Lords Sitting of 11 March 1937

Preamble
The House met at a quarter past four of the clock, The LORD CHANCELLOR on the Woolsack.

BUSINESS OF THE HOUSE.
THE LORD PRIVY SEAL (VISCOUNT HALIFAX): My Lords, I beg to move the Motion standing in my name.
Moved, That Standing Order No. XXXIX be considered in order to its being dispensed with for the purpose of passing the Merchant Shipping (Spanish Frontiers Observation) Bill [H.L.] through its remaining stages.—(Viscount Halifax.)
LORD SNELL: My Lords, I should just like to say that we on these Benches offer no opposition to the Bill passing through in one day. Our concern respecting it was stated yesterday by my noble friend Lord Strabolgi, and with that we are willing to assist the passage of the Bill.
On Question, Motion agreed to, and ordered accordingly.

BILSTON GAS ORDER, 1937.
LORD TEMPLEMORE: My Lords, I beg to move the Motion standing in my name.
Moved, That the Special Order, as reported from the Special Orders Committee on the 3rd instant, be approved.—(Lord Templemore.)
On Question, Motion agreed to.

TOTTENHAM AND DISTRICT GAS ORDER, 1936.
LORD TEMPLEMORE: My Lords, I beg to move the Motion standing in my name.
Moved, That the Special Order, as reported from the Special Orders Committee on the 3rd instant, be approved, with modifications and an addition.—(Lord Templemore.)
On Question, Motion agreed to.

EMPIRE SETTLEMENT BILL.
House in Committee (according to Order): Bill reported without amendment.

DEFENCE LOANS BILL.
Order of the Day for the Second Reading read.
LORD TEMPLEMGRE: My Lords, it will, I think, be within the recollection of your Lordships that my right honourable friend the Chancellor of the Exchequer, in introducing his Budget of last year, gave it as his opinion that the exceptional nature of the Defence programme rendered it inequitable that the whole cost of the programme should fail on the taxpayers of this country during the next five years. The whole experience of the last twelve months and the situation in which we now find ourselves have only confirmed the judgment of my right honourable friend, and are the cause of the introduction of this Bill to-day. The Bill, which is a short Bill of one operative clause, is, as your Lordships know, designed to enable part of the cost of the rearmament programme, not exceeding £400,000,000, to be met from borrowed moneys instead of out of the taxation of the current year. His Majesty's Government have been asked more than once whether they can give any firm estimate of the total cost of the programme, which must necessarily be subject to change. That is impossible; they cannot do that, they cannot give any firm estimate. The programme, as I say, is necessarily subject to change. It is spread over a period of years; but the Government consider that, taking the programme as it stands to-day, it would be imprudent to contemplate a total expenditure during the next five years of very much less than £1,500,000,000, and we think that it would be too much to ask the nation to accept the burden of meeting the whole of this vast sum out of the current revenue.
May I illustrate my point by giving your Lordships a few figures? I will not trouble you with many. May I give you the figures of the Defence Estimates of last year? The original Defence Estimates of 1936 amounted to £158,000,000. The Chancellor of the Exchequer provided in his Budget forecast for £20,000,000 against Supplementary Estimates for Defence, making a total of £178,000,000. That is for 1936, last year. For 1937 the original Estimates for the Defence Services amount to £198,000,000, but these Estimates allow for the issue from the Consolidated Fund, under the terms of
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this Bill which we hope to pass, of £80,000,000, which means that without these borrowing powers the Chancellor would have to find from revenue no less a sum than £278,000,000 this year for the Defence Services alone, an increase of £100,000,000. That is about 1s. 9d. on the Income Tax over the figure for last year. His Majesty's Government consider that this is a burden which the country could not bear without sacrificing the present economic recovery by placing too great a strain on our resources, and that it would not be fair that the country should have to bear it.
For many years, as your Lordships know, in the hopes of obtaining a measure of disarmament, this Government, and Governments before it of all Party complexions, have refrained from bringing our forces to the state of strength which we now reluctantly admit to be necessary. We have arrears to make up. We must fill the gaps of fifteen years, and His Majesty's Government do not consider it just that the whole bill should be paid out of five years' taxation. Your Lordships must remember that much of the expenditure is non-recurrent: shadow factories, barracks and sheds have to be built and stores have to be accumulated. These are assets which will benefit us for many years; but it is only through the fact that we are now so much in arrears that we are faced with the necessity of providing them all in the course of a few years. We think that it is reasonable that some of the cost of this non-recurrent expenditure should be met over a longer period.
I turn to the Bill, and your Lordships will see, if you read the provisions of the Bill, that the Government are fully alive to the dangers which attend the raising of money by loan to meet expenditure, and that in the present Bill they have provided ample safeguards against abuse of the powers they seek. If your Lordships will look at Clause 1 (1), you will see that this subsection contains the three main limits on the Treasury's action. First of all, they may not without further statutory authority issue more than £400,000,000 in all under the Act. Secondly, these issues can only be made during the five financial years ending on March 31, 1942. Thirdly, no issues whatever may be made until the relative Defence Estimates showing the amounts to

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be issued have been approved. Subsection (2) is a piece of financial machinery. It provides, as is customary, that the money may be raised in whatever way seems most appropriate to the Treasury, either by Treasury Bills or by various kinds of loans.
Subsection (3) provides that the old Sinking Fund may be used for issues under this measure instead of for the reduction of Debt, and that if this is done the power of the Treasury to borrow is correspondingly reduced. Your Lordships are, I think, aware that the old Sinking Fund, which is any achieved surplus on the Budget, goes automatically to the reduction of Debt; but as it might be inconvenient that the National Debt should simultaneously be decreased by the Sinking Fund and increased by borrowing an equal amount under this Bill, this subsection gives power to wipe out the double transaction. Subsections (4) and (5) provide for the payment of interest of 3 per cent. on the sums issued and for the repayment of these sums from Defence Votes. The interest so provided will be used instead of an equivalent amount which would otherwise fall to be met from the permanent annual charge for the National Debt; and repayments of capital will be used for the redemption of Debt of such description as the Treasury may think fit. I should like your Lordships to notice that during the borrowing period, that is until March 31, 1942, only interest will be paid. Thereafter annuities will be set up on the Defence Votes of such an amount as will pay interest and repay the whole sums in a period of thirty years, that is, by the year 1972.
I think I have said enough to show your Lordships that this Bill is framed on prudent and constitutional lines. The period and the amount of borrowing are both limited unless further statutory authority is obtained, and out of this large sum of £1,500,000,000 which we must contemplate may have to be expended over the next five years, the Government are only seeking the power to borrow the sum of £1400,000,000, that is, less than a third of the whole. It is not our intention to borrow for recurrent expenditure. The need to borrow arises mainly from arrears which, once overtaken, will be behind us for the future. I should like your Lordships particularly
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to note that this Bill does not give a blank cheque to the Service Departments. It retains the purview of Parliament over any sum to be borrowed, and ensures that all moneys borrowed under this Bill ill be borrowed by consent of the House of Commons.
That is the Bill. I am introducing this Bill, as representing the Treasury in your Lordships' House, as a financial measure. My noble friend Lord Stanhope will be ready later on in the debate to reply to any question of policy or defence which, as a member of the Cabinet and in view of his unrivalled experience of Service Departments, he is so well able to do. But there are a few thoughts which occur to my mind in introducing this Bill with which I will deal before I sit down. Your Lordships, I think, may well deplore, as the Government indeed deplore, the necessity for the expenditure of these enormous sums of money. I think it is with a feeling of surprise and almost of dismay that we look round and see the countries of Europe expending energy and their vast resources for these enormous armaments; and to what purpose? But your Lordships know, and the country knows, that this is not the road which the Government themselves have elected to travel, and if they can find persons of good will who think alike with them during the next few years, I know that my right honourable friend the Foreign Secretary and His Majesty's Government will leave no stone unturned, no avenue unexplored in order, if possible, to find a way out of this colossal expenditure. But that day is not yet, and the present business of His Majesty's Government is to get on with their programme as soon as possible.
There are, I know, in this House and in the country various schools of thought. There are those who pin their faith to isolation; there are those who believe in collective security; there are those who believe in Two-, Three- or Four-Power Pacts. Those are questions of high policy and ultimate Cabinet decision with which I, although I may have my views like any other member of your Lordships' House, am not competent to deal. But this I do say, and I say it without fear of contradiction from the Benches opposite, or from any other quarter of your Lordships' House, that the sure way in which to provoke a European war, and a

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war in which this country is bound to be involved, is to leave this country comparatively disarmed and defenceless amid an ever-arming Europe. It is the business of the Government, as I have said, to get on with their programme not, as some people would say, as a war measure, but as a peace measure, interfering as little as possible with the day-to-day business and the trade of this country. It is for that reason that this Bill is brought before your Lordships' House, and it is for that reason that I ask you to give it a Second Reading this afternoon.
Moved, That the Bill be now read 2a.—(Lord Templemore.)
LORD STRABOLGI: My Lords, I am Pleased to have the opportunity of congratulating the noble Lord on his return to our counsels and, if I may say so, apparently in very good fettle. I understand from him that the noble Earl, Lord Stanhope, will do any counter-battery work which may be required to any shooting that myself or other noble Lords may indulge in, and if he wants reinforcements I am glad to see sitting behind him my noble friend Lord Mancroft, whose financial knowledge adorned and enlightened another place and who, I am sure, is a very great reinforcement to our counsels here on those rare occasions when we are discussing finance. This is a Certified Bill, a Money Bill, but I am sure your Lordships will agree that it is so important, so vast, and raises such vital issues, that it would not be right for it to pass through your Lordships' House without some comment. I shall therefore offer a few remarks, first with regard to the way in which it is proposed to raise the money, and secondly, in regard to the way in which it is proposed to spend the money.
My right honourable friend the Leader of the Opposition in another place explained the objections to the Bill and divided the House on it, and therefore I think they are pretty well known. It is not because we are opposed to a measure of rearmament. I shall deal with that in a moment and, speaking for myself and for many of my noble and right honourable friends, I think there is a case for certain capital expenditure on such things as docks and aerodromes; but we do not think there is a case for borrowing money for consumable
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weapons like warships, tanks, and planes. The noble Lord who introduced the Bill said this was to catch up arrears. Yes, it is to catch up arrears, but in goods, weapons, machinery, and so on which will be obsolete or will be scrapped before they are paid for. As a financial purist, which I am, I take grave exception to that. Secondly, my Party objects very strongly indeed to endowing a great rentier class, which you are creating under this immense borrowing for thirty years. Interest will be paid for thirty years on the money which it is proposed to borrow during the next three or four years. We say that the goods that you will buy or create should be paid for at the time during the next five years by British labour working on British materials.
Now, if we had what my Party would like to see in this country, a State banking system, much of this necessary money could be created in the form of credit on the security of the national wealth, which means our ability to produce the necessary goods. I would remind your Lordships that during the last War the joint stock banks created some £2,000,000 of bank credit—created it out of the air, so to speak—and lent it to the nation at 5 per cent.—very good business from their point of view, and we are still paying interest on it. The suggestion I have just made is not inflationary. I want to make that as clear as I can, because we say it would ease the position of labour at present unemployed, notably in the distressed areas. If only we could concentrate this work in the distressed areas and employ some of the magnificent human material we have there, we should make an economic gain rather than an inflationary loss. As a Party we are opposed to inflation because we know that wages always lag behind prices and that the ordinary wage-earning population always suffers through inflation. We say that the national credit should be used instead of this present policy which is defended by the noble Lord, Lord Templemore.
If you concentrated this work in the distressed areas as far as you could, there would be the inevitable slump after your programme is finished unless, as explained by Lord Melchett in a recent debate in your Lordships' House and by myself on behalf of my noble friends, you take steps in advance to have some

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great measure of Socialism ready, as for example public works, public works being measures of Socialism whether introduced by a Conservative Government or a Socialist Government. Anything for the community is a measure of Socialism where no private profit comes in, and we should like to extend that and have a scheme ready to meet the difficulty of the otherwise inevitable slump. With regard to taxation, before I leave this matter, may I say we would prefer as a Party—I am now speaking for my Party—to see some of this money that is required raised by an Excess Profits Tax. There will be enormous sums made out of this rearmament. The boom on the metal market is one example of this. I hope the Government took the advice of my Party long ago and laid in stocks of metal so that the taxpayer will not necessarily be stung. But people are making very large fortunes out of this armament programme, and we think it only right and fair that they should contribute in the form of an Excess Profits Tax.
The noble Earl, Lord Stanhope, is, I presume, on this occasion deputising for the Air Minister, and I am very sorry indeed—and I am sure all your Lordships are sorry—that Lord Swinton has been overtaken by illness. I hope he will very soon recover, and I take the opportunity of saying that, so far as I can judge, Lord Swinton has fought his cause at the Air Ministry very well indeed. I think he has held up the position of the Air Ministry against heavy attacks from certain powerful quarters. I see that in some circles there is an objection to his work being taken over temporarily by Sir Thomas Inskip, the Minister for the Co-ordination of Defence. I see no objection to that. I think it is a most natural and proper arrangement. I hoped that the appointment of Sir Thomas Inskip meant that we should have a Minister acting as Minister of Defence, and I consider he is the natural man to take over the responsibilities of the Air Minister. But from the beginning I have suggested to your Lordships and the Government that we ought to have another Minister of Supply or a Minister of Munitions—whatever you like to call him. I consider that is essential, and I suggest that time will prove that the appointment of one Minister to co-ordinate
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the strategy and the plans of the three Services and at the same time to look after supplies of labour, material, etc., is not enough. In connection with this, I want to put one or two questions to the noble Earl, Lord Stanhope. I spoke of his counter-battery and I disclosed some of my gun positions to him beforehand for greater accuracy on his part.
There is a serious steel shortage coming into sight in this country. There is a metal shortage generally, but particularly of steel. People without long contracts are already embarrassed in ordinary civil engineering in obtaining steel. That is a fact, and the situation will get worse. May I ask if the Government have got this matter under review, and if they have any plan for dealing with it? I have already protested in your Lordships' House against the present arrangement under which the Iron and Steel Federation ration the market. That will have to go. I am very sorry for those who have a vested interest in this arrangement, but I think you will have to encourage imports of steel and be glad to get them wherever you can. The trouble in Spain h as had an effect on the steel market. The friends of Lord Newton are allowed to mine Bilbao harbour, and we cannot get our iron ore out. Spanish hematite one is important to the steel industry in this country, and there is danger of a real steel shortage. If you are not going to slow down house-building, flat-building, and other necessary work something w ill have to be done about it.
Now I venture on a small criticism. So far as I can see, there is little sign as yet of a real co-ordination of defence. I do not yet see signs of a Combined General Staff, and that is the very minimum we must have in connection with this programme. It is no good piling up your military weapons, your naval weapons, your aeroplanes, and so on, just adding to the present establishments. You have got to take Defence as a whole, and that can only be done by means of an expert Combined General Staff. This is a matter which some of us, like the noble Lord, Lord Hutchison, and myself, have been preaching for a long time, and the noble Marquess, Lord Salisbury, has also, I think, favoured that course for many years. If I may use a colloquialism, we are "right up against it," and I think our Combined General Staff should be put into action.

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It may be that such a Combined General Staff already exists. That may be one of the secrets of the Government, and I would ask the noble Earl, when he replies, to let us into the secret if there is one. Is there a Combined General Staff? I do not mean the Chiefs of. Staffs Committee—they are hard-worked men meeting together—I mean a combined planning division on the lines of the Admiralty Planning Division, embracing the three Services and surveying the whole field. May I give an example of the need for such a body? It seems to me that there is some confusion still about the relative functions of the older Services and the Air Ministry with regard to air defence in this country. For example, there is the great problem of the defence of Greater London and the Port of London. Whose responsibility is it? There is bound to be overlapping, and if you attempt to do it through separate Departments, if you attempt to face this great problem through separate Ministries, if ever war should come to plague us, the results would be very unfortunate.
Has this further question been settled—the noble Lord, Lord Trenchard, referred to it, and I have known about it for a long time—the question of who is responsible for the air defence of merchant ships approaching our coasts? Is it the Navy or the Air Ministry? If it is the Navy, what is the system of co-ordination with the Air Ministry, or vice versa. The Air Ministry, so far as I can gather, will dispose a very large Air Force for coast defence in any case which should be available for defence against air attack on merchant vessels approaching our coast. I am not speaking of the defence of ports—that is another matter—but of the same sort of problem that we were faced with in the last Great War when the submarine campaign developed. But in this case there will be an added menace—namely, air attack on all merchant ships. I would remind your Lordships that the more you concentrate your merchant ships into convoys in order to defend them against surface raiders or submarines the better directed they are for air attack.
May I venture on a question to the Government with regard to the Army? This is a matter which was referred to by my noble friend Lard Arnold last week in his important speech. I refer to it also
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because I would like to develop it on the occasion of the Second Reading of this Defence Loans Bill. Could we have some enlightenment on the higher policy of the Government with regard to the Army? In other words, are we still preparing a Continental Expeditionary Force to intervene in case of need under our present obligations on the Continent of Europe? I sincerely hope that we are not. I believe the country would be relieved to know that our contribution to collective security, or, if you like, to the maintenance of our honourable undertakings, will not be in the form of having a great Army to go on to the Continent of Europe. That matter is, I suggest, of the highest importance. If we are going to try to be overwhelmingly strong on land, at sea, and in the air, we shall fail. I do not see how we can be overwhelmingly strong in all three arms. We are an island, a maritime people, and I suggest that we should use our strength in making a strong Navy, a strong Air Force and such Army as we need for oversea garrisons, including of course India and home defence. As to home defence, I think the only problem there nowadays from the Army point of view is that of dealing with sporadic raids and the tremendously difficult question of defence against air attack. I would like to think that the great talents available to the War Office were going to be directed to, and concentrated upon, working out a system of defence against aircraft attack on this country. I would like to say, as I have said before in your Lordships' House, that I think the whole of the Territorial Army should be turned over to that.
My Party has just published its short-range programme which is to be carried out in one Parliament, I hope the next, and I trust that it has been observed by the Leader of the House and other Ministers that that programme includes, I am happy to say, amongst other useful measures, the setting up of a single Ministry of Defence. I know the present Government are against that. We are in favour of it. We would do it. I beg of the Government at any rate to set up a real Combined General Staff. Secondly, we are committed as a Party, I am glad to say, to the State ownership, or at least the State control, of munition industries. That would get over the profiteering diffi-

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culties and many other difficulties as well, including a good deal of the financial difficulty. We would like to follow the example of the French Government in that respect. It is said outside your Lordships' House about us that we are always demanding that Britain shall be the knight errant of the world while we refuse Britain her armour for the purpose of becoming so. That is always being said. We do not intend anything of the kind. The great majority of us are prepared to support, and it is our official policy to support, the necessary armaments for the defence of democracy and the fulfilment of our obligations. Our criticisms of this loan are those I have made. There are some doubts whether the money will be spent to the best advantage.
LORD TEYNHAM: My Lords, may I claim the indulgence of the House for one who is rising to address you for the first time? I should like to be permitted to refer to a matter which has already been debated in this House on several occasions by other naval officers more qualified to speak upon it than myself. The matter I refer to is the administration of the Naval Air Arm. I know this matter is a hardy perennial, but in view of the large amount of money to be spent on the armed forces in the near future, and the great need and importance of this money being spent to the best advantage, I make no apology for raising this matter once again. I also trust that the Minister for Air, the noble Viscount, Lord Swinton, who, unfortunately, I understand is ill, will not feel that I am attacking his policy while he is unable to answer.
The demand from the Navy for full control of its Air Arm is not made with any feeling of jealousy between the two Services. I think in the past too much has been made of certain difficulties that have arisen amongst the personnel, but in spite of those certain difficulties the personnel have carried out their work in a very efficient manner. There is, however, one point which would appear to be of very great importance. I think I am correct in saying that approximately 30 per cent. of the Naval Air Arm pilots are from the Royal Air Force. These pilots come for approximately three years, sometimes the period is shorter, to the Fleet Air Arm. Then they come from anywhere; they may come from Palestine;
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they may come from the North-West Frontier; and after a year or so with the Fleet they begin to learn something of naval tactics and strategy. When they are just becoming really efficient they are lost to the Navy because they are returned to the Air Force, and the Admiralty are unable to count on these pilots as potential reserves in the case of an emergency.
The present organisation also reacts in another way. Officers who come from the Royal Air Force to be attached to the Fleet Air Arm soon get out of touch with their own organisation in the Royal Air Force proper. They may be transferred with the Fleet to foreign waters and they are out of touch for a considerable time with the Royal Air Force. The officer who reverts to the Air Force after his period with the Navy is bound to be slightly out of touch, in fact in many cases very much out of touch, with the latest organisation of the Air Force; and especially, I would point out, with regard to the Air Force organisation for hat is perhaps the Air Force's primary duty, that is, the air defence of Great Britain. The point I wish to make is that the present method of supply of pilots and aircraftmen to the Fleet Air Arm results in a loss of efficiency not only to the Royal Navy but also to the Royal Air Force, and as a result a loss in public expenditure.
Again, from the technical point of view, it is of the greatest importance that the Commander-in-Chief of the Fleet should be supplied with accurate information as to the exact position of the enemy's Fleet, particularly the exact geographical position of that Fleet. I speak from personal experience as a late Flag Lieutenant in His Majesty's Fleet who has been responsible for receiving reports from aircraft. I think only constant training with Feet maœuvres can give the necessary experience to pilots in this all-important work. It is not long since a Fleet proceeding up Channel passed through the Straits of Dover and the Air Force were to make an attack on the Battle Fleet. The Admiral deployed his Fleet so that the capital ships passed near to the French coast and his lighter craft and cruisers near to the English coast. The Air Force made repeated attacks on the Fleet and when they returned to their bases and made their reports, they reported that they had succeeded in attacking the

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Battle Fleet. When the records came to be examined it was found that the Air Force had been nowhere near the battleships and had merely sighted the light craft such as the cruisers.
I bring this before your Lordships to point out how essential it is that pilots should be trained for these specified duties, and they cannot get the training unless they are a permanency with the Fleet. I should also like to draw your Lordships' attention to one further point on this subject and that is the question of the supply of up-to-date aircraft specially designed to meet Fleet Air Arm requirements. I see that in the Memorandum by the Secretary of State for Air accompanying the Air Estimates it is said that provision has begun for increasing the Fleet Air Arm from 217 to 278 during the course of the year in conformity with Air Force requirements. I trust that that means that these additional aircraft will be specially designed for the purpose for which they are to be used. I hope that His Majesty's Government will see their way to establish an inquiry into the administration of the Fleet Air Arm and that the Leader of the House can give us some assurance in this respect. Failure of the Fleet Air Arm may spell disaster to our Fleet and in turn the loss of our Empire.
I should like to draw your Lordships' attention to another question of policy. As I am sure there are several speakers to follow me, I do not want to detain your Lordships very long. It is probable that we shall have under construction during the next few years and during this period of rearmament some 10,000 bombers. These bombers, I understand, cost approximately £15,000. If we pursue this policy of retaliation as the best method of defence, we shall be involved in an expenditure of £150,000,000. After five years have elapsed these bombers will become obsolete, and the capital depreciation will therefore be enormous and, I venture to suggest, out of all proportion to the value of these fighting units. I think we must visualise that there is a limit to the funds that may be available for rearmament. May I suggest that perhaps it would be better to allocate the funds rather to positive methods of defence than to methods of retaliation, which will involve us year by year in enormous figures of depreciation?
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On the other hand, I consider the construction and the maintenance of a first-class force of fighter aeroplanes to be absolutely essential, and this force should be greater and more efficient than any similar force which any other country possesses. I suggest further that funds might be allocated to the construction of buildings which would be splinter-proof. It is quite possible without great expense to withstand splinter damage. I also suggest the construction of concrete "dug-outs" for the civil population, and the provision of facilities for carrying on the business of cities in suitably protected buildings.
We only have a limited amount of money to spend without making the burden on industry and the community generally so heavy that we may retard improvement in trade and the conditions of our people, and I think a warning note should be sounded as to the enormous cost in which we should be involved if we are to pursue the policy of retaliation in the air as at present proposed. The policy of placing ourselves in the position of being able to retaliate in the event of an aggressor nation making an attack on us, no doubt considerably deters such a nation from making that attack. On the other hand, if our defensive units are really first-class I think an aggressor nation would think twice before making an attack. Finance in the long run will be the predominant factor, and I think it will be better for our pockets if we concentrate on the finest measure of defence possible rather than on retaliation.
THE MARQUESS OF LOTHIAN: My Lords, I rise to say only a few words on behalf of noble Lords on these Benches in regard to the Defence Loans Bill. In common with everybody else, I think, it is with deep regret that we see it is found necessary to spend so vast a sum as £1,5oo,000,000 in preparing for defence, especially when one considers what such a sum could do if it were expended for improving facilities for education and in the social sphere generally. At the same time we recognise that in present circumstances such expenditure is necessary, and therefore, so far as I am concerned, and I think I speak for noble Lords on these Benches, we support it. But I think it is true to say that the fact that Great Britain has shown to the world that she is willing not only to talk about peace

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but to assume the dangerous responsibilities that may be involved in maintaining it, does create an opportunity for a general settlement which perhaps did not exist before.
It is always difficult or unconvincing that Great Britain should talk so continuously about peace from a position if weakness, and, at a time when other nations are arming and disciplining their people, it looks as if our protestations were designed to enable us to keep our possessions "on the cheap." I think the fact that we have convinced the rest of the world that that supposed decline in Great Britain's capacity to stand up for its own ideals is not true, coupled with the fact that all the great nations are equally rapidly ruining themselves on defence, and are equally rapidly approaching the day when continuous expense on armaments will produce a world war, does create a situation in which at the appropriate moment—and I agree that the right time is essential—the rearmament programme may make a settlement possible in Europe which was impossible before it was announced. For that reason, and in the hope that if we may get a general settlement some of this money will be spent on constructive enterprise, we are glad to support this Bill.
THE FIRST COMMISSIONER OF WORKS (EARL STANHOPE): My Lords, the debate in your Lordships' House on this Bill has been a great deal shorter than that which took place elsewhere. I am bound to confess that when I realised the scope which the Bill offered for discussion I spent many long hours trying to get into my head the material with which to reply to the many questions which I visualised might be put to my unfortunate self. My noble friend who moved the Second Reading said that I would be prepared to answer any questions. I shuddered at that assertion, but your Lordships have been kind to me, at any rate on this occasion, and I have not a great deal to answer apart from questions which the noble Lord opposite was kind enough to send to me this morning. I wish I could have seen them earlier, because it would have saved me many hours reading, but all the same I am grateful to him.
We have had a most interesting speech from the noble Lord, Lord
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Teynham, and I hope that it is only the first of many which he will address to your Lordships' House. As one who also has the privilege of living in the best county in England, or indeed in Great Britain, I rejoice to have the opportunity of congratulating him as another resident in Kent. I think he will be glad to hear that only this afternoon my right honourable friend the Minister for the Co-ordination of Defence, in answer to a question in another place, announced that he has decided to conduct a systematic investigation into the whole question in regard to the Fleet Air Arm and into all the important factors, including the allied and wider considerations, involved. As the investigation has already begun your Lordships will see that my noble friend was very much on the mark in putting the question to me this afternoon. I think in the circumstances he will not expect me to follow him into the many interesting points he made, and that he will be prepared to await the results of this inquiry. As regards the protection of buildings which he also mentioned, that is one of the many questions which have been considered by the Defence Sub-Committee of the Committee of Imperial Defence and I know they are going into the matter very fully. As he will realise, it is a matter of tremendous cost, and, as he rightly said, the cost of this whole policy of rearmament is such that obviously we cannot do everything at the same moment. But much of it is being under taken now, and in regard to the rest we are already making considerable plans.
As to the noble Lord's point in regard to the cost of heavy bombers, although I have never had anything to do with the Air Force—I have flown on one occasion it the War—I think I am right in saying that air officers will say that it is extraordinarily difficult to spot a hostile aeroplane in the air. On land or at sea your opponent is on the same plane, but once you get into the air he may be hundreds of feet above you or hundreds of feet below you. Therefore it is extraordinarily difficult to spot these bombers and to attack them. For that reason I think I am right in saying pilots generally will tell you that the best form of attack against hostile Air Forces is to bomb their aerodromes and get them while still or the floor. That is the reason why it is essential to have these heavy bombers

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to be able to attack enemy aeroplanes in their own homes and destroy them before they take to the air. Even by day it is difficult to spot them and, as will be realised, it is still more difficult at night, if not impossible, without the aid of searchlights and all sorts of other things.
I was glad to find that both the noble Lord opposite and the noble Marquess warmly support this Bill, and therefore I need not go into details beyond dealing with one or two financial points raised by the noble Lord opposite. He objected to the State providing credit in this way and compared it with what happened in the War. I am afraid I fail to follow him because the method adopted in the War was exactly the same as the method adopted now. Loans were raised from the public through the banks but not from the banks, because rich as some banks may be their money consists of amounts put into the banks on deposit and in other ways by the general public who use the banks. Therefore when the noble Lord speaks about putting money into the pockets of the bankers I am afraid I do not really follow him in his objection to this form of borrowing.
LORD STRABOLGI: I am sorry to interrupt, but this is rather an important point. The Macmillan Report found that this money was created, that this credit was created during the War. I do not approve of that system. I do not want that to be done at all. I am sorry if I explained myself badly. I want the nation to create the credit and not pay interest on it.
EARL STANHOPE: I should have thought the financial interests were part of the nation.
LORD STRABOLGI: A State Bank.
EARL STANHOPE: Oh, a State Bank. The noble Lord apparently has not yet realised that France, which has been talking about a State Bank, has had to modify her views and take on people from outside to see that she gets through her difficulties. No doubt he will learn as time goes on in regard to these matters. He objected to borrowing for other things than capital expenditure, and of course we agree with him, but in regard to warships I should like to mention that the life of a battleship is twenty-six years
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under the Treaty which we hope to see ratified by all the important nations of the world. Under the Bill, borrowing is limited to five years, and as the money has to be repaid in instalments over thirty years you have a period of thirty-five years in all. If you devote a large part of this borrowing to the provision of battleships you will have paid practically the whole amount back before the battleships come to the end of their term under the twenty-six years rule. If you further take into consideration the provision of factories and all the other real capital expenditure entailed in this rearmament programme, then I think the noble Lord will realise that the Chancellor of the Exchequer has been even more severe than he might have been if he were not so extremely orthodox—even more orthodox, perhaps, than the noble Lord opposite.
The noble Lord also raised a question about getting labour from the distressed areas. We wish we could do that, but the noble Lord, having been in the Navy, knows better than I do how highly skilled is the work of shipbuilding. You cannot recruit shipwrights or any other men of the trades engaged in shipbuilding from men who have spent the whole previous part of their lives in mining. Nobody could be more anxious than we to do that if possible. The Government would get great credit, large expense in unemployment pay would be saved, and we should get rid of the whole problem of the distressed areas. The difficulty is that men are not skilled outside their particular industry. We should like to go ahead faster than we are doing, but we are limited by the amount of skilled labour that we can find. I think all the trade unions now agree that there is practically no surplus of skilled labour available in many of the industries which are now being called upon to play a large part in this rearmament programme. The noble Lord referred also to the absence of my noble friend Viscount Swinton and we are grateful to him for what he said. We hope that the noble Viscount's absence will be short—we have every reason to think it will be—and I personally wish he could be here to deal with the many complicated matters connected with the Air Force about which I know so little.
In regard to the proposed Minister of Supply, I hope the noble Lord opposite will not take what I am about to say as meaning that I am dealing with it as a

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Party question. I do not intend it in that way. If we take our minds back to the time of the General Strike I think everybody will realise what an amount of planning had been done on the quiet. The reason why the effects of the General Strike were so small was that plans had been worked out in detail and were effective. I think the noble Lord will realise that something of the same kind of thing has been going on for many years in regard to the whole question of Defence. Although I cannot give details of our plans—it would be very wrong to do so and thus to inform those also who might use them to the detriment of the safety and security of this country—I can assure him that there are plans in every conceivable direction.
In regard to the three very interesting articles which appeared in The Times the other day about the "Home Front," we have had those articles analysed and I think I am right in saying that every single one of those points is already being dealt with except two, and on those two points various Government Departments have already a great deal of information though actual planning on those particular aspects has not at this moment begun. I only mention that in passing to show how wide the planning is. I can assure your Lordships, having been buried in papers for the last two days, that the number of committees, sub-committees and planning organisations which are actually in being and meeting constantly is indeed surprising, and they are very far-reaching in the plans and arrangements which they are making. The noble Lord will no doubt remember that, apart from the Chief of Staffs Committee, there is already a planning committee of more junior officers who have been going into both long-term and short-term planning. They have made very considerable progress in both directions and, as we think, have done very effective work.
Then he asked me a question about the defence of Greater London. That, I may tell him, is one of the matters which have received perhaps almost more attention than anything else. The defence will cover, of course, not only the London County Council area and the County of London, but also Greater London, as you will realise would be necessary in any adequate plan for the defence even of the small area at the centre here where
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we are sitting at this moment. I cannot tell him more upon that, I think, wisely, except to say that the whole matter comes under the operational control of an officer whose official title is the Air Officer Commanding in Chief, Fighter Command, and that both anti-aircraft defence from the ground and the fighter squadrons in the air come under the control and orders of this officer the moment operations begin—and indeed, of course, before.
LORD STRABOLGI: That is, the guns and searchlights and everything?
EARL STANHOPE: Guns, searchlights, aircraft, everything; all come under him. He controls the whole lot.
LORD STRABOLGI: Good.
EARL STANHOPE: And, of course, plans for co-ordination are making good progress. Then as regards protection of merchant vessels approaching the coast; there again plans have been made, and I do not think I ought to tell him more than to say that the Admiralty and Air Ministry are in very close touch on the matter, as he knows. There again, coordination is essential, and we have hopes that the plans we have made will be effective.
LORD STRABOLGI: Whose responsibility is that?
EARL STANHOPE: I am afraid I cannot tell the noble Lord that. I really do nit know; I think it is probably done by areas. Then he asked me about the Army higher policy and he said, quite rightly, that of course it is impossible for us to be strong in all three arms. That is entirely in accordance with the views of His Majesty's Government, as I think he will have seen by the plans which have now been produced, the three White Papers accompanying the Estimates. The big expenditure is, of course, on the Navy, which is a very expensive arm. There has also been big expansion in the air. The Army, unfortunately, is also costing a great deal of money hut, as he sees, the sole increase really is in two battalions, which, compared with the divisions which one sees being produced abroad, is about the proper comparison between the size of our Army and that of those on the Continent. There is not the smallest idea in the mind of the Government of having anything in the shape of a Continental Army. That is quite out of the

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question, and, as he very rightly says, we could not afford to have it in addition to a strong Navy and a strong Air Force. All that we provide is, as he knows, for the garrisons of our Empire overseas, for coast defence and for anti-aircraft defence at home; an Expeditionary Force to go wherever it may be required—very small, confined to five divisions and one mechanised division—and behind it the Territorial Army of twelve divisions. That is all we possess or propose to possess and, as he realises, that is very far from being a Continental Army.
I hoped that I was going to hear a good deal more from the noble Lord than that. On the last occasion he gave what I thought was an extraordinarily interesting strategical lecture to the Party sitting round him. I hoped that I was going to have another and that in the course of it he was going to describe to me some of the points which appear in the document which has just been produced by his Party. I was much interested to read some of them, and I wondered whether, when he talked about taking over undertakings manufacturing munitions of war, how far he was going to go. Under the plans of the Government, of course, we are making shadow factories attached to all sorts and conditions of factories which are making other things—for instance, an extension to the Austin motor works, Rootes' and so on, and every kind of factory. I can assure him, from what I have been told by the Minister for the Co-ordination of Defence, that when you go into the subsidiaries which come into armaments there is hardly any kind of factory that might not be considered to be an armament factory: clothing for the three Services, optical glass, every kind of metal, every kind of acid, and so on. It is a roundabout way of nationalisation, and I wondered whether that was the object of putting it in this way.
I also wondered what he meant by our old friend the International Air Police Force which I see it is proposed to set up; whether he had worked out how it was to be composed whether it was to be composed of contingents from each nation, or whether there was to be a separate Air Force quite independent of national Air Forces, which run into thousands of machines, and where it was going to be placed: whether as being a central place he would put that Inter-
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national Air Force, we will say, in Germany, so that it would add to the alarm which is felt in Russia on one side and France on the other, or whether he would prefer to have it put in some other country, causing alarm, again, to the neighbours. I may refer him to a debate which took place here some three years ago when his then leader, Lord Ponsonby, made a devastating attack on the whole proposal. I commend it to his notice because I think he will realise that the Party in which he is such an ornament ought really to do some planning themselves before they put proposals of this kind forward. They really are very misleading, because a great many people really believe that a police force constituted on these lines is an alternative to national forces or to forces which may be brought together under League control. A police force, as was said on that occasion both by the noble Lord, Lord Ponsonby, and myself, is a very different thing—
LORD STRABOLGI: It was a French plan.
EARL STANHOPE: And therefore it was not wise to put this proposal forward without any explanation as to what is meant, and make people feel that they might get safety in that direction when the truth is that safety would be the last thing that they would get by such a process.
LORD STRABOLGI: If I might interrupt the noble Earl; as he knows, his flies have been very attractive, and I feel that I must rise to this one. I did not mention that matter in my speech, but the noble Earl does, and so perhaps he will allow me to explain it to him. If you have the International Air Police Force, you have complete air disarmament elsewhere. It is part of the scheme. And I would remind the noble Earl that the scheme was planned, and planned very carefully, by the French General Staff, and put forward as one of the French disarmament proposals some years ago.
EARL STANHOPE: I am aware that it was put forward by the French General Staff, and it was dropped for the reason that it was quite impossible to get air disarmament elsewhere. As the noble Lord did not talk about air disarmament elsewhere I think he realised that it had to be dropped as being impossible. But

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that involves still more difficult questions as to how you are to get all nations to give up their Air Forces and how, incidentally, you would get control of civil aviation in certain circumstances, because if you happened to have various civil aircraft on your territory—just as the coaches of the International Wagon Lits might be there—you might seize them and use them for warlike purposes in the event of an outbreak of war. That is one of the reasons why the whole scheme fell down when it was put forward at Geneva some years ago.
The noble Lord asked me about metals. I have got a rather long answer here from the Board of Trade, but I do not propose to inflict all of it on the House, although it is very interesting. As regards iron and steel, there is some shortage all over the world as a result of an increased demand everywhere, and that in spite of the fact that the pig iron and steel production in this country has more than doubled itself since 1932. In that year pig iron production was 3,574,000 tons, and last year it was 7,685,700 tons. Steel production in this country in 1932 was 5,261,400 tons, and last year it was 11,698,200 tons. The British Iron and Steel Federation are doing their very utmost to increase production here. In addition, the duty on steel has been reduced to 10 per cent., and it is expected that supplies from the Continent will now improve. The difficulty, as the noble Lord says, is very largely due to the shortage of scrap, and partly owing to the iron ore being difficult to obtain from Spain and to its being so much in demand in other countries. Arrangements are being made, however, to improve the collection and distribution of scrap in this country. There has been, as I say, some shortage, and dates of delivery on new orders are generally perhaps some months behind, but it is not thought that work is actually being delayed to any appreciable extent for lack of steel supplies. It is hoped that the efforts now being made will overcome the difficulties at an early date. With regard to prices, such increases in the main steel products as have taken place recently have been submitted to, and approved by, the Import Duties Advisory Committee. But in recent months prices have tended to fall behind those in other countries, and it is partly
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for this reason that imported supplies have been deficient.
The same is true in regard to other metals. Of tin, I am glad to say, there is an ample supply. Copper is somewhat short, but the price in this country is, I gather, slightly below world price, and therefore there again the question of price has been rather tending to keep imports from coming in. As regards lead and zinc, an increase in supply would probably take some time to arrange. But here again we are dependent almost wholly on imports, and must pay the world price if we are to obtain these supplies.
I think I have dealt with the questions that the noble Lord has asked, and I am glad once more to welcome the support that has been given to this Bill, because it will be recognised in every part of the world that we are a united people on this matter. May I just say that I entirely agree with what was said by the noble Marquess, Lord Lothian, that we had tried unilateral disarmament and had not found it a very effective method of getting other people to reduce their own armaments. I think many of us may have been shouted at from behind to go back and did not take very much notice, but when we are met by somebody in front who says "Go back," we are much more inclined to do what we are told. I say it with some doubt in the presence of Masters of Hounds, but we have all heard of the cry of "Hold hard!" by a Master who is not up with the hounds, and sometimes it is thought that it was to give him a chance of catching up; but when he is right alongside you and says what he thinks, you then probably obey. The same is true with regard to armaments. If you are known to be strong yourself and then say to other nations, "Now look here! If you reduce your armaments, I will reduce mine," you may very often get something done; but as long as people realise that you are asking them to reduce their armaments and may possibly thus be giving yourself an opportunity to catch up with them, after the expenditure that they have made, then they take very little notice.
It is largely in that hope that His Majesty's Government feel that there is still a chance of getting not only a limitation, but probably eventually a reduction, of armaments. Once things have

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gone through, we feel that everybody will begin to realise the futility of this vast expenditure, and they may then begin to think of other methods of getting their security. I may add that every small nation really has welcomed the announcement of rearmament by this country. They recognise that we at any rate have as our greatest interest the preservation of peace, and that when we are strong we are in a far better position to preserve the peace than when it is thought that we are weak. It is in consequence of these ideas that we have put forward the whole of this great scheme, and we are indeed glad to welcome the support which has been given by all three Parties in your Lordships' House to the proposals that have been made.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

MERCHANT SHIPPING (SPANISH FRONTIERS OBSERVATION) BILL. [H.L.]
Order of the Day for the House to be put into Committee read.
Moved, That the House do now resolve itself into Committee.—(The Earl of Plymouth.)
On Question, Motion agreed to.
House in Committee accordingly:
[The EARL OF ONSLOW in the Chair.]
Clause 1:
Provision as to observing officers.
(3) When any ship to which the Act of 1936 applies leaves a port or place in Spanish territory bound to any port or place not in Spanish territory she shall proceed to the prescribed place, taking the shortest available route thereto unless otherwise agreed between the master or owner of the ship and the administrator who deputed the observing officers on board the ship, and shall there disembark the said officers:
Provided that the said administrator may substitute another place for the prescribed place, so, however, that, without the consent of the master or owner of the ship, no such substitution shall be made which would increase the length of the ship's intended voyage by more than fifty sea miles.
(5) The Board of Trade may on the application of the owner and with the consent of the authority, by licence exempt any ship, being a ship which is shown to the satisfaction of the Board of Trade to be regularly engaged in carrying goods or passengers to or from Spanish territory, from the foregoing pro-
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visions of this section on the following conditions, namely:—
(a) that the ship does not proceed to sea from any port or place without having on board such observing officers as may be deputed from time to time in that behalf by the chief administrator, and
(7) Every ship to which the Act of 1936 applies having observing officers on board in pursuance of this Act, or being engaged on a voyage on which she is exempt from the provisions of subsection (1) of this section under the proviso thereto, shall, while in waters adjacent to Spanish territory, display the prescribed signals; and if in those waters any such ship, having any such officers on board or being so engaged, fails to display the prescribed signals or, having no such officers on board and not being so engaged, displays the prescribed signals, the master of the ship shall be liable to a fine not exceeding one hundred pounds.
THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR FOREIGN AFFAIRS (THE EARL OF PLYMOUTH)THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR FOREIGN AFFAIRS (THE EARL OF PLYMOUTH): moved, in subsection (3), after "applies," to insert "having observing officers on board in pursuance of this Act." The noble Earl said: Under proviso (c) to subsection (1) a ship bound to a Spanish port may be exempted from embarking observing officers. In such a case it is obvious that the ship, having no observing officers on board, ought not to be required to proceed to the place prescribed for disembarking observing officers. As subsection (3) stands at present, it is not clear that a ship would not be bound to comply with subsection (3), although she had no observing officers on board. The object of this Amendment is to remove any doubt about this.
Amendment moved—
Page 3, line 1, at end insert ("having observing officers on board in pursuance of this Act.")—(The Earl of Plymouth.)
On Question, Amendment agreed to.
THE EARL OF PLYMOUTH THE EARL OF PLYMOUTH moved, in paragraph (a) in subsection (5), after "not", to insert "except with the consent of the chief administrator". The noble Earl said: As subsection (5) stands at present, a ship exempted by licence of the Board of Trade cannot proceed to sea from any port without having on board the proper observing officers; and if she does, the Master is liable to a very heavy penalty. Cases may, however, arise where one of the observing officers (or the sole observing officer in the case

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of small ships) allotted to a ship is suddenly taken ill in a port outside Spain or for some reason of his own fails to embark at the proper time. In such cases it would be very unreasonable to require the ship to wait at the port until the observing officer was ready to embark. The object of this Amendment is to obviate any such result, as the Master will be able to telegraph to the chief administrator explaining the position, and seeking instructions. It may be that the ship is at or near a port where another observing officer can be obtained, in which case the situation can be met without much difficulty. Alternatively, it might be impossible, or very difficult, for the ship, in view of her position and commitments, to proceed to one of the observation ports in order to embark an observing officer, and the chief administrator would have power in such a case to allow the ship to proceed without one. Cases of the kind contemplated by the Amendment, are perhaps, not very likely to arise, but they are clearly possible, and provision for them should therefore be made. I beg to move.
Amendment moved—
Page 3, line 28, after ("not") insert ("except with the consent of the chief administrator.").—(The Earl of Plymouth.)
On Question, Amendment agreed to.
THE EARL OF PLYMOUTH THE EARL OF PLYMOUTH moved, in subsection (7), to leave out "is exempt" and insert "has been exempted by an administrator." The noble Earl said: The object of this Amendment is to make it plain that a ship is only required to display the prescribed signals when she has been exempted from embarking observing officers under proviso (c) to subsection (1); and that she is not required to display the signals in a case where proviso (a) to that subsection applies—namely, a case where she has been forced to enter Spanish waters in order to reach the prescribed place or by stress of weather or force majeure. It is just possible to construe the existing words "is exempt" as referring to proviso (a) as well as to proviso (c), and it is advisable to remove any doubt about the matter.
Amendment moved—
Page 5, line 16, leave out ("is exempt") and insert ("has been exempted by an administrator").—(The Earl of Plymouth.)
On Question Amendment agreed to.
Clause 1, as amended, agreed to.
Clause 2 and 3 agreed to.
Clause 4 [Short title, construction, interpretation, extent, commencement and duration]:
THE EARL OF PLYMOUTH THE EARL OF PLYMOUTH moved, in subsection (5), to leave out "days" and insert "dates." The noble Earl said: This Amendment is purely drafting.
Amendment moved—
Page 9, line 6, leave out ("days") and insert ("dates").—(The Earl of Plymouth.)
On Question, Amendment agreed to.
On Question, Whether the clause, as amended, shall stand part of the Bill?
LORD NEWTON: I have one observation to make on this clause. I wish to emphasise what fell from my noble friend Lord Crawford yesterday. Do not let a there be any mistake or misconception about it, this blockade is going to be a very serious, a very disagreeable, and a very dangerous matter. What I feel is almost certain to happen is that one or perhaps more of the Powers who are taking part in it will either want to withdraw or make some kind of exchange which will affect us. I do not know whether my noble friend will be able to give me any assurance upon the point—I do not suppose he will—but I wish he would tell us quite plainly that if any application is made to us to extend our sphere of operations and undertake greater responsibilities we shall definitely refuse. We have the power to do so in a subsection in this clause, and I invite his special attention to it. If he does not think it impolitic, I wish he would give me some assurance on the point. What I am asking is that we shall not indefinitely extend our responsibilities under this Bill.
THE EARL OF PLYMOUTH: The considerations to which the noble Lord has drawn attention are, I need hardly say, present in the minds of the Government. Clearly it would be impossible for me to give an undertaking here that we shall not be prepared in certain circumstances

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to extend to some limited extent our undertakings.
Clause 4, as amended, agreed to.
Then, Standing Order No. XXXIX having been dispensed with, Amendments reported: Bill read 3a, and passed, and sent to the Commons.

BUSINESS OF THE HOUSE.
THE SECRETARY OF STATE FOR INDIA (THE MARQUESS OF ZETLAND): My Lords, before we adjourn I would remind you that the House will meet on Monday next.
House adjourned at a quarter before six o'clock.