe that the whole House will broadly accept them, too.

There is always room, and always will be room, for argument about the relative weight that should be attached to different measures in the pursuit of these objectives. My own feeling is that the Committee has perhaps underestimated the part that can be played by monetary policy in helping to keep the balance between our total resources and the total claims on those resources.

As is well known, we on this side of the House are more sceptical than hon. Members opposite about the efficacy of direct controls. In fact, as our record shows, we have been flexible in adapting our policies, both fiscal and monetary, to changing circumstances, and we intend to continue in future to use whatever measures may be appropriate to maintain a proper balance in our economy.

Neither I nor my predecessors have ever ruled out the possibility of using more specific measures to encourage particular kinds of economic activity, notably capital investment in our productive industry, or to relieve some sector of our economy which seemed particularly hard-pressed. But the main point to remember, surely, is that our choice of what measures are required at any particular time must be determined by our judgment on how best to secure the objectives which I outlined a moment ago and on which, I think, we are all agreed.

I also find much to agree with in those parts of the Report which deal with external policy. It is gratifying, I think, that the Committee generally endorses the external economic policies which have been followed in recent years. In particular, I hope that we shall all wholeheartedly concur with what the Committee says about the position of sterling as an international currency and the importance of maintaining it and the sterling area arrangements. I agree in general with what the Committee has to say on international liquidity, and my hon. Friend the Economic Secretary will be dealing with a point or two on this matter later on in the debate.

The greater part of the Report is, naturally, devoted to the relation between monetary conditions and the general state of our internal economy. I have no intention today of trying to summarise the inevitably complex arguments here. In fact, I think that right hon. and hon. Members may well doubt my personal qualifications for pronouncing on these formidable issues, on which eminent economists hold passionately such divergent views. But as has been well said, if only those who were qualified spoke the world would be filled with a profound silence, and who are we politicians to hold back where so many other angels have no fear in treading?

I should like to suggest that there are three important strands of thought, as I see it, running through this section of the Report. The first is the statement that when monetary conditions affect the state of the economy they do so ultimately by their effects on the general level of demand. I think that few people have quarrelled with this element in the Committee's analysis, and I certainly do not quarrel with it.

The second important strand of thought has proved, I think, more controversial. To use its own terminology, the Committee suggests that what matters is the liquidity of the economy as a whole and this liquidity is affected by changes in the structure and level of interest rates. In other words, it lays great stress on the ease or the difficulty with which the volume of Government debt can be turned into money.

On this very important matter we shall, no doubt, hear a good deal more and we shall study the arguments with care. But I do not intend to comment on that today. In this matter, to a large extent, for reasons which, I think, will be understood, I must leave people to judge our policy by what we do rather than by what we say.

The third point to which I wish to draw attention is the distinction which the Committee has drawn between three types of economic situation. The first is what it calls the normal situation, when the authorities would rely on interest rates policy. The second is the situation of excessive liquidity, when some administrative restraint on lending might be necessary. The third is what the Committee calls an emergency, and for which it prescribes a package of emergency measures, consisting of the quantitative control of capital issues, a ceiling on bank advances and hire-purchase restrictions. I do not propose, this afternoon, to comment on the merits of the various measures referred to, but only on the way in which the Committee appears to have divided them up and appropriated them to different kinds of situations.

In practice, as doubtless the Committee realised, it is, I think, impossible to diagnose and analyse a complex and continually changing economic situation quite in this way. There could surely be dangerous consequences from allowing ourselves, as it were, to label particular measures, or "packages" of measures, as being for use only in certain defined conditions. The first danger is that however good may be a Government's sources of information or their judgment, they might not recognise that the specific conditions had actually been established, or were immediately threatening, and, therefore, they might take action too late.

If that danger be avoided, and if action is taken in good time, there would be another danger, that because they had introduced measures out of the package marked, as it were, "for emergency use only," people at home and overseas would judge that the situation was more serious than in fact it was. The resulting loss of confidence could well induce or aggravate the condition which the measures were designed to prevent.

I am sure that no Government who wish to carry out effectively their responsibilities in the sphere of economic management could afford to have their hands fettered in that way. Surely a Government must be free to make any change in the economic circumstances with whichever of the available measures they judge likely to be most effective in those particular conditions without any implication that the situation which is being dealt with is of an emergency order. That is all I wish to say at this stage about the more theoretical side of the Committee's Report.

Now I turn to three sets of specific recommendations. The first of these concerns the relations between the Treasury and the Bank of England, and the Report rightly devotes close attention to this question. It finds that the relationship is detailed and continuous and that the allocation of functions which has been worked out since the war is generally satisfactory. The Report goes on to put forward certain proposals designed to make those relationships explicit rather than implicit, stressing that the proposals it puts forward are concerned with form rather than with substance.

I accept the view that there are advantages in making more explicit the understanding that monetary policy must fall within the orbit of general economic policy and that the Government must bear the ultimate responsibility. There is no difference of view between the Government and the Bank on that fundamental matter. But I judge it of equal importance that the responsibility for current monetary operations within the limits of Government policy, and at all times in consultation with the Government, should continue to lie, and to be seen to lie, with the Bank of England.

As regards the internal direction of the Bank, both the Government and the Bank accept the Committee's general analysis of the respective functions and responsibilities of the Governors and of the part-time directors respectively. In the formation of the Bank's views on monetary policy the main responsibility must fall, as it does fall, on the Governors, while the function of the Bank's part-time directors must be mainly advisory. But the Committee expresses the view that it is to the advantage of the Bank to have part-time directors not merely as consultants, but as full members of the Court, and I agree wholeheartedly with that view.

At the same time, we attach the greatest importance, as does the Radcliffe Committee, to ensuring that the Bank's position should be maintained as a separate organisation with a life of its own and that its governing body—not only the part-time directors, but all the governing body—should not act merely as consultants, but should continue to take a corporate responsibility for the formation of the Bank's views. I conclude, therefore, that it is right that we should now take certain steps to make more formal and explicit what is now informal and implicit, without diminishing or appearing to diminish the present responsibilities of the Bank.

The Committee made two specific recommendations, one relating to decisions about the level of the Bank Rate and one proposing the creation of a monetary committee. On the Bank Rate it suggested that it would be better that all future decisions to raise or lower the Bank Rate should be made in the name of the Chancellor of the Exchequer and on his authority. I am sure that it is known to every hon. Member that for very many years no change in the Bank Rate has been made without the approval of the Chancellor.

I do not know whether we should find it generally advantageous in our public life to write down and formalise all those habits and practices by which we have learned to work together, but I think not. However, in this case I see no disadvantage in it being made perfectly clear that a change in the Bank Rate is, in fact, made with the approval of the Chancellor of the Exchequer. Thus far, therefore, I agree with the Committee.

The Committee goes on to say that under the existing legislative scheme a statutory direction is needed to convey such an exercise of the authority of the Chancellor of the Exchequer, and though it does not make a formal recommendation it appears to favour the use of such a direction for each and every change in the Bank Rate. On this point, I do not go with the Committee. I believe it of great advantage that when the Bank Rate is changed there should be general knowledge here and throughout the world that the change is not only approved by the Chancellor of the day, but also advocated by the Bank of England. I fear that this advantage would be lost if all changes were made on the Chancellor's direction.

It is in the nature of things that if a Minister of the Crown exercises his statutory power to direct somebody to do something the natural assumption is that the person on whom the direction is served would not have done it of his own volition. I see the greatest possible disadvantage in all changes in the Bank Rate being made by a procedure which would obscure completely what were the views of the Bank of England, and would indeed suggest that the action could well be contrary to its views.

There are some who think it odd that the powers of direction given to Ministers of the Crown are very seldom used, and that the powers of direction given to the Treasury by the Bank of England Act have never been used. I, on the contrary, regard it as a tribute to our national good sense in working things out together. So while I agree that it is desirable to improve on the procedures as they exist at present, I should prefer to change them in a way rather different from that suggested. I have, therefore, made arrangements which, in my view, give effect to the general objectives which the Committee appears to have had in mind in making its own proposals.

Broadly, the arrangements for the future—which I have, of course, agreed with the Governor of the Bank of England—will be on the following lines. The Court of Directors has delegated to the Governor standing authority to settle changes in the Bank Rate with the Chancellor of the Exchequer on behalf of the Bank. In framing the view of the Bank as to the level of the Bank Rate, the Governor will be free to have discussions with the Committee of the Treasury and with other part-time directors of the Bank. He will not, however, put specific proposals before the Committee of the Treasury or before the Court of Directors.

When, following the customary informal discussions between the Governor and myself, a change in the Bank Rate is agreed to be desirable, the Governor will make a formal written proposal to me on the day before the change is to be made and I shall convey my formal approval in writing on the same day. That approval will cover both the change itself and the continuance of the Bank Rate at the new level until such time as a further change takes place. On the day on which a change is to be made the Governor will report to the Court the action taken under the standing authority given to him. The final decision will be made in the name of the Bank and announced forthwith in the usual way.

The Bank will make a formal announcement to the Press, including a statement that the Bank's decisions have my approval. Until such time as a further change in the Bank Rate is to be made, the Governor will report to the Court at its normal weekly meetings that no further change is to be made and that decision will be announced forthwith in the same manner as when a change is made.

These arrangements are intended to lay down the normal procedure and may have to be varied in exceptional circumstances. Moreover, they do not, and could not, derogate in any way from the power of the Treasury to give a direction to the Bank under the Bank of England Act, 1946. That power remains for use in the last resort if ever, as I should not expect, we should fail to reach agreement by the normal processes of consultation together. I hope that these arrangements, which in my view are in conformity with the objectives of the Radcliffe Committee both on the responsibilities for Bank Rate decisions and on the position of the part-time directors, will commend themselves to the House.

The second main proposal made by the Radcliffe Committee in this field was that a standing committee, deliberative and advisory in character, should be set up under the chairmanship of the Chancellor of the Exchequer to keep under review and advise the authorities on all matters relating to the co-ordination of monetary policy as a whole. The members would be drawn from the Bank, the Treasury and the Board of Trade.

The Committee's object in making this proposal was to ensure, in its own words. that the Bank's views and decisions on monetary policy are arrived at after full discussions of their implications for the Government's economic policy as a whole and that the Government in forming economic policy can regularly get the benefit of the advice and experience of those for whom the monetary policy is a special concern. With this general objective, as I have already made clear, I agree. I doubt, however, whether the best way of obtaining it is by means of this proposed committee. When the object is to knit the formulation of monetary policy closely in with the formulation of economic policy generally, and particularly with fiscal policy, it seems questionable whether the best way to go about it is to have another committee, especially a committee of a rather formal kind dealing with monetary policy alone, and especially as this would add to the rest of our machinery for consultation between Ministers and Departments.

My view, therefore—and on this I have the agreement of my right hon. Friend the President of the Board of Trade—is that a more continuous co-ordination of monetary policy with economic policy generally can best be achieved by arranging for the Bank to be permanently represented on the various official committees by which economic policy is already formulated and advice to Ministers on it is co-ordinated. With many of these the Bank has been informally associated from time to time in the past. I propose that in future it should be associated all the time as full members.

We believe that these arrangements—right hon. Members opposite will understand me when I say that they are intended to go to the very heart of the matter—will make it even more certain than it is already that the expertise of the Bank is made available to all those who are engaged in advising Ministers on economic policy and that considerations additional to purely monetary ones are brought to the attention of the Bank of England. I believe these arrangements will forge an even stronger link and facilitate an even more two-way day-to-day co-operation between the Government and the Bank than the formation of an additional committee would do.

Mr. Douglas Jay (Battersea, North)

When the Chancellor refers to two-way consultation, does he mean that there will be Treasury representatives on the committee of the Bank?

Mr. Amory

No, I did not mean that. I meant that the advice of these committees is really two-way: on monetary policy from the Bank to the Government, and, as it were, on economic considerations from the Treasury to the Bank, which has an effect on monetary policy, also.

The second set of recommendations I want to refer to are those concerning the arrangements for provision of long-term finance for the nationalised industries and local authorities. On these matters I quote from the Report of the Committee which recommends, in paragraph 595: In the absence of any satisfactory alternative method of raising capital, we therefore recommend that the nationalised industries should continue to look to the Treasury to cover all their permanent requirements. In paragraph 596, the Committee says: we recommend that the Exchequer should stand ready to provide long-term capital through the Public Works Loan Board at the current gilt-edged rate (at the time of borrowing) for the relevant maturity, to any local authority that is not able or does not want to raise the money it requires in the market on its own credit at a comparable rate. It seems to me that the Committee has been influenced in its thinking by the analogy between the two cases and it is an analogy which has been drawn both by those who, like the Committee, want local authority borrowing to be financed from the Exchequer and, in the reverse direction, by those who want the nationalised industries to be put on the market. I think that it would be convenient, therefore, to consider whether the two cases are really so similar.

First, I must remind the House of the history of these arrangements since the war. In the case of local authorities, the first stage was between 1945 and 1952. During that period local authorities were virtually obliged to draw all their capital from the Exchequer through the Public Works Loan Board. The second stage lasted from January, 1953, until October, 1955. During that period local authorities had the choice of borrowing either from the Public Works Loan Board at interest rates reflecting Government credit, or in the open market, where interest, naturally, was payable at rates reflecting the credit of the local authorities themselves.

The third period began in October, 1955, and has continued ever since. During this time the local authorities have been required to borrow in the market rather than from the Public Works Loan Board, if they can borrow in the open market. The Board has acted, therefore, as a lender of last resort. To create no artificial incentive to borrow from the Board, the interest rates on the Board's loans to local authorities have been fixed at rates to reflect the credit of local authorities generally in the market. The Radcliffe Committee, therefore, is recommending a reversion to the system which was in force in the second of the three periods which I have mentioned.

For the nationalised industries, the history has been rather different. Throughout its history the National Coal Board has been financed for its capital needs from the Exchequer. For the others, the original arrangement was that their long-term borrowing requirements should be met by the issue of stock in the market carrying a Treasury guarantee. This method was used until 1956, when my right hon. Friend the Prime Minister introduced the present arrangement, under which all the nationalised industries obtain their long-term finance by way of advances from the Exchequer.

Let us consider the two cases. Both the nationalised industries and the local authorities are part of what is called the public sector. Both have large programmes of capital expenditure which are controlled by the Government. There, however, I think that the similarities end. The nationalised industries are few in number, but their individual borrowing requirements are large, some of them very large indeed. Local authorities, on the other hand, are extremely numerous, and although, in total, their borrowing needs fall not far short of those of the nationalised industries, their individual requirements are in general very much smaller.

The fundamental difference, as I see it, is that while local authorities can pledge their revenues as security and have, in fact, a credit standing of their own, so that they can borrow in the market in their own names without the guarantee of the Treasury or anyone else, the nationalised industries were not, and are not, able to do so, but had to rely on the Treasury guarantee.

The consequence of this was that since the issues of stock for the nationalised industries were the equivalent of Government stock, both because of the guarantee and because of their size, it was necessary to apply to them exactly the same techniques as are used for the Government's own borrowing. Their stock had to be largely purchased on the day of issue by the authorities and to be sold later as opportunity offered in the market alongside the Government's own stock. The only difference between this and the Government's own borrowing was that the Government could not fully control either the timing of these issues or their maturities, since both had to be fitted into the needs of the particular nationalised industry.

It was to avoid that loss of control that the present system was introduced and has been continued ever since, and it has been endorsed by the Radcliffe Committee. For the comfort of my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke), I would say that since the present powers to make Exchequer advances expire at the end of next August, the House will have an opportunity before long of addressing its mind to this question, and perhaps I need say no more about it now.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I remember Sir John Anderson introducing the Act which brought the local authorities into the orbit of the Public Works Loan Board. Its purpose was to exercise a close control over their borrowing and also to eliminate the considerable confusion which exists where a multitude of local authorities are all clamouring for loans on the open market. What has occurred which makes it advantageous for all these local authorities to compete with each other for money?

Mr. Amory

I have not quite finished what I have to say about local authority borrowing, and I will try to cover that question.

Local authorities, on the other hand, borrowing on their own credit without a Treasury guarantee, and in relatively small amounts, as most of them do, have been able, since 1955, to finance a very large and increasing part of their requirements without recourse to the Exchequer at all. Indirectly, their activities have no doubt had an effect on the Government's own borrowing operations in that they have attracted to themselves some money which otherwise would have gone into the Government's own securities.

Equally, I am sure, they have found a great deal of money, particularly local money, which would never have come our way at all. This is very important and has been, I am convinced, a real and substantial help to the Exchequer and to the national finances generally in growing measure since the present system was introduced.

The right hon. Member for East Stirlingshire (Mr. Woodburn) raised the question of the queue for borrowing in the market. There is a queue at the present time, but the market authorities control that queue to ensure that it comes forward in an orderly fashion in tune with the demand for securities from the market. For these reasons, I think that a perfectly valid and real distinction can be drawn between the nationalised industries, on the one hand, and the local authorities, on the other.

I have, therefore, come to the conclusion that no change should be made in the present system in respect of local authorities. The local authorities will continue to be encouraged to borrow in the market on their own credit and the Public Works Loan Board will lend to them only if it is satisfied that they cannot borrow in the market.

Mr. Harold Wilson (Huyton)

The Chancellor has quoted many facts which were already known to the House. No one has suggested that local authorities and the nationalised industries are exactly on a par in all respects. Would he give us some reasons why he disagrees with the very strongly argued recommendation of the Radcliffe Committee about this? He gave the impression that he had made up his mind on the question and then produced a number of reasons, which were not very convincing, to support him. What were the arguments of the Radcliffe Committee and how does he refute them?

Mr. Amory

I have given the reasons why I believe that our present system is best. They seem to be stronger reasons than those adduced by the Committee for treating local authorities in the same way as the nationalised industries. I recognise that there is a difference of opinion between right hon. Gentlemen and ourselves on that point. This has come out in previous debates, and we shall no doubt debate the subject further.

It is no light argument if we can substantiate, as I believe we can, that, in practice, the present system enables local authorities to obtain finance additional to that which we should be able to obtain if we had to carry their burden in addition to the other burdens carried by the central Government.

It is well known that for the greater part of this year the opportunities for the issue of long-term stock have been limited and that there has, therefore, been a queue of potential borrowers. In recent weeks, however, there has been a notable movement in the queue. Two substantial issues have been successfully made and we hope to see others follow them. In any case, the existence of a queue has not meant that the local authorities have ben unable to find other sources of funds while waiting for their turn to come in the market. On the contrary, they have been notably and markedly successful in doing just that.

It is true that a part of what they have borrowed has been short-term borrow- ing, and I agree with the Committee that excessive short-term borrowing could have its dangers. We have, therefore, been endeavouring recently to obtain more information on this matter. We hope to make arrangements, in consultation with the associations of local authorities, to obtain and publish regular up-to-date information on the extent and nature on their borrowing.

This reference to statistics brings me to the third set of the Committee's recommendations with which I want to deal. Throughout the Report the Committee lays great stress on the need for a better supply of statistical information on the working of the monetary system, both to help the authorities and to improve public understanding. With this in view, the Committee has made about 50 detailed recommendations as a contribution to the general programme of making monetary and financial statistics progressively more comparable, comprehensive and systematic.

The Government warmly welcome the Committee's most valuable advice on this. Immediately I received the Report I arranged for these recommendations to be studied urgently. The proposals for the extraction and publication of information from Government and Bank of England records will be implemented whenever this will not be contrary to the national interest. The Treasury has already begun to publish quarterly figures on the financing of the Exchequer.

I must make one reservation on this point. Immediate publication of operational figures could, in some cases, be damaging to the national interest. For example, the Committee criticised as undignified the usual form of announcement of new issues of Government stock. I am prepared to find a more dignified form of announcement, but I doubt whether it would be right to announce the sales of the stock to the public to the first day of issue.

The process of improvement in statistics must, as the Committee recognises, be gradual. We propose to begin on those parts of the front where the value of the information will be of the clearest utility. Our immediate aims are: first, to provide a comprehensive and consistent system of statistics on the assets and liabilities of the whole banking system; secondly, to obtain information on holdings of, and transfers in the various types of financial assets including Government floating debt, gilt-edged securities and the various forms of local authority borrowing; and, thirdly, to obtain fuller and more up-to-date information on the financial position and transactions of companies and persons.

We propose, therefore, to invite the representative organisations of local authorities and the main groups of financial institutions to discuss with us how best this information can be collected and what practical difficulties they may encounter in doing so. In due course it will be necessary to approach non-financial companies for up-to-date information which will throw more light on the financial transactions of industry and on the relationship between industry and the capital and money markets.

I am very conscious of the great help we are already receiving from business concerns in all these matters, and we shall certainly do our best to minimise the trouble and cost thrown on those concerned. In particular, I am very anxious to ease the burden on smaller businesses for this kind of information. For instance, we shall not want absolutely precise audited figures. Some degree of approximation will be acceptable, especially if it means that the figures will be available more quickly. We shall also hope to reduce the work and obtain quicker results by using sampling procedures whenever possible.

Mr. J. T. Price (Westhoughton)

I quite agree with the right hon. Gentleman's desire to relieve the burden on smaller businesses in the provision of such information. Would he not be entitled, in that vein of thought, to apply the same process of reasoning to the smaller local authorities which are now having a much greater burden placed upon them by the requirement of his Department for them to raise money in the open market, with all the attendant advertising, wastage of rates and uncertainty about when they will get the money they require?

Mr. Amory

The hon. Gentleman has certainly raised a point. We must ensure that we do not throw unnecessary burden on the small local authorities beyond what is necessary to secure the objectives. The hon. Gentleman can well imagine, after what I have said, that I cannot agree with him on the second part of the point that he has raised.

The Radcliffe Committee expressed the hope that such figures as would be required would be furnished voluntarily by the institutions concerned. That is certainly my hope and belief, and I am sure that voluntary co-operation is the best basis on which to obtain such statistics, as, indeed, it is in most matters.

That brings me to the end of what I want to say on the Report this afternoon. Although on one or two specific matters I have not been able to go with the Committee, and on the very important but more theoretical aspects I have suggested that a final judgment would be premature, I have said enough to show how very considerable is the debt that we owe to Lord Radcliffe and his colleagues. They have given us an impressive and unanimous Report which will be of the greatest value not only to us, but to those who come after us.

It must be a cause for satisfaction to all of us that, despite the profound changes in the techniques of financial monetary and economic management since the Macmillan Report nearly thirty years ago, such a searching inquiry has resulted in such a wide measure of approval of the working of our financial system.

4.47 p.m.

Mr. Harold Wilson (Huyton)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: welcomes the Report of the Radcliffe Committee, thanks the Committee for its thorough and authoritative survey, and calls on Her Majesty's Government to implement, in particular, those recommendations of the Committee which relate to the supremacy of the Chancellor of the Exchequer in financial policy, the relations between the Treasury and the Bank of England, local authority borrowing, capital needs of publicly owned industries, and the position of part-time directors of the Bank of England". The Chancellor's speech was profoundly disappointing. Although he did make some perfunctory remarks of gratitude to the Radcliffe Committee, it was quite clear that he has virtually rejected every recommendation in the Report. Apart from one or two slightly fussy alterations in the mechanism by which changes in the Bank Rate will be announced, and a general promise to look at the statistical position, he has not accepted any of the fundamental recommendations of the Committee. It was quite clear from the right hon. Gentleman's speech that the Report is to gather dust in the Government's already overcrowded pigeon-holes.

The Chancellor came to bury Radcliffe, not praise him. It is yet another case of the Government appointing a high-level committee to look into these questions, to spend quite a long time, in this case two-and-a-half years, saying, "No. We cannot talk about monetary policy because we have this Committee", and then, when the Committee produces its report, the Government say a few well-chosen words about it, reject its main conclusions and go on as before. There have been even more spectacular illustrations of that in the course of this year's history.

Our approach is that this is a most valuable Report. We are certainly not committed to all its details or lines of reasoning. [HON. MEMBERS: "Oh."] Why should we be? Is there any reason? We do not agree with every detail or all its lines of reasoning, but it must be regarded as an important and abiding study of the working of our monetary system and institutions. No one would regard the Committee as composed of revolutionaries. All its members are men of the highest distinction. Most of them would have been regarded as safe and orthodox, men who might be expected, wherever possible, to endorse the existing system.

What has happened? They have produced a unanimous Report. There are different kinds of unanimous reports, but this one is not based on the lowest common multiple of committee harmony. It is a Report which is positive and stringent. While the Committee treated established doctrines and institutions with due courtesy and respect, it has been effective and at times devastating in tearing away the veils of obscurantism and mystique with which so much of our monetary system is surrounded.

The Committee has been equally frank in exposing the arguments which have sometimes masqueraded as sound economic theory, arguments with which we have become familiar week by week in the financial journals, arguments which we have heard so often from right hon. and hon. Members opposite when they have sought to rationalise or to provide some kind of rationalisation for policies that were proving so costly to this country and its place in the world.

Above all, I would characterise the Radcliffe Report as belonging not to 1914 or to 1939, but to 1959 and the 1960s, and being animated by neither mystique nor intellectual dishonesty, but by plain and informed commonsense. It is inevitable that comparison will be made with the Report of the Macmillan Committee, which, with all its faults, remained for so many years the classical analysis of the City in the early 'thirties. If that comparison is to be made, Lord Radcliffe and his colleagues need not fear it.

We all recognise that in this debate we are dealing with part of a much wider subject: the conduct of the economic policy of the country and of the responsibilities that we bear in a much wider sense, both in relation to the sterling area and as a nation which has a decisive pan to play in world trade and finance.

In this House, we differ greatly about methods, techniques and ideologies in these questions about economic and social priorities, but there can be no disagreement on either side about the fundamental objectives of our economic policy. We have to play our part in expanding world trade and in creating a system dedicated to economic growth, and particularly to the advancement of the underdeveloped countries. At home, we have to secure full employment without causing the social distortions and hardships that are inseparable from inflation and rising prices. At the same time, and by al; the means open to us, we have to secure a degree of economic growth which both quantitatively and qualitatively measures up to the needs of our position in the world. We have to do all this while securing equally for all our people a fair and equitable share in the fruits of our national production. These are our aims and there would be no disagreement on either side of the House about them. To achieve them, we need—and I hope that we are all agreed about this—not one policy, but an armoury of policies, budgetary, monetary and social, as well as more direct controls influencing both public and private industry.

I am sure that Lord Radcliffe and his colleagues would agree that their Report can be studied only as part of a much wider setting in which all these instruments play their full part. They would agree that their Report discusses only one aspect of the kind of policy—an informed and positive policy—carried out by Ministers, whatever their political views, impelled by a sense of purpose. Without that, the Report does not make sense.

If the Report does one thing, it is to discredit the notion of monetary policy as a single panacea which is adequate in itself to deal with the problem. Although we shall, naturally, devote most of this debate to monetary matters, it will be meaningful only if we regard monetary policy, important though it is, as having a strictly limited role to play in attaining the economic objectives that we have set ourselves.

I do not intend to spend much time on the Committee's useful analysis of the big changes which have occurred since the time of the Macmillan Report. We should all agree that the Radcliffe Committee is right in emphasising such things as the acceptance of the need for full employment, the structural changes in British industry which have taken place, especially in our export trade, the tendency here and abroad to persistently rising prices, the steady and virtually insatiable pressure from overseas demand, particularly for capital goods, and the striving for economic advancement, and the resulting world-wide shortage of capital from which the country, in terms of both economic and social capital, has not been immune

In listing all these changes, the Committee is right in drawing attention to the vast technological developments, particularly since the war, requiring a high capital ratio in investment and, particularly in this country, also the growth of hire purchase, the development of new financial institutions, the problems presented for monetary management by high taxation and the growth of the National Debt and the new problem presented by the nationalised industries and the size of the national Budget, not to mention the problem of the local authorities.

The Committee is right, too, in emphasising, as the Chancellor has said, the importance of external considerations, the problem of reserves and external indebtedness. All of these present revolutionary changes from the days when monetary techniques were first originated and developed in this country.

It is not possible for anyone today to do justice to all the descriptive sections of the Report—for example, Chapter III, "The financing of the public sector", and Chapter IV, the authoritative description of the financial institutions in the private sector. I would, however, draw attention on Chapter IV to the virtual omission of any description, almost of any reference, to the Stock Exchange. It may be that hon. Members think that it defies description or analysis of the kind that the Radcliffe Committee has applied to other sections of our financial institutions, but since it is always held out as an essential mechanism in providing funds for investment, it is difficult to justify its exclusion from this survey.

I hope that the Chancellor will consider this matter and will consider whether we do not need in the modern world, at present, an independent inquiry into the Stock Exchange parallel to that which the Radcliffe Committee has done with great thoroughness and even ruthlessness into other financial institutions such as the joint stock banks, the acceptance houses, the discount houses, and all the rest. I put it to the Chancellor that he should consider this.

Looking at all of these descriptive chapters, including, for example, the one on the Bank of England, we can only regard this as an interim debate. We shall all be much more fully informed on both the descriptive and the analytical sections of the Report when we have the volumes of the written and oral evidence before us. That will show us in great detail not only what is happening, but, no less revealing, what those who are at the centre of things think is happening, which is just as much a fact as what is actually happening.

Undoubtedly, the central chanter of the Report is Chanter VI, called "The influence of monetary measures," which provides a fresh and, some would say, devastating analysis of the use of monetary measures in the eight years since they were revived with such a flourish of trumpets from 1951 onwards. This chapter also gives us the Committee's view about the scope and relevance of such measures in the years immediately ahead of us.

The classical picture of monetary techniques with which we have been so often presented is that of a beautifully sensitive instrument, delicately calibrated and adjusted, capable of bringing into play powerful forces at the mere touch of a lever here or the application of pressure there, all this working in a way that is somehow supposed to be neutral—that is, innocent of all the distortions of production and trade which are said to be inherent in physical controls or even budgetary policies.

I shall not weary the House with quotations of all the moving speeches that we have had on this theme from four successive Chancellors of the Exchequer, not to mention such apostles of the classical thesis as Sir Oscar Hobson, Lord Robbins, Sir Roy Harrod, and others on whom these Chancellors have relied so greatly for publicly or privately-expressed views.

We were given to understand that this delicate instrument—the rate of interest—supported with all the other monetary levers, would bring savings into equilibrium with investment, and, in particular, would regulate in the national interest capital investment in stocks of materials and in work in progress, and, ultimately, through the supply of money, the rate of interest would control the total volume of demand in the country, not to mention its powerful effect on foreign exchanges, both by altering the interest differential between countries and also by creating confidence in financial centres abroad.

We were also told that, with all these monetary techniques, we should be able to see an advancement and not a retardation of industrial progress and capital growth. This theory, I do not think the Chancellor will disagree, has been the central inspiration of the entire economic policy of the Government for eight years, and the effect of the Radcliffe Committee's commentary on it, after a full investigation of the history of those eight years, is utterly to destroy this theory.

First, let us look at the Committee's analysis of the effect on capital investment in plant, machinery and stocks. We all remember the classical exposition of this thesis in the imperishable words of the present Viscount Chandos, speaking from this Box on 2nd November, 1950: 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.] With all respect to the noble Lord, everything he said on that occasion has been proved by the Radcliffe Committee to be nonsense. I think the Chancellor feels moved on this subject. At least, I thought he was getting up.

Mr. Amory

I was moved because the right hon. Gentleman has referred to my earlier moving speech, and this is the first time he has ever described one of my speeches as a moving one. I should like to put this to the right hon. Gentleman. Surely, he is doing what he always enjoys doing, putting up some fictional situation and knocking it down. Neither our policies nor our actions, surely, give any grounds for saying that we have ever thought that monetary policy alone and in isolation can keep the economy in balance.

Mr. Wilson

The Chancellor will be surprised, and perhaps even flattered, to know that I study his speeches with more care than perhaps he does himself. We know how modest he is. Only two or three weeks ago, I quoted one of his Budget speeches, with which he immediately disagreed, not realising the source from which I was quoting. I can assure him that his speeches are my favourite bedtime reading, and that is why I never get enough sleep. I also assure him that I was not misrepresenting the view which he put across. I do not say that he has ever said that this monetary policy alone would solve all problems. Of course, I have not said that, but what the Chancellor has done, though in not quite so picturesque a fashion as his predecessor, is to suggest that the rate of interest and control over the supply of money were at the root of this problem. I will give some quotations to bear this out. First, perhaps the right hon. Gentleman will not mind this somewhat long quotation from paragraph 451 of the Radcliffe Committee's Report: When we confined our questions strictly to the direct effect of interest rate changes in making business men alter their decisions to buy or sell goods and services, we were met by general scepticism. The insignificance of interest changes in relation to other costs and to the risks involved was emphasised to us again and again, in relation not only to fixed investment but also to stocks of commodities. We were told also how taxation in effect halves the interest cost; this belief has evidently bitten so deeply into business consciousness that it may well weaken the force of interest rate changes even when it is not strictly applicable. We heard from the executive heads or financial directors of several great industrial firms which are themselves responsible for about one-eighth of the gross fixed investment within manufacturing industry in the United Kingdom that in their plans for capital development they assume a more or less steady interest charge and would not alter their existing plans even if they thought somewhat higher rates had come to stay. The Committee went on to say that, even when they took evidence about smaller firms, and from experienced bank managers about the position of smaller firms, 'Here also we were met with general scepticism.

Mr. T. L. Iremonger (Ilford, North)

The right hon. Gentleman has already had my right hon. Friend correct him on the point that he—my right hon. Friend—had never claimed that monetary policy alone would be sufficient, and the right hon. Gentleman opposite has conceded that my right hon. Friend was not claiming that monetary policy alone would do it. Would he now concede that this paragraph is not a claim that interest rates alone will do it, but that what, in fact, the Government policy has relied upon has been the whole of monetary policy, of which interest rates are, in fact, only a part?

Mr. Wilson

I am going to deal with the question of what the Committee calls the package deal, and perhaps the hon. Gentleman will agree with what I have to say on that point. I do not accept that I was corrected by the Chancellor, but I shall presently quote some famous Cancellarian passages which may bear out what I have been saying.

What was true of interest rates was true also of the credit squeeze policy of making money hard to obtain. Here I think the Radcliffe Committee, echoing what has frequently been said from this Box, fairly emphasised that the credit squeeze had borne more hardly on the smaller firms than the large firms. The Government's financial policy has been based on a wider claim than the effectiveness of rates of interest. They have claimed that high interest rates and the credit squeeze were a powerful influence via the supply of money on total internal demand in this country.

Here, again, I could quote from all the four Chancellors of the past five years, but I will spare the House that. I will, however, quote one or two passages from the speeches of the right hon. Member for Monmouth (Mr. Thorneycroft), the arch-apostle of this school. On 19th September, 1957—the day of the 7 per cent. Bank Rate—referring to his financial measures, he said: Their object is to ensure that the supply of money and the consequent pressure of demand do not exceed the manpower and resources which are in fact available. Five days later, in Washington, he said: The purpose of the measures which I announced before leaving London has been to go to what I concede to be the root of any inflation—namely, the supply of money … Again, a few sentences later: Our purpose then is to limit the money supply. Again, at the annual Bankers' Dinner at the Mansion House on 9th October, he said: There is, however, no doubt about one thing, and that is what enables inflation to go on. What enables it to go on is the supply of money, whether it be new money, or existing money travelling rather faster. Our policy is to halt the increase in the supply of money. On the next day, at the Conservative Party Conference, he said: We are not prepared to finance inflation. We do not intend to provide the cash for an upward spiral of costs and prices. We have planned to put a limit on the supply of money. Our policy goes to the root of the problem. It tackles the main source of inflation which is the supply of money. And much more in the same vein, though I will not weary the House with any more of these quotations.

We remember—and this is the more serious point—that this crude theory that we could limit the total volume of internal demand by attacking the supply of money was pushed to the point where right hon. Gentlemen opposite were prepared to see unemployment develop in this attempt to hold down the supply of money. Indeed, the unemployment which did develop last year was a direct result of these policies, and that unemployment would have risen further this year but for the fact that a windfall gain in import prices enabled the Government to reverse these policies.

Mr. Denzil Freeth (Basingstoke)

If, in his own words, the right hon. Gentleman admits that the reduction in demand last year, which alone can cause unemployment, was a result of the measures taken by my right hon. Friend the Member for Monmouth (Mr. Thorneycroft), surely he is conceding automatically that they worked? The right hon. Gentleman cannot have it both ways.

Mr. Wilson

The point of the right hon. Gentleman's policy—and I take the point about a "package deal"—was that it made deliberate cuts in the capital investment programmes of British Industry. They created the unemployment, and indeed, as one of my hon. Friends reminds me, capital investment in this boom period has not picked up. We have now reached a point where the Governor of the Bank of England is beginning to warn about the boom getting out of hand, yet we are still in the position that capital investment has barely begun to pick up.

Let us see what the Committee had to say, after taking evidence from all who could help them on this question of the supply of money, including the right hon. Gentleman the Member for Monmouth, the Governor and Lord Robbins. In the first place, the Committee rightly pointed out, as we have done once or twice, that the supply of money was not so rigidly controlled as the Government intended. Hire-purchase finance and the independent finance houses, including mushroom banking companies, fill a very large part of the gap. The Committee points out, too, the grave harm done to the economy by the harsh and unilateral cuts in the investment programmes of the nationalised industries. The Committee calls them the residuary legatees of Government financial policy. It points to the effect of these cuts in investment programmes on certain important sectors of the engineering industry.

The Committee concludes with these words: It does not seem that changes in interest rates or interference with sources of funds for hire purchase companies have had much ultimate effect on the total pressure of demand for goods. Again, says the Committee, Our broad conclusions on the effects of these measures during the 1950's are that (1) the obstructions to particular channels of finance have had no effect on the pressure of total demand, but have made for much inefficiency in financial organisation; (2) that the controls of hire purchase terms have had sizeable impact, of a once-for-all kind, on each major change; and (3) that these sizeable effects on total demand have implied major directional effects which, though sometimes deliberately sought, have in general been detrimental to industrial efficiency So, according to the Committee, monetary measures were ineffective, detrimental, and they were not even neutral, for they had "major directional effects" harmful to industrial efficiency.

Indeed, the Committee goes on to say that if a Government are seeking to limit total demand, as every Government must at some time, the manipulation of interest rates is not to be compared, for its total impact on demand, with either hire-purchase restrictions or, of course, with the possibilities of Budget policy. Then comes the most unkindest cut of all in the Committee's final judgment on monetary policy in the 1950s: It is far removed from the smooth and widespread adjustment sometimes claimed as the virtue of monetary action; this is no gentle hand on the steering wheel that keeps a well-driven car in its right place on the road. The only concession the Committee makes is that, in an emergency, a sharp rise in interest rates combined with other measures, in what the Committee calls a "package deal", can have an effect both at home and abroad. We all agree about that. But this, again, is not the gentle hand on the steering wheel". It is a shuddering and screeching of brakes, a scorching of tyres, deliberately intended to produce shock and abrasions. But the whole classical theory of monetary management tells us that the purpose of monetary policy is to avoid such emergencies and disasters.

The Committee clearly feels that hire-purchase controls, not to mention such direct controls as building licences, have their part to play, especially in critical conditions. "But", says the Committee—and here I quote from paragraph 514— when all has been said on the possibility of monetary action and of its likely efficacy, our conclusion is that monetary measures cannot alone be relied upon to keep in nice balance an economy subject to major strains from both without and within. Monetary measures can help, but that is all. So the emperor had no clothes after all. As in the Hans Anderson story, the Establishment was wrong and the less sophisticated onlooker was right.

I turn now from that rather central chapter of the Report to the analysis of the monetary institutions, especially the joint stock banks and the discount market. Here, I think—I believe the Chancellor will agree—the Committee is clearly right in showing how ineffective control based on the old 8 per cent. cash ratio concept has become, and the Committee rightly stresses the greater importance of the liquidity ratio. But, as we are all aware, control of this ratio in modern conditions is very far from being automatic, and the Committee once again stresses the ineffectiveness even of interest rate changes for this purpose.

We all know that higher interest rates can force losses on the banks if they are forced to sell some of their short bonds before maturity, although, even there, as a result of higher interest rates, the banks are, of course, able to charge higher rates on their advances and so compensate themselves, in whole or in part, for any loss they make on realising their bonds. It is for this reason—the relative ineffectiveness either of cash ratio or liquidity ratio control—that other methods have been advocated, from compulsory liquidity ratios to special deposits from Treasury deposit receipts to a compulsory advances-deposits ratio. I am sorry that the Chancellor did not deal with any of these questions this afternoon.

On many occasions, we have pressed Government to adopt a system of mandatory liquidity ratios, with power to vary the percentage as circumstances change. It is interesting to note that this view has been supported by the Radcliffe Committee. It supports the principle of mandatory liquidity ratios. We would support, also, its proposal for a manda- tory ratio between advances and deposits, again, leaving room for flexibility on the percentage, with power also—I think that this will be necessary—to extend control to competing financial institutions. Certainly, in periods of potential danger, this kind of control would be effective in preventing the banks from strengthening or reinforcing their liquid assets through sales to the discount market of longer term securities in exchange for Treasury Bills or other short-term assets and thus getting round or circumventing the liquidity ratio control.

The Chancellor, eighteen months ago, when he announced the end of the credit squeeze, went so far as to institute a system of special deposits, a system designed to freeze or sterilise a proportion of the banks' liquid resources. I am sure that the right hon. Gentleman will not mind if I remind him that we had proposed such a system as long ago as the 9th May, 1956, as an alternative to the credit squeeze which we then opposed. I am glad that, in the end, he came to accept this proposal. He will recall that, when we first proposed it, we based it not so much on the Treasury deposit receipts system but on the Australian model which, I am sure, was very much in his mind when he made his announcement eighteen months ago.

Although this is actually beyond the ambit of the Radcliffe Report itself, Mr. Deputy-Speaker, I should like, once again, to press on the Government the suggestion we made that special deposits or a revived system of Treasury deposit receipts, if one likes, could be used, just as Budget surpluses could be used, to enable the Government to operate the system we have advocated for two-tier interest rates—one rate, the higher rate, for the general purpose of the market and the lower of the two interest rates for such essential purposes as local authority housing, colonial development, and farm credit. I am sorry that the Committee did not consider this proposal together with its recommendation about local authority borrowing through the Public Works Loan Board to which the Chancellor referred and to which I shall turn in a few minutes.

I have not time to comment on the Committee's examination of most of the other financial institutions to which it referred. I think that we shall be debating some of them quite soon. I want, however, to say a word about the discount market. Here again, I was surprised that the Chancellor had so little to say. There are many people who have questioned whether the discount market has any real function to perform in the modern world, whether it is anything more than just a survival from the age of the Forsytes.

Certainly, the Committee, in its examination of the problem, has stripped the subject of much of its mystique. The discount houses are not needed to ensure that the Treasury bill tender is fully taken up, and no one, incidentally, has ever satisfactorily explained to me why the joint stock banks should not tender direct for Treasury bills. Perhaps the Chancellor will tell us at some time. Again—I know that this has caused concern in high places—the Committee, on balance, condemns the discount markets' syndicate or cartel system in bidding for bills. I think that the Committee is probably right in saying that this syndicate system inhibits lending by other concerns. Indeed, the Committee says that the discount houses have deliberately manipulated their bids up and down in order to discourage outside tenderers. To this extent, the practice is putting up the cost to the Treasury and is causing instability in short-term money rates.

Thus, the justification for the continued existence of the discount houses lies not on their alleged indispensibility to the Treasury in covering the bill tender but in the much humbler role of providing a useful market for short-term Government securities. I think that no one will disagree with that.

Sir Henry d'Avigdor Goldsmid (Walsall, South)

The right hon. Gentleman is always fair-minded. I should like to bring to his attention that there are five particular virtues or qualities of the discount market which are mentioned in the Report, of which the most important, I suggest, is the last, that the discount houses are doing work at a trifling cost in labour and real resources, and the work they are doing is saving the banking system the inconveniences which would arise from fluctuations in their liquidity, apart also from producing the market in bills and bonds to which I think the right hon. Gentleman has referred.

Moreover, it is not, I think, correct for the right hon. Gentleman to say that the discount market makes profits from manipulation of the rates because, as is also pointed out in the Report, the banks are very quick indeed to adjust their buying rate for bills to that established at the last tender.

Mr. Wilson

I hope that the hon. Gentleman will have the opportunity of developing this point at greater length. I would just say that I stressed the importance of the discount market in relation to providing a market for the short-term assets.

The last point which he mentioned was in relation to their inability to exploit their monopoly profit. In fact, I was just coming to that when the hon. Gentleman interrupted me, because I think one ought to draw attention to a significant paragraph in the Report, paragraph 168, where it states that the safeguard against the discount market exploiting its quasi-monopoly position by increasing its profit margin on bills is the fact that the joint stock banks can always, in turn, squeeze the discount houses by altering the terms on which they lend money to the market, so that the monopoly profit is merged into the total profit position of the clearing banks.

Unfortunately, the Committee says that this is a subject into which it has made no inquiry. One wonders why not. One accepts the position of the discount market, but surely there should have been an inquiry into what the banks do with the profit. Surely the taxpayer is entitled to know how much the whole operation is costing the country, and I hope that matter will be investigated.

The Amendment which I have moved calls upon the Government to implement, in particular, certain recommendations of the Report. First, there are the statistical improvements, to which the Chancellor referred. We all remember that the Prime Minister, when he was Chancellor, promised us three years ago a fundamental improvement in monetary statistics. We remember his elegant remarks about looking up trains in last year's Bradshaw. The Report shows that we are still doing it: indeed, for some trains, the statistics are three years old and for others there are no statistics at all. Worse than that, the Committee confirms the impression which many of us get from reading the evidence given to the Parker Tribunal that so many of the major decisions on monetary and economic policy in recent years have been taken in the most amateurish fashion, on the basis of hunches, guesswork and contacts from the "old boy" network. We have never known until years afterwards—which is a criticism of the Labour Government equally as of the present Government—whether a fall in the gold reserves, as happened in 1951, was not associated primarily with changes in stocks. We did not know the facts about that for many y ears afterwards. Even last year's much vaunted balance of payments surplus of £450 million turned out to be over-estimated by over £100 million when the Chancellor came to do his figures again this autumn.

Again, referring to the central problem of debt management, the Committee says: The authorities themselves, in assessing the demand for debts, rely mainly on their personal contacts in financial and commercial circles. In its demand for what the Committee called "cleaner statistics"—and there is no immoralilty in the use of this word; we know what it means—and for figures on such things as the holding of bonds of different maturities, in particular. I hope the authorities and the Chancellor will really implement the Report in full and not be put off with any obscurantism on the part of any of these financial institutions, however powerful.

Equally important is the recommendation about publication of more information by the Bank of England which it already possesses but has not made public. I think in this respect we lag behind almost every other reputable central bank in the world. Only the Gosbank tells us less than the Bank of England about the monetary state of the country.

The second recommendation to which I turn deals with relations between the Chancellor and the Bank of England, to which the right hon. Gentleman referred. I do not think there should be any need to stress the primacy of position which the Chancellor should occupy in this matter and no one will suggest, after reading the Report, that to stress it will mean that the Bank will lose in either authority or influence as an institution. But we really cannot have vital economic decisions, such as, for example, the biggest Bank Rate increase for forty years, discussed with part-time directors nearly three weeks before the Chancellor hears about them.

I think I can claim that in this section the Radcliffe Report closely follows the line which we took in the Bank Rate debate in 1958. On that occasion, we advised against the proposal that the Bank of England should become a Government Department, but we stressed that the initiative and control should lie in the Treasury, and any doubt about where the power of decision lies should be removed."—[OFFICIAL REPORT, 3rd February, 1958; Vol. 581. c. 856.] We also stressed the idea of a joint committee very similar to that proposed by Lord Radcliffe and his colleagues and the need for a more systematic exchange of staffs at all levels between the Bank and the Treasury. The two institutions are only three miles apart, but sometimes they could appear to be 3,000 miles apart.

I suspect that the Bank and the Treasury have adopted more intimate association in discussing how they could best put the Radcliffe Report into cold storage than on any other major issue in the past five years. I think that the Joint Committee of both institutions has been functioning over the last five months. Perhaps, over-simplifying, one can say that Bank officials have great expertise without much political insight or responsibility, while Treasury officials, responsible as they are to a political head, have a sense of political responsibility but inevitably less expertise. I want more of both qualities and I think that an exchange of staff would help to promote that.

On the question of part-time directors, too, the Report underlines the warning which we gave in February, 1958. We advised against confining the board to full-time directors. I think, here again, that both sides are in complete agreement. We do not want to see a full-time executive board on the lines of the Federal Reserve Board in the United States, for example. We supported, and this may surprise some hon. Members, the system of part-time directors of standing and experience, but suggested two things: first, that they should be drawn from a more representative circle; and, secondly, we also said that there was no need at all for part-time directors to be involved in major and secret policy decisions.

Referring to the crisis of September, 1957—and the circumstances of that time are rather special—the Radcliffe Committee has expressed itself with great frankness and realism. I ask the House to consider the implications of the following paragraph. I apologise for so many quotations, but I think that it is important. It states: In such a case the embarrassment to which a director can be subjected is a reality. If he is actively participating in the conduct of any such business as that of a merchant bank or issuing house which operates in the City's markets for money or capital he may be called upon to discuss or decide upon questions to which his knowledge of the authorities' impending action is very relevant. He cannot, of course, take advantage of that knowledge; on the other hand it is not always easy for him to adopt an attitude of silence or neutrality without giving just that warning of some action to come which it is his whole concern to avoid. That very frank and fair comment by the Committee is exactly what we said was the danger in the debate of 1957.

I hope that one result of the Report will be that the Government will accept the views that we have more than once stated, that the joint stock banks should be more fully represented in the counsels of the Bank of England. I once referred to the merchant bankers going in by the gentlemen's gate to the pavilion and the joint stock bankers going in by the players' gate. But we cannot afford any of these Edwardian notions in the modern world.

In this connection, I welcome the innovation by one of the Chancellor's predecessors when he himself met the joint stock banks' directors. I think that until that time strict protocol demanded that all contacts between the Chancellor and the joint stock banks had to be made through the Governor. I hope that the Chancellor will tell us that he will make a regular practice of such meetings as that started by one of his predecessors.

I now turn to the last two points highlighted in the Amendment—borrowing by local authorities and publicly-owned industries. The Chancellor, very fairly, described the history of these particular problems. The House will remember how right hon. Gentlemen ended the system of direct borrowing through the P.W.L.B. and drove local authorities to make their terms with the market. When that happened and ever since we bitterly condemned their action. It has been costly, and I would go further than the Committee and say that it has put up house rents and has discriminated between larger and smaller local authorities.

In this matter, local authorities and the citizens they serve—ratepayers, tenants and consumers of local authority services—have been notably sacrificed to private gain. The Committee drew attention to the problem of monetary management, saying: For all these reasons we recommend that the Exchequer should stand ready to provide long-term capital through the Public Works Loan Board, at the current gilt-edged rate (at time of borrowing) for the relevant maturity, to any local authority that is not able, or does not want, to raise the money it requires in the market on its own credit at a comparable rate. As the House knows, we would go further and propose a two-tier interest rate system to benefit local authorities.

Similarly, we have the problem of financing the nationalised industries. Again, the Chancellor gave us the history. The present Prime Minister, then Chancellor of the Exchequer, took powers in the 1956 Finance Bill, in the interests of monetary management, to arrange for all the investment needs of publicly-owned industries to be supplied direct from the Treasury. These powers were limited in time, and the present Chancellor, not showing great courage, has twice renewed those powers for one year only. We can understand the difficulties of the Chancellor and of successive Tory Chancellors on this question. They have to deal with a number of active back benchers whose support for the Government's maintenance of public ownership in these industries falls somewhat short of enthusiasm.

Only this summer we moved an Amendment to the Finance Bill to make this system permanent. We pressed the Amendment to a Division. The Chancellor and his supporters voted against it. Once again, the Radcliffe Committee has endorsed our line and I hope that this time the Chancellor will take his courage in both hands—he knows that this is right both for the publicly-owned industries and for the Treasury—and will legislate on a more permanent basis.

There are one or two things with which I should like to deal briefly. I hope that the Chancellor will study again the part of the Report dealing with the Post Office Giro system, which is only lightly, but encouragingly, touched on. I suggest that the Chancellor joins with the Postmaster-General in setting up an objective and factual committee of inquiry to see whether such a system could be introduced. We know that it is in great vogue on the Continent and is very useful. I hope to suggest that the Chancellor should have this matter considered technically by a separate committee. I have a perfectly open mind on it.

Mr. Amory

I hope that the right hon. Gentleman will go on to deal with these points. Naturally, I am extremely interested to know his views. I do not want to convey the impression that we think that many of the points to which I have not referred are not important, or that we have no views on them. We are thinking about all of them. I selected only a few to speak about.

Mr. Wilson

Obviously, when dealing with a Report of this length and complexity, we can only pick out certain things. I have picked out the points which I thought were of fundamental importance, in view of our past debates.

I should have liked time to deal with some other important issues, including farm credit, but I must say a word about the key subject of export finance. Both sides of the House would be ready to pay great tribute to the Export Credits Guarantee Department, a publicly-owned body which has been highly successful in a sphere where private insurance could not have been expected to tread. I am not making a party point, but the Report confirms what many exporters know, namely, that present facilities are inadequate. The E.C.G.D., probably rightly, maintains its limit at five years, and through the Berne Club it is instrumental in stopping an international rivalry in Government credit terms.

I do not think that we want an international competition to see how long we can offer credit to particular exporters, but, especially for capital goods with a long life and exports to under-developed areas, better terms are needed than those it is possible to obtain through the E.C.G.D. Perhaps private enterprise, with the help of the insurance companies and the banking system, can co-operate to provide this help as they do, for example, in tanker finance.

If this is not possible I seriously put to the Chancellor the proposition that he should consider the establishment for this country of something on the lines of an export-import bank. I would not want him to follow all the precedents set by the Export-Import Bank in the United States, but this point is worth considering. In the era of keen competition which we must expect in world markets, most of all in heavy capital goods, we must not allow our industries to be handicapped by deficiencies in the financial system.

As the Report makes clear, as we look ahead to the future of world trade and payments, one thing stands out clearly—the shortage of world liquidity and the danger this represents not only to the stability of individual currencies but to the future of world trade itself. During the past twenty years, the value of world trade has increased about fourfold, whereas the volume of the currency reserves of the world has increased by only 50 per cent. Even the recent measures to expand the resources of the International Monetary Fund, which we all welcome, will make only a small contribution to the problem. I should, therefore, like the Chancellor to consider this matter. I have given him notice of it only today, but I hope that we shall hear from him on a later occasion.

There have been times under both Governments when the £ has been weak, our reserves consistently inadequate and the future of trade in danger. Today, for as long as it lasts and for reasons which we all understand, the dollar is in a relatively weak position. All of us realise, I think, what would happen if the U.S. were to feel itself driven into protection or, for that matter, deflation, which might have just as serious an effect.

Now is the time, I suggest, when the £ is not under attack by financial gossipmongers, for this country to take the initiative in proposing a world monetary conference to examine the whole problem of world liquidity and, whatever we may or may not succeed in achieving about the international price of gold—we know the difficulties there—to suggest that at the very least the lending powers of the International Monetary Fund be expanded, for instance, by increasing the first tranche of lending to 40 per cent. of the quota, and to propose—this is a more fundamental suggestion which I should like the Chancellor to consider at his leisure—that member countries should legislate to provide that deposits with the International Monetary Fund should be regarded as equivalent to gold. I hope that the right hon. Gentleman will consider this matter and will put it forward on an international basis.

In the nineteenth century, private banks began to regard their fundamental reserves as being not only their gold, but any money that they were holding at the Bank of England and they could settle debts by cheques drawn on the reserves they had at the Bank of England. Why should not we do this on an international scale? Why should we be tied to gold reserves as the only acceptable international currency? Why should not our quotas with the International Monetary Fund be added to the gold reserves, to increase fundamentally the volume of world liquidity? I would hope to see the I.M.F. in time, with suitable safeguards and changes, transformed into something more approaching an international central bank to deal with problems of world deflation, not excluding the use of open market operations. I hope that the Government will look at this proposal with an open mind and will take the initiative now, when we are relatively strong—the initiative for which, I believe in this respect, the whole world is waiting.

To sum up, we on this side regard the Report as very useful. It sets in proper perspective the role of monetary policy and shows how limited that rôle must essentially be. It does not set out to solve the central problem of our age—how to expand production and promote lasting economic growth without sliding into inflation. It is interesting to note that even the Cohen Council, which is not usually quoted with approval from this side of the House, states in its third Report that we have not solved the problem that all the monetary squeezes of the past few years have involved—a very heavy cost, in terms of figures, to expand and invest enough. When we get the Cohen Council saying that—taking the line that we have taken so often ourselves—there is obviously need for some new thinking on the subject.

The solutions of that problem—whether by measures of public or private investment or by radical changes in taxation affecting investment, and so on—all lie outside the field of this debate. What is relevant is how we are to prevent the expansion we need—which, for the moment, we are getting—leading to inflation and here, especially in relation to a cost-push inflation and rising incomes and costs, the Committee has little to contribute.

We have certainly never had a clear statement from the Government on this from the days when the right hon. Gentleman the Member for Monmouth was Chancellor of the Exchequer, because the Government have always thought that all problems of inflation, wherever they come from, can be dealt with by attacking total demand.

That is why, throughout the past few years, we on this side have always emphasised that this problem cannot be solved in a democratic society without a purposive policy involving budgetary needs, monetary policy and physical controls, and, above all, the creation of a social climate which will enable a Government of whatever party to appeal for, and to deserve, co-operation from every section of the community.

5.42 p.m.

Mr. William Clark (Nottingham, South)

This is a frightening but very important moment for me in that it is my first speech in this Chamber. I hope that hon. Members on both sides will extend to me the indulgence and tolerance that, I understand, is given to all new speakers. As a new Member I have had a variety of advice as to the timing of my maiden speech, but whether I have been told that the speech should be sooner or later, my advisers have been unanimous in saying that in any case it should be brief.

I have not been able to ascertain whether the purpose of that brevity is to avoid causing boredom to other hon. Members, to avoid exhausting their patience, or is, in fact, an act of mercy to a new Member. I shall do my best to maintain the practice of remaining non-controversial in my maiden speech, but if I do err in that regard I hope that the House will forgive me.

In the time available to me it is obviously quite impossible to deal with a Report of some 360 pages, so I would like to deal with only one aspect. First, I would add my tribute to the work of Lord Radcliffe and his Committee and to say that, in general, I welcome the Committee's exhaustive deliberations and recommendations. In one respect, however, I think that the Report is a little contradictory in recommending that local authorities should have immediate access to the Public Works Loan Board.

I cannot see why local authorities should get this preferential treatment. In the main, the capital wants of local authorities are for housing—and here I exclude such housing as welfare housing, old people's dwellings and certain slum clearance. Since the war this country has had a magnificent record in house building, but we must remember that a great proportion of it has been council house building. If the slum-clearance programme is to continue, as I am sure it will, then, in the normal efflux of time, all rented property will become council property. That means that the habitable house of today is the slum of 15 or 20 years' time. If this recommendation is accepted, these council houses will all be built on advantageous terms.

I was very interested to hear the difference—and I agree—between the financing of nationalised industries and that of local authorities. The nationalised industries belong to the taxpayer, who eventually foots the bill, while the local authorities are autonomous and have a certain amount of credit-worthiness. It would be better if that local authority credit-worthiness were increased.

It will be remembered that in 1952 the Government gave a permissive right to all local authorities to sell council houses. Under the Small Dwellings Acquisition Acts, and the Housing Acts the same local authorities had the permissive right to advance money to would-be applicants for any sort of house purchase. Not many council houses have been sold, and it is as well to remember that many local authorities have not exercised this permissive right.

What we have to do is to try to get true freedom. I am sure that we all agree with freedom for the individual, but the transfer of this permissive right from the central Government to local government is not, in fact, giving freedom to the individual, and I would respectfully suggest that we should consider whether these permissive rights, either to buy a council house or to apply to one's local authority for the necessary finance to purchase one' house, should be permissive not to the local authority but to the tenant. We would then have a much truer picture of whether or not council house tenants wish to buy their houses.

Quite obviously, these houses will have to be sold at valuation, but in the sale of any property there are two valuations, there is the vacant-possession valuation and there is the sitting-tenant valuation, and, obviously, council tenants would buy on the sitting-tenant valuation.

My experience as vice-chairman of the finance committee of the Wandsworth Borough Council some years ago leads me to believe that the sale of council houses could easily mean that local authorities would make a profit on the sale. Even if a profit were not made, the council would be spared the burden of the 60-year loan charge. That, in itself, would make local authorities more credit-worthy, and the more creditworthy local authorities are the easier it is, and will be, for them to take their loans on the normal money market.

Owning one's house is the aim of most people, and it is an ambition that the Government should encourage. If that were done it would break this continuous build-up of council house estates. That is a very burning question in my own constituency where in one council estate alone I have nearly 15,000 voters. That problem is growing daily in Nottingham, South, as it is throughout the country. Somehow, we have to encourage property owning so that we do, in fact, get a property-owning democracy. And we must also remember that this would encourage saving.

I apologise to the House if my argument has been either too complicated or too lengthy, and I hope that hon. Members will appreciate that that results from my inexperience and consequent incoherence. I thank hon. Members for not having violently disagreed with me—at least, while I have been speaking—and would only add that the thoughts I have expressed are sincerely held by me.

5.50 p.m.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

It is always a pleasure for one who has been a Member of this House for some time to congratulate a new Member who has made his maiden speech. I think the hon. Member for Nottingham, South (Mr. W. Clark) has at least convinced us that he has an easy approach to addressing the House, and with his pleasant manner and pleasant voice I am quite sure that he has a good vehicle for the ready acceptance of his arguments.

It is not, perhaps, our business today to say whether or not we agree with the arguments of the hon. Gentleman, although I think there are some things which we should take into consideration among those he has put forward. First of all, he said that the local authorities are agents of the Government and that they very largely spend Government money as well as their own. Therefore, the Government have a very important duty to see that local authorities are not borrowing at excessive rates and so wastefully.

There is one point I want to put to the hon. Gentleman. He was arguing that everyone wants to own his own house. The important question of the mobility of labour is involved. Houses tend to tie people down to a district. That is dangerous when there is a closing of mines and a shifting of people to other areas, for it can involve heavy loss which ordinary people cannot afford. Moreover, the management of a 15,000-house council estate would be greatly complicated, I think the hon. Gentleman will agree, if we were to have a hotchpotch of publicly-owned and privately- owned houses on the estate. However, those are matters which, I am quite sure, he will find an opportunity for discussing. A good many of our colleagues in the House, like himself, have local government experience, and there is never any loss of argument when we debate housing.

I crave the indulgence of the House for what is almost a maiden speech of my own, for not since 1947 have I had the privilege of speaking freely as a private Member and not officially on behalf of my colleagues. There is a certain freedom on the back benches to express individual views, a freedom which is not possible when one sits on the Front Bench. I should also like to crave the indulgence of the House because it is a good many years since I was dealing with this subject, and it may be that hon. Members think that I should talk only of Scotland. Like the hon. Member for Nottingham, South, I made my maiden speech on a Budget, and for a good many years such matters were the principal theme on which I chose to address the House. I also had the privilege, which is perhaps unique in the House, of having some personal connection with the Macmillan Committee, as I was privileged and honoured to be asked to give evidence before it and to be cross-examined. I did, and I was.

At the time of the Macmillan Committee we were facing a vastly different problem. We were facing the problem of creating work and dealing with mass unemployment and of what was the purpose of credit and finance in dealing with this problem. A slight criticism of the Macmillan Committee has crept in. I suggest that, like the Chancellor today, the Macmillan Committee felt that when it was depending on experts it had considerable difficulty in finding out what the facts were. For instance, the Macmillan Committee, after all its investigations, had to confess that The economic experts have evolved a highly technical vocabulary of their own.

Mr. Ede (South Shields)

Hear, hear.

Mr. Woodburn

It went on to say: Agreement among the professors of the science is, as we have experienced, even harder to find than it is among experts, and in their anxiety to avoid controversy they tend to avoid committing themselves to any definite conclusion. In other words, the Macmillan Committee found, after hearing economic experts, that they had said nothing it could understand, and, like the Chancellor, it had a little difficulty in being sure what expert opinion was.

Montagu Norman was the great panjandrum of British finance, and everything he said about financial mutters was supposed to be almost like the word of God. Yet after the Macmillan Committee, and after the crisis which followed the Macmillan Committee occurred, Montagu Norman humbly explained that he did not understand much about this. He just saw those things through a glass darkly. During all those years we had the blind leading the blind, and millions of people in this country were suffering misery and starvation because we did not understand the system which we wanted or the system which we were working.

The reason for the origin of the Socialist movement was that people in this country saw themselves victimised by an economic system which worked of its own momentum without any intelligent control. Therefore, it was the purpose of this movement that we should control our economics and that they should not control us.

My claim to speak today arises just because I was a student of this subject for many years, because I had something to do with it in earlier days and because some of my evidence, at least, was the first authoritative statement of principles which were later, I understand, the basis of J. M. Keynes's book, The Theory of Prices and Money, and certainly formed the basis of the activities of Governments in Scandinavia and elsewhere. They are principles which we work today. It may be that other people thought of those things at the same time, but I think I can say that the first authoritative statement then was in my evidence to the Macmillan Committee.

The problem, as I say, was mass unemployment and the use of the money system. I think that Scandinavia was the first to tackle this problem of using money and credit to see that unemployment was avoided and activity created, and the first to introduce a planned economy into the system. The first great principle we set for this Labour movement in the early days has been realised, since all Governments now accept responsibility for the planning of our economy. As somebody once said, "We are all Socialists now".

There are two elements in planning. The first is what to do? That is a question of policy. The second is how to do it? That is a question largely of administration. If I were to give my own opinion I would say that I think that Government policy is a little too narrow and a little too passive.

The Government are pledged to foster conditions in which the nation, if it so wills, realises its full potentialities for growth in terms of production and living standards. Those are the Chancellor's words, and we agree with the purpose at the end of them, but when is the nation ever likely not to will the realisation of its full potentialities in the growth of production and living standards? Surely we can all agree that that can be taken for granted. The nation wants to exercise and develop its full resources for production and for improving living standards, and the Government cannot just be passive and merely want to foster something which is developing.

It must be the duty of the Government to have initiative and I would say that in these matters the Government are the executive board of the nation. They must have purpose, as the Chancellor defines it. They must have initiative, and they must have drive. Nobody can believe that the right hon. Member for Woodford (Sir W. Churchill) or Ernest Bevan, placed in charge of a responsibility of this kind, would sit and wait for something to foster. They would get on with the job and see that somebody got busy about it.

If we add to the definition of the duty of the Government that we should not only realise our full potentialities but should get a fair distribution of the results of this enterprise, then we get a rough but fair definition of Socialism which we can accept to be going on with. It is this word and this idea that blind the Conservatives to a proper appraisal of the facts of economic life.

The Radcliffe Committee has done a great job in making much clearer the working of all this administrative financial machinery that is available at our hand to carry out our purpose. Where I find the Chancellor and many of his colleagues at fault is that they have a false notion that there is some antithesis between public and private enterprise. They have two categories in mind and they think it a sin to praise public enterprise. The Chancellor knows that during the General Election we were led to believe that public enterprise was something sinful, to be done away with as soon as possible. But private enterprise and public enterprise are not rival armies or rival firms. The only distinction between them is that one is under direct control and the other is under indirect control and is, perhaps, too multifarious in its activities to be subject to easy control.

I agreed with the President of the Board of Trade when he said not long ago that when we are discussing the economic affairs of the country the broad division is on what we intend to keep for seed corn and what we intend to eat, or what we are going to eat in the future and what we are going to eat now. If we eat it now we cannot have it for the future, and that must apply to the whole economy and not to public or private enterprise only. If it is said that 100 per cent. is to be distributed it is no good spending money in trying to consume 120 per cent. We must adjust our spending power to what we are going to consume and what we are going to produce. The Government must keep spending and production in line.

The Government deserve to be condemned for the misuse of their duty purely for electioneering purposes. On two occasions they have created a spending spree to win an election. That cannot be the proper way to run the country's affairs. It is not wise for a Government to have an economic "Rake's Progress" merely to create a beano so that people can feel prosperous and rush to vote Conservative at election time. This violent alternation of acceleration and braking would in road terms be described as reckless driving. That is our main charge against the Government—not so much their theories.

Another charge which is borne out by the Radcliffe Committee is that the Government stimulate the wrong things when they want to create a boom. They give artificial pep pills to production for consumption whereas a much better result could be obtained if they pepped up production to develop our resources. There is no doubt, for instance, that the Government's measures in the last two years have created a minor boom, but the boom is in the south of England, in the motor car industry and the mass production industries.

The Government have, however, also created a minor slump in shipbuilding, the heavy steel industries and in the capital goods industries in the North. Whilst there is almost an over-surplus of prosperity in the South we are beginning to see the development of distressed areas in the North. That is obviously wrong management on the part of the Government. These pep pills which they gave to the consumer industries should be given to the production industries so as to develop wealth for the future.

I agree that it is very pleasing to have all these gadgets for pleasure in mass production and everybody able to buy them, but the use of credit should be directed to providing more power, more education, better health, more means of production and more and better roads. That is how we should be increasing public spending power—not by inducing people to get into debt with the money lenders. Whilst it is easy to pep up consumption by allowing hire-purchase and encouraging banks and others to throw money about and get people into debt, it is a dangerous method, because we are using up future spending power instead of using the money to increase future productive power, which it would be much better to do, even at some sacrifice of the present consumption rate.

The present method is inflationary in principle. The idea is held that the economy is inflated only if the full economy is inflated, but that is not the case. If the prices of gadgets are driven up by stimulating demand, prices are raised in one section of the economy and that has an inflationary effect even though it does not spread over the whole of the economy. It is bad in principle to do it, and it is the Government's duty to keep a balance.

All this arises, I am sorry to say, purely from Conservative prejudice against public enterprise and the nationalised industries. I am sure that the Government knew this very well and that, when some of these decisions were made, they were deciding not according to their own best judgment but in order to pander to the pressure of people behind them who were clamouring against the nationalised industries with a quite ridiculous prejudice. After all, many of the industries which are nationalised were nationalised by the Conservatives, and many of the industries nationalised are not proposed to be denationalised by the Conservatives. The denationalisation idea has been confined to one or two industries.

The Government and the Conservatives should make up their minds whether the nationalised industries are to be part of the economy. If they are, it is the Government's business to make them successful and keep them successful. The impertinence of attacking us on this side of the House during the election for Conservative mismanagement of the nationalised industries in the last eight years was beyond my comprehension. The party opposite not only misled the public but nearly misled themselves. One of our problems today is that the Conservatives are beginning to believe their own propaganda about the nationalised industries. It is a dangerous situation to get into, as I am sure the Financial Secretary to the Treasury realises.

I am sure that in the future the economy will be made up partly of public and partly of private enterprise. I question whether in the lifetime of anybody here that situation will be much more than modified. The control of public enterprise is direct control, and that applies to the local authorities and the nationalised industries. The Government, by their own instructions, can tell the nationalised industries and the public authorities to slow down. Therefore, it is quite ridiculous to add to that control another control by introducing financial handicaps to the local authorities.

Why should local authority finance be confused every now and then by changes in the interest rates? Why do the Government not arrange for a stable interest rate, reasonable for the job to be done, and allow control to be carried out in the intelligent way of telling the local authorities and the nationalised industries what they want to do? This business of juggling with finance and making the local authorities pay more interest, and creating a complete department of circumlocution of interest-payment is fantastic financial nonsense.

I hope that the Government will get rid of all this pretence of trying to be fair to both private and public enterprise by making these changing interest rates apply to both. I am in favour of a public enterprise which is carrying out a public policy being accorded an interest rate which is different from the interest rate in the market at large. This is not something strange. Gilt-edged securities have always been obtainable at lower interest rates than shares in speculative enterprises. Why should not that apply to public enterprises?

Private enterprise is more complex and it is not so easy to tell it what to do. Here, again, I submit to the Chancellor that a great deal of his policy in the last two or three years could have been much more intelligently handled if he had simply asked the banks to try to restrict their credit on enterprises which obviously were frivolous and had no public importance. Little firms, very important to our export trade, were frozen by the credit squeeze whilst big firms could erect petrol stations which at the time were unnecessary.

Some discretion should be exercised. One of the fundamental charges against the Government's policy in recent years has been that it has not discriminated between what was for the public good and what was merely for the development of personal consumption which could have waited. We agree with the Radcliffe Committee that a method should be found whereby the Government could be far more discriminating, instead of depending on a blind financial control. Indeed, the Radcliffe Committee has made a number of suggestions to that effect. The management of credit and employment is not an exact science and no committee, not even the Radcliffe Committee, can lay down an exact way of doing it. It is an art which must be managed with flexibility. There is a great deal of variability in every situation, and to that extent, therefore, I agree with the Chancellor that there must be considerable flexibility.

I will quote from one thing that I said to the Macmillan Committee, because it is appropriate today. I said: Credit can be issued to the extent that we have available labour but the very creation of such public work"— that is, creating public enterprises such as nationalised industries— will be found to stimulate existing private enterprise, and the resulting activity will tend to expand credit beyond the capacity of labour to meet its demands .. In other words, if we stimulate public enterprise that automatically will stimulate private enterprise. We may have to slow it down because we shall be stimulating enterprise beyond the capacity of industry to absorb it and that will immediately depreciate the currency. This could be met by adapting the public use of credit to the multifarious demands of ordinary trade and restricting public work, when that is desirable, to allow the expansion of private trade. To put it another way, if our expansion of public enterprise causes private enterprise to expand too rapidly, the Government have it in their power to withdraw public enterprise and to restore the balance of the economy. That would act in the same way as the governor on a steam engine which keeps the engine going at a steady rate.

To that extent I agree with the activities of the Government in using public enterprise for this purpose. On the other hand, I disagree with them where they use it simply to handicap public enterprise, when that could go ahead without any disadvantage to the community. For instance, there would be no point in stopping hydro-electric works in Scotland because the Finance could not be used at the time for any other purpose for the benefit of the people in the Highlands. So it would be silly to stop hydro-electric work, because that work would not be holding up economic development in this case. It would be folly on the part of the Government to stop development of electricity and gas in order to allow somebody to have an extra motor car or wireless set.

We welcome the Report and we hope that the Government will read, study and learn from it. I would have commented on the use of the Bank and interest rates but the hon. Member for Nottingham, South, who delivered his maiden speech, will find that it is a recommendation to most hon. Members to speak briefly, not only in their maiden speeches but in all their speeches, and I am the last to transgress that rule even in this, my maiden speech from the back bench.

It seems important, however, to urge the Government to be more reasonable in their policy and to be more discriminating about where they apply the brake and where they speed up. I will put in one special plea with reference to my former existence. It is that the Government should keep the allocation of industry in mind and that, when they want to stimulate it, they should not necessarily do so in Birmingham but should apply the stimulus in Scotland, Wales and the North-East. If our population is not all to congregate around the Great West Road something must be done to ensure that industry is sent where the people are, because sooner or later they will flow where industry is.

I am sure that as a result of the Report of the Macmillan Committee, and of the knowledge we have gained since, and with the added strength of the Radcliffe Committee Report, we know enough to avoid the slumps and misery of former times. I do not think that we shall ever again have the situation where Governments stand by and see the country become one great distressed area, but we need to use our knowledge to develop our resources and ensure that our people can live freely and abundantly.

6.16 p.m.

Mr. Nigel Birch (Flint, West)

The right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) was making what he described as his maiden speech from the back bench. Certainly it enabled him to enjoy some freedom, because had he been speaking from the Front Bench he would have been forced to make a reference to the Report under debate. The right hon. Gentleman might even have had to read it, and I saw no evidence in his speech that he had read a word of it.

Mr. Woodburn

Indeed I quoted from the Report, but the right hon. Gentleman cannot have noticed it. As my right hon. Friend said, the Report is so large that if I had started on the financial aspect of it I should have been speaking for a long time.

Mr. Birch

I am sure the House is deeply grateful to the right hon. Gentleman for his observation.

I shall make a very short speech. With the exception of the speech of my hon. Friend the Member for Nottingham, South (Mr. W. Clark), the speeches so far have been very long indeed. Therefore, I hope the House will take it as read that I have made the required number of ritual genuflections to the work of the Radcliffe Committee.

The most curious thing about the Report is the great stress laid at the beginning on the importance of reaching a unanimous conclusion. Often in our history it has been vital for committees and commissions to reach unanimous conclusions, and to that end it may well have been right for them to fuzz the issues, to leave out of account matters of importance, to be unclear and even to abandon logic. In this case I cannot see any great point in fighting for a unanimous Report.

The people of this country are not passionately excited over the question of monetary management. Many different views are held on this subject. The earnest seeker after truth would like the opposing views clearly set out, so that he could have a chance of deciding for himself where the weight of the argument lay. The Committee cannot have hoped to end the ceaseless gang warfare that exists between professional economists. They are already sharpening their knives and brandishing their bicycle chains.

As a result, everybody who has read the Report has been able to select from it some sentence or some sentiment that is to his fancy. In dissecting this outsize curate's egg everyone has found something—some piece of embryonic tissue or whatever it may be—picked it up with his forceps, exhibited it to the public and said, "This proves that I, at any rate, have always been right".

Where so many eminent men have led I cannot forbear to follow. The exhibit which I should like to put before the House is paragraph 115. It is short and I will read it. It says: Net sales of stock enable the authorities to finance an Exchequer deficit without adding to the credit base of the banking system. So long as the authorities have to finance a large overall cash deficit (including the provision of capital for the public corporation, and for the local authorities through the Public Works Loans Board), and there are maturities of £600 million to £1,000 million to be refinanced each year (and this is the prospect for the foreseeable future) the need to raise as much money as possible by this means will remain pressing; the authorities cannot be expected to relax their efforts to sell stocks unless a time comes when they judge that the economy has moved into so deep a depression that it is necessary to incur the risks that a reversal of this policy would entail. That, quite simply, means that it is the duty of the authorities to fund continually, to sell as much stock as they possibly can, and that only in the event of a really deep depression would they be justified in involving the risk of giving up that policy, the risk being a great increase in bank deposits.

It might well be argued that paragraph 115 is contradicted by paragraphs 546 or 523, and it might well be argued that it was against the general drift of the argument of overall liquidity—I think the hon. Member for Huyton (Mr. H. Wilson) quoted certain passages which would not fit in with paragraph 115 but, as Professor Paish showed quite clearly in The Times on Tuesday, it may well be that, on closer study, the liquidity argument will be found to be orthodox and, therefore, consistent with paragraph 115, and not unorthodox, and, therefore, inconsistent with it.

In any case, whatever contradictions there may be subsequently, this statement in paragraph 115 about the necessity to fund is absolutely clear and absolutely unqualified, vigorous and definite, and it seems to me that it will be grossly discourteous to the Committee to assume that it did not mean what it said in the paragraph.

Also, of course, it is true. Look at what we see not only in this country but elsewhere. Look at the troubles in America, which has had Budget deficits for years which it has been impossible to cover by genuine funding. Therefore, its bond market is in a mess and its economy in disorder.

Take the case of France. Many hon. Members have read a very interesting account of the French financial situation by M. Jacques Rueff in which he described how France had been going on after the war. Like us, the French are burdened in their budgets by heavy capital demands from their nationalised industries, and in deciding how large an overall deficit they were justified in having, they made a guess as to how much money they might be able to borrow, how much they might be able to fund, and that sum was called the "impasse", but every year they calculated the "impasse" wrongly. They practically never managed to borrow as much money as they thought they would, and the result was eight devaluations, the loss of a constitution and the return to orthodoxy.

In our own economy we have seen that every time we fail to cover the capital expenditure of the nationalised industries, whether by taxation or by genuine borrowing, we begin to get into a mess, and we get into a mess fairly quickly. I do not think the general public realise the burden which this financing of the public corporations puts upon us and how much more difficult it makes the whole management of our economy.

I do not suppose there is a more ardent cheap money man living today than Sir Roy Harrod. I think that perhaps he is the only genuine Daltonian still alive. I am perfectly well aware that Mr. Dalton himself is still alive, and I am very sorry indeed no longer to see him on the benches opposite. Speaking for myself, I much regret it, for I always found him fun in the House.

However, here we have this arch-Daltonian, and if one reads paragraph 569 of this Report, and, still more, Sir Roy's review of the committee's work in the Financial Times, one will see that he takes the view that we shall never have an ordered economy in this country and never get interest rates down to what he believes to be a desirable level unless there is a radical change in the pricing and the capital policies of the nationalised industries.

The right hon. Member for Battersea, North (Mr. Jay), who I understand, is to wind up the debate for the Opposition, knows a great deal about these matters, and I am sure that this was in his mind when he made his great declaration about nationalisation. He saw what a burden it was upon our economy, and he saw how absolutely hopeless it would be if we nationalised more industries and, therefore, had a still greater burden. I very much hope that the right hon. Gentleman will testify accordingly at the coming Blackpool inquest.

There it is. We have this great necessity all the time to fund, and it is not a very easy thing to do, because people who have held gilt-edged securities have grown aware that they have had a bad time and they are becoming very suspicious.

In this difficult task of meeting the pressing need for funding, what help can we get from the Report? There are several things which are relevant. First, the Committee says—I cordially agree—that we must get used to higher long-term interest rates than we have been accustomed to in the past. I am sure that is true. But then the Committee adds another sentence which, I confess, rather worries me. It is the second sentence in paragraph 572. There the Committee is talking about the fear of continuing inflation. That fear still exists.

The Committee says: In so far as people foresee a steady rise in prices of 2 per cent. per annum, they will look for a 5 per cent. rate of interest instead of 3 per cent. Let us pause for one second and see what that means. Suppose a man lends £100 to the Government today on a loan repayable in 25 years, and suppose prices go up by 2 per cent. compound per annum, at what would that loan need to be redeemed at 25 years for him to get back the same purchasing power as he originally lent to the Government? The answer is that the loan would have to be redeemed at 164 per cent. If it were a 50-year loan, it would have to be redeemed at 269 per cent. Out of his taxed interest, depreciating in exact proportion to the capital, the man is not likely to be able to put anything by against the enormous capital loss which he will suffer.

That sort of bland sentence saying that one wants 5 per cent. instead of 3 per cent. rather upsets me. It shows some contempt for the intelligence of the people. It may well be true that the majority of the people in this country do not keep the compound interest tables by their beds, but they are not fools. They may sometimes be slow off the mark, but they know when they have been swindled, and if people have been swindled, it will take more than all the soft money men in the world, even if led by Lord Boothby himself, to persuade them either that they have not been swindled, or, if they have been swindled, that it was good for them.

The second relevant point in the Report is that it would be easier to manage the gilt-edged market and make it easier to manage the whole funding problem if the authorities took the market more into their confidence and told the people what they were trying to do. I do not want to argue that case because the case against it has been very well argued by Mr. Rossa in the current issue of Lloyds Bank Review. If the members of the Committee thought that, they showed a most astonishing naïvete, because such a system would not work and the Government would sell even less stock than now. The long-term position is that one is continually under the pressing need to sell. If one takes the market into one's confidence and rubs it into the public that one must sell, one might sell more stock, and, equally, one might not sell more stock.

The third point is a key issue of confidence of getting one's priorities right. In September, 1957, my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) said that the swindle had gone far enough, that he put the value of the currency first and that everything else would have to go by the board if people pushed their claims for wages far beyond any possibility of productivity catching up. Again and again, my right hon. Friend the present Chancellor of the Exchequer has affirmed that he puts the value of the currency first.

Since that declaration and stand, we have had, admittedly with some good fortune, the first period of stable prices for decades. There was a time when even the right hon. Member for Huyton (Mr. H. Wilson) said that he put the value of the first. That was in the Budget of 1958, but I do not want to pin anything on him. The Socialist manifesto of this election clearly gave pledges which meant that the £ had been put right at the bottom.

If we do not put the value of the £ first, we get in a mess. What were the priorities of the Radcliffe Committee? It put first a high and stable level of employment and, second, reasonable stability in the value of money. What is reasonable stability in the value of money? Needless to say, the Report does not tell us. Surely all experience shows that if the value of the £ is not put first, it automatically goes to the bottom.

In its Report, the Committee says that the Bank Charter Act, 1844, had the effect of keeping prices steady. The Committee looked wistfully for some substitute. The only substitute is a firm determination to retain the value of the £, whatever that may cost, because without that there is no sanction. It would be perfectly wise for any union to press any wage claim to any extent, whether it broke the £ or did anything else. It could hardly be blamed for doing so if they knew that whatever happened full employment would be maintained.

Still dealing with the question of confidence, I come to the Report's references to the Bank of England. The people of this country, quite rightly in my opinion, look on the Bank of England as an institution devoted to the maintenance of the internal and external value of their money. Why, then, devalue the Bank? Why turn it into the East End branch of the Treasury? Why put the Governor of the Bank into the second eleven and put it about that part-time directors are not to be trusted?

It is curious that the main reason which the Committee puts forward for the proposed change is that it would not make any difference anyway. Would it not? Under the system as it now is and is to continue, supposing a profligate Government with an enormous Budget deficit plays ducks and drakes with the currency and, unable to fund, runs into a foreign exchange crisis, as it inevitably would; in such circumstances, the Governor of the Bank of England would say to the Chancellor, "The only conceivable way of preventing the £ going and of preventing the break-up of the sterling area is a sharp and brutal change of gear; we must have a big rise in the Bank Rate."

The Chancellor of this profligate Government might say, "No. We know much better than that nowadays and we will not have such an increase". In the end, of course, the will of the Chancellor must prevail. Under our Constitution, the Government, backed by the House of Commons, can do anything not naturally impossible. [Laughter.] That is a text book phrase. Faced with that reply, a decent Governor of the Bank would say, "Of course, your will must prevail, but I intend to put up the Bank Rate unless you issue a formal direction forbidding me to do so".

Might not that give pause to even the most profligate and dishonest Chancellor of the Exchequer—the fact that he has solemnly to give a direction to the Bank of England not to do what it was clearly right to do. Would it not make such a Chancellor fear the vengeance of the people? I think that it would. Given the new system proposed, such a sanction would be thrown away. Nothing would happen and down would go the £. The proposal about the Bank of England is mistaken and I am glad that my right hon. Friend has turned it down, although I am sorry that he has given in on a small point about the appointment of part-time directors.

I end by saying that the Report has been of some value—the descriptive passages may be useful to teachers. We may get better statistics, and better statistics will do all that better statistics can do. However, I must say with deep regret that rather than shed light on our problems the Report has darkened counsel.

6.39 p.m.

Mr. Anthony Crosland (Grimsby)

The right hon. Member for Flint, West (Mr. Birch) began his speech by criticising my right hon. Friend the Member for East Stirlingshire (Mr. Woodburn) for making a long speech without even mentioning the Radcliffe Report. The right hon. Gentleman achieved an even more remarkable feat by speaking for 20 minutes on the Report without mentioning the fact that all its historical passages constitute the most damning indictment of the policy associated with the right hon. Gentleman and his right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft). I am bound to say that his references to the Report, besides being extremely patronising in tone, were completely unhelpful in that they pretended that the whole central problem did not exist.

The whole tenor of the right hon. Gentleman's speech—and it was on this kind of issue that he resigned; and I am bound to tell hon. Members opposite that the thanks for their election victory are very largely due to the right hon. Gentleman and his right hon. Friend for resigning when they did—was simply to say that we must put the value of the £ first at almost whatever cost. That simply assumes the whole problem away. At what cost, in fact? At what cost in terms of unemployment? At what cost in terms of devaluation? At what cost in terms of the loss of production?

Did the right hon. Gentleman mean that at whatever cost we must put the value of the £ first? If so, he ignores what the Chancellor knows perfectly well to be the major problem facing us. It is a question not of putting the £ first at any cost, not of putting economic expansion first at any cost, not of putting the balance of payments first at any cost, but of trying to balance those various objectives against each other.

I agree with the right hon. Gentleman that, in parts, the Radcliffe Report is muddled, but at least it has the great merit of not putting a single objective first, such as the value of the £ or the balance of payments, but making some effort to reconcile those various objectives.

The right hon. Member for Flint, West also referred to the Bank of England and the relations between the Treasury and the Bank. That is the first point that I want to take up. I do not share his view about what should be the relative powers of the Bank of England and the Government. I do not believe that the Bank should behave in the kind of independent manner which the right hon. Gentleman proposed. I believe that the balance of power ought to shift in the direction of the Government.

The Radcliffe Committee's proposal for a joint standing committee is an excellent one in principle. The details can be criticised. For example, I see no point in having Board of Trade officials on such a committee. But, in principle, it is excellent. This afternoon the Chancellor on behalf of the Government rejected that proposal. He said that it was too complicated and would lead to too great a proliferation of committees. As he did not go into greater detail on that point, it is impossible to answer that argument.

The right hon. Gentleman's main point was that, while he had some sympathy with what the Radcliffe Committee was after, he thought that he could achieve the same end in a different way by his own proposal, which, apparently, was to put Bank officials formally on various economic policy-making committees inside the Government. To do that is completely to misconceive the problem of the relationship between the Bank and the Government.

If we put Bank officials on to Government economic committees, no doubt they will give excellent advice to those committees. No doubt they will enable the Bank to be kept well informed of Government policy. But that has been the problem in the past. The Government have had plenty of advice from the Bank in the past, and the Bank has always been informed about Government policy. The problem is the reverse one. During the last few years, so far as the outsider can judge, there have been many occasions when the Government have not been properly informed about the Bank's policy, and when the Government have not been able to bring to bear their own opinions on the Bank. I do not, therefore, think that the Chancellor's proposal meets the point.

When we talk about a lack of coordination between the Bank and the Treasury, we are talking about something real, not something mythical. For example, looking back to 1955, nobody can say, least of all the present Home Secretary, whom we are sorry to hear is ill, that during those days, when the Bank of England was deliberately leaking round the world its own proposals for a dash to convertibility combined with a floating exchange rate, and in doing so helped to land the Home Secretary in an extremely severe exchange crisis, that there was sufficient co-ordination between the Treasury and the Bank.

Again, one could not possibly say that in 1956 and 1957 there was sufficient coordination when the Bank of England allowed the Kuwait gap to remain open for as long as it did, with part of our precious reserves draining out through it. Again and again, on questions of exchange control, over the last few years, we have heard instances of the quite inadequate co-ordination between the Bank and the Treasury.

It is said that matters are better today, that relations are better and that co-operation is closer. I hope that that is true. But I think that the Bank and the Treasury are still not speaking with a single voice. The contrast in tone between the Governor's speech and the Chancellor's speech at the Mansion House dinner was very marked. I am not satisfied that we have as yet achieved the right degree of co-ordination. That is why I am sorry that the Chancellor has not adopted this proposal of the Radcliffe Committee.

There may be difficulties but, in principle, it seems an appropriate solution to the problem. It would have finally brought to an end what has been much too common in British financial history, a state of affairs in which not one financial policy is being pursued, but two, one by the Government and one by the Bank.

The second point concerns the planning set-up inside the Government. The Radcliffe Committee gives the impression that the conduct of financial policy in the last two years has been both muddled in intention and not always successful in its execution. As an outsider, I cannot help feeling that there are weaknesses in the Government's planning setup. One has to speak in the dark, because no outsider can know the details of the set-up inside the Treasury and the other economic Government Departments.

I would like to ask one or two questions. I have to put this in the form of questions because one cannot definitely know the facts. Is it possible, for example—and here I brave the prejudices of hon. Members on both sides against economists, a prejudice second only to that against lawyers—that there are too few professional economists in the Government? I believe that there is a small economic section inside the Treasury. There are one or two economists scattered about the outlying Ministries, but, considering the economic responsibilities of even a Conservative Government in 1959, is it possible that the professional element is grossly understaffed?

More serious than that, and again I speak as an outsider, is the set-up inside the Treasury. When the Bank and the Treasury have had dealings in the past one has gained the impression that the Bank has often tended to get its way, partly because its representatives were better informed and more expert. The people in the Treasury are, to some extent, amateurs. I put it to the Chancellor that it is possible that the Treasury set-up is completely inappropriate to meet twentieth century conditions. One gets the impression that inside the Civil Service there is still the nineteenth century tradition of the brilliant amateur, the dilettante, the man who went to Winchester and got a First in Greats at Oxford and is now competent to run the Empire one day, look after the balance of payments the next day, and deal with the cotton industry on the third day. It is my impression that there is much too little specialisation and much too little technical expertise, particularly inside certain economic departments within the Government.

The Chancellor has what we hope will be the advantage of a new Permanent Secretary. He has four years of relatively secure government ahead of him. I would like to ask him to take the opportunity of considering whether too many transfers are made between departments of the Civil Service. Officials are transferred from the economic department to another department and then back again. Does this process of inert rotation not make it more difficult to build up highly specialised economic departments inside the Government?

Mr. F. M. Bennett

Would the hon. Gentleman comment on the fact that the right hon. Gentleman the Member for Huyton (Mr. H. Wilson), in his speech, spent a proportion of the time condemning the advice that was given to the Chancellor of the Exchequer by a whole series of professional economists?

Mr. Crosland

I do not recollect that passage in the speech of my right hon. Friend. However, that does not necessarily alter my view. After all, the right hon. Member for Flint, West started his speech by referring to economists never agreeing with each other, and spent the latter part of his speech quoting Professor Paish and Mr. Rossa. Occasionally, it is possible to be too sceptical of economists and nevertheless think that they can be useful.

Mr. Birch

Some of them.

Mr. Crosland

Yes. In that we wholly agree.

I would like to turn now to two points in the Radcliffe Committee on international currency questions. The first point concerns exchange control. The Radcliffe Committee comes out with what seems to be a perfectly fair statement on the question of exchange control over capital movements The Report says, in paragraph 728: While it may not be possible completely to stop movements of capital by exchange control, it can act as a brake on a flight of capital and slow down a movement which might otherwise remove a large proportion of the reserves. … We think that, with all its limitations, some control over capital movements should be retained. It may be thought that this is not a particularly live issue and, therefore, not worth raising in the debate. But we have all read the recent speech, which gained wide publicity, by the Executive Director of the International Monetary Fund, Per Jacobsson. To put it mildly, that speech was rather unfortunate. Per Jacobsson has a great reputation in all circles concerned with international payment matters.

It was Per Jacobsson who first really galvanised the International Monetary Fund into action. He has consistently been a very great friend of this country. It is agreeable that, apart from anything else, he is related by marriage to our first four-minute miler. Despite this, however, I wish that he would not take advantage of his position of director of the I.M.F. to give stern advice to the British Government as to the way in which they should conduct their foreign exchange policy. It would be extremely unwise to do what he suggests we should do, namely, now or in the near future to remove the remaining exchange controls over capital movements.

The great argument for such control, even though it is not 100 per cent. effective, is that it is, at any rate, one method if not of wholly preventing at any rate of minimising speculative movements of short-term capital—such movements as were continually disrupting the exchanges and wrecking world trade in the interwar period. It was for that reason that when the Charter of the I.M.F. was drawn up it was almost universally agreed to write into that Charter the provision that Governments should retain their right of control over capital movements.

Our post-war experience has shown the need for such control. We have found again and again, in the various exchange crises that we have had in the last few years, that although the crises may have been primarily caused by a movement of foreign capital of one kind or another, they were nevertheless almost invariably aggravated by a movement of resident capital. Indeed, the right hon. Member for Monmouth, speaking of the 1957 crisis, used constantly to say—and there was a great deal of truth in it—that people who spoke simply of the sinister hankers of Zurich were giving a false impression, because a large part of the run on sterling was due to a movement of resident and not foreign capital.

Mr. I. J. Pitman (Bath)

Is not the hon. Member aware that Sir Stafford Cripps admitted that it was quite impossible, at the time of the run on the £, for the kind of foreign exchange control that the hon. Member talks about to be effective? It does not work when it is needed, and it is not necessary when it is not necessary.

Mr. Crosland

I intended to deal with that point later, but in view of that intervention I can deal with it now.

One of the arguments used against retaining exchange control is that it is so ineffective as to be not worth while. I do not recall Sir Stafford Cripps using that argument, but it is constantly used. In fact, it is not true. I agree that it is not 100 per cent. effective; ingenious people can always find leaks in the exchange control. They have done so constantly in the past. But the history of the last few years proves that the Bank of England can, if it has the will to do so—which it by no means always had in the past—stop these leaks to a very considerable extent.

The example of the Kuwait gap is very relevant here. For a long time it was said that the leak through the Kuwait gap could not be stopped, but, in the end, a Conservative Chancellor rightly gave what were virtually instructions to the Bank of England to stop the gap, and it did so quickly and effectively. Similarly, in the crisis of 1957 the Bank of England took a number of actions to stop particular leaks in exchange control.

Therefore, although I concede what the hon. Member implies, that we can never make exchange control of this kind 100 per cent. effective, we can certainly make it sufficiently effective to play a considerable part in preventing speculative crises. I therefore hope that the Chancellor will not listen to the siren voices which he begins to hear on all sides, suggesting that he should move to what is called full convertibility, implying that exchange control should be removed from capital movements.

My last point concerns a matter raised by my right hon. Friend the Member for Huyton (Mr. H. Wilson), namely, the question of international reserves and liquidity. At the moment the reserves position is much healthier than at any time since 1945 and, with the possible exception of this country, no major country is seriously short of reserves. This is partly clue to the higher I.M.F. quotas, partly to the resurgence of international lending in the last few years, but it is primarily due to the fact that in the whole decade of the 'fifties the United States has been losing reserves at a considerable pace.

At the end of the war, when discussing the acute liquidity problem then facing the world, we used to say that everything would be all right if the reserves buried under Fort Knox could be redistributed throughout the world. That is precisely what has happened, and the large loss of reserves from the United States has buttressed the reserve position of the rest of the world.

But although the reserve position is favourable at the moment it is bound to become unfavourable again at some stage in the future. The basic fact is that world trade is increasing more rapidly, year by year, than is the new supply of available gold, so that we are always tending to run into a gap. Further, it may be that our need for reserves will increase in the future, as the world completes its various movements towards complete freedom of exchanges and complete convertibility. It may be that this process, which is going rather too fast, will make us more liable to speculative short-term capital movements and hence will increase the need of world reserves.

Looking ahead, therefore, we shall at some stage find once more a large gap between world reserve requirements and available supplies of gold. Next time, this gap will not be closed by a further redistribution of the reserves of the United States; on the contrary, the danger is that the United States will feel forced into protectionist policies by the loss of reserves which she has already suffered. At any rate, there is no chance that she will allow a further large outflow of reserves.

I agree with the Radcliffe Committee that the solution of raising the price of gold is an extremely clumsy and awkward one. It distributes the advantages in the most irrational way, and it must be considered only a fifth-best answer. In the long run, as my right hon. Friend the Member for Huyton said, the only effective solution will be, at some stage, to develop a genuine international currency and convert the I.M.F. into a genuine central bank.

Lord Keynes and others foresaw this need even in 1944, when they were negotiating the original Charter of the I.M.F. At that time the opposition to anything so radical was far too strong, and Keynes's proposals, as everyone knows, were turned down. But during the last two or three years there has been a significant movement of opinion in favour of the idea of a genuine international central bank, and this has not been confined simply to academic economists, whom the right hon. Member for Flint, West does not like; it includes such respectable people as Mr. Stamp and Sir Oliver Franks. I appeal to the Chancellor to consider the present time as being extremely favourable for pressing this proposal on other countries. It is not urgent now, but it will become urgent again in future. The atmosphere is highly propitious to present the proposal.

In the past, the main opposition has come from the United States, but the attitude of the United States, under conditions of dollar outflow is now very different from what it was a few years ago, and we shall find the American Government much more sympathetic than they were to proposals for a radical reform. Whether, as my right hon. Friend suggested, the right thing to do is to call an international monetary con- ference I do not know; I would have thought that these were early days for that, and that opinion has perhaps not yet crystallised sufficiently. But I appeal to the Chancellor to assure us that, during the next two or three years, in all the negotiations between himself and his officials and other Governments, and in all the informal contacts he makes, he and his officials will constantly prod and press and pester the other Governments into a favourable attitude of mind to this proposal.

It seems to me that the great virtue of the Radcliffe Committee's Report is that however much we may or may not agree with its fundamental analysis and diagnosis it compels all of us to think in detail as to what the intentions of monetary policy are, and what are the most appropriate methods to use. It is clear from the Report that the Government were confused both in their intentions and methods during the last few years. The test of whether the Radcliffe Committee was worth while, and whether the Government react to it intelligently, will be if they manage, in the next few years, to pursue a policy not of jerks and fits and starts—going forward and then backward, as in the last five or six years—but of steady economic growth, because that is what the country most urgently needs.

7.1 p.m.

Mr. Ian Fraser (Plymouth, Sutton)

The hon. Member for Grimsby (Mr. Crosland) will forgive me if I do not follow him very closely in the four interesting but to me rather unpersuasive arguments which he has been developing. I wish that I had been longer in the House than I have because I should then have been able to refer to the pleasure which I know that more experienced and wiser heads than mine on this side of the House felt when the hon. Gentleman returned to the House.

I appeal to the House for the tolerance which it extends to a maiden speaker. I begin by qualifying that request in two ways which, like the Radcliffe Committee's Report, pull in two different directions. Obviously, any maiden speaker who seeks to intervene in a debate on a subject of such complexity as this must have a reasonable excuse for doing so. My excuse is that I have myself, throughout the whole period covered by the Radcliffe Committee's Report, been in business both in the square mile of the City and outside it. I have, therefore, seen taken and have myself participated in taking many decisions which have been affected by factors which are dealt with in the Report and in ways upon which the Report has much to say. Apart from that, because there has been a certain amount of anti-economist talk during the debate, I would say, to redress the balance, that I myself, although I am not an economist, have throughout the years found a singular fascination in that not always sombre discipline which has attracted a mind which has been dragged up in the classics and in philosophy.

The reason that pulls the other way and for which I would ask the House for its particular tolerance is this. It springs from the nature of the Report itself and the gloss which hon. Members opposite have put upon the Report by the Amendment which they have tabled, and I am afraid that I shall not succeed in making a speech as wholly deficient in intellectual provocation or indeed of any intellectual content at all, as I should have wished to make on so bridal an occasion. If, therefore, I unwillingly and unwittingly give pain in anything that I have to say to hon. Gentlemen opposite, I would hasten to disclaim any immunity to which my maidenhood would otherwise entitle me and I will take what is coming to me and try not to be too flummoxed by it.

We are debating a document which will influence action and decisions and practice over many years to come and upon which those who follow us in these matters will be themselves brought up and educated. The sole point which I want to make about it and which I want to try to emphasise tonight is that the Report, like many another great document is full of danger if it is not properly used. This is a point which my right hon. Friend the Chancellor of the Exchequer took up early in his speech. It is full of danger if it is not properly used, and it is of these dangers that I wish to speak.

I follow my right hon. Friend the Member for Flint, West (Mr. Birch) in his attitude towards the unanimity of this Report. I think that its dangers spring very largely from the unanimity of that very diverse Committee, because although the right hon. Gentleman the Member for Huyton (Mr. Wilson) said that it was rather a Committee of moderate men on both sides, it seems to me to be a Committee of men who in fact differ very widely indeed in their experience, cast of thought and preconceptions.

It seems to spring from that unanimity that this Report has the potential dangers which it has. Partly, of course, the results of that unanimity have been wholly good. In particular they have been good because of the great emphasis of the Report on exposition, which is one of its most valuable features.

This unanimity has meant that the Report, instead of being a consistent guide to action written from a single point of view, is instead a majestic corpus of interwoven skeins and strands of thought and opinion which is by no means consistent with itself. I think that lack of consistency has concealed itself from hon. Members opposite because of the lucid and often noble simplicity of the langauge in which the whole of the Report has been clothed.

If this Report chances to be dug up centuries hence, out of the preserving sands of Alexandria, or out of the London clay, the scholars of those times will I believe have no difficulty in agreeing that the Report was the work of many hands and that it was spread over various eras of British history; and they will conclude that at some later period it was compressed by a single brilliant but historically rather vague stylist who conceived that it all referred to the same time and place in British history. There will be some German, some American, and, it may be, even some British scholars who will be able very clearly to distinguish with great certainty between the various main opinions which at the various different periods made up this Report as we know it. I think that in the first place they will isolate a towering figure which I am tempted to call the "Old Prophet"—not "the old profit". He is a man with a mountainous conviction, with the fiery eloquence and almost complete lack of intellectual flexibility and subtlety of former times. He is a man whose god is liquidity, who smites hip and thigh the heretics who believe it can be useful in certain circumstances to curb spending by operating upon the money supply.

These scholars of the future will note how the "Old Prophet", thus handicapped, seemed to have made rather a hash of the monetary measures in his own day so that it appeared from the Report that he eventually lost his faith. He denied that the Bank Rate had any great significance, at any rate for grownup people, and he proclaimed that monetary measures failed to keep the system in smooth balance and were in any case only the handmaids of other measures, both fiscal and physical.

In sharp contrast to the work of the "Old Prophet", which is such an important part of this Report, I think that these future students will discern another figure which strides through the pages of this Report. I only wish that the hon. Member for Cardiff, West (Mr. G. Thomas) was present in the Chamber because he is well qualified to help me in a difficulty of this sort, but I should like to call that figure the "deutero-Isaiah"—statesmanlike, sophisticated and calm, and, if I may put it in this way, Conservative in his views. He sees clearly throughout the Report the immense force of monetary measures. He knows the practical power of the Bank Rate to raise the reserves upon occasion. He knows clearly the capacity of a change of gear in interest rates to shake people into a change of economic course. He knows the efficacy of moderate monetary measures—these are all quotations from the Report itself—in avoiding the occasion for calamitous restrictions.

The "deutero-Isaiah" would have made a good Chancellor. It may be that these students of the future will descry that he was Chancellor, or he may have been two Chancellors, from the year 1957 onwards. The "Old Prophet" of liquidity, the old anti-Bank Rate prophet, surely belongs in spirit at any rate to an earlier decade in our history. In the Report as we now have it, there is certainly more of the "Old Prophet's" work than there is of the work of this "deutero-Isaiah". He it is who seeks to unhinge the delicate relationship between the Treasury and the Bank of England, which is surely a subtle and advanced relationship if we compare it with the relationship between any other Government and its central bank any where we care to look.

He seeks to unhinge it by trying to subordinate the Governor in the determining of the Bank Rate to a largely Departmental committee chaired by the Economic Secretary. He it is who seeks to wean the local authorities hack from the discipline and from the skills of the market—because that surely plays an important part so far as local authorities are concerned. It is precisely the training of their financial officers in these skills which is one of the most important things. It is he who, to my mind, more importantly and more controversially denies in the Report—on grounds which, I say with the deepest respect, seem to be both flimsy and insufficiently argued—the suggestion that under certain circumstances the rate of interest weapon might be used in future still more effectively than it has been in the past.

If it were to be used still more violently in either direction than was the case in the past, that is a possibility which seems to me of the greatest importance in the future management of our affairs. That seems to be passed over in the Report in a rather superficial manner. It is dealt with only by an argument which is really connected with the desirability of stability in Treasury bills and in other Government paper. It does not seem to be dealt with in anything like the depth and profundity which its importance would seem to require. Yet it is certainly the great value of this Report that to each of its major aberrations it also provides and contains within itself an answer, very often a better and more accessible answer, than can be found anywhere else.

Its danger lies solely in the fact that there may be this tremendous temptation—I am sure it is a temptation from which hon. Members opposite will not refrain; they have not done so in this debate—to extract from it certain aberrant recommendations and to disregard the careful and intellectually honest antidotes to those aberrant recommendations, which are packed up with them in the Report. There will come a time when hon. Members opposite will be in power again and, if this Report is then used in that kind of way, it will tend in a serious way to obscure what is surely the very important and practical lesson—indeed the outstanding practical lesson—of the years 1951 onwards.

Is not this the situation? In 1951 we began tentatively and not without doubt, not without pain, to revive the use of monetary measures, upon which it cannot be denied as a fact of history that a great deal of our past prosperity has depended. In that process we made mistakes, some of which were quite serious. It was surely not until 1957 that we really, for the first time since the war, used monetary measures, in two very important ways; in their full strength and in their proper harmony with other measures which bear upon the economy.

We used them to meet the serious crises which had several times recurred. The result of that has been—this is the point which it seems to me that the Report has to face, and which it does not really fact—not simply to weather the recurrent crises but to establish our prosperity and our economic power in the world upon a new footing of strength and security, which there is at present every empirical reason to believe is of a quite lasting nature compared with what went before.

I have not seen it anywhere suggested, either in the Radcliffe Report or elsewhere, that results equal to this, or better, could have been achieved in any other way than by the use of monetary measures in the way in which they were used in 1957, and have been used since. If that be so, surely we are right if we conclude that monetary measures in future will continue to play a most important part in the direction of the economy and indeed a part for which there is no substitute in the management of the economy. Surely hon. Members on both sides of the House will be right if they read the Report in that way and in the light of that experience and of that knowledge.

7.18 p.m.

Mr. Arthur Holt (Bolton, West)

I wish first to congratulate most warmly the hon. Member for Plymouth, Sutton (Mr. I. Fraser) on his maiden speech. I approach this subject with great trepidation; I therefore have all the more regard for an hon. Member who makes his maiden speech in this House on such a subject, but the hon. Member, I know, is not unused to public speaking. He has brought into the House a confidence in speaking which I am sure he has shown in the past outside. I compliment him on the extremely efficient way in which he dealt with this subject this evening.

I approach this matter very much as a layman who had hoped that all would be made clear about the mysteries of the monetary system by this Report. I am afraid I have been rather disappointed. I had also hoped, as I think a great many other people who are not experts had hoped, that a clear course would have been charted by this Committee for any Government to follow in monetary policies in order to keep prices stable, obtain full employment and have at the same time an expanding economy. Here again, the Report seems to give little encouragement to us.

It may be that the experts have learned something from it and now clearly know where they have to go. For instance, it seems to advise us that we must control and vary from time to time the total liquidity of the whole economy that we may thereby achieve stability of prices, but of course there is no particular reason why the economy should then bound forward as we want it to or why all the resources of men and materials in the economy should be fully utilised. With the main point of importance as I understand it—that of exercising influence on the liquidity of the economy as a whole and of doing it through interest rates—I feel I must agree, but the case can hardly be said to have been proved.

I thought the right hon. Member for Flint, West (Mr. Birch) made a perfectly fair point when he talked about people picking out of this Report the particular paragraphs which suited their own kind of arguments. The right hon. Member for Huyton (Mr. H. Wilson), I gathered, welcomed the whole Report and picked out its apparent condemnation of the idea of the importance of controlling the supply of money. Yet he made very little reference to what I take to be the most important part of the Report. This is what the Committee says about controlling the state of liquidity of the whole economy, and I refer the right hon. Member, who I regret to see is not now present, to paragraph 981, which says: Secondly, the factor which monetary policy should seek to influence or control is something that reaches beyond what is known as the 'supply of money'". It does not exclude the importance of controlling the supply of money, but something which reaches beyond what is known as the 'supply of money'". This point was also underlined by the right hon. Member for Flint, West when he referred to the importance of paragraph 115.

There was another point in the speech of the right hon. Member for Huyton in which it seemed to me he was picking out something which could have suited his argument. I think he referred to paragraph 451 and to the evidence the Committee thought it had had that interest rates did not appear to affect the decisions of business people. I think the right hon. Member quoted, and I quote from, paragraph 451, which says: But when we confined our questions strictly to the direct effect of interest rate changes in making business men alter their decision to buy or sell goods and services, we were met by general scepticism. This particular point has puzzled me for a long time, because that certainly has been my experience in our business. One does not in fact appear to put something off because the interest on the money one has to borrow has gone up from 4 per cent. to 5 per cent., but at the same time it has appeared to me that there has been a definitely indirect effect. The result has been that when interest rates have gone up businessmen have in fact put off these decisions.

That point is brought out in another section of the Report. Paragraph 393 says: Provided that it is not confined to the short end of the market, a movement of interest rates implies significant changes in the capital values of many assets held by financial institutions. A rise in rates makes some less willing to lend because capital values have fallen, and others because their own interest rate structure is sticky To bring that kind of point down to the details of a firm, if a firm has investments of, say, £50,000 which it was originally thinking of using for a capital development, and interest rates have altered so that the value of that £50,000, invested perhaps in a public company—the capital value—has dropped, the firm will say, "We cannot afford to sell these now in order to finance our own capital development". That is a way in which I think this increase in interest rates results in firms putting off their capital developments. So it is in fact having the effect desired, but it is far more indirect than some people had perhaps previously thought.

However, the main problem with which we are all concerned—that of stable prices in an expanding economy with full employment—is still not solved by this Committee. I suppose we were foolish ever to expect that it would be. That problem will be solved only if, against the background of an economy properly run as regards the monetary system, individuals do not try to take too much out of it—again, to bring this down to the detail of a firm—that shareholders, management or workpeople do not try to take more out of the firm than it can afford to give. In the matter of wages, this means trying to get a situation in which wage increases are related to productivity. If we can get to that situation it will be done only by both management and shareholders realising that their actions must not be the kind which will frustrate it.

I do not think the Committee has dealt entirely satisfactorily with the question of the Agricultural Mortgage Corporation and loans to farmers. It accepts that there is a gap at the moment and it asks, in paragraph 931 (d), that there should be longer-term loans and that these might be given by the banks. Since the Report was published, the Midland Bank has offered twenty-year loans. I should have thought that an extension of the activities of the Agricultural Mortgage Corporation is required, for money is required not only for the purpose of loans to which the Corporation devotes its activities, but for capital development, not only for owners, but tenants. If this can be done while at the same time keeping a reasonably stable and low rate of interest it will greatly encourage a more efficient kind of capital development than is sometimes taking place now.

The Report accepts that the financing of the nationalised industries is at present a burden. In making recommendation in paragraph 595 it says, In the absence of any satisfactory alternative method of raising capital. … We must pursue this. I gathered that the right hon. Member for Flint, West was in favour of finding an alternative, but when he was in the Government any suggestions made to him about it from these benches were not given a very warm reception. If he has changed his views, I am glad.

The present method is unsatisfactory not only because of the trouble it causes in raising the money but also because there is as yet no proper check on the kind of capital development which the nationalised industries are undertaking. I want to see them produce a prospectus before they start any capital development. I can think of no better way of having it done efficiently than by their having to issue stock, of whatever kind—possibly similar to the present stock but not guaranteed by the Government—through an issuing house, with a prospectus which people can examine. People could then say, "I do not like what you propose to do and I will not lend you any money. If you alter what you propose to do, we will lend you money."

The next objection usually made to this proposal is that the nationalised industries are too big. For this and other reasons it is time that we made some reform of the nationalised industries. The first step is to make them smaller. This point was taken up by the Herbert Committee when it examined the electricity industry and when it recommended smaller units. The only reason that the Committee did not finally go through with its recommendations was that it felt that if the electricity industry were to operate separately as area boards for accountability purposes and to raise its money on the market in that way, this would cost the industry more and it would be at a disadvantage compared with the coal or gas industries with which it was competing.

That strikes me as a rather weak argument, because the industry is already in competition with the oil industry, which is, on a different basis from any of the other three industries. I suggest to the Government that we make a start with the gas industry, which is already in twelve area boards. I see no reason why each one of these should not be made completely separate accountably. Each should raise its money on the market through issues and produce a prospectus for people to see. I do not want to go into details, but the Gas Council could take a status similar to that of the Iron and Steel Board—one of a general supervisory nature over the gas boards. The amount which the Gas Council had to raise last year was only £25 million. The sums involved are therefore not very large. This experiment would give us an opportunity to see in a practical way whether this is a useful proposition. If it is, we can subsequently apply it to the electricity industry.

It is obvious that we must continue to examine most carefully any move which the Government make in monetary policy. We must check their activities against experience, because no clear and plain new course has been charted by the Radcliffe Committee.

7.35 p.m.

Mr. J. Enoch Powell (Wolverhampton, South-West)

One note has run through nearly all the speeches which have been delivered in this debate this afternoon, and that of the hon. Member for Bolton, West (Mr. Holt) has been no exception. It has been the reference to the unanimity of the Radcliffe Committee's Report and the consequences which it has entailed, whether that unaimity was self-imposed or unsought or whatever may have been its origin. In the speeches this afternoon, and also in the growing body of comment outside upon the findings of the Committee, I think that it is common ground that this unanimity has led to ambiguity, to blurring and to downright contradiction.

One reason is the fact, to which my right hon. Friend the Chancellor of the Exchequer and others have drawn attention, that different schools of economists do not agree. But at least as important a reason—I am inclined to think more important—is the fact that the great divide in politics, the divide between those who believe in a centrally-controlled, planned economy and those who believe in a freely developing economy, does not skirt the frontiers of monetary policy, but runs slap through the middle. Those who are thus divided on the other aspects of policy will also be divided on monetary policy.

I should like to take as an illustration of that division of opinion and its reflection in the Radcliffe Report the central question of the rate of interest. It appears to me that, after all qualifications have been made, the rate of interest is a kind of price. You may argue, you may demonstrate, that it is slow, perhaps uncertain, in its effect. You may show that its effect is subject to all manner of qualifications and even contradictions. But in the end, the rate of interest remains a kind of price—the price at which money is lent and borrowed, the price at which savings are obtained for investment, a figure which uniquely corresponds to a particular balance between lending and borrowing, saving and investment, a figure such that, if it were higher, less would be demanded for investment and vice versa, a figure such that, if we artificially lower it, we create an artificial scarcity which then has to be dealt with by other means.

The Radcliffe Committee does not itself appear to dissent from the view that the rate of interest is, in this sense, a price. It says, for example, that "the whole range of interest rates is relevant for this purpose of influencing … the demand for capital". They say, again, that the rate of interest does influence … the allocation of resources in favour of those projects which make the most of the real resources of the country. One could scarcely have a more correct classical definition of the working of the price mechanism than those words which the Radcliffe Committee applies to the rate of interest.

Those of us who are not devoted to the Socialist concept of a centrally-controlled and planned economy view the phenomenon of price with considerable respect. We regard it as something which has a use, which does work in the economy, and which performs substantial functions. We certainly believe, short of being doctrinaire, that the burden of proof lies on those who would invoke the power of the Government and the State to manipulate a price, be it the price of money or of anything else.

This price, however, the rate of interest, is very much more bound up, necessarily so, with the behaviour and the life of a modern Government than perhaps any other kind of price. No Government can just "pass by on the other side" and leave this price entirely unaffected and untouched by their own behaviour, however much they might be devoted to working a price mechanism. There are several reasons why that must be so. Take Bank Rate—the rate at which the Bank of England stands ready to act as a lender of last resort. The Bank of England, underpinning the banking and credit system of the country, with the credit of the nation behind it, fixes the rate of interest at which it will so lend.

Although that rate of interest has an intimate connection with the ruling level of supply and demand for short-term money, such is the importance of the Bank of England's decision and such the power behind it that it has the faculty to move the rate up or down within certain limits at will. It is a discretionary act which cannot be dissociated entirely from the policy of government and from decisions of State.

The Government are not only a lender. They are also in the business as a customer, because, in the words of the Report, "debt operations are inescapable". The Report actually says that "the Government is the largest borrower". That is true only if one includes both kinds of Government borrowing, namely reborrowing as well as new borrowing. In both those aspects of their borrowing activities the Government are involved in the rate of interest. They have to deal, inevitably and unavoidably, with maturities averaging about £700 million or more per annum, certainly for many years to come. The timing and the terms on which they attempt to reborrow can, and almost inevitably do, have an influence upon the relevant band of interest rates in the market and so indirectly upon interest rates as a whole.

However, if we leave on one side the reborrowing operations, the handling of the maturities of debt, it is not true to say that the Government are the largest single borrower. Even in this year in which the Budget contemplated net borrowing of over £700 million, the amount of that net borrowing was only one-half the amount which had been borrowed otherwise than by the Government in 1958, as the House will discover from consulting Table 21 in the Radcliffe Committee's Report.

Moreover, not only is the new net borrowing of the Government not in itself the largest element, even in the present year, in total new borrowing in the economy, but the composition of that net borrowing and the reasons for it are worth attention. Out of the £700 million-odd of net borrowing involved in this year's Budget, over £600 million are attributable to one single cause, namely, that the nationalised industries at present have to be provided with their external capital on Government credit by Government borrowing. It is that item almost entirely which at present makes the Government a net borrower at all. It is an item which many of us might think was not necessarily, certainly not in its present form or size, by any means of a permanent or inevitable character.

To have demonstrated that the Government are concerned and involved in the rate of interest, and that their actions may affect it, is not to have decided that the Government should deliberately use those actions to produce this or that rate of interest artificially. It is possible to take two different views on that matter, which correspond broadly to the two sides in what I have called the political divide. One can regard these powers of government as an opportunity for a centrally planned control of the economy, or one can regard them as powers which should be used with regard to the value of the rate of interest as a market price and with a view to preserving it.

In this matter it is not absolutely clear always and everywhere on what side the Radcliffe Committee comes down. It comes down, perhaps, on both sides or neither side; but there is a centrally important paragraph which I should like to commend in detail to the House, in which it adumbrates the use of the Government's power to influence interest rates for the purpose of economic planning. It says, in paragraph 498 that The authorities … should take a view as to what the long-term economic situation demands and he prepared by all the means in their power to influence markets in the required direction''. That sounds definite enough, plain enough, dirigiste enough. It is the business of the Government, says the Report, to decide what the rate of interest should be and see that that is the rate of interest. But then the Committee immediately gets cold feet. It realises that there may be "a lull in the pressure of total demand". So it then says that you have to make up your mind. If the authorities "judge it to be only slight and short-lived", they can just pause in their work of using all the resources at their command to produce their predetermined rate of interest. If, on the other hand"— I continue to quote— the authorities were to take the view that a fall in total demand was a sign of a more lasting collapse in the demand for capital development, definite measures to bring down the whole structure of interest rates—amounting to a change of gear—would be appropriate". So there one has it—the planner's prescription: make up your mind upon your objective; resolutely pursue the measures which will take you there; be ready at any moment to abandon them; but never abandon them—unless you think that you ought to abandon them. It is a perfect description of the planner's dilemma, a perfect description of the situation in which an Administration attempting, by the manipulation of the interest rate, to operate a planned economy inevitably find themselves.

I would oppose to that proceeding a view which, I believe, must correspond to the philosophy and the policy of this side of the House, a view which it seemed to me was put with exceptional clarity and force by my right hon. Friend the Chancellor of the Exchequer in a letter which he wrote recently on the subject of War Loan to my hon. Friend the Member for Aberdeen, South (Lady Tweedsmuir). He said: The real solution to the difficulties of stockholders lies in a downward movement of the existing level of interest rates which has produced today's prices, and it is to be hoped that, in time, interest rates may fall and the price of gilt-edged securities rise". Then comes the all-important sentence: But it would be wrong for the Government to attempt to bring this about artificially, even if it were possible for them to do so. The rate is not something which can be fixed art the choice of the Government, but reflects fundamental conditions in the capital market. Any such attempt could only do harm to Government credit … Those are sentences that deserve to be inscribed in golden letters—or should I say in gilt-edged letters?—over the portals of the Treasury in Great George Street. But if they are true, as I believe them to be; if they correspond, as I believe them to do, with the essence of what we believe in as a free economy, then important deductions for policy follow from them—deductions for the way in which the Government will act in those spheres of their life where what they do or do not do impinges upon this important price, the rate of interest.

It must mean that we eschew, as my right hon. Friend the Chancellor of the Exchequer did this afternoon, any alteration in the relationship between the Treasury and the Bank of England that would divorce decisions on the Bank Rate from the markets, international and internal, to which they belong, and make them always, invariably and completely into political decisions of a Government. I believe that for this, if for no other reason, my right hon. Friend was absolutely right in rejecting that recommendation of the Committee.

It must mean that in management of the maturing debt it will be the object of the Government not to use their powers for a purpose of engineering a preconceived result, but to use them so as to inflict the least damage upon the mechanism of the market that is consistent with their necessity to reborrow those sums year by year.

Finally, it will mean that we must look with ceaseless criticism upon all those causes that make the Government today a large net borrower—for I confess that I cannot believe it to be a national blessing, as the Radcliffe Committee, in some of its moods, appears to do, that year by year, in time of peace, the Government should be a net borrower to the tune of several hundred millions of pounds.

It will make us anxious—and here I entirely share the anxieties, and the ambitions, if he will allow me to say so, of the hon. Member for Bolton, West—to find the means whereby we can disembarrass ourselves of this incubus of having a part of the nation's capital investment which, quite artificially, for quite fortuitous reasons, has to be financed through the mechanism of central Government borrowing.

It will also make us look beyond that to the all-important central matter of the ratio which the total sums raised by Government by all means bear to the national income; for after all, the net borrowing of the Government is the residual difference between what they are determined to spend or advance and what they are prepared, for one reason of another, to raise in taxation.

There is, of course, a corollary. It is that we shall repudiate, as did my right hon. Friend, the suggestion that we should further load on to ourselves once again the £400 million to £500 million a year of borrowing that is being perfectly successfully achieved without Government credit, and outside the gilt-edged market, by the local authorities.

I believe that by shaping our policy in that way we shall be able to build upon the achievement of the years immediately past. The great achievement of our monetary policy in these last years has been that, after the confusion of the post-war period, after the disasters of Socialist distortion of the monetary mechanism and of the economy, after the early tentative efforts of the early 'fifties, we have at last got back to contact with reality; back to contact with the real balance between savings and investment between the supply and demand for investible funds.

I am sure that my right hon. Friend, proceeding on this course to which he has declared his allegiance, will have the support not only of every hon. Member behind him on these benches, but of ever-widening circles out of doors.

7.56 p.m.

Mr. Harold Lever (Manchester, Cheetham)

Apart from the personal enjoyment that the hon. Member for Wolverhampton, South-West (Mr. Powell) gives, I could not have been more fortunate in following a man with such immense practical and academic experience, and one who manages within a relatively brief speech to compound most of the errors of thought that dominate the reactionaries of the Tory Party. I would enjoy the occasion even more, but I require the indulgence of the House. I am suffering from an attack of laryngitis that might grind me to a stop in the middle of the crucial argument—but I shall do my best.

The hon. Member for Wolverhampton, South-West manages in almost every sentence to confuse substance and form, symbol and reality. He has given us on this side a very severe lecturing on the dangers of planning, but I think that it hardly makes out the case for anarchy to say that if one plans and makes a mistake one lands in anarchy. That seems to make out a reasonable case for good planning.

He has lectured us with the greatest severity about the artificial manipulation—downwards—of interest rate. Any Government, he said, that engaged in this kind of swindle finance to bring the rate down would land itself in great trouble. He did not mention anything about the Government that engaged in the same sort of finance to move the Bank Rate upwards. That is a different story altogether, and no doubt it is a story that is held for another occasion.

The hon. Gentleman is one of the unfortunate trio—unfortunate, but honourable and sincere—whose elimination made possible the victory of the Tory Party at the last General Election. He is one of that trio who were relieved of office by the Prime Minister—which accounts for the fact that he is Prime Minister—when they made a quite artificial, upward change in interest rates—

Mr. Powell

The hon. Member's only error is to insert the word "artificial". It was that increase that brought interest rates into touch with reality. I am just as opposed to an artificial raising of the interest rate as to an artificial lowering of it.

Mr. Lever

All I can say is that he and his colleagues were responsible for maintaining the rate of interest at under half the rate it should have been in reality, but that was obscured from their myopic gaze until it suddenly dawned on them that they had almost to double it. Then we had the boy-on-the-burning-deck speeches by the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft), who told us how the economy would fall apart unless there was this drastic artificial upward manipulation of the rate.

The hon. Gentleman must be careful. He will get into trouble with his boss in another place tonight—if his boss in another place ever reads what is said in this place. I hope that the hon. Gentleman will be able to go over there, here and now, and put himself right in the eves of his theoretical master who guided the feet of the trio and so led to their promotion from the Government Front Bench to the sincerity and candour that is found alone on the back benches.

Lord Robbins said, when attacking those who wanted to leave interest rates artificially low—or even naturally low—[HON. MEMBERS: "Paraphrase."] I want to read the actual words—

Mr. Deputy-Speaker (Major Sir William Anstruther-Gray)

I am getting a little anxious in case the hon. Member seeks to quote what has been said in another place in this Session.

Mr. Lever

I will paraphrase it by saying that Lord Robbins said that only the naive could believe that the control of inflation in Germany and in any other country where it had been controlled could have been possible without the manipulation of interest rates which was practised in those countries.

I hope that the hon. Gentleman will go to his professor to get further instructions, because he has come with the wrong brief. The reactionaries of that financial theory do not preach against the manipulation of interest rates; what they preach against is the manipulation downwards of interest rates. To find out why they are interested in the manipulation of interest rates, we have to move to a better understanding of the psychology of economics.

Whenever we talk about money and money mechanisms, we ought to take off our shoes because we are walking on sacred ground. The first banks were temples, the first bankers were priests, and the first issuers of money were priests or priest-kings. Although in some respects present-day bankers do not appear to bear a striking resemblance to the early priests as some of us would like, the vestigial identification still remains even in the architectural forms of the banks and the solemn hush that accompanies the most modest requests for money.

On that analogy, the Governor of the Bank of England, is the high priest, and he realises that the sacred gold is running out, for gold is sacred, and when the sacred gold reserves are running out, what do the priests advise? Almost inevitably, some form of masochistic expiation. At the time of the crisis of September, 1957, this is in fact what they arranged. We must not think that this is any malice on the part of the hon. Gentleman, who is benevolent to all mankind, and even to the erring brethren on this side of the House. We must not think that it is any form of desire to hurt with regard to the manipulation of interest rates. It is because they believe honestly that an erring people must expiate, and therefore interest rates must rise. They have every advantage in this country, because I have pointed out before that the English have a natural predilection to believe that that which is presently painful and unpalatable is necessary for their ultimate and enduring benefit. That is why we maintain the kind of monetary wisdom which rules in high places.

I should like to say one or two things about interest rates. I recommend that some expert and orthodox economists should change their vocation and move into the Middle West and sell patent medicine. Apparently, the medicine man has died out there as a result of rough physical treatment which sometimes met the failure of his more exaggerated claims. He used to have a bottle, I understand, of some substance that claimed cure for rheumatism, headache, cancer and heart disease. The same substance claimed to cure many things.

These gentlemen are the genealogical descendants of the same medicine man when it comes to interest rates. They say that interest rates will cure inflation, stop runs on the bank and on our overseas reserves, and adjust very precisely and desirably the level of internal investment demand. They say that it will do something else: that it will encourage the right level of savings.

How can the same rate of interest do all these things? The interest rate which encourages investment might discourage home savings and the interest rate which encourages home savings might be inimical to production. Which interest rate do we want or do we want any interest rate at all?

Everybody knows that the Government play a great part in fixing the level of interest rates. It depends on the timing of Government funding as well as on sales and purchases of gilt-edged investments in the market. So long as there are interest rates we have to depend upon the activity of the Bank of England and the Treasury to find out what the rate of interest is; otherwise, why bother changing the Bank Rate in recognition of reality? Why not leave it as a sort of nullity? The hon. Member opposite says that the real interest rate will assert itself. Why do we go to the trouble of this ritual?

I want to ask the economists which interest rates are they seeking—the one which favours the protection to our reserves, the one which favours our economic development, or one which encourages savings? They say we must be prudent about this interest rate, and push it up so that savings will become attractive and the small saver will put his money into Government bonds.

The right hon. Gentleman the Member for Flint, West (Mr. Birch) says that he has been swindled, presumably mainly by Conservative Governments, but it is said we must have a rate that will encourage everybody to save. This is not at all in accordance with experience. [HON. MEMBERS: "Oh."] It is no good saying "Oh". The rate of savings depends to a every small extent on rates of interest, but to a very large extent on other factors such as the current rate of income of the saver relative to his previous experience and his expectations as to the future and the like. I do not want to give a long lecture on this, but most thinking economists a long time ago came to the conclusion that the amount of saving done in any economy has little to do with the rate of interest paid. If anyone wants evidence of that it is plain to see.

I will give hon. Members opposite a good point. The Conservative Government in this country rather favours an increase in the rate of savings. That is because we have a lot of maiden aunts and spinsters of all ages and sexes who are firmly of the belief that the Labour Party is going to catapult us brutally and cruelly into the 21st century, whereas the Conservative Party will draw back gently but firmly into the last century. In this belief, they feel encouraged to save and they really believe that their savings will be of as much benefit to them and their successors as were the savings of their grandparents. They will save more under a Conservative Government with lower rates of interest than they will save under a revolutionary Government with high rates of interest. It is quite ludicrous to attach this importance to the rate of interest, and it is quite untrue to believe that there is any such thing as a natural rate of interest.

I would recommend those who have spoken with such confidence about it to study the views expressed by the most profound thinkers about interest rates, when they will realise that rates of interest are very largely the artificial creation of the Governments. So far as it is affected by supply and demand, it is not the price of money, as the hon. Member said, so much, although that has its part in fixing it, as the psychology of the people paying and receiving. Even people like Keynes and Professor Robinson, from the Left and Right in economics, have been baffled by what fixes the interest rate. Nobody, except House of Commons back benchers, has been able to establish with any confidence what are the reasons why interest rates go up and down.

We are told that apart from curing a run on the reserves, inadequate savings, inadequate investment and a whole lot of other things, the interest rate will guard against inflation, or that it would have done. If we want stable prices, the Committee said, reasonably stable prices—and I think most of us would agree about that—we have to make up our minds not to have any very large wars.

Very large wars cost a lot of money, and they cannot be paid for immediately. Personally, I would say at once that I very much welcomed the decision of the Government in 1939 to fight, though I would have been happier if they had not found it necessary, and by a sensible foreign policy had avoided putting us in that position. If we are to have a war, it is no good calling the tune unless one is willing to pay the piper. During the wars immense amounts of paper are printed, whether money, post-war credits, Government bonds, sterling debts overseas, or what have you. Those paper claims have been brought into being, and there are no goods to back them, because the goods have been destroyed in the war. Having pumped this enormous amount of paper money into one's economy, one cannot expect that, at the end of the war, any measures one takes, short of destroying the paper money, will stop inflationary pressures.

This process went on all over the world for six years. Moreover, there was at the same time great destruction. People were creating paper claims and, while doing that, not adding to real assets but destroying them.

Then, after the war itself, there was the unpleasantness of the cold war. That also might be very necessary—I think that in most respects it was—but it also costs money. One has to equip armies, creating paper to pay for them. But one has not created any goods to match. Only the most lunatic, compulsive, obsessive reactionaries can really believe that it is to our benefit in those circumstances to attempt to defend the value of the £ as it had been. Every Chancellor, including, I am sorry to say, Labour Chancellors, has, with hand on heart, got up at the Dispatch Box and pledged himself to turn the tide back and stop the devaluation of the currency which has been going on since 1945. Every single one of them, certainly for the thirteen years after the war has totally and utterly failed.

It has been a great blessing to this country that they have failed, because the alternative to allowing this enormous weight of money to express itself by depreciating the value of the unit of currency would have been to strangle our economy.

There was another alternative. Lord Robbins, in another place, paid great tribute to Germany for controlling inflation. Germany controlled her inflation a little better than we have done, and there are various reasons for that. Apart from his reference to the manipulation of interest rates which he warmly recommended, Lord Robbins referred to the control of the supply of currency, but, he said, the exact details were not available. One of the details which Lord Robbins did not see fit to mention was that the Germans cancelled 90 per cent. of their currency very shortly after the war. If we had cancelled 90 per cent. of money claims and dishonoured our obligations immediately after the war, of course, the Chancellor's task in fighting to defend the value of the £s which remained would have been much easier. We should not have created thousands upon thousands of millions of Government debt. If we did what the Germans did, giving back one for ten, or something like that—I have forgotten the exact extent of the devaluation, but it was something like 90 per cent. of the money which was destroyed—of course, we should have been more successful. However, that little detail in the control of the monetary supply escaped the attention of Lord Robbins in the course of his fluent attack upon the Radcliffe Committee in another place.

It is, therefore, well to remember that it has been an impossible task to keep the value of our £ what it was after the war. Chancellors who attempted this task were attempting to do injury. The Chancellor who appears momentarily to have succeeded is the present Chancellor. I am very sorry for him because I rather like him. I think that he is a very courageous chap. I regard him as a sort of expansionist Daniel in a den of deflationary Tory lions. I think that he will have a lot of trouble if there is any bad weather, because one can see the real sentiment of the Tory Party in what is said by the hon. Member for Wolverhampton, South-West and the right hon. Member for Flint, West, who were listened to with great enthusiasm by the political delinquents on the benches opposite.

It is all very well for the public image of the Tory Party, for television purposes, General Elections and the like, to have the right hon. Gentleman the Prime Minister, the liberal-minded Chancellor of the Exchequer and their progressive assistants appearing in order to portray the public image of the Tory Party, but the real image of the Tory Party was represented by the right hon. Member for Flint, West and the hon. Member for Wolverhampton, who said, "The £ at all costs". When the call came from this side of the House, "Whatever the level of unemployment?" the right hon. Member for Flint, West did not see fit to answer. He made no reservations. It is the £ at all costs which must be preserved, as if the pre-war world were an outstanding monument to that sort of policy, as if we on this side were revealed as a set of eccentric and bohemian cranks for preferring that the right and need to work of ordinary men and women to create real wealth should be preserved rather than the exact mathematical value of the unit of currency.

That is what I meant when I said that the hon. Gentleman confuses the symbol with the reality. That is why, when we had the September, 1957, crisis, people like him were prepared, because of £300 million or £400 million loss of gold, to destroy if necessary thousands of millions of pounds worth of real wealth. Luckily for us and for the Tory Party politically, the right hon. Member and the hon. Member were ejected before catastrophic damage was done; but they managed to diminish production and lose wealth in this country greatly in excess of any loss of sterling involved in the crisis.

I want now to deal with the subject of the reserves of gold, convertibility, and preserving our reserves with freedom of manoeuvre. I shall be as brief as I can because I know that other hon. Members wish to speak, especially the Ministers. Of course, the country must have reasonable reserves. But we really must not allow this to become a fetish. We must not reach a point where £200 million of gold is sufficient reason for destroying far more than that value in our real wealth. In the long run, we earn our living by exchanging our wealth for the wealth that others produce. A gold reserve is very necessary to act as a sort of cushion to iron out the unevenness in the processes of international trade.

One must have a reserve. It is just the same in the case of a private individual who has no sort of reserve. He is working well, his wages are good and he can pay his debts, but he has nothing for an emergency. If he becomes ill or any debts owed to him do not come in in time, he is in trouble and his way of life will go to pieces. It is important to have reserves, but one must not take a care for reserves to the point when everything else is sacrificed. There are other measures which can be taken than the mere accumulation of gold or securities.

The Government boasted that we are investing £300 million a year overseas. Surely, that is part of our reserves as much as the gold. That is part of our wealth. Private citizens own great sums of dollar securities, as much as, I think, 4,000 million to 6,000 million dollars worth. The Government own over 1,000 million dollars worth of dollar securities. But we do not announce them with the gold reserve. The Radcliffe Committee said that we should. I suggested the same thing years ago in this House, but my suggestion was turned down flat because, of course, dollar securities are not sacred like the gold stocks in the bank or the actual dollars.

In September, 1957, for a shortage of 200 million or 300 million dollars in an emergency, the £ might have been devalued quite unnecessarily because of temporary pressure, and this might have caused immense damage to our international trade.

I like stability of the currency especially in international trading relations. The Government do not like it well enough to register with the Bank of England the private holdings of dollar stocks held in this country to the tune of from 5,000 to 7,000 million dollars—vastly in excess of the gold and dollar reserves we had publicly announced at the time of the crisis—which are held and should be available for emergencies. I want to know why the Government have made no comment on the Radcliffe Committee's recommendations that that should be done.

I will give the Government several suggestions for helping themselves a little in this matter of the reserves. What has troubled us mostly has been temporary fluctuations of a speculative character. I do not say that offensively to the people who are involved in them. I have explained before in the House that the so-called speculative holders of sterling are, in fact, the holders of sterling who do not want to be at risk that sterling will be devalued against other currencies. Incidentally, if the Government get their Betting and Gaming Bill, the first betting shop to be set up should be at the Bank of England. That would be the most useful one, and probably the only one which should be opened. Any holder of sterling who wants to back the fancy that sterling will be devalued could back this at the Bank of England quite harmlessly and without bringing any pressure upon the sterling exchange; he should be allowed to sell sterling against dollars, pesetas or piculs—whatever it is people use in parts of South America—for any length of time and without restriction be cause the Government are quite deter- mined to maintain the rate and his action would not be shifting any sterling from the Bank of England.

The trouble at the moment is that, when such a person is frightened, he has no means of insuring his obligations without actually bringing real pressure upon sterling. He wants a guarantee himself against sterling loss if the Deutschmark appreciates against the £ or the dollar appreciates against the £. Let him do so quite harmlessly at the Bank of England. The only result will be that if the £ depreciates the Bank of England will sustain a rather nasty loss of £200 to £300 million, but we have no intention of allowing the £ to depreciate. However, this is only a little suggestion which I must now leave.

I have two other points to make. Cannot we really stop this charade, this doctrinaire folly of driving local authorities on to the market for their money? There is no forward-looking, reasonably-minded person on the other side of the House, who is not obsessed with this notion that there is something virtuous in going to the market, who can possibly justify hundreds of different local authorities advertising for money and all the bookkeeping cost and administration that it involves. The local authority treasurers are not fitted in some cases to negotiate the terms or details of the rates. It should be done centrally. It makes more sense that way and would be more economical.

The only objection made to me by those who are experienced in these matters is that if the Government borrow and lend to the local authorities they would probably have to borrow short-term. I say that the local authorities are likely to borrow short-term. "Oh", say the political economy pundits, "when the Government borrow they borrow by means of Treasury bills and that is inflationary."

Surely it is simpler to tell the banks that they must not lend money on the strength of a new series of Treasury bills. A separate series of Treasury bills could be issued for local authority borrowing which banks would not be allowed to treat as liquid cash. But our professional economic ritualists, rather than upset an old-established rule that a Treasury bill is a Treasury bill and the bank is entitled to lend three times the amount of a Treasury bill once it has got it, drive the local authorities to this ridiculous borrowing which has forced up interest rates, raised the rents of council houses, and dislocated the finance of all local authorities. [HON. MEMBERS: "Hear, hear."]

I have something to say on convertibility which will not be quite as popular among my hon. Friends. I am strongly in favour of convertibility of the £ in the fullest sense and at the earliest date possible. We need a more intelligent Government than we have now, but I have given them one or two suggestions to help them on the way and to clarify their minds on some matters on which they have been wrongly advised by the reactionaries behind them. The £ note is the currency of the country which is exchanged abroad, and it cannot be to our interest that it is the subject of unnecessary restriction. Unless it can be proved that there is some advantage in restricting convertibility, the case for convertibility proves itself.

As to the problems arising from convertibility, as long as we have a buoyant export trade there is no reason why we cannot have convertibility, subject to one thing only, and that is that the International Monetary Fund arrangements must be extended to fortify the £. The odd thing is that we find gold fetishists often even on the Labour benches. To my surprise, my hon. Friend the Member for Grimsby (Mr. Crosland), for whom I have the greatest respect as one of the most intelligent of economists, said that one of the problems is that there will not be the extra gold to finance the extra trade in the world. But International Monetary Fund arrangements are precisely directed to deal with the imbalance of gold and world trade, and far more effectively than any increase in the gold supply.

If we talk in these terms, my right hon. Friend the Leader of the Opposition did more than ten discoverers in the Yukon in the way of discovering gold when he started off the European Payments Union, because he did more for financing European trade thereby than any amount of new gold that could have been dug up in the years when he was Chancellor of the Exchequer. Therefore, what is wanted is to extend international arrangements, which are a kind of inter- national collective security, and on the basis of this push forward to complete convertibility.

It is no good preaching in favour of these international arrangements which extend world trade and which take away the barriers that obstruct it if we oppose what other countries regard as one of the conditions of the extension of the workings of the International Monetary Fund, namely the convertibility of the British £. Therefore, I should like to see a further strengthening of international arrangements and full convertibility of the £ reflecting the great achievements of the British people, which in the last resort are the greatest backing for any currency in the world.

8.26 p.m.

Mr. I. J. Pitman (Bath)

I made my maiden speech a long time ago and from the other side of the House. The thing which has struck me over the intervening years has been not only the astonishing change in the attitude of hon. Members opposite to these financial matters but the galloping change which has taken place in the last year, particularly since the last Election. I think that the right hon. Member for Huyton (Mr. H. Wilson) even deserved the tribute paid to him by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) when he said that he was really behaving very well towards the City and that the City could almost be proud of him.

We have had the hon. Member for Manchester, Cheetham (Mr. H. Lever) saying that he is all in favour of convertibility. These changes are quite phenomenal and I hope that they are taken to Blackpool, because sooner or later, in a world which is working on the principle of a free capitalist system, the party opposite will have to come to terms with the capitalist system and help make it function properly for the benefit of the people of this country and of the world and in particular the people of the so-called under-developed countries.

I was asked to give evidence before the Radcliffe Committee and therefore I was interested in the constitutional point which my right hon. Friend the Chancellor of the Exchequer raised, since it was particularly on that point that I gave evidence. I want to make it absolutely clear, as I think the right hon. Member for Huyton has accepted, that there is no question but that in the last crunch the real control of the Bank of England not only resides now but has always resided in the political arm because, as my right hon. Friend the Member for Flint, West (Mr. Birch) said, we in this House can do anything which is naturally possible. Quite apart from that, there is the issue that the licence to print notes, and to remain solvent in the Issue Department, is dependent on the fiduciary issue, and that requires a Statutory Order of this House. So this House has, apart from anything else, a virtual stranglehold over the Bank.

I was also glad to hear the right hon. Member for Huyton agree that there always has been agreement about rises in the Bank Rate between the Chancellor of the day and the Bank of England. There has indeed been this close co-operation, and it works well. So it is in a context in which we are assured that, constitutionally, a complete and utter power is residing here and that close private consultation is taking place and that information is passing that we can now approach the question of a technical service which should operate as efficiently as it possibly can.

My evidence was based on the well-known axiom of Organisation and Methods that one cannot have two bosses in the same institution—one can have only one—so that that person knows where the responsibility lies, and acts accordingly. That is, in effect, the point which the Radcliffe Committee has taken up by saving, "Right, we will let the Chancellor of the Exchequer be that one complete boss."

I am very glad to hear that per contra the Chancellor of the Exchequer has taken the view that he would rather remain the complete boss but only in the final crunch and give to the technical people, who have this technical job, the dignity and responsibility of doing their job on their own bossdom and in their own way. I listened carefully to the Chancellor and it seemed to me that in the consultations between them, the Governor of the Bank would normally initiate the proposal in respect of the Bank Rate and, of course, vice versa the Chancellor can obviously initiate it and put it up to the Governor. With the Chancellor's certificate of agreement it goes to the Treasury Committee, and from the Treasury Committee it goes with that certificate from the Chancellor of the Exchequer to the Court. Of course, in theory, the Court could, I suppose, turn that down, because it is terribly important that the Governor should carry the Court with him and not treat it as a cypher. In the Cunliffe case it was the Court really that ganged up with the Prime Minister, Mr. Lloyd George, and with Mr. Bonar Law, the Chancellor of the Exchequer, in asserting the rights of the nation and of the House over the Governor who was being independent of the Court.

Equally, on the other side, it is conceivable that the Governor having initiated a proposal for a lowering or a raising of the Bank Rate, the Chancellor of the Exchequer would say "No" to that, in which case there would be from then onwards a clear-cut issue, with a written certificate from the Chancellor—because I imagine that one would have to be issued—stating that the Bank Rate was to remain stable per contra to the recommendations of the Governor in that case. I well believe that that kind of arrangement would give the best results because we cannot possibly expect to get the best results from a technical service if we subordinate it to political pressures all the time, as the other proposal would have done.

On the question of interest rates, mentioned by the hon. Member for Cheetham, the question of saving is really a compound of the interest rate plus the long-term value of the money one is going to get back on repayment. My right hon. Friend the Member for Flint, West has pointed that out. Again there is the point that low interest rates are very good for the old savers but very tough on the new ones. In the case of the old savers, the capitalists who have saved in time past, the capital value in the market of their asset goes up as the rate of interest goes down. So that it is the old savers, the capitalists of the country, who get a supremely good wicket to bat on as interest rates lower, and it is the new savers, who are forgoing expenditure which they might enjoy, who are having the tough time. When rates go up it is the past capitalist who suffers and the new saver who is encouraged.

Equally it is those who buy first and save afterwards who score with low interest rates, whereas those who save first and buy with the cash they have saved who suffer, because they have had fewer accumulations during their period of saving. In other words, it is the depositor in the building society who does badly with low interest rates, who pays cash for his house, and per contra it is the man who borrows for his house who does well, and it is the person who buys on hire purchase who also does well with the lowest interest rates as compared with the man who pays cash. Spenders are encouraged and savers discouraged by low interest rates.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) made the point that there were other borrowers than the Government, big in total. However, the Government are undoubtedly far the biggest borrowers of all, and they have an enormous vested interest therefore in low interest rates. I think it is right that for the sake of the new savers and all the factors that ought to appeal to hon. Gentlemen opposite—the people who save and wish to buy their houses—there should be a technical body able to stand up to the Government and say, "No, you must not be selfish and artificially depress these rates in order to suit your convenience for the purposes of borrowing and the convenience of all the people who want to spend what they have not saved and to buy on hire purchase and in other ways with other peoples savings."

On the question of savings, it is really a possibility that already interest is too law to persuade savers to save. Everything that is put in the Radcliffe Committee's Report about the absence of effect of small increases on an already low rate of interest could be equally construed as showing that rates started too low and were not raised high enough to be effective. I know from my own experience how if one brings tax into account the interest rate is hardly noticeable because it and any increase in the Bank Rate, when subjected to the Income Tax and Profits Tax which a company pays is, or was until recently, virtually halved by reason of the taxation, so that a 2 per cent. increase on 5 was really effectively only a 1 per cent. increase on 2½.

Of course, if the under-developed countries can give to the savers of the developed countries the expectation that the results of their savings will not be exploited—in other words, if there is a real guarantee of payment back of the right amount and with the right purchasing power at the end of a long-term development—the savings demand in those circumstances will be simply terrific. I should like to commend the work of the right hon. Member for Wakefield (Mr. Creech Jones), who in the Parliamentary Group for World Government has worked out an investment code so that investment can take place from the developed countries to the under-developed countries under the right conditions.

If that happens, there will be a world shortage of savings. It is only by giving a guarantee about the future in relation to the money which one will be repaying and by offering one enough return for forgoing expenditure when one could expend it that one is ever likely to get people to save. There are other factors, of course, but those two are the completely governing ones.

At this point, incidentally, we may put in the concept that budgeting for a surplus does not necessarily produce savings but, in point of fact, may produce dissaving. After all, if one puts the rate of tax high, people argue that they are spending money largely at the expense of the Chancellor of the Exchequer, whereas if taxation is low they save that expenditure, and they may be saving far more in that way than the Government are supposing is being saved in their so-called surplus.

The next point I want to make, why I think we should have technical service rather than political day-to-day control, is that money is such an emotional subject. It was Lord Stamp who in one of his lectures made it perfectly clear that economics is one of the subjects in which it is quite unpredictable what will happen, granted certain conditions, because one does not know how the human animal will behave. On a Wednesday the human animal may behave entirely differently from what, in exactly the same conditions and facts, he would have behaved the previous Wednesday or will behave next Wednesday.

It is because of this that Monty Norman was so right when he adopted the humble line that we are all children in this and that we just do not know, because in this field of credit we cannot possibly predict how the human animal is going to behave. Anyhow it is far too complex and, if we add that additional factor of complexity, it is quite impossible.

That comes into this point over convertibility. Credit, what the human animal thinks and does, particularly the foreigner, is the governing fact. One just cannot support the insupportable. There is nothing so expensive, as Sir Stafford Cripps found, as attempting to support the insupportable. I would assure the hon. Member for Grimsby (Mr. Crosland) that I put down a Question to Sir Stafford Cripps when he was Chancellor of the Exchequer asking him how it was that he was tolerating these enormous losses overseas at the time when we had to devalue the £. In effect his answer was, frankly, that if one's currency is slipping and one's £ is going down and down, one puts more and more £s into trying to support the insupportable. That is the Quickest way of losing money that has ever been invented, and this country lost millions of £s that way.

The real issue on foreign exchange control is that one just does not need it if one keens a strong £. If one needs it, then it will not in the end he effective. The value of the £ goes down and down until it has to be devalued to a lower point than would have been the case if it had been allowed to take its natural course, because the only way of supporting the £ is to make it self-supporting by its very merits, and nothing else.

Looking at other Governments around the world, one can see the extent to which it would be in their advantage to divorce their currencies from political control and put them more and more under technical control in order to enjoy the trust of overseas technicians. Anyhow, I suggest that the value of the £ is the most important job of the Government after that of providing safety for life and limb. If I had to state two things most fundamental to the Government I would say that they were to protect life and to protect property. The whole of our property and the whole of our economic life resides in the stability over the years of our currency.

This country exports great quantities of durable goods. Whether under export credit guarantees or privately financed, we still have to be paid for the railways which we sell abroad only after those railways have paid for themselves, and if we are to have a thriving community and if our people are not to be robbed over the years we must keep a stable value of the £. I therefore put first as the objective the reasonable stability over the years of the £.

In paragraph 69, however, the Committee lists the five objectives in pursuit of which monetary measures may be used. The first of those is A high and stable level of employment. It is perfectly obvious that my prime objective of a stable value of the £ cannot be achieved if whole factories and whole masses of people are idle.

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

Hear hear.

Mr. Pitman

I am glad that the hon. Member agrees. The fallacy into which so many members opposite fall is that they think that there is a clash between supporting the value of the £ and supporting a high and stable level of employment. In point of fact, the two are inextricably bound together. The issue of a high and stable level of employment is not in itself good enough as a definition. One goes back to the John Stuart Mill classic case of digging a hole and filling it up again. The whole of the case of a high and stable level of employment must be geared to efficiency with a stable value of the £, or the community will be robbed by being paid back in a much lower value of currency when the time comes.

The second objective is: Reasonable stability of the internal purchasing power of money. That, again, is covered by the objective of the stable £. The next is: Steady economic growth and improvement of the standard of living. That is a measure of the ability and hard work of the population and is operable only if there is a stable value for the £. I will not weary the House with the other two objectives, because they are also covered by the main objective of keeping a level value for the £ over a long period.

For that reason, and since we politicians in no way inspire the world with confidence in our ability to keep such a value permanent over the years, it is I conceive right that the job of achieving that purpose should be put fairly and squarely on the shoulders of technicians who accept that responsibility, remembering all the time that all of us are agreed that the facts are, as they should be, that in the end nothing can be done which is contrary to the interests of the nation, because in the last analysis it is the House of Commons, through the Chancellor of the Exchequer, and, through us, the nation which elects us who have the complete and unquestioned control of the Bank of England and therefore in the end everything that it does.

8.45 p.m.

Mr. Michael Stewart (Fulham)

I rejoice that the hon. Member for Bath (Mr. Pitman) has told us that we should not think that there is a clash between the various objectives mentioned in the Report—stable currency, full employment, and a rising standard of life. The hon. Member should preach that truth not to us on this side of the House, but to his right hon. Friend the Member for Flint, West (Mr. Birch) and his hon. Friend the Member for Wolverhampton, South-West (Mr. Powell).

Those hon. Members were endeavouring to face us with a rigid choice between the two. They were saying that we must seek a stable currency at all costs. There have been several voices on that side of the House criticising the Radcliffe Report on the ground that it appears to speak with two voices.

The hon. Member for Plymouth, Sutton (Mr. I. Fraser), who made such a charming speech, made that point very skilfully, but the reason why that criticism is made, and why it is misconceived, is that we have to try to secure, on the one hand, full employment and the ever more skilful use of our material resources, and a reasonably stable level of prices, on the other. With modern knowledge it is comparatively easy to devise policies that will give us one or the other of those things. Discovering how to reconcile the two is one of the big problems now facing mankind.

The Radcliffe Report is an important milestone in the development of thought, because it has grasped that point. It has seen that we cannot dimiss the matter with the facile generalisations of the right hon. Member for Flint, West and think that we can pick one of these objectives and ignore the rest. The Committee has tried to develop the balanced programme recognising the skilful planning job which any civilised Government has to try and perform.

Mr. Pitman

I was present during the speeches of my right hon. Friend the Member for Flint, West (Mr. Birch) and my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). I did not hear them say anything which was in any way different from what I said. I am sure that their view is that for the purposes of maintaining the pound it is essential that we should have high and stable employment, but with that the first objective is stability of the pound over the years.

Mr. Stewart

I missed the first five minutes of the speech of the hon. Member for Wolverhampton, South-West, but I heard enough to support the contention that I have advanced. I heard the whole of the right hon. Gentleman's speech and there is no doubt about what he said. The hon. Member for Bath is stretching charity beyond endurance in trying to suggest that his right hon. Friend the Member for Flint, West agreed with the far more civilised version that he put forward. The Radcliffe Report is a milestone in the development of thought and I regret that the Government have not seen fit to welcome it.

The debate is drawing to a close and I want to deal specifically with one point. The Report says, in paragraph 596, that the Public Works Loan Board should stand ready to lend … at the current gilt-edged rate … to any local authority that is not able or does not want to raise the money it requires on the market on its own credit … The Radcliffe Report gives formidable reasons for making that recommendation and I will not repeat them, because they will be familiar to all hon. Members who have read the Report. I was surprised that the Chancellor did not mention the reasons which the Radcliffe Report gave, because he was taking the serious step of brushing aside its recommendations.

The right hon. Gentleman might have made an attempt to answer the formidable reasons advanced in the Report. The Chancellor, on his side, advanced one reason, and one reason only, for sticking to the present arrangement whereby local authorities are, in the main, precluded from access to the Public Works Loan Board. The reason he gave was that if they were forced on to their own devices they would be able to raise money that otherwise would not have been raised at all—to tap, in effect, new sources of sayings.

Let us consider that argument. The Radcliffe Committee considered it and reported on it in the paragraph immediately after that which I have just quoted. It came to the conclusion—which is very difficult to dispute—that, quantitatively, there is now very little to be said for the argument that local authorities are not now drawing, to any considerable extent, upon exclusively local sources of funds, but are drawing more and more upon funds that otherwise would have come to the Government.

Let us suppose that there was something in the argument that local authorities can, by virtue of local loyalty and interest, draw upon sources of saving that otherwise would not be tapped. Even if we take the view that there is a great deal in that argument, it is no argument for maintaining the present system; it is an argument for returning to the situation existing between 1953 and 1955, during which period local authorities were not precluded from borrowing on their own credit and drawing upon local sources of funds, if they chose to do that, or going to the Board. It is true that during that period they relied almost entirely on the Board, but that was because that period, as the report points out, was exceptional in several ways.

If we go back to the period before the war, when, again, local authorities, had access to the Board or could borrow on their own credit, they did raise a good deal on their own then, and no doubt they were tapping local sources and extracting sources that otherwise would not have been raised. But if we want to bring about that situation the way to do so is to give local authorities the right either to raise money on their own credit or to go to the Board. That means returning to the situation that existed between 1953 and 1955. On any analysis, it is not an argument for continuing a situation in which local authorities are virtually precluded from having recourse to the Board.

Owing to the present policy of precluding them from access to the Board the situation is that they can go to the Board as a last resort, but when they do they find it extremely difficult. They are liable to be met with a request to go back and try again to raise money themselves. Alternatively, they can raise money in the stock market, or, more expensively, on mortgage. What is the effect of that system? It is either to make it more difficult for local authorities to borrow at all, or, if they are able to borrow, to make it more expensive.

Let us consider the first possibility. Is it intended to make it more difficult for local authorities to borrow at all? The hon. Member for Nottingham, South (Mr. W. Clark), in a very interesting maiden speech, urged the Government to continue the present system for the very purpose of discouraging local authorities from borrowing. He did not want them to build council houses. He said, "Let us keep the present system, because that will make it more difficult for local authorities to build council houses". He spoke with the engaging candour with which new Members sometimes do speak. My only regret is that the bad company he will be forced to keep on that side of the House will mean that before long the bloom of that candour will wear off

The Chancellor does not put forward that argument. He argues that local authorities have not been prevented from getting the money. He said that they had, in fact, raised all they wanted. We must remember that every loan raised by a local authority has to be sanctioned by the Minister in any case. The project has to be one which the Government considers justifiable. What the Government do by this device is, first, by sanctioning the loan they express the opinion that the project is socially justifiable, but then, by the back door, they try to prevent the local authority carrying out the project by making it either difficult or intolerably expensive to raise the money.

By making it more expensive the Government redistributes the income to the benefit of people who have money to invest at the expense of the population as a whole. That is the effect of the higher rate of interest paid by local authorities. It is ultimately reflected in higher costs of local services and higher rents of council houses.

The hon. Member for Bath spoke about the new saver and said that he might be encouraged to save by a higher rate of interest. Suppose that this imaginary new saver is a young man with a family living in a council house and paying a rent as high as it is because of the Government's policy and, as a result of that, is hardly able to save at all. To tell him that the Government's interest rate policy is such that if he were able to save he would get an exceptionally high rate of interest on his money is no consolation to him.

The third result of this policy is that it enables the Government to play the same kind of trick that they played in the Local Government Act by the introduction of the block grant. They try to reduce central government expenditure in a way which obliges local authorities either to raise their rates or to cut their services. It is argued that, if we prevent local authorities borrowing from the Public Works Loan Board, the Board will not have to borrow from the Exchequer and the accounts of the central Government will look more agreeable than they otherwise would. The reverse of that medal is that the local authorities either have to cut essential services or the extra burden is put on them.

There is no conceivable social economic or financial advantage in causing a burden which ought to be borne in order to provide an essential service to be borne more out of rates and less out of taxes, particularly at a time when rates on the whole are a less fair way of raising public money than are taxes.

The fourth effect of this policy is to put smaller local authorities, as some hon. Members have already mentioned, at an exceptional disadvantage. Smaller local authorities needing to raise what is, by comparison with the general transactions on the market, a small sum will find that the expenses of raising it are proportionately a greater burden on them for the amount of money which they want to raise, and they will find, if they try to do it by the issue of stock, that the less marketability of the stock of a small authority will make it more difficult for it to do so and oblige them to pay more for their loan.

We have heard a great deal from the Government from time to time about the importance of giving freedom to local authorities—of greater decentralisation—of encouraging smaller units, but the whole nature of this policy is to injure local government as against central government and to injure the smaller local authority in borrowing compared with the larger.

The net effect, then, of maintaining present arrangements, quite apart from the financial objections raised in the Radcliffe Report I would summarise in these four objections. The present arrangement disguises the real moral responsibility of central Government for what is happening. It makes difficult the job of providing proper housing, and tries to do it in a way by which the responsibility for its policy will appear to be that of the local authorities rather than the central Government. It has to some extent a redistributive effect on incomes at the expense of the population at large to the advantage of those who are investing money. It tends to put a greater burden on local revenues compared with those of the central Government and it places the smaller local authorities at a disadvantage.

Do the Government want to do all or any of these things? According to some of their professions they would not want to do any of them; but if the Government really does not want to do them why not follow the recommendation of the Radcliffe Committee Report and return to the situation of local government borrowing which existed before 1955?

9.0 p.m.

Mr. Douglas Jay (Battersea, North)

I am astonished at the way in which the Chancellor has treated the Report of this extremely distinguished Committee. After all, it is not an ordinary Government Report. It was presided over by one of the most eminent judges serving in this country. In Sir Oliver Franks and Sir John Woods its membership included two men with outstanding records of public service and a good deal of experience in industry. For its two professional economists it had two very experienced members and, certainly, no one could accuse them of partisanship or bias.

These and the other members of the Committee have worked long and laboriously, yet the Chancellor has rejected all of their recommendations which really matter. He has pushed them aside, not exactly with discourtesy, hut with a casual and almost paternal indifference. He does not even damn the Report with faint praise. He smothers it with official verbiage. All that the right hon. Gentleman can ask the House to do is simply to take note of what I think is a masterly and historic document.

The Report seems to me much the best survey of this subject, or, indeed, of many other subjects, that I have ever read. It may not have the occasional brilliance of a Macmillan Report, but the Macmillan Committee was fortunate in having Lord Keynes and Ernest Bevin as members, and we cannot expect to have two men of that sort twice in two generations. Compared with the Macmillan Report, I believe that this Report is more lucid, more coherent, more balanced, much more unanimous—if that be the proper way to put it—and more intelligent. It has all that and common sense as well, yet the Government do not even consider that it deserves a welcome by the House of Commons.

The Report is particularly valuable in that it regards what it rightly calls total demand at the start as the key conception for economic policy rather than either the supply of money, which the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft)—with the support of his two would-be "Iron Chancellors" whom we have heard today—resurrected from the economic dustbin in 1957, or even the rate of interest.

If I have one criticism of the presentation of the Report it is that the authors do not very clearly define their favourite notion of liquidity. I notice that in another place somebody has already quoted the famous lines: Be sure the reverent eye will see A purpose in liquidity. What I understand this Report to be saying, to put it into rather plainer English on this point, is that the more means of spending that people can get hold of, the more they will spend. That seems to me a great truth which is well understood by all husbands, and if that is what is meant I would say that in that sense even the irreverent eye will see a purpose in liquidity.

The Report is also valuable as showing that if we want to influence liquidity, and so the total demand and level of production and employment, the monetary policy is only a subordinate system. The Report is clear about this, despite what people have said. It shows that it is a system, but that it is a subordinate one.

Despite what was said by the right hon. Member for Flint, West (Mr. Birch), I do not think that after this Report anyone can argue that our monetary policy and, still less, the Bank Rate is a wonderful, painless substitute for the Budget and other physical controls as a method of securing full employment without inflation. To my mind, that is the great merit of the Report, its emphasis on total demand. Of course, the events of the last three years have confirmed the arguments of those of us who have always taken this view.

Long before the Budget of April, 1959, we on this side called for expansion by means of a release of purchasing power through the Budget. Although, for social reasons, we did not approve of the particular forms of release which the Chancellor gave us last April—and do not approve of them now—there is not much doubt that the release of £300 million last spring did the trick of bringing industrial stagnation to an end. Since the spring, and only since the spring, production and employment have been rising, but that did not happen because of some mysterious forces of recovery; it happened because the Government stoked up the demand by lowering prices.

No doubt Lord Robbins, who, like the two hon. Members opposite, has been fighting a rearguard action about the supply of money, would still argue that the sharp rise in the Bank Rate in September, 1957, stopped the temporary flight from the £ in that month, but it was not only the Bank Rate which was changed in September, 1957. There was a package deal with heavy restrictions on hire purchase, bank credits and public investment. If all these other things were necessary to stop a speculative flight from the £, it does not say very much for the Bank Rate as a prime regulator. If these other things were not necessary, why did the Government damp down production, investment and employment for two years to secure a temporary speculative crisis in the £?

Whatever else is said about the package deal in September, 1957, it certainly was not a "gentle hand on the steering wheel", but a violent wrench, which landed the vehicle in the ditch and delayed recovery for at least two years. Not merely have the Government been far too laggard, as the Report points out, in bringing stagnation to an end until this spring, but they were equally too late in restraining the Lord Privy Seal's inflation in 1954 and 1955. The Report condemns out of hand the frivolity with which the Lord Privy Seal watched the economy sliding into crisis in those years. The Report manages to use official language with unusual effect when it describes the famous speech of the Lord Privy Seal about doubling the standard of living in twenty-five years, in these well chosen words: This engendered a condition of economic euphoria which was stimulated by emphasis in the public utterances of Ministers upon the prospects of economic growth. That is a very interesting comment on these things.

Note, also, the verdict of the Report on earlier post-war history. It says, of the earlier post-war years, that In these conditions there was no escape from continued restraint by direct controls and austere Budgets. No escape! That is a very different, though a true, version of the early post-war history from what we get in Tory propaganda. Not merely is the Report valuable in putting monetary policy into proper perspective, but it also shows that interest rates have failed to keep the system in smooth balance. So the Government have had to fall back on violent jerks which have hit public investment and hire purchase and made them the "residuary legatees" of the operation. If I understand the more difficult parts of the Report, which have caused some trouble to us today in the matter of liquidity in interest rates, and so on, what I think the authors of the Report are saying is this—and here I take a deep breath. They are saying that interest rates are not a panacea or even a good short period regulator. The real job of the authorities, they say, is to push interest rates to a level at which the banks and the public will hold the amount of debt which the Government want them to hold without pushing liquidity away from the point at which we can get full employment without inflation. I hope that I have it right, but it seems to me that that is the central doctrine which the Committee is attempting to put over.

It is, doubtless, a sound general economic doctrine, but it seems to me to contain one hidden assumption which I do not fully accept. That is that the rate of interest, even for the Government borrowing from the banks and for local authorities borrowing from the Government, must be that fixed by uncontrolled market forces. This produces the fantastic result that we have the banks holding £1,200 million worth of Treasury bills at present, on which a rate of interest of about 5 per cent. has been paid in recent years, yet during the whole period of the war and up to 1951 the banks held Treasury bills and Treasury deposit receipts at a nominal rate of ½ per cent., enormous sums of public money were saved and the banks did not go bankrupt.

It might be said that if we were to do this now nobody else would hold Treasury bills and the banks would then hold so much in liquid assets that a huge inflation of bank credit would follow. This rests on the assumption that we are all bound hand and foot by the secret 30 per cent. ratio which the banks normally keep of their liquid assets to their total deposits. There are tens of millions of pounds a year of the taxpayers' money involved in this question of the Treasury bill rate, and we all allow ourselves to be bound by what is little more than an historical convention. It is extraordinary how some people care even more about these conventions than about full employment or about saving public money.

I fully support the Report in its view that the Government ought to have the power to vary this 30 per cent. liquidity ratio as one vital instrument of economic policy, and I could not discover that the Chancellor said anything about that this afternoon. After all, the Report leaves no doubt that it is the 30 per cent. ratio which controls the amount of spending and the rise in bank advances. I have not much doubt that the most powerful inflationary force in the early post-war years was the urge of the banks to increase their advances In the time of the Labour Government, while there was a huge reduction in the Government debt held by the banks, there was a much larger increase in the total volume of bank advances. During the past year, bank advances have risen by the remarkable figure of over £600 million. They are now rising by £60 million a month.

There is a strong case for allowing this to happen at present, because we started from a position of unemployment and industrial stagnation a year ago; but I think that this spectacle, which is exceedingly profitable to privately owned banks, of lending all this money at high rates of interest, justifies stringent control over their reserve ratios such as has been in force in the United States for about thirty years.

Secondly, it is unanswerably clear from the Report that local authorities have been scandalously treated by this Government. The right way to handle local authority needs, I believe, is for the Government to decide the volume of work which each authority shall do and for the Government then to see that it gets the money at a low rate of interest which does not jump about with every scare or scandal on the Stock Exchange. After all, a depositor in the Post Office gets 2½ per cent. from the Exchequer through good times and bad. Why should not local authorities pay to the Exchequer, say, 3 per cent. also in good times and bad? Why is not that reasonable for the Exchequer one way or the other?

What the present Government have done, as my hon. Friend the Member for Fulham (Mr. M. Stewart) said, is to drive local authorities into precarious and expensive borrowing in short-term markets, or make it almost impossible for them to borrow. This has been a powerful discrimination against very small authorities like my own borough council in Battersea.

The Chancellor today totally ignored the arguments of the Radcliffe Committee on local authority borrowing. The right hon. Gentleman never even mentioned that the Report says that local authorities have been borrowing on a huge scale at very short terms: they have been piling up short-term debt in a way which is clean contrary to the funding policy of the monetary authorities, and they have done it at rates much above Treasury Bill rates. The Report, for that reason, recommends that the Treasury should not restrict local authority access to the Public Works Loan Board at prevailing gift-edged rates. That is a very modest proposal, going not nearly so far as we would wish to go, yet the Chancellor brushes it aside and entirely ignores the Committee's arguments.

The right hon. Gentleman gave me the impression that in this matter he is being influenced by pure political prejudice. His attitude seemed to be contemptuous of the Radcliffe Committee, and it will certainly be resented by local authorities. Almost equally prejudiced was his complete rejection of Lord Radcliffe's proposal for a standing committee of the Bank and the Treasury. The speech of the right hon. Member for Flint, West (Mr. Birch) confirms me in my support for that proposal, because the right hon. Gentleman virtually told us that in some circumstances he wants the will of the Bank to prevail over that of the Treasury, which is undemocratic as well as undesirable.

Mr. Birch

I did not say that. Clearly, the will of the Government must prevail. What I wanted was that the people should know the truth about how the decision had been arrived at.

Mr. Jay

What the right hon. Gentleman said was that he wanted the Chancellor to be forced to issue a direction to the Bank because, as he was sure that the Chancellor would not do that, he would have to give way. That is very near to saying that he wants the Bank's will to prevail.

Mr. Birch

Would the Chancellor give way if he thought that he was likely to receive the support of the people?

Mr. Jay

Why does the right hon. Gentleman think it necessary that the direction should be given? He also told us that his reason for this was that he would prefer any consequences, namely, any rise in unemployment, however large, to any change in the value of the currency, however small. That is what the right hon. Gentleman said.

The proposal by Lord Radcliffe for a standing committee has two purposes: first, to make the constitutional position clear, which is wholly desirable; and, secondly, to improve co-ordination. Having myself sought, as Economic Secretary to the Treasury for three years, to improve co-operation between the Treasury and the Bank, I will certainly add my small experience to the much greater authority of Lord Radcliffe, Sir Oliver Franks and the rest of them, in wholeheartedly endorsing the plan. Yet the Chancellor merely says that Bank representatives will now serve on Treasury committees, but they have been doing that for years, since 1945 anyway.

The Chancellor admitted that corresponding Treasury representatives will not serve on the Bank's committees—for instance, on the Committee of Treasury, which, I should explain, is a committee of the Bank which does not have Treasury representatives on it. It is rather oddly named. This is not a two-way movement of information as the Chancellor said. It is a one-way movement. This will do nothing to break down obscurantism, or the tendency of the Bank to follow a policy contradictory from that of the Treasury. Here, again, whatever the argument, the Chancellor has turned down, out of hand, a cardinal proposal of the Radcliffe Committee.

Most extraordinary of all, if I have understood it aright, was the right hon. Gentleman's refusal this afternoon even to accept the recommendations of the Committee on part-time directors of the Bank. The Report says that, under the Committee's suggestion, … it will not be either necessary or appropriate that the timing or measure of any change should be indicated to members of the Court before it is made public … I wholly agree that we need part-time members of the Bank, who can give good advice—whether from old Broad Street, the grouse moors, or wherever it may be. The Bank should seek their advice—and, perhaps, their hunches—but they should not be told in advance when the Bank Rate is to be changed, any more than the Chancellor would tell his National Advisory Council, on Friday afternoons, what changes he proposes to make in Entertainment Duty in his next Budget.

This rule is common form in any number of Government Departments, which seek advice from unofficial experts but do not tell them State secrets in advance. Indeed, the unhappy Financial Secretary spends most of his time from Christmas to Easter listening to various vested interests explain which taxes they think should be reduced, while he, in turn, seeks to show interest and not reveal anything in that respect. Why should we have a different rule for the Bank of England from that used as a central tradition in every other sphere of public life? The knowledge that the Bank Rate was to be raised 2 per cent. in September, 1957, was a potentially more profitable secret than any Budget change, I should think, since the war.

What I understood the Chancellor to say this afternoon—and I hope that he will correct me if I am wrong—was that the Committee of Treasury at the Bank, which contains several part-time directors, as the Report tells us, will be informed of proposed Bank Rate changes at least one day in advance—

Mr. Amory

No; I hope that I did not convey that impression. I said that the Governor would be free to consult the Committee of Treasury, but would not normally consult it on the precise change or the timing thereof; and the Governor would not notify either the Committee of Treasury or the Court of the proposals he had made to the Chancellor, or whether the Chancellor had agreed or not, until a meeting of the Court immediately before the public announcement was to be made.

Mr. Jay

The right hon. Gentleman did not make that clear this afternoon. He would satisfy this side—or he would satisfy me, at any rate—if he would say that, in future, precise information of a proposed increase in the Bank Rate will not be given to any of the part-time directors, except at the Court immediately before the change.

Mr. Amory

If the right hon. Gentleman will read the words that I used this afternoon I think he will find that they are quite clear on this point. I would ask him to read what I said in HANSARD, and then, if he is still not clear about it and will get in touch with me, I shall make sure that it is made absolutely clear.

Mr. Jay

But surely the Chancellor must know the answer.

Mr. Amory

Yes. I have said that the Governor will be free to consult the Committee of Treasury and seek its advice on policy, but will not normally discuss with it. [HON. MEMBERS "Normally."] In exceptional circumstances, all kinds of things can happen, but we are here laying down procedure for normal circumstances. The Governor will not normally discuss with the members of the Committee of Treasury, or seek their approval of a precise change, or the timing thereof.

Mr. Jay

But cannot the right hon. Gentleman assure us that in future the Governor will in no circumstances inform these part-time directors that a change is to be made, any more than the right hon. Gentleman himself would inform anyone outside Government service, before a Budget, of an impending change in taxation?

Mr. Amory

I think that I have made the practice clear, and have also made clear that that practice is intended to cover all normal circumstances. I did say this afternoon that there might be occasions when there might have to be exceptional procedures in exceptional events, but the practice we are laying down is the practice for all normal circumstances.

Mr. Jay

Then I am bound to say that what the Chancellor says is still far from clear to me, and that we shall have to return to this on another occasion.

We on this side of the House welcome all these proposals of the Committee, and, incidentally, we welcome the commonsense summary of the whole matter in the Report, as follows: Monetary measures … are not so much a policy in themselves as a part of one general economic policy which includes among its instruments fiscal and monetary measures and direct physical controls. The Chancellor, apparently, dislikes this Report so much that he will not even allow his hon. Friends to welcome that this evening. It is not as if Lord Radcliffe, Sir Oliver Franks, the Economist or Sir Reginald Verdon Smith were exactly political partisans, wild revolutionaries or monetary cranks. What on earth is the purpose of setting up these committees of highly distinguished, busy and responsible men if, when they have laboured with great and scrupulous thoroughness, the Government summarily reject all their main recommendations?

This is not the first time this year that the Government have acted in this fashion. Indeed, very soon there will be very few senior judges left on the bench who have not been asked by the Government to head an inquiry into issues of great importance, and have then had their recommendations flatly rejected. We on this side of the House believe that Lord Radcliffe and his colleagues deserve the gratitude and the support of the House, and we reject the partisan attitude of this Government, too. I ask the House to support the Amendment, and to show that distinguished committees of this kind should get better treatment than they can, apparently, ever hope for from any Tory Government.

9.27 p.m.

The Economic Secretary to the Treasury (Mr. Anthony Barber)

It is always a happy task for any Member of this House to refer to the maiden speech of a colleague, and today we have listened to two maiden speeches from my hon. Friends the Members for Nottingham, South (Mr. W. Clark) and of Plymouth, Sutton (Mr. I. Fraser). What they had to say was interesting and thought provoking, and I am sure that the House will join with me in hoping that we shall hear them speak again before the publication of another Report on the working of the monetary system. They are certainly to be congratulated upon having chosen a topic of such complexity as the Radcliffe Report.

I should add that I speak with sincere feeling in winding up for the first time from this Box, because I am, to some extent, in the same boat. Perhaps my hon. Friends and I can take some comfort from the fact that Lord Robbins, after, I think, 30 years as Professor of Economics at London University, solemnly declared the other day, with reference to the Radcliffe Report, that hardly anything that one said about it in a short time could possibly be true. I have about 30 minutes left.

My right hon. Friend the Chancellor of the Exchequer, who moved the Motion, made it clear that in the Government's view a major purpose of today's debate was to enable hon. Members of this House to make their contributions to the wider comment on the Report which is now going on. Certainly today that comment has been varied, from that of my right hon. Friend the Member for Flint, West (Mr. Birch) to that of the hon. Member for Grimsby (Mr. Crosland). If I do no more than pay tribute to the speech of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) it is for two reasons. First, because he spoke late in the debate, and I think it would be presumptuous of me to attempt to deal in detail tonight with what he said. The other reason is that the topics which he chose to discuss included a penetrating analysis of the effect of changes in interest rates, and the role of the Government in relation to them. I hope he will forgive me and will understand if I prefer to read what I heard him say this afternoon rather than deal with it tonight.

On the core of the Report, the sections dealing with the relationship between monetary conditions and the general state of the internal economy, my right hon. Friend made it clear that he did not himself intend to comment today, but rather to listen. Whatever differences may have emerged during the debate, no one will deny that it has been a good one. I, for one, shall certainly read and reread what has been said.

The right hon. Member for Huyton (Mr. H. Wilson) said that it was possible to cover only a certain number of points, and I am sure he will appreciate that I am in the same difficulty. I shall, however, do my best to deal with as many points as I possibly can.

I wish to start by referring to international liquidity. I do this not only because it was referred to by the right hon. Gentleman but also because it was something which my right hon. Friend did not deal with at any length and the right hon. Member for Huyton expressed some surprise that he had not done so. The right hon. Gentleman did put forward two suggestions about which he did not ask for specific replies this evening. He generously agreed that my right hon. Friend should study them more at leisure, and this my right hon. Friend will certainly do.

The Radcliffe Committee devoted a good deal of attention to the operations of the International Monetary Fund. The Government, of course, agreed, as no doubt does the right hon. Gentleman, that it should be a principal objective of our policy to widen the scope of operations of the Fund. We cannot, I think, underestimate the advantage which has already been gained by the recent increase in its capital. Various suggestions are made by the Committee about the way in which the International Monetary Fund could be strengthened and we are already examining them.

The Committee makes a specific suggestion about Articles VII and VIII of the Agreement of the International Monetary Fund. Article VIII, if I may remind hon. Members, provides for convertibility in respect of current transactions, and it is one of the Articles which the United Kingdom has not yet accepted. Article VII, the so-called scarce currency provision, deals with a possible persistent scarcity of one or more currencies and authorises discrimination if the demand for that currency is seriously threatening the ability of the Fund to supply it.

The Radcliffe Committee suggests that before we accept the obligations of Article VIII the United Kingdom. should seek to obtain the agreement of her fellow-members … that the Fund's approval for the use of discriminatory measures should not be withheld in conditions in which there is a persistent and substantial movement of gold and foreign exchange to a single country or group of countries. The scarce currency provisions of the International Monetary Fund, that is to say, Article VII, were, of course, intended to deal with just this situation. I agree with the Committee that acceptance of the strict obligations of Article VIII requires some protection against the development of such a situation. But while the Government sympathise with the objective which the Radcliffe Committee have in mind, I am not at all sure that it would be practicable or possible to secure in advance, against the hypothetical background to which the Committee refers, commitments about the implementation of Article VII. It was thought right that the Government's views on this particularly important suggestion of the Committee should be made known.

I am sure that the right hon. Gentleman will agree that in economic and monetary policy there now exists a high degree of co-operation between the major countries of the world. This co-operation has been brought about to no small extent through the operations and work of the International Monetary Fund itself.

The result is that we hope, and indeed believe, that the situation in the minds of its founders when Article VII was drafted will not be allowed to arise. After all, one has only to consider how far we have gone in the last twenty years and look at the very enlightened policies of the United States during the period when the dollar was extremely scarce.

I should say, however, that if such a situation arose and there were, in the words of the Radcliffe Committee, … a persistent and substantial movement of gold and foreign exchange to a single country or group of countries", and if it proved impossible to implement the provisions of Article VII, obviously there would be a grave danger of a breakdown of the whole system of international monetary co-operation, and that is the very purpose of the Fund's existence. But for the reasons which I have mentioned, we do not believe that with the existing close co-operation in monetary matters this will come to pass.

The right hon. Member for Huyton referred to the control of credit and so did his hon. Friend the Member for Battersea, North (Mr. Jay), who gave his views on the liquidity ratios of the banks. The hon. Member mentioned that the Chancellor of the Exchequer had not dealt with this point in his speech. My right hon. Friend wants me to tell the hon. Member that this was not because he did not realise that this was a matter of great importance but simply because he had to select, as we all have had to do, certain topics which he should put before the House.

This is a matter which is dealt with by the Radcliffe Committee. The Committee refers specifically to the two methods which the right hon. Member for Huyton also mentioned. First of all, there are the arrangements for special deposits which were announced last year at the time when quantitative limitations of bank advances were withdrawn. The right hon. Member went on to refer to the second suggestion in the Radcliffe Committee's Report, which is the provision to increase to some higher percentage the 30 per cent. liquidity requirement to which the banks work at the present time.

In view of the fact that the Radcliffe Committee expresses preference for the second, which I understood the right hon. Gentleman also to prefer, rather than for the special deposits scheme which is the policy favoured at the moment by the Government, my right hon. Friend has decided to re-examine this question I should like to give the House the reasons why the Government last year came to the conclusion—which they are now prepared to re-examine—that it was preferable to have a special deposit scheme rather than to deal directly with the liquidity ratios of the banks.

In order that I may give the reasons which prompted the Government to this decision it would be probably convenient if I very quickly summarised how the special deposits scheme would work if implemented. The Bank of England would notify the London clearing banks and the Scottish banks to make special deposits with it, if it became necessary to adjust the liquidity of the banking system, and in this way influence the total or potential total of bank credit. These special deposits would then be left out of the calculation of the liquidity ratios of the banks. If one assumes the traditional observance of the liquidity ratio by the bankers, this would obviously limit the lending potential of the banks.

Before this procedure was announced, the Government, of course, considered the alternative, which is the policy advocated by the right hon. Member for Huyton and also by the Radcliffe Committee. The reasons which lead the Government to prefer the special deposits scheme to acting directly on the liquidity ratio are twofold. In the first place, to vary a prescribed liquidity ratio would certainly appear to impose on the bankers operating conditions which were not founded on their experience, whereas the alternative scheme adopted by the Government last year has the reverse effect, because it is a scheme which turns to account their traditional standards.

Secondly, although a variable prescribed liquidity ratio—the scheme advocated by the right hon. Gentleman—would on the face of it be simpler in operation, in fact it would be much less flexible than the scheme at present advocated by the Government. I have dealt with this matter because the right hon. Gentleman covered it at some length and my right hon. Friend is looking into it again.

Mr. H. Wilson

We cannot complain as between the special deposit scheme or the variable liquidity ratio. At various times I have pressed the Government to accept both, and especially the special deposit ratio three years ago, but would the hon. Gentleman say what he thinks about the important proposal of the Radcliffe Committee, which we strongly support, for a mandatory relationship between advances and deposits?

Mr. Barber

This is one of the matters which my right hon. Friend covered when in his speech he said that this was something which the Government still have to consider. The right hon. Gentleman will realise that one of the difficulties we are in—and, indeed, it accounts in the main for the terms of the Government Motion—is that the Report is such a vast one, containing so many matters which deserve serious consideration, that not only would it be an insult to the Committee and to its two years' labours, but it would also be ridiculous, to pretend that at this stage we could give a decision on every matter raised.

I now turn to another matter which has aroused considerable interest in the country. I refer to the proposals of the Radcliffe Committee on the need for more statistical information on financial questions, to which several hon. Members have referred in the course of the debate. They are proposals of great importance, because unless we have adequate knowledge it is not possible accurately to forecast future trends and so be in a position to act.

My right hon. Friend the Chancellor of the Exchequer this afternoon set out the aims which the Government have before them in the immediate future: comprehensive statistics covering the whole of the banking system; information on holdings of, and transactions in, the various types of financial assets, particularly Government and local authority debt; fuller and more up-to-date infor- mation on the financial position and transactions of companies and persons. Although this is only a start, it is fair to say that it is a very significant move forward, as I think hon. Members in all parts of the House will agree.

In order to implement these proposals we shall have to go not only to the Government and Bank of England records but also to other public authorities and to a wide range of private institutions for new figures. This extension of the search for facts has its dangers as well as its advantages, and I can assure the House that we are determined to do everything in our power to ensure that the information we collect in pursuance of the recommendations in the Report will be collected not just for its own sake but for purposes which are both necessary and useful.

I know that there has been concern about some of the recommendations and I would say that it is only if we are sure that the statistics we seek are ones which will be both useful and necessary that we can justify the costs involved; costs not merely for the Government but also for society at large and for individual institutions. To some extent I suppose this is bound to mean an act of faith, because I am told by those who deal with these matters that it is sometimes difficult to know what information will be useful until one has actually got it. This suggests that the process of improvement must be gradual, as indeed the Radcliffe Committee acknowledges.

It also suggests that we must be ready to modify the programme as we go along. We shall be asking that information should be provided by each institution on the clear understanding that it is available for aggregation with information provided by other institutions in the same line of business and that aggregates for each group of institutions may be published. But—I think this is important—we shall certainly be willing to give assurances wherever they are required that information relating to individual institutions will be treated as strictly confidential, that it will be used only for the purpose of aggregation with other information which we obtain from similar institutions and that it will not be made available to any Department of State or to a division of a Department other than that responsible for the aggregation. These are important safeguards. We also recognise that there will in some cases be special considerations which may make it necessary to withhold or delay publication of figures even for groups of institutions.

The right hon. Member for Battersea, North regretted that the Chancellor had not dealt at length with the question of the financing of local authorities.

Mr. Jay

I said that I regretted that the Chancellor had not accepted the Committee's proposals.

Mr. Barber

If that is all, I accept that. At any rate, I understood the right hon. Gentleman not to be satisfied with the reason which my right hon. Friend adduced in deciding not to accept the proposals of the Committee. I was sorry not to hear the whole of the speech of the hon. Member for Fulham (Mr. M. Stewart), who, I know, dealt at some length with this matter. Indeed, he was not the only hon. Member who during the course of the debate raised the question of the financing of local authorities.

It has been said that local authorities are borrowing to what some consider to be a dangerous extent on short term. The right hon. Gentleman will, I am sure, accept it from me that this is obviously a problem which we have very much in our minds. We know, of course, that such borrowing constituted just under 10 per cent. of all local authority debt for capital purposes last year—I believe it was in March of last year that a check was made—and it may well be that the present proportion is higher than 10 per cent. We are, as my right hon. Friend said, about to make another survey which will show the position in the spring of 1959, and we are going to make arrangements with local authorities to ensure that in future our information on this matter is both regular and up to date.

I do not wish to pretend that we regard the present spread of debt maturities as perfect. It is, as the right hon. Gentleman indicated, a matter of considerable importance. However, there is, I think, one aspect of these arrangements which he forgot, or, at any rate, he did not mention in what he had to say when he was winding up. It is a fact that local authorities benefit from these arrangements because they are paying a lower rate on these short-term moneys than they would be paying if they were borrowing on long term from either the market or the Public Works Loan Board. It is, to some measure at least, because local authorities choose to borrow short that their short-term debt is high. [Laughter.] This is a fact. I know that there is some misunderstanding. Hon. Members may think that this is not a choice by local authorities. I shall come to this point in more detail in a moment.

It is sometimes suggested that it is a situation which involves serious risks for local authorities. This also is a misunderstanding of the position. The Public Works Loan Board stands as a lender of last resort for local authorities. If at the moment the local authorities find that they are not able to raise new moneys to replace short-term debt which has fallen due, they can always go to the Public Works Loan Board.

Furthermore—and this is the answer to the doubts which some hon. Members expressed—any local authority which felt that it was accumulating too large a, volume of short-term indebtedness and which was not able to borrow long in the market would receive a sympathetic hearing from the Board, to put it no higher than that. If there is any risk in the present situation, it is a risk for the Exchequer rather than for the local authorities.

Some hon. Members referred to the high cost of borrowing under the present system. I have already drawn attention to the fact that if a local authority borrows short, under the present system it would pay less than it would if it were to borrow from the Public Works Loan Board, and, indeed, a lower rate than it would pay if it had to pay the going gilt-edged rate for a longer maturity.

Mr. Jay

If that is true, why not accept the Committee's proposal and leave a free choice to the local authorities?

Mr. Barber

For the reasons my right hon. Friend gave in opening the debate. I do not want to go over the whole ground again. I am sure that the right hon. Gentleman knows the reason for our decision on this matter perfectly well. I will mention only two aspects which, I am sure, are familiar to him.

First, we took the view that by adopting this method local authorities attracted to themselves certain local money which would otherwise not go to them. Secondly, from the point of view of market management it is easier to deal with these small issues which come from various local authorities.

Mr. Jay

Nonsense.

Mr. Barber

I can only tell the right hon. Gentleman that that is the view we took. If he does not accept it, that ends the matter. I think that anyone concerned with market management will agree that it is simpler to deal with these small issues rather than with the larger issues which would be necessary if we reverted to the old system.

Mr. Jay

indicated dissent.

Mr. Barber

Well, there we are. I would deal at considerable length with this topic, but there are many other matters on which I wished to touch, matters raised by the right hon. Member for Huyton and others, the Stock Exchange, the transfer of payments through the giro system, which was recommended, and so on. However, time is drawing to a close and before concluding I want to deal with the Amendment.

I must confess at the outset that, in view of what the right hon. Member for Huyton said, I am a little surprised that right hon. and hon. Members opposite are apparently still determined to press their Amendment. There have been several references to economists, some laudatory, others in a rather different vein. I do not know whether the right hon. Member for Huyton and his right hon. Friend the Member for Battersea, North would subscribe to the definition of an economist as one who takes a set of facts, reaches two entirely different conclusions, and is right both times.

I should have thought that, in the light of what my right hon. Friend said, there was sufficient in common between the two sides of the House for the Opposition to accept the Government's Motion. We have made it perfectly clear that we are not prepared to commit ourselves on all the matters with which the Report deals. Indeed, the right hon. Member for Huyton said that he regarded this as an interim debate. I would have thought that in those circumstances it was reasonable to say that this was an occasion on which, in the interests of the House, it was advisable simply to take note of the Report.

Mr. H. Wilson

I said that it was an interim debate in so far as the Report related to a description of the working of the financial system. Our Amendment deals with some specific proposals and recommendations which the Chancellor has turned down. If there is so little difference between the two sides of the House perhaps the hon. Gentleman even now will announce the acceptance of the Committee's recommendations.

Mr. Barber

No. I will deal seriatum with the several points in the Amendment. The right hon. Gentleman said earlier that we have rejected almost every recommendation. That is not the case. If one looks at the Amendment, it: … thanks the Committee for its thorough and authoritative survey … I do not think that anyone who heard my right hon. Friend would dispute that he welcomed the Report in very much warmer terms than those in the Amendment. The fact that the Motion is in this traditional form simply to "take note" is not only reasonable but inevitable. For reasons which I have already explained, and which were explained by my right hon. Friend this afternoon, we are not prepared to commit ourselves on the central core of the Report until we have heard all the arguments. From the speeches that I heard from the benches opposite this afternoon, I did not gather than hon. Members opposite were prepared to accept every jot and tittle of the Report. The right hon. Gentleman the Member for Huyton himself said that he was not committed to all its details and lines of reasoning.

On the position of local authorities, the right hon. Gentleman put forward what we have heard him put forward before, a scheme for two tiers of interest rates, and preferential rates for local authorities. Again, that is not something that was recommended by the Committee.

We next come to the supremacy of the Chancellor in financial policy. This is mentioned in the Amendment. Nobody who heard my right hon. Friend this afternoon could doubt where he considers the final responsibility for financial matters should lie. Indeed, I do not believe that on this matter there has been any doubt for many years.

The relationship between the Treasury and the Bank of England, and the position of part-time directors, was mentioned by the right hon. Member for Battersea, North. I earnestly beg him, and indeed all hon. Members, to read with care what my right hon. Friend said. I believe that if the right hon. Gentleman does that he will he satisfied. My right hon. Friend explained clearly why he was not prepared to accept the specifically detailed form of arrangement proposed by the Committee. However, he did accept, and surely this is by far the most important point, the policy implications which underlie those recommendations. I believe that anyone who is prepared to examine these dispassionately will find that the arrangement now proposed deals satisfactorily and adequately with the situation.

The Amendment goes on to refer to: … capital needs of publicly owned industries …

My right hon. Friend said that we would continue the present practice. Surely that is what the Committee recommended. The only substantive point of difference between us is the problem of how local government capital requirements should be met.

In the context of this great Report which covers almost every aspect of the monetary field, it seems to me, to say the least, a little ungenerous that the Opposition have not seen fit to accept the Government Motion to "take note".

The important principle is that at all times the judgment of how far each of the various instruments of policy should be used must be conditioned not by any belief in the primacy of any of them but by our judgment of how best to secure the objectives of economic policy in which we all believe.

Question put, That the words proposed to be left out stand part of the Question:—

The House divided: Ayes 303, Noes 225.

Division No. 6]	AYES	[10.0 p.m.
Agnew, Sir Peter	Carr, Compton (Barons Court)	Finlay, Graeme
Allan, Robert (Paddington, S.)	Carr, Robert (Mitcham)	Fisher, Nigel
Allason, James	Cary, Sir Robert	Fletcher-Cooke, Charles
Alport, C. J. M.	Channon, H. P. G.	Forrest, George
Amery, Julian (Preston, N.)	Chataway, Christopher	Foster, John
Amory, Rt. Hn. D.Heathcoat(Tiv'tn)	Chicester-Clark, R.	Fraser, Hn. Hugh (Stafford & Stone)
Ashton, Sir Hubert	Clark, Henry (Antrim, N.)	Fraser, Ian (Plymouth, Sutton)
Atkins, Humphrey	Clark, William (Nottingham, S.)	Freeth, Denzil
Balniel, Lord	Clarke, Brig. Terence (Portsmth, W.)	Galbraith, Hon. T. G. D.
Barber, Anthony	Cleaver, Leonard	Gammons, Lady
Barlow, Sir John	Cole, Norman	Gardner, Edward
Barter, John	Cooke, Robert	Gibson-Watt, David
Botsford, Brian	Cooper, A. E.	Glyn, Dr. Alan (Clapham)
Baxter, Sir Beverley (Southgate)	Cooper-Key, E M.	Glyn, Col. Richard H. (Dorset, N.)
Beamish, Col. Tufton	Cordle, John	Godber, J. B.
Bell, Philip (Bolton, E.)	Costain, A. P.	Goodhart, Philip
Bell, Ronald (S. Bucks.)	Coulson, J. M.	Goodhew, Victor
Bennett, F. M. (Torquay)	Courtney, Cdr. Anthony	Cower, Raymond
Bennett, Dr. Reginald (Gos & Fhm)	Craddock, Beresford (Spelthorne)	Grant, Rt. Hon. William (Woodside)
Berkeley, Humphry	Crosthwaite-Eyre, Col. O. E.	Grant-Ferris, Wg Cdr. R. (Nantwich)
Bevins, Rt. Hon. Reginald (Toxteth)	Crowder, F. P.	Green, Alan
Bidgood, John C.	Cunningham, Knox	Gresham Cooke, R.
Biggs-Davison, John	Curran, Charles	Grimond, J.
Bingham, R. M.	Currie, G. B. H.	Grimston, Sir Robert
Birch, Rt. Hon. Nigel	Dance, James	Grosvenor, Lt.-Col. R. G.
Bishop, F. P.	d'Avigdor-Goldsmid, Sir Henry	Gurden, Harold
Black, Sir Cyril	Deedes, W. F.	Hall, John (Wycombe)
Bossom, Clive	de Ferranti, Basil	Hamilton, Michael (Wellingborough)
Bourne-Arton, A.	Digby, Simon Wingfield	Harris, Frederic (Croydon, N.W.)
Box, Donald	Donaldson, Cmdr. C. E. M.	Harris, Reader (Heston)
Boyd-Carpenter, Rt. Hon. John	Drayson, G. B.	Harrison, Brian (Maldon)
Boyle, Sir Edward	du Cann, Edward	Harrison, Col. J. H. (Eye)
Braine, Bernard	Duncan, Sir James	Harvey, Sir Arthur Vere (Macclesf'd)
Brewis, John	Duthie, Sir William	Harvey, John (Walthamstow, E.)
Brooke, Rt. Hon. Henry	Eccles, Rt. Hon. Sir David	Harvie, Anderson, Miss
Brooman-White, R.	Eden, John	Hay, John
Browne, Percy (Torrington)	Elliott, R. W.	Heald, Rt. Hon. Sir Lionel
Bullard, Denys	Emmet, Hon. Mrs. Evelyn	Henderson-Stewart, Sir James
Bullus, Wing Commander Eric	Errington, Sir Eric	Hendry, A. Forbes
Burden, F. A.	Erroll, F. J.	Hicks Beach, Maj. W.
Campbell, Sir David (Belfast, S.)	Farey-Jones, F. W.	Hill, Dr. Rt. Hon. Charles (Luton)
Campbell, Cordon (Moray & Nairn)	Farr, John	Hill, J. E. B. (S. Norfolk)
Hinchingbrooke, Viscount	Macpherson, Niall (Dumfries)	Rodgers, John (Sevenoaks)
Hirst, Geoffrey	Maddan, Martin	Roots, William
Hobson, John	Maginnis, John E.	Ropner, Col. Sir Leonard
Hocking, Philip N.	Maitland, Cdr. J. W.	Royle, Anthony (Richmond, Surrey)
Holland, Philip	Manningham-Buller, Rt. Hn. Sir R.	Russell, Ronald
Holland-Martin, Christopher	Markham, Major Sir Frank	Sandys, Rt. Hon. Duncan
Hollingworth, John	Marlowe, Anthony	Scott-Hopkins, James
Holt, Arthur	Marples, Rt. Hon. Ernest	Seymour, Leslie
Hope, Rt. Hon. Lord John	Marshall, Douglas	Sharples, Richard
Hopkins, Alan	Marten, Neil	Shepherd, William
Hornby, R. P.	Mathew, Robert (Honiton)	Simon, Sir Jocelyn
Hornsby-Smith, Rt. Hon. Patricia	Matthews, Gordon (Meriden)	Skeet, T. H. H.
Howard, Gerald (Cambridgeshire)	Maudling, Rt. Hon. Reginald	Smith, Dudley (Br'ntf'rd & Chiswick)
Howard, Hon. G. R. (St. Ives)	Mawby, Ray	Spearman, Sir Alexander
Hughes Hallett, Vice-Admiral John	Maydon, Lt.-Cmdr. S. L. C.	Stanley, Hon. Richard
Hughes-Young, Michael	Milligan, Rt. Hon. W. R.	Stevens, Geoffrey
Hulbert, Sir Norman	Mills, Stratton	Steward, Harold (Stockport, S.)
Hurd, Sir Anthony	Molson, Rt. Hon. Hugh	Stodart, J. A.
Hutchison, Michael Clark	Montgomery, Fergus	Stoddart-Scott, Col. Sir Malcolm
Iremonger, T. L.	Morgan, William	Studholme, Sir Henry
Irvine, Bryant Godman (Rye)	Mott-Radclyffe, Sir Charles	Summers, Sir Spencer (Aylesbury)
Jackson, John	Nabarro, Gerald	Sumner, Donald (Orpington)
James, David	Neave, Airey	Talbot, John E.
Jenkins, Robert (Dulwich)	Noble, Michael	Tapsell, Peter
Johnson, Dr. Donald (Carlisle)	Nugent, Richard	Taylor, Sir Charles (Eastbourne)
Johnson, Eric (Blackley)	Oakshott, Sir Hendrie	Taylor, W. J. (Bradford, N.)
Johnson Smith, G.(Holb. & S.P'ncr's. S)	Orr, Capt. L. P. S.	Teeling, William
Jones, Rt. Hn. Aubrey (Hall Green)	Orr-Ewing, C. Ian	Thatcher, Mrs. Margaret
Joseph, Sir Keith	Osborn, John (Hallam)	Thomas, Leslie (Canterbury)
Kaberry, Donald	Osborne, Cyril (Louth)	Thomas, Peter (Conway)
Kerans, Cdr. J. S.	Page, Graham	Thompson, Kenneth (Walton)
Kerby, Capt. Henry	Pannell, Norman (Kirkdale)	Thompson, Richard (Croydon, S.)
Kerr, Sir Hamilton	Partridge, E.	Thornton-Kemsley, Sir Colin
Kershaw, Anthony	Pearson, Frank (Clitheroe)	Tilney, John (Wavertree)
Kimball, Marcus	Peel, John	Turner, Colin
Kirk, Peter	Percival, Ian	Turton, Rt. Hon. R. H.
Lagden, Godfrey	Peyton, John	van Straubenzee, W. R.
Langford-Holt, J.	Pickthorn, Sir Kenneth	Vane, W. M. F.
Leather, E. H. C.	Pike, Miss Mervyn	Vosper, Rt. Hon. Dennis
Leavey, J. A.	Pilkington, Capt. Richard	Wakefield, Sir Wavell (St. M'lebone)
Legge-Bourke, Maj. H.	Pitman, I. J.	Wall, Patrick
Legh, Hon. Peter (Petersfield)	Pitt, Miss Edith	Ward, Dame Irene (Tynemouth)
Lewis, Kenneth (Rutland)	Pott, Percivall	Watts, James
Lindsay, Martin	Powell, J. Enoch	Webster, David
Linstead, Sir Hugh	Price, David (Eastleigh)	Wells, John (Maidstone)
Litchfield, Capt. John	Price, H. A. (Lewisham, W.)	Whitelaw, William
Longden, Gilbert	Prior, J. M. L.	Williams, Dudley (Exeter)
Loveys, Walter H.	Prior-Palmer, Brig. Sir Otho	Williams, Paul (Sunderland, S.)
Low, Rt. Hon. Sir Toby	Profumo, John	Wills, Sir Gerald (Bridgwater)
Lucas, Sir Jocelyn (Portsmouth, S.)	Proudfoot, Wilfred	Wilson, Geoffrey (Truro)
Lucas-Tooth, Sir Hugh	Ramsden, James	Wise, Alfred
McAdden, Stephen	Rawlinson, Peter	Wood, Rt. Hon. Richard
MacArthur, Ian	Redmayne, Rt. Hon. Martin	Woodhouse, C. M.
McLaren, Martin	Rees, Hugh	Woodnutt, Mark
McLaughlin, Mrs. Patricia	Rees-Davies, W. R.	Woollam, John
Maclay, Rt. Hon. John	Renton, David	Worsley, Marcus
Macleod, Rt. Hn. Iain (Enfield, W.)	Ridley, Hon. Nicholas	Yates, William (The Wrekin)
McMaster, Stanley	Ridsdale, Julian
Macmillan, Rt. Hn. Harold(Bromley)	Rippon, Geoffrey	TELLERS FOR THE AYES:
Macmillan, Maurice (Halifax)	Roberts, Sir Peter (Heeley)	Mr. E. Wakefield and Mr. Bryan.
NOES
Abse, Leo	Brown, Rt. Hon. George (Belper)	Deer, George
Ainsley, William	Brown, Thomas (Ince)	de Freitas, Geoffrey
Albu, Austen	Butler, Herbert (Hackney, C.)	Delargy, Hugh
Allaun, Frank (Salford, E.)	Butler, Mrs. Joyce (Wood Green)	Dempsey, James
Allen, Scholefield (Crewe)	Callaghan, James	Diamond, John
Awbery, Stan	Carmichael, James	Dodds, Norman
Baird, John	Castle, Mrs. Barbara	Donnelly, Desmond
Baxter, William (Stirlingshire, W.)	Chapman, Donald	Driberg, Tom
Beaney, Alan	Chetwynd, George	Dugdale, Rt. Hon. John
Bellenger, Rt. Hon. F. J.	Cliffe, Michael	Edelman, Maurice
Bence, Cyril (Dunbartonshire, E.)	Collick, Percy	Edwards, Robert (Bilston)
Benn, Hn. A. Wedgwood (Brist'l, S. E.)	Corbet, Mrs. Freda	Edwards, Walter (Stepney)
Benson, Sir George	Craddock, George (Bradford, S.)	Evans, Albert
Bevan, Rt. Hn. Aneurin (Ebbw, V.)	Cronin, John	Fernyhough, E.
Blackburn. F.	Crosland, Anthony	Finch, Harold
Blyton, William	Crossman, R. H. S.	Fitch, Alan
Boardman, H.	Cullen, Mrs. Alice	Fletcher, Eric
Bowdert, Herbert W. (Leics, S.W.)	Darling, George	Foot, Dingle
Bowles, Frank	Davies, G. Elfed (Rhondda, E.)	Forman, J. C.
Brockway, A. Fenner	Davies, Harold (Leek)	Fraser, Thomas (Hamilton)
Broughton, Dr. A. D. D.	Davies, Ifor (Gower)	Gaitskell, Rt. Hon. Hugh
Brown, Alan (Tottenham)		George, Lady Megan Lloyd

Ginsburg, David	McInnes, James	Shinwell, Rt. Hon. E.
Gordon Walker, Rt. Hon. P. C.	McKay, John (Wallsend)	Short, Edward
Gourlay, Harry	Mackie, John	Silverman, Julius (Aston)
Greenwood, Anthony	McLeavy, Frank	Silverman, Sydney (Nelson)
Grey, Charles	MacPherson, Malcolm (Stirling)	Skeffington, Arthur
Griffiths, David (Rother Valley)	Mahon, Simon	Slater, Joseph (Sedgefield)
Griffiths, Rt. Hon. James (Llanelly)	Mallalieu, E. L. (Brigg)	Small, William
Griffiths, W. (Exchange)	Mallalieu, J. P. W.(Huddersfield, E.)	Smith, Ellis (Stoke, S.)
Gunter, Ray	Manuel, A. C.	Snow, Jullan
Hale, Leslie (Oldham, W.)	Mapp, Charles	Sorensen, R. W.
Hamilton, William (West Fife)	Marquand, Rt. Hon. H. A.	Soskice, Rt. Hon. Sir Frank
Hannan, William	Marsh, Richard	Spriggs, Leslie
Hart, Mrs. Judith	Mason, Roy	Steele, Thomas
Hayman, F. H.	Mayhew, Christopher	Stewart, Michael (Fulham)
Healey, Denis	Mellish, R. J.	Stonehouse, John
Herbison, Miss Margaret	Mendelson, J. J.	Stones, William
Hewitson, Capt. M.	Millan, Bruce	Strachey, Rt. Hon. John
Hill, J. (Midlothian)	Mitchison, G. R.	Strauss, Rt. Hn. G. R. (Vauxhall)
Hilton, A. V.	Monslow, Walter	StrossDr.Barnett (Stoke-on-Trent, C.)
Holman, Percy	Moody, A. S.	Summerskill, Dr. Rt. Hon. Edith
Houghton, Douglas	Morris, John	Swain, Thomas
Howell, Charles A.	Mort, D. L.	Swingler, Stephen
Hoy, James H.	Moyle, Arthur	Sylvester, George
Hughes Cledwyn (Anglesey)	Mulley, Frederick	Symonds, J. B.
Hughes, Emrys (S. Ayrshire)	Noel-Baker, Francis (Swindon)	Thomas, Iorwerth (Rhondda, W.)
Hughes, Hector (Aberdeen, N.)	Oliver, G. H.	Thompson, Dr. Alan (Dunfermline)
Hunter, A. E.	Oram, A. E.	Thomson, G. M. (Dundee, E.)
Hynd, H. (Accrington)	Oswald, Thomas	Thornton, Ernest
Hynd, John (Attercliffe)	Owen, Will	Timmons, John
Irvine, A. J. (Edge Hill)	Padley, W. E.	Wainwright, Edwin
Irving, Sydney (Dartford)	Paget, R. T.	Warbey, William
Jay, Rt. Hon. Douglas	Pannell, Charles (Leeds, W.)	Wells, Percy (Faversham)
Jeger, George	Pargiter, G. A.	Wells, William (Walsall, N.)
Johnson, Carol (Lewisham, S.)	Parker, John (Dagenham)	Wheeldon, W. E.
Jones, Rt. Hn. A. Creech (Wakefield)	Parkin, B. T. (Paddington, N.)	White, Mrs. Eirene
Jones, Dan (Burnley)	Paton, John	Whitlock, William
Jones, Jack (Rotherham)	Pavitt, Laurence	Wilcock, Group Capt. C. A. B.
Jones, J. Idwal (Wrexham)	Pearson, Arthur (Pontypridd)	Wilkins, W. A.
Jones, T. W. (Merioneth)	Peart, Frederick	Willey, Frederick
Kelley, Richard	Pentland, Norman	Williams, D. J. (Neath)
Key, Rt. Hon. C. W.	Plummer, Sir Leslie	Williams, Rev. Ll. (Abertillery)
King, Dr. Horace	Prentice, R. E.	Williams, W. R. (Openshaw)
Lawson, George	Price, J. T. (Westhoughton)	Willis, E. C. (Edinburgh, E.)
Ledger, Ron	Probert, Arthur	Wilson, Rt. Hon. Harold (Huyton)
Lee, Frederick (Newton)	Proctor, W. T.	Winterbottom, R. E.
Lee, Miss Jennie (Cannock)	Pursey, Cmdr. Harry	Woodburn, Rt. Hon. A.
Lever, Harold (Cheetham)	Randall, Harry	Woof, Robert
Lever, L. M. (Ardwick)	Rankin, John	Wyatt, Woodrow
Lewis, Arthur (West Ham, N.)	Redhead, E. C.	Yates, Victor (Ladywood)
Lipton, Marcus	Reid, William	Zilliacus, K.
Logan, David	Reynolds, G. W.
Loughlin, Charles	Rhodes, H.	TELLERS FOR THE NOES:
Mabon, Dr. J. Dickson	Robinson, Kenneth (St. Pancras, N.)	Mr. J. Taylor and
McCann, John	Ross, William	Mr. G. H. R. Rogers
MacColl, James	Royle, Charles (Salford, West)

Main Question put and agreed to.

Resolved, That this House takes note of the Report of the Committee on the working of the Monetary System (Command Paper No. 827).