Lords Sitting of 12 February 1941

Preamble
The House met, The LORD CHANCELLOR on the Woolsack.
LORD QUICKSWOOD.
The Right Honourable Hugh Richard Heathcote Gascoyne-Cecil (commonly called Lord Hugh Cecil) having been created Baron Quickswood of Clothall in the County of Hertford—Was (in the usual manner) introduced.

PERSONAL STATEMENT BY LORD STRABOLGI.
LORD STRABOLGI: My Lords, I beg leave to make a personal statement. For many years I was a business associate of Dr. Fleming, a naturalized British subject who held the controlling interest in Ruths International Accumulators, an engineering company with wide European connections, and I was a director of this company and of its associated British company, Ruths-Arca. The international situation prior to the war damaged the European business and, to assist the company's finances, I waived certain moneys due to me as director's fees and expenses. It was an understanding with Dr. Fleming that he would compensate me in some way for this sacrifice when he was in a position to do so. At the beginning of 1939 I resigned my directorships in the two companies. In September of that year Dr. Fleming asked to see me urgently and explained that certain money due to him was blocked in Czechoslovakia. He pressed me to help and advise him as to how he could make good this claim under the arrangements which were being discussed to satisfy British claimants from certain Czech assets which had been frozen. He had, he told me, every reason to believe that his claim was a good one. From the documents I saw that the claim appeared good and this view was confirmed to me by Sir Stanley Wyatt, of the Czecho-Slovak Financial Claims Office, after the papers had Been investigated.
Dr. Fleming explained that if this claim was successful he would be glad to clear

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off his old understanding with me. The war had broken out and we discussed some means of safeguarding my position, so that if anything happened to him the trustees of his estate would be entitled to pay me. As a way of satisfying this need we agreed that there should be a letter in which he undertook to pay me 5 per cent. of his claim when the money was paid, but this arrangement would only be in force for one year after which other arrangements would be made. The amount involved so far as I was concerned was not large and I was not in need of money. The total amount represented by the 5 per cent. was rather more than the amount which I would have received if I had not waived my previous claims, though the original sums would have been owing for a considerable period. We consulted a barrister-at-law who advised us that this arrangement was proper.
The first necessity was to find out how these claims could be preferred and what was the right procedure for approaching the Treasury. I asked Captain Crookshank, the Financial Secretary to the Treasury, to see me, explaining the purpose of my visit, and he was good enough to grant me an interview in the presence of the permanent official concerned. I gave the name of the claimant and explained that I was personally interested because he owed me certain moneys, and that if the claim was paid I should benefit. I did not explain the arrangement in the letter agreeing to pay me a percentage of the claim, as this did not seem to me at the time to be necessary. Captain Crookshank was good enough to arrange for me to see Sir Stanley Wyatt, which I did, together with Sir Stanley's deputy, and I made exactly the same explanation about my personal interest as I did to Captain Crookshank. All the necessary advice was obtained for the preferment of the claim which was duly passed on to Dr. Fleming and his lawyers.
In the only other interview which I had with Sir Stanley Wyatt he told me that he had examined the claim, which seemed sound, but that he would like the opportunity of consulting me about the personal character of the claimant. I explained that Dr. Fleming had been a rich man in Germany, that he had lost his property under the Nazi régime, that he
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was a good business man and of good repute, and that I was in business with him before the present régime in Germany. Sir Stanley thanked me and said that that was just what he wanted to know and that he would inform me how matters progressed. There were considerable delays, and I wrote one more letter to Captain Crookshank asking for information, again reminding him in writing that I was indirectly interested in this claim. The last I heard of the matter was on July 5, 1940, when Sir Stanley wrote to me explaining that the delay was due to a question of Czecho-Slovak law. The letter agreeing to pay me a percentage expired in September of last year. I did not seek to renew it and took no further steps in the matter.
When the Czecho-Slovakia (Financial Claims and Refugees) Bill came before the House of Lords on January 30, 1940, my noble friend Lord Snell, then Leader of the Opposition, asked me to look after it, and I made a short speech which is in column 448, Volume 115 of the Official Report. When the Special Orders came before the House, I made another very short speech. Both were on the same lines as those which had been taken by my friends in another place, and the arguments were of a general nature. The Bill had already passed through the other place and there was no question of any vote; if there had been I should have disclosed my interest. On reading the report of the Select Committee of Inquiry on the conduct of a member in another place, I appreciated that the drawing up of the letter between Dr. Fleming and myself was capable of a damaging interpretation; and, after consulting my leader and again perusing the papers in this matter, I am taking this first convenient opportunity to make this personal explanation. On reflection I now see that I should have made known to Captain Crookshank the exact nature of my interest when I sought information from him, and that I should have informed your Lordships of my interest in one of the claims when I referred to the matter in the course of business in your Lordships' House. I trust your Lord ships will see fit to accept this personal apology.
THE SECRETARY OF STATE FOR THE COLONIES (LORD MOYNE): My Lords, the noble Lord was good enough to give

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me warning that he intended to raise this matter of personal explanation but necessarily no notice could be sent to the rest of the House. Obviously this matter raises unusual issues. The noble Lord referred to the proceedings in another place, but we would have to consider how far his position differs as a Peer from the position of a Minister who is sitting in another place, and I think it would be very desirable for us to look at the Standing Orders and the precedents. I think there is no doubt that the House will do better justice to itself and to the case which the noble Lord has put before it if we avoid any hasty expressions of opinion and adjourn any possible debate which might arise out of this statement until we have had an opportunity of really looking at it in the Official Report. I would then suggest consulting the Leaders of the various Parties in the House with a view to seeing whether any further action is thought to be necessary to satisfy the general opinion of the House.
LORD ADDISON: My Lords, I should like to express my concurrence with what the noble Lord the Leader of the House has said. For my part I never heard anything at all about this business until after the meeting of the House yesterday, but it was clearly necessary and right in my judgment that a statement should be made to the House by the noble Lord at the first possible moment: I am sure the wish will be common to us all to maintain the honour and credit of Parliament regardless of any other consideration, and I think that the course suggested by the noble Lord the Leader of the House is, in the circumstances, the right course to adopt to-day.
VISCOUNT SAMUEL: My Lords, the House will no doubt agree that the noble Lord, Lord Strabolgi, has taken the right course in making a full disclosure to the House of the matters to which his statement relates, as the subject is clearly one not only of personal but of public importance. No member of the House will be in a position to form any judgment upon that statement until he has read it and reflected upon it. I feel sure that the noble Lord the Leader of the House has taken the right course in suggesting that to-day we should not pursue the matter
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further but give it our attention and decide on some subsequent date what course it would be right to pursue.

BUSINESS OF THE HOUSE.
LORD MOYNE: My Lords, I beg to move the Motion standing in my name on the Paper.
Moved, That in the event of the Consolidated Fund (No. 1) Bill being received from the Commons, Standing Order No. XXXIX be considered in order to its being dispensed with for the purpose of taking the Bill through all its stages.—(Lord Moyne.)
On Question, Motion agreed to, and ordered accordingly.

KEIGHLEY GAS ORDER, 1941.
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 Wednesday, 29th January, be approved.—(Lord Templemore.)
On Question, Motion agreed to.

SUNDAY ENTERTAINMENTS ACT, 1932:
BOROUGH OF BARNSTAPLE ORDER.
URBAN DISTRICT OF BRIXHAM ORDER.
URBAN DISTRICT OF MARLOW ORDER.
BOROUGH OF THETFORD ORDER.
URBAN DISTRICT OF WARE ORDER.
COUNTY BOROUGH OF WOLVERHAMPTON ORDER.
THE PARLIAMENTARY UNDER SECRETARY OF STATE FOR INDIA AND BURMA (THE DUKE OF DEVONSHIRE): My Lords, I beg to move that these Orders be approved.
Moved, That the Orders made by the Secretary of State for the Home Department under the Sunday Entertainments Act, 1932, and laid before the House on Wednesday last, be approved.—(The Duke of Devonshire.)
On Question, Motion agreed to.

MAN-POWER.
LORD ADDISON LORD ADDISON rose to ask His Majesty's. Government whether, having regard to the proposed large-scale enrolment of men in the Army, they can make any statement with regard to the calling up of men engaged in agriculture and other vital industries, whilst large numbers of men continue to be employed in less essential industries; and to move for Papers.
The noble Lord said: My Lords, I am sure we should all desire on this, which is, I think, the first opportunity of welcoming the noble Lord, Lord Moyne, as Leader of the House, to express to him our united good will. Although politically we have been on opposite sides of the Table in another place a good many times, I think it is true to say that mutual friendship and good will have existed in a special measure between us for many years. Every one of us wishes him success in the great office to which he has passed, and will gladly assure him, so far as any of us can, that we will be as helpful to him in this House as he would wish us to be.
I make no apology for bringing before your Lordships the Motion which stands on the Paper in my name. The use of the man-power of the nation represents one of the most vital, and certainly one of the most difficult, problems with which we are confronted. It relates mainly to the needs of the Fighting Services and to the needs of essential industries. I myself have a vivid recollection—an altogether painful recollection—of the perpetual difficulties in which we were involved in this connection during the last war, and I am quite sure they are not a bit less to-day than they were then. But we do have this advantage to-day, that we are equipped now with an experienced and able staff at the Ministry of Labour, whereas during the last war all the various expedients had to be invented as best we could as we went along. Yet, although His Majesty's Government have what I may call this mechanical advantage in dealing with these terribly involved human problems, the solution is just as difficult as it was then. I confess, however, that I do think that a statement of the policy which His Majesty's Government are proposing in the main to follow would be useful because I think there is some confusion in the minds of a good many of us-certainly mine is not very
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clear anyhow, and that is the reason why I put the Motion on the Paper.
May I refer first to the needs of the Fighting Services? I take the Army as the only illustration. We have been told, and I dare say quite rightly, that there will in the near future be a very considerable call-up of men in addition to those who have already been called up and there is not anybody anywhere, I am sure, who would object provided they know what it is for. With regard to the Army, even if we call up all the men we could we should never have an Army as large as the German Army, for the simple reason that there are not as many men, but, happily for us, we have not the same demands upon us. We do not have to police and try to keep in order a congeries of nations from the North Cape to the Black Sea. Such a call upon us never would have entered into our scheme of things at all, and of course it must make—let us hope it will make—an increasing demand upon the German forces. The more turbulent and restive these subjects are, the more I think most of us will rejoice.
If there is one lesson which emerges clearly from the present war already, so far as France, Libya, and other fronts are concerned, it is that mere numbers are not the most vital things. Equipment, training, efficiency, and leadership mean more than numbers, as General Graziani has learned to his cost during the last couple of months. So far as equipment is concerned, we need to bring into the manufacture and assembly of supplies all the men and women capable of helping, and we know that in the highly technical, mechanised Armies of to-day there must be an increasing number of men required—technical experts, engineers, electricians, wireless operators and a whole host of others—who do not, as such, go into the fighting line at all, but are absolutely necessary for the efficiency of the service. With regard to training, it would not be inappropriate to enter a word of protest against the demands which have been made from time to time for men from the Army to come and render this or that civil service. Of course we know that men in the Army are human beings who require their humanities to be looked after. We cannot expect them to work all the time. They should be interested and instructed and made as much use of as possible; but it is perfectly clear that the First-Line

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Army must be allowed to continue its training in this country with the least possible interruption. I deplore, merely as an outsider, the demands which have often unthinkingly been made on the War Office to release for other jobs men who ought to have been training for their proper duty. The First-Line Army clearly needs the best continuous training we can provide. That must have accounted for the success in Libya to a very great extent. So far as the First-Line Army is concerned, these matters of equipment, training, and leadership are more vital and of more consequence than mere numbers, and, so far as leadership is concerned, I hope those responsible will be ruthless in selecting efficiency and getting rid of inefficiency.
The other branch of the Army, the Home Defence Army—I leave out of account the Home Guard because they are pursuing their civil occupations—might well in some places be looked into to see if there is not some waste of man-power going on. The recruitment of the Home Defence Army was on a rather wholesale scale in the early days, and although the demands upon it will not be anything like those which will be made on the First-Line Army, it needs to be efficient and well trained in its duties. We art; probably suffering from some waste of man-power in the Home Defence Services, but that is a relatively small matter. The other big demand on our man-power is for the essential war services. We have vast new factories coming into production. The sooner they are in full production the more we shall rejoice. In this respect I wonder if the location of the new factories has always been decided upon in the light of the labour supplies that will hereafter be required. I am afraid that in all cases that is not so. After all, when you have got a factory, the people who work in it must have somewhere to live. They must have somewhere to live within reasonable distance of their work. We cannot move populations about anyhow regardless of these elementary and daily necessities.
It follows from this that the first line of recruitment for labour in essential services must be from the non-essential industries in the areas in which they are located—not simply the scheduling of reserved occupations en masse, but with due regard to where people are going to
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live. I shall give one illustration which I have taken some trouble to examine in this respect. I am suggesting now, as to the first line of recruitment for labour in essential factories, that we should have regard not simply to occupations as a whole, but to the occupations in that area. Take the Midlands region. It is fair to say that in the Midlands region now 30 per cent. of the employed persons—probably more—are still employed in nonessential industries. It clearly must be to those industries that we should look as our source of recruitment in the first place. It must be easier to get them that way than to bring people from a distance and find new homes for them.
The waste of labour in non-essential industries requires a little more scientific treatment than it appears hitherto to have received. To take a homely example—and I am glad to see the Minister of Food present—we still see a number of milk roundsmen going about, probably four or five in the same street. That must be a waste of labour. I know the difficulty the noble Lord is confronted with in combing it out, but there it is. It is a waste of labour as far as it exists, and I rather think that the distributive trades, taking them as a whole, provide the most conspicuous instance of waste of labour. I take another example. I see that in the list of reserved occupations all those over twenty-five defined as managers, foremen, or overseers of warehouses in the distributing trades are included. From fifty thousand to one hundred thousand men are involved. I should require a bit of convincing that we need a reservation at twenty-five for that category. I only use that as one simple illustration. If we looked through the list we should probably find a good many more.
I hope your Lordships will not mind my mentioning another interesting illustration—I hope no noble Lord will feel hurt—which I think would have a painful effect upon the man in the street. The News Chronicle on February 7 quoted the following advertisement from The Times of January 28:
"Second footman or second parlourmaid required at once; four in family; 13 servants. including four in pantry."
I know many of your Lordships have suffered from the misfortune of inheriting large houses, and that you naturally wish to keep them in a proper state. I never

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have been disposed to envy you in the very least in respect of that position, because I have always felt it must add enormously to the needless waste of life. I do hope that these people will not be very lucky and get a second footman. I think it may be well that they should practice the virtues of self-help a little more and do without so many servants. But that is a triviality. The point I am seeking to make is that I think a policy of closer scrutiny is required of the waste of labour, or, as I may put it, the not full use of labour in national industries that are essential, and that the first line of policy should be to pursue it not en bloc over the country as a whole but particularly in the regions where the labour is required, because by doing it in that way you will avoid housing and other difficulties.
When I came to look, as I tried to do quite honestly some time ago, at what I feel is the not full use of labour in present circumstances, I was rather aghast at the suggestion that there would be a further call-up from agriculture. Your Lordships will not be surprised that I now raise this matter. I am quite sure that agriculture no more wishes to avoid its duty than any other industry. I know that Mr. Hudson is putting up as gallant a fight as any man could for that vital industry, and, largely due to him, it is probably making, as he said the other day, as great an effort as it has ever made since Napoleonic times. We will all wish him success, but the fact is that a demand of the kind to which I have referred must have been made as the result of insufficient thought. What are the facts? The facts are that this spring we shall have ploughed up in this country nearly 4,000,000 acres more land than was ploughed before the commencement of the war. Now in the old days it used to be said that arable land required from three to four men per 100 acres—machinery has, of course, reduced that—and that grassland required about one man for 250 acres. If we put it at only two men per 100 acres for arable land it means that this industry requires at least 80,000 more workers to look after the land which we have already ploughed—and we need every square yard of it if we are going to defeat the submarine threat.
Here, then, is an industry which requires at least an additional 80,000 workers, and it is also an industry which
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happens to have been already very much depleted of workers for other reasons. I tried to find out what the numbers were. It is difficult to do so, but I think it is within the mark to say that, apart from recruitments to the Services, agriculture since the beginning of the war has lost at least 40,000 men to munitions and other industries. These workers have been attracted from agriculture by higher wages and other circumstances. Therefore you have an industry requiring an immense reinforcement of labour already dangerously depleted. There is also this peculiarity about agriculture, which I am sure every one of your Lordships will agree is the fact, that all the men engaged in agriculture are skilled. Agriculture differs from most other industries in that respect, because it would be very difficult to go on to a farm anywhere now and not find a man who is not a skilled worker. Therefore it is all the more essential that we should be careful in any action we take with regard to recruiting from that industry. I was very glad to note the assurance given yesterday in another place by the Under-Secretary, and I am quite sure that the Ministry and all concerned will take care that skilled men are not recruited from agriculture. I only mention this as an illustration of the need that I think there is for clearer guidance on policy in this matter than we have had so far.
Whatever assistance we may get from women's labour—and we shall get much—and even from prisoners of war, I do not think we can expect to maintain the proper cultivation of this immensely increased acreage if we take away from the agricultural industry any experienced worker who is now engaged in it. Apart from the mere cultivation, thanks to the Minister of Agriculture and his fine inspiration, we are getting an immense amount of drainage done, and this is essential if we are going to bring a lot of new land into cultivation. I do not know what is the case in other counties, but in one county with which I am intimately acquainted I think it is correct to say that hundreds of miles of farm ditches are being cleared at the present time, and the drainage work that is going on is far beyond anything that has been done previously. Then, as Lord Phillimore reminded me the other day in expressing his regret that he could not come here

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to-day, there is also a great demand now in the timber and woodland industries for additional labour.
I have brought these facts to your Lordships' notice and given a few illustrations in the hope that the noble Lord opposite will be able to give us a little guidance and information as to the procedure which the Government propose to adopt to meet the situation. I am quite sure the outstanding facts of the case are that the First-Line Army needs not so much to be numerous as to be perfectly equipped and perfectly trained, and that we need every man and woman that we can get from non-essential industries drafted into essential industries so far as they are not needed by the Fighting Services. We need, I think, a more selective, a more local, method of recruitment than so far as I know we have hitherto had. At all events, I am sure the importance of the subject is so great and so urgent that your Lordships will be with me in bringing it to your notice. I beg to move for Papers.
LORD BINGLEY: My Lords, may I take the opportunity of reiterating what the noble Lord opposite has said in congratulating my old friend Lord Moyne upon the position he now occupies? The noble Lord opposite has raised the general question of the recruitment of men for the Services and also the question of how far agriculture is going to be depleted of labour. I do not wish to deal with the general question, which the noble Lord elaborated very well, but I should like to impress upon your Lordships' minds the rather alarming picture he has drawn—I do not think he was at all guilty of exaggeration—of the position we are in now of having a very large acreage of newly-ploughed land and needing, as he says, at least 80,000 men to get proper results from it. There is no doubt, as the noble Lord said, that the drainage system of the country is deplorably in arrear. For many years in this country drainage has been neglected and at this moment a considerable acreage is entirely under water. If we are going to get proper results from newly-ploughed land we must have adequate labour.
I am the last person to wish to save any particular class of men from the service of the country, but I think it is essential to remember that it is not enough merely to dig for victory. You
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have to do something more after you have finished digging. Merely to turn over the land will mean a great waste of whatever fertility there is in the land. I have been associated with the "Dig for Victory" campaign in trying to stimulate allotment gardeners to produce more. I have been addressing meetings and attending conferences, and there is no question that there is a great opportunity for increasing home food production by greater activity on allotments. There is, moreover, a further opportunity in the private gardens of the country. At this moment a great many of the larger houses, not necessarily the great houses to which the noble Lord alluded and which he rather pitied some of your Lordships for having to occupy, but houses with gardens of a reasonable size—a great many of these houses are now occupied by schools or evacuees or the military and are not being lived in by their owners. The military are going to do their bit by turning on men to cultivate these gardens, but, as everybody must realise, the turning of untrained soldiers on to these gardens will not produce results which can be compared with those which can be brought about by the work of skilled men. It must be borne in mind also that military units of necessity must be constantly moving, so that you will not get continuity and consequently you will not get the best results.
There is, I believe, a special opportunity of increasing home food production by the cultivation of the gardens of the country, large and small, and I hope that the Ministry of Labour or whichever Government Department is concerned will be very careful not to deplete unduly the supply of trained gardeners. There are, in a good many places, glass houses of various kinds which at other times are devoted to the growing of flowers and grapes and other luxuries, and the owners of them will be perfectly ready to let them be used for more necessary things. A great deal can be got out of them if they are properly managed, but the ordinary unskilled labourer turned into them for the first time is not going to be of much use in producing real results. Nobody can deny that it is necessary that we should increase home food production. There is obviously a very serious situation opening out before us. The war agricultural committees have been given the

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duty of making a selection and recommending which men should be taken and which left, and very well they are doing it; but it is obvious that their bias will be in favour of retaining men on the farms and the tendency must be to say," Let the gardener go, but keep the farm labourer." I want to plead that the Government should be very careful not to deplete unduly the gardeners who are available because one acre with a skilled man in charge can produce a good deal more than land tilled by unskilled men. If we take away the skilled men we are not going to get the best results.
We are told that old men and girls can be employed, but that is not the same thing. I believe that efforts to increase home production of food will be seriously handicapped unless something is done about "keeping skilled men who can really do the job. We have heard far too much about what a wonderful man the farmer is and how well he is working, and then telling him that he is going to lose a great deal of labour and that he must make the best of it and employ girls. Girls are not going to be so easy to get as some people think. There is a great demand for them for munition making. A certain element of fashion enters into this. It is rather the fashion for a girl to go into a munition factory in preference to getting up at any hour of the morning to feed animals in the dark on a dirty, muddy farm. That is not a very attractive job for girls who have been employed in town surroundings. Girls have been doing splendid work, but we must face the fact that there is a shortage. Substitutes have been recommended in the same way for work in gardens. That may be rather more attractive work, but still the shortage is there. I hope that the Government will tell us that they are going to be very careful not to spoil the chances of increased home food production by taking away the really skilled men.
LORD MOYNE: My Lords, before I come to the substance of the Motion may I say how very much I appreciate what some of my old friends both here and in another place have said as to my present position? When I came to your Lordships' House ten years ago I thought I had finished for good and all with active political work and I never dreamed that I should be called to the responsibility
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which came to me last week. It happens that Government inquiries and interest in travel have taken me to Colonies all round the globe—not only British Colonics but foreign Colonies and also mandated territories. I am very conscious that I have no such experience in the business of your Lordships' House. I remember that when people make their maiden speeches they generally appeal for generosity and tolerance, but I am sure that no one has ever been more sincere in making such a request than I am in asking for your Lordships' forbearance with me in my inevitable shortcomings.
The Notice of Motion of Lord Addison raises a rather different aspect of the labour question from that which we discussed some three weeks ago, when, I am sorry to say, the noble Lord was not able to be with us. I welcome his action in bringing this matter up again because there is undoubtedly uneasiness in various quarters as to whether we are making the best selected use of our man-power, which is necessarily unequal to that of the Nazis and therefore calls for the most efficient organisation. The noble Lord, I understood, wished for a general explanation of the procedure, dealing specially with the points which he raised. He laid emphasis on the necessity that the less essential industries should make full contribution and he also urged that the possibility of keeping people working in the same area where they had been already engaged should be studied. I think that is a most excellent suggestion and I feel sure that it is well in the minds of the officials of the Labour Ministry, who are more and more going to deal with manpower and the claims between one industry and another on an individual basis, going into each case on its merits and using persuasion and selection rather than coercion.
The method with these unessential industries has been to use them as a kind of sponge from which you could squeeze out men as they were required elsewhere. The Ministry of Labour keeps in touch with the requirements of the Ministry of Supply and the Board of Trade by the use of a rationing order—I think it is called the Limitation of Supplies Order—which enables them to get specialized labour in the right place. Of course we cannot shut down these unessential industries

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altogether. Not only is there need for some of their products in this country, but they help to maintain our exports, and wholesale contraction would be out of the question. The Trade and Labour Department work together in this rationing scheme in closest touch with the Ministry of Labour, loosening the pegs and by persuasion and selection helping to fit round pegs into round holes.
There has been lately a big move on the part of the Minister of Labour towards a wider mobilisation and redistribution of our existing labour forces and this move is not due to any past neglect or any unnecessary delay. The noble Lord, who was, I think, the first Minister of Munitions this country ever had, will bear out how long it takes to fulfil a programme of completing factories, and of course we are now reaching a stage when we shall be able to get these factories into full production; we are very quickly reaching the full volume of our war effort behind the Fighting Forces. Therefore we have got to come into the existing industries, sift out their labour, and be sure that they are using it to the best advantage, in a way which was not necessary when we could draw upon the unemployed and the unessential industries which had kept the larger proportion of their men. The noble Lord dealt with the lesson we have had that the size of an Army is less important than its adequate equipment, and he will not expect me to deal with figures in that respect. But, obviously, it would be wasteful to equip and clothe more men than an Army can train, and it is a very complicated matter to see how soon equipment will be forthcoming and to have men ready trained to receive it. The noble Lord talked of the importance of leadership in the Army. I think there has never been a greater example of skilled leader-ship and the wonderful results of training adapted to the new and unexpected conditions of modern warfare than has cheered us all in Libya.
But the leadership in the Army is only one side of leadership. We have got to have leadership in the planning of manpower, and in all problems connected with the locating of factories and the making of the change-over with the least possible friction. The time has now come for two steps with the double purpose of securing recruits for the armed forces, under the
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limitation I mentioned, and their equipment, and also of ensuring the development of the factories which is now reaching fulfilment. Firstly, the ages of liability to military service are being extended, and secondly, the method of reserving those essential to national work has to be developed. Changes cannot be made all at once. It is very necessary that industries should have time and should give voluntary co-operation to this difficult matter of readjustment. A recent Royal Proclamation extended the liability to military service to the whole range of ages covered by the authorising Act. The nineteen-year-olds will be called up almost immediately and those who are not reserved or postponed will probably join the colours from about mid-April onwards. The present intention is then to register the groups from 37 to 40 and to leave the youngest group, the eighteen-year-old group, to the last.
Of course there are not enough men in the country to do all the fighting as well as supplying our needs in munitions and food. For that reason we cannot avoid calling up men of military age who can be spared from the work which they have been doing, if that work is of a type which can be carried on by older men or women. The registration of women is now in active-preparation and proposals are being worked out for utilising them in the national effort. Here again, as with the transfer of male labour, we shall find that the Minister of Labour is anxious to go to the fullest length of persuasion rather than compulsion, and I think that is the most efficient way. The system of reservation or postponement for civil work is being made more flexible. The House knows that men are reserved according to their occupations above certain ages, with a view to maintaining the manpower in vital industry, and in addition to that there has been postponement of service even in the unreserved age-groups for younger men. I agree with the noble Lord that it is essential that these skilled men should be kept on the land, because it is not possible to turn out skilled agricultural workers in a short time. In certain other industries, however, a new method is to be added to those with which we are familiar, by the reservation of manpower in certain protected industries at different ages from those of reservation by occupation. In future it is intended to

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select certain vital industries for this additional protection from disturbance, by reserving heir workers from a lower age than would be the case merely on the ground of occupation., Side by side with that, the existing system of reservation of key-men below the reserved ages by occupation, and not by protected industry, will continue, but subject, of course, to closer supervision.
It is not proposed to extend this new method to agriculture, or, I think, to coal mining. Owing to the variety and specialisation of the conditions of labour in agriculture, agricultural workers are not suitable for the same treatment as factory workers, and flexibility must play a very large part as compared with automatic reservation. The present intention is to obtain the extra men by an amendment of the ages at which occupation will be reserved, putting those ages at such a level as to make a much larger number of men than the number which will actually be needed liable for service. In this way the war agricultural executive committees will have a far greater choice when they consider deferring men on the ground of indispensability. The noble Lord, Lord Bingley, has very exceptional knowledge of the subject which he mentioned, horticulture, and I can assure him that this matter is very much in the mind of Mr. Hudson. It will, of course, be dealt with in the same way as other agricultural occupations—namely, by alteration in the schedules, with ample scope to the local authorities concerned to make recommendations to the Ministry for deferment.
It is very important for agriculturists to realise that the raising of the age of reservation is really in the interests of their being able to retain skilled men. I am alarmed lest when this new schedule comes out there should be misunderstanding, and lest it should be thought that a great many more men will be taken than it is actually contemplated should be taken. If three or four or five times the required quota are freed from automatic reservation by age, it will mean that two-thirds, three-quarters or four-fifths will be eligible, under the quota scheme, for deferment on the recommendation of the war agricultural executive committees. The employer will have to take the initiative, and steps are in contemplation to see that the employer does not mis-310
Understand his opportunities. Apart from this, there will still be the provision for hardship, by which men, on individual grounds of hardship, not of occupation, can go to the Referees under the Unemployment Insurance Act. There was a very interesting letter in The Times this morning from an experienced agriculturist, who drew a distinction between the experienced agricultural workers and the younger men whom he very rightly called apprentices. These latter are in many cases replaceable, and men of much less training can also work in the drainage and other gangs who move about the country. For this purpose we are looking forward to the help of Italian prisoners of war in addition to that of women and conscientious objectors. It is very important that agriculturists should realise that there is going to be this comb-out. although only on a small scale, and that they should get to work at once to help on the training of substitutes.
I have already made it clear that the exact number of men required for the Army from agriculture and from horticulture has not yet been settled, but I am able to give three assurances. In relation to the total numbers employed, the men to be withdrawn will be only a very small proportion. Arrangements will be made to guarantee the retention of all men who are really indispensable. In arranging dates for calling up, special consideration is to be given to the seasonal conditions and operations of agriculture; for instance, I hope that there will be no interference with facilities for this year's harvest. I have explained that, although the Minister of Labour has worked out his scheme in principle, there arc many details which are still under consideration, and I am not, therefore, in a position to lay Papers. The noble Lord can rest assured, however, that the Government are planning the utmost economy and efficiency in the use of human power. The purpose is to secure that every man of military age will be either in the Forces or doing work of national value which cannot be done by the older men and by women, to whom we are looking to come forward as willing substitutes in our need.
LORD FARINGDON: My Lords, it is a source of deep regret to me that I should have to find the first reply of our new Leader so profoundly unsatisfactory. I am afraid that agriculturists throughout

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the country who were already aware that the Minister of Labour was no agriculturist will have had brought home to them their extremely dangerous position owing to that lack of knowledge on the part of the Minister. I am completely at a loss to understand—and I feel certain that other members of your Lordships' House who are agriculturists will be with me in this—how it is possible that an industry which, as my noble friend who opened the debate said, will at the lowest possible computation need another 80,000 men above its pre-war complement, can conceivably be an industry from which you can make an additional combing out at all immediately.
Incidentally, I should like to add that I consider that 80,000 is an extremely conservative estimate, because it does not allow for the extra 40,000 which he himself has computed, again in my opinion very conservatively, to have left agriculture for other employment. Nor does it take account of the number who have already gone into the Forces, and I would like to draw your attention to the fact that, though agriculture was reserved at the lowest possible age, in fact it has, I believe, made as considerable a contribution to the military man-power of this country as any other industry because it had far more of its men in the Territorials and on the Reserve than any other single industry in the country had. I do not wish to keep your Lordships, but I could not resist saying that I do not think that the reply of the noble Lord and of the Government will be considered at all consoling or at all satisfactory by agriculturists. I sincerely hope that the members of your Lordships' House, so many of whom have great and profound knowledge of this particular subject, will prevail upon the Government to take a more enlightened view.
LORD ADDISON: My Lords, in thanking the Leader of the House for his statement I hope that your Lordships will not think it impertinent of me to express my regret that I shall not be able to continue to attend the debates to-day owing to the changes in our programme. Several of us who had intended to attend the debate to be initiated by the noble Lord below the Gangway (Lord Balfour of Burleigh) will unfortunately not be able to be
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present. I am exceedingly grateful to the noble Lord, the Leader of the House, for his statement. He will see the kind of misgiving that is felt by people reflected in the spontaneous expression of my noble friend behind me, whose heart is in the land. I hope that when we have examined carefully the three very important assurances which the noble Lord gave us, they will provide some consolation for my noble friend behind me. They were very important statements, but everything depends upon how they are worked. I am sure that all of us will have welcomed the opportunity of this debate because it has elicited the statement that we have had from the noble Lord. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

DANGERS OF INFLATION.
LORD BALFOUR OF BURLEIGH LORD BALFOUR OF BURLEIGH had given Notice that he would ask His Majesty's Government if they adhere to the policy of avoiding inflation; draw attention to the fact that inflation is inevitable if expenditure greatly exceeds the sum of taxation and borrowing in a given period, and if it occurs, will bear most hardly on the poorest section of the population and, by injuring our export trade, will increase the difficulty of maintaining the standard of living of the people after the war; and move for Papers.
The noble Lord said: My Lords, before I approach the Motion that stands in my name may I also be allowed to add a word of welcome from myself to the noble Lord, Lord Moyne, on taking up his functions as Leader of the House? The noble Lord's great experience of public affairs and his great personal charm of manner will, I am quite certain, make him an ideal Leader of your Lordships' House. The Motion which I have ventured to put upon the Paper falls into two parts. The first part is a simple question, and the second part contains two broad propositions. The question is whether the Government still adhere to the policy of avoiding inflation. I of course do not anticipate any answer to that except an affirmative one. If I have put it down in that form it is because I feel great anxiety about the present position of affairs in

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the realm of finance, and that is an anxiety which is quite obviously widely shared throughout the country, to judge from the constant references which one sees to it in the Press, in speeches in another place, and generally throughout the country. The two propositions which I have embodied in my Motion are frankly not intended to be stated with the meticulous accuracy of a mathematical proposition, but I hope nevertheless that they are broad propositions which will be found acceptable by the noble and learned Viscount on the Woolsack who, I understand, is to reply. I am quite certain that if the noble and learned Viscount chose, he could riddle my propositions with that dialectical skill which the House so much enjoys and which, perhaps I may say, I feel sure the noble and learned Viscount also enjoys exercising. But I rather hope that it is not in that spirit that the noble and learned Viscount will approach the question.
The first proposition is that "inflation is inevitable if expediture greatly exceeds the sum of taxation and borrowing in a given period." It may be that that ought to have some technical qualifications, but I am fortified by the fact that the Chancellor of the Exchequer in another place put the proposition almost in those words a day or two ago as being a contributory cause of inflation. The second proposition, that inflation "if it occurs, will bear most hardly on the poorest section of the population and, by injuring our export trade, will increase the difficulty of maintaining the standard of living of the people after the war," is simply intended to direct attention to the fact that inflation, if it occurs to a high degree, will injure most our wage-earning population. Of course inflation in the first instance injures most what is called the rentier class, the class which has fixed incomes, and among the rentier class are many of the poorest people such as old-age pensioners and the dependants of people who have been called up, the lowest paid workers in all industries, workers in the occupations which have been hit and not benefited by the war, and so on. Finally, the reference to the export trade is due to the fact—I am only stating it broadly—that inflation by raising costs does make export more difficult, not only after the war but now.
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The point of my two propositions comes to this, that while it is quite agreeable for the wage-earners to get substantial increases in wages, unless those wages will in fact buy more goods they are going to leave the recipients worse off than they were before. I am greatly concerned about inflation because I believe that what has been frequently alluded to as the vicious spiral is already in operation. I want to direct your Lordships attention to one or two evidences of that. The figures are conjectural, and the noble and learned Viscount has, of course, access to information which is not available to most of your Lordships, but on broad lines the figure which interests us in this connection is what is known as the gap, that is, the gap between expenditure on one side and borrowing on the other. After allowing for revenue borrowing which is of a non-inflationary character the gap is what remains in the form of an expansion of credit.
The figures that I want to quote to your Lordships are not many, but I have here in the London and Cambridge Economic Service an article by Mr. Paish on the sources of Treasury borrowing, and he has analysed the national figures of revenue and expenditure for the year from October, 1939, till September, 1940. In that year the total expenditure was £2,778,000,000. The ordinary revenue was £1,163,000,000, leaving a deficit of £1,615,000,000. Of that long- and medium-term borrowing provided £730,000,000, and short-term borrowing £901,000,000, making a total borrowing of £1,631,000,000. I am going to spare your Lordships any elaborate analysis of what is good borrowing and bad borrowing—the gap must be filled by borrowing of one kind or another—but I may give you the summing-up which appears in this article:
"To sum up, it is probably not far from the truth to say that credit expansion has provided something like a quarter and finance from overseas probably something over a quarter of the Treasury's deficit for the past year, leaving perhaps rather less than a half as the proportion subscribed out of British-owned balances."
If credit expansion provided one-quarter in the year ended September, 1940, it may not be far wrong to conclude that that was the proportion for the whole year 1940/1941. The deficit for the whole year is something in the neighbourhood of £2,500,000,000. If credit expansion has

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provided one-quarter, that would give us a figure of between £600,000,000 and £700,000,000 as the gap in the current financial year. Quite frankly, that is a guess, but it is a guess which is supported by a good deal of responsible opinion, and I can only say I hope it is wrong.
On the other hand, there are indications that there is a considerable degree of credit expansion at work. in the same Bulletin I find an analysis of prices which is interesting. The index numbers of wholesale prices—August, 1939 - September, 1940—show for total food, an increase of 54 per cent., for total materials, a rise of 38 per cent., and for all articles an increase of 44 per cent. That is up to September last. Details of the cost-of-living index show an increase for all commodities of 22 per cent. Of course that is much less than the index number of wholesale prices, because the Government have very wisely taken steps to keep some of the retail prices down, but that is a very large increase in wholesale prices. I do not myself feel if can be accounted for by the increase of war costs of all kinds which naturally has been considerable. Then again there is a large increase in earnings which has taken place. In the Ministry of Labour Gazette for November-December, 1940, the percentage increase in average weekly earnings in July, 1940, compared with October, 1938, was in the metal, engineering, and shipbuilding industries 43.2 per cent.—that is all workers, men, boys, women, and girls; building, contracting, etc., 31.6 per cent.; miscellaneous, 32 per cent. These are increases in earnings, not in wage rates, and they represent, of course, a tremendous increase in spending power.
Then one other indication—I am afraid it must be taken as an indication—of inflation, and that is the drop in the value of money in the sense in which I am using the term. The Chancellor of the Exchequer said the other day we were spending now on war and ordinary current expenditure £12,500,000 a day. That points to a Budget of something in the neighbourhood of £4,000,000,000 to £5,000,000,000 next year. If the Budget next year is to be on the basis of £5,000,000,000, that corresponds to the total national income pre war. Economists told us that if the
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national income could De increased by £1,000,000,000 it would be a pretty big achievement, and therefore a Budget of something like the pre-war national income must indicate a considerable degree of inflationary rise in prices. These, I know, are conjectural figures, and one must be careful in drawing conclusions. I can only rely on the figures which I find provided by most reliable economists, and in last week's Economist I find an article which forecasts—the Economist as a rule is a very sober-minded paper—a net gap next year of £150,000,000 a month. Thai is £1,800,000,000 a year.
If that estimate is exact, the state of affairs is a very grave one, and the vicious spiral would undoubtedly receive a tremendous impetus. I believe it is working now, and I only hope the damage has not gone too far That is the trouble about this inflationary rise of prices It works out of sight for a time, and then, all of a sudden, results become apparent, perhaps too late to enable them to be controlled. Once the slide of inflationary rise of prices really gets going, nothing will slop it. I expect a good many of your Lordships have visited Rhodesia. You may remember going in a boat on the Zambesi a few miles above the Victoria Falls. The wafer there is perfectly smooth, and the only warning of the danger below is the roar of the cataract which you can hear for miles, and the cloud of spray rising hundreds of feet into the blue sky. Nothing is more peaceful to all appearance, but if your boat is allowed to be caught in the currents, before you know where you are you will be in the cataract and then over the Falls, plunging into complete disaster. I hope that is not the position that we are in now. Prima facie, there is evidence to suggest that it is.
The Chancellor of the Exchequer referred to this danger a day or two ago, when he said:
"I am certainly claiming that, upon a true analysis, the danger of the so-called gap has been greatly exaggerated. … I would give an assurance to the Committee that the Government are very much alive to the whole matter, and will not hesitate to take any practicable steps to control the danger should it arise."
I am a little alarmed by that phrase—" control the danger should it arise." The danger is there, and, if I speak critically of the Government, your Lordships do

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not need to be assured that it is not because I want to weaken them but because, on the contrary, I want to strengthen them. I want to make them realise that any steps they can take will receive the support not only of your Lordships' House but of public opinion. I would beg the Government to be frank with the House and with the country. It seems to me that frankness is the first thing that is necessary, and courage is the second. I shall read two lines from a leading article which appeared in The Times a. few days ago. This article said:
"If ever inflation took place on the scale of the last war, payment of that value would be inequitable"—
that is in respect of the War Damage Bill—
"and, as Sir Kingsley Wood hinted in the debate, the measuring rod of value payments would have to be revised. But such an occurrence is most unlikely—indeed, it would mean the complete failure of the Government's economic policy."
Indeed it would. It would make nonsense of the whole basis of the War Damage Bill and, I may add, it would also make nonsense of the whole of the voluntary savings campaign. If the value of money is going to fall it is not right to be urging people to save now unless some very-great assurance can be given that control over these great forces will be exercised, and that in due time money will be available at approximately the same standard of value as that at which it was saved.
I think that it is not inappropriate to raise these matters now because the Budget is more or less imminent. I know the noble and learned Viscount on the Woolsack cannot anticipate the Budget, but if anything that is said in your Lordships' House helps the Government to produce the kind of Budget which the circumstances require then time will not have been wasted. Moreover, as mentioned by the noble Lord the Leader of the House a moment ago, we are approaching the peak of our production. The utmost efforts will have to be made to rake in every available source of labour. That all means an increase in spending power, and the whole of that spending power, if it is provided by credit expansion, is being pumped into the system, with the effect, once again, of the great danger of rising prices.
I would like to offer one or two suggestions to the Government. I have no
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doubt that they are all before them, but I think public discussion of some of these matters may be helpful. The first suggestion which I am bound to say appeals to me very strongly is that which was put forward more than a year ago by Mr. Keynes, of some kind of deferred pay. That appeals to me because it seems to combine so many advantages, particularly in the case of the wage-earning classes who are now getting substantially larger earnings than they have had before. It seems to me equitable that part of these larger earnings should be taken in the form of deferred pay, blocked now and made available after the war, perhaps at the very time when there will be dangers of a fall in purchasing power. About a year ago when we had a debate on these matters in your Lordships' House the noble Lord without Portfolio, Lord Hankey, in answer to a question from me, said this matter was under consideration but that no decision had been reached. We have not heard much of the proposal lately, and I am rather afraid that it may have been abandoned, possibly because of administrative difficulties, but that does seem to be an ideal method to meet some of the difficulties if it is found to be possible.
Another point is this. Last year I made the remark that if I was sitting on the other side of the House I should be inclined to say that there ought to be a 100 per cent. Excess Profits Tax, and that provision would have to be made so that such savings as were made by workpeople should not be counted in the means test. I think both those conditions have been fulfilled, and consequently I still hope that it may be possible to find some means of applying this beneficent proposal of deferred pay. Purely from a personal point of view I did introduce it among workers on my own estate. They welcomed it and found it a good suggestion which they were only too pleased to adopt. I am quite certain that with proper education, particularly by the Labour Leaders themselves, it is a thing which is well worth consideration.
Secondly, I think the Chancellor of the Exchequer might very well put more taxation upon medium incomes. I think the man of from £300 to £800 a year is getting off comparatively lightly compared with people higher in the scale.

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The noble and learned Viscount on the Woolsack, I believe, increased the Income Tax on the £300 a year man from £5 to £15, and he referred to it at that time as a striking increase, but that only reduced the spending power of that man from £295 to £285. I should think there is room for some expansion there. I am not excluding higher taxation on the higher incomes. That is probably inevitable, and if it is imposed it will be met with fortitude. Whether the yield will be very much greater than that given by the present rate is another matter and remains to be seen. Some noble Lords opposite may think that a capital levy would be a good plan. My only comment on that is that in effect the capital levy is already in operation, because people with incomes on a certain scale and accustomed to spend them have commitments which they cannot cut down in the course of a year, or even two years, with the result that a great part of the higher Income Tax and Surtax is already being paid out of capital. It is a form of capital levy which is at the moment actually taking place.
Another possibility in addition to the Purchase Tax is this: could services be taxed, such services as garage, clubs. hairdressers, public utilities? I am told that the average family spends twice as much on services as on goods subject to the Purchase Tax. Administratively it may be difficult, but quite obviously there is a large source of revenue there if it could be tapped. Fourthly, I should like to suggest that if the compulsory savings scheme is not imposed, and if we are to go on with the voluntary savings campaign, then the propaganda of that campaign should be given a rather different direction to that which it has at present. I am full of admiration for the work that has been done by Lord Kindersley and the organisers of the savings campaign, but I do not think they have succeeded in making it clear to the wage-earning classes that the savings which they are asked to make are just as much in their interest as in the national interest. This, again, brings in the question of inflation. I wonder whether the Labour Leaders, even the members of the Government, are really convinced themselves that inflation is a bad thing for the wage-earning classes.
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If they are convinced then I think they may well help in a campaign to convince the working classes of it. I am afraid there is still a great deal of misunderstanding on that point.
Lastly, and perhaps most important of all, what I think has been lacking in the Government's policy hitherto is a coherent policy about wages. I would like the noble and learned Viscount on the Woolsack to tell us what is the Government's policy about wages. Have they got one? As far as I can see they have not, unless it is a policy of deliberate drift. If that is so then they have not got a wages policy at all. In the only instance of which I know, or believe, there was a Government intervention, it was quite definitely in the direction of higher wages. I am perfectly certain that this question of wages lies at the root of the danger of inflation.
I have in my hand a copy of a letter which has quite, recently been addressed to the Prime Minister on this subject by the Chairman of the Association of British Chambers of Commerce. It is not a long letter and it sets out this point so well I think it may save your Lordships' time if I read it:
"The Executive Council of this Association are gravely perturbed at the present drift towards inflation. In practically every industry in the country substantial increases in wages have been or are about to be conceded, and these concessions will inevitably be followed by rises in commodity prices and transport charges. The vicious circle is in fact in operation.
The council feel that if serious consequences are to be avoided this tendency should be checked at once by the adoption of a wages policy which will take note not only of the need for stabilising wages rates, but also of the desirability of preventing widely different rates from being paid in different industries calling for equal skill and effort and often located in the same areas.
It should also be borne in mind that expanding and considerable differences between wages of reserved workers and the pay and allowances of serving men are apt to create a feeling of inequity in the minds of the latter, especially at a time when so many men in the Services are in the United Kingdom.
The Executive Council recognise the justice of the contention that wages must be dependent to a reasonable extent upon prices and therefore urge most strongly that the Government should at once take all steps necessary to peg the cost of the essential items on a revised cost-of-living index, and co-incidentally stabilise wages throughout industry."
Very great increases have already taken place. I find that from January I to

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November 30, 1940, 7,800,000 workpeople received increases of just under £2,000,000 a week—that is in wage rates—and we know that very big claims for increases are now pending. The Amalgamated Engineering Union with a membership of 500,000 is asking for 3d. an hour increase, the Federation of Shipbuilding and Engineering Unions with a membership of 600,000 is claiming 10s. a week and the three railway unions with a membership of 500,000 are asking for 10s. a week. Then there are the dockers. This is the only case which I know where I understand the Government have intervened actively in a wage question. I understand that in Liverpool the docker's work has been decasualised and that instead of a flat rate of 15s. a day, which allowed for the fact that they often had a broken week, the dockers in Liverpool are to have a guaranteed week of eleven half-days at 7s. 6d. a shift, that is 82s. 6d. a week, in addition to a bonus for piece work. Please understand that I am not criticising this as such. I do not know what are the merits of the dockers' case. What I am concerned about is that it does involve a very big increase and will necessarily involve demands for similar increases from parallel workers, from ship repairers and others whose work is done alongside the dockers. It does again open the door to another large increase throughout the country in spending power.
And the tragedy of it is that all these increases will defeat their own object. All these increases in earnings will go hack into costs and into prices and so the spiral will revolve faster and faster. I am convinced that this inflationary effect is at work and it is producing, again in the words of the Economist, those "social distortions, personal inequities and individual miseries" which are the bane of that method of financing the war. Of course the workers' standard of life has; got to be maintained, and where it is sub- standard it has got to be raised, but these; wage increases without a policy will never beat the rising prices, and in the long run, as I have said, they will defeat their own object. Mr. Seebohm Rowntree, who is a great authority on industrial and social questions, wrote the other day to The Times:
"What should be the objects to be aimed at in the framing of a war-time wages policy? I suggest that they are two first, to check
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inflation by means fair to all those engaged in industry; and, secondly, to improve the economic position of workers whose wages today are inadequate to maintain themselves in a state of physical efficiency."
And The Times, in a leading article, said:
"the Government cannot stand aside and trust to the sectional interests of industries acting independently to produce in some marvellous way a concerted and sound national policy."
That is exactly what the Government so far have been doing.
In conclusion, what I would ask for in the first instance is frankness. The Government have said that their policy is to fight inflation. I am convinced that their policy has not been 100 per cent. successful. Perhaps it could not be. If it has not, let them say so and let them tell us what is to be done to stop this appalling danger coming any nearer. They remind me a little bit of the prophets in the Old Testament who cried "Peace" when there was no peace. I have turned up the quotation and I am going to venture to read it to your Lordships:
"And mine hand shall be on the prophets that see vanity … and they shall not be in the assembly … neither shall they be written in the writing of the house. … Because, ever because, they have seduced my people saying Peace, and there was no peace. … And one built up a wall and lo others daubed it with untempered mortar. Say unto them that daub it with un tempered mortar that it shall fall. … Lo when the wall is fallen shall it not be said unto you 'Where is the daubing wherewith ye have daubed it'?
Half-hearted daubing is the best description I can give you of the Government's wages policy so far. Do let us have the courage to build an edifice that will stand and not a wall that will fall. The edifice should have been built from the very beginning of the war. That it was not is a misfortune which, let us hope, it is not too late to remedy, but let us begin again to build on a foundation of sound finance and cement the building with the mortar of a coherent wage policy. I beg to move for Papers.
LORD ARNOLD: My Lords, I think that the House should be indebted to the noble Lord for raising this question and also, if he will allow me to say so, for his careful and informing speech. Having said that, I should like to say a word about the unsatisfactory conditions under which this discussion is taking place. It is proceeding at a time when most of your

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Lordships are engaged elsewhere and I cannot think that chat state of things affords a proper opportunity for careful and full debate on the very great problems which are inherent in this question. Who exactly is to blame I am not going to say. Perhaps it is the House itself. Perhaps it would be better if the House were to meet at a different time, but it does seem certain that there is no reasonable opportunity for discussion when two important Motions are on the Order Paper on the same day. Whatever differences of opinion there may be about other matters I think there will be general agreement that that is not a satisfactory state of things.
This is not the first debate we have had upon inflation. The noble Lord raised the matter about twelve months ago and there have been other discussions but I am sorry to say they have not carried things very much further. Let me make it clear that I do not in any way criticise the noble and learned Viscount upon the Woolsack for that state of things. He has always been most courteous and most helpful and he has done the best he could. The difficulty has been, and is, that the Government case is so meagre. I am afraid that the truth is that in regard to inflation the Government have no policy except one of drift. Take for instance the speech made last week by the Chancellor of the Exchequer about these matters. That was far from reassuring. It was a complacent speech, not to say a negative speech. There was no constructive proposal whatever for dealing with inflation. What he said was that the Government would not fail to take any practicable steps to control the danger should it arise. But, as the noble Lord has said, in the opinion of many authorities the danger has arisen. I would undertake to say that if you could have a poll of the eminent financiers and economists of the country there would be a considerable majority for the view that some measure of inflation is already at work—I do not say any great measure, but some measure.
Nevertheless the Chancellor says the danger of the so-called gap has been greatly exaggerated. He went on to observe that from a superficial study of the figures there might be support for the
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contention that the gap is very great. I think that "superficial" is not a very happy word to use. A superficial study of the figures! What can a member of Parliament or a member of your Lordships' House do but study the figures as given by the Government coupled with reasonable estimates of his own? If the estimates are made on a superficial basis that is because there are no more official figures available and I think we have some cause for complaint there. We cannot, of necessity, have the information which the Government have got, but I think it is unfortunate that the Government do not do more to enlighten Parliament, at any rate, upon certain points.
The noble Lord, Lord Balfour, suggested from certain data which he put before your Lordships' House that the gap in the current twelve months might be about £600,000,000 to £700,000,000. He said that he hoped he was wrong. I hope he is wrong but I am afraid that he is not, at least not much wrong. He may not be wrong at all. I will try from a careful consideration of such figures as are available to arrive at the probable figure of the gap, and I may say that my conclusion, for what it is worth, comes very near the figure which the noble Lord has given. The total expenditure for the current year up to the 31st March next will be, as far as can be seen, in the neighbourhood of £3,900,000,000. We know exactly what it was up to a few days ago, and we were told by the Chancellor of the Exchequer that we are now spending £12,500,000 a day. It does not therefore require any great mental agility to arrive at what the expenditure for the year is likely to be. It may be more, because expenditure is likely to increase, but take it at round about £3,900,000,000, which is £433,000,000 more than the estimate which the Chancellor of the Exchequer himself gave last July.
It was not, I agree, a definite estimate but that was the figure which he put forward for the probable expenditure. It is not the first time, in this war, by any means, that current expenditure has been grossly underestimated. In fact, I think I am right in saying it is always grossly underestimated. Why is that? As soon as I saw the figure I said, "That is absolutely wrong," and I venture to suggest to your Lordships' House that the

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probable expenditure may come to £ 4,000,000,000. These constant underestimates by the Government do not give ground for much confidence and I think it is most unfortunate that the Chancellor of the Exchequer does not take a view which is much more likely to be in accordance with the facts. I should have thought it would not be unwise to have gone to the other end, and have had a margin in hand.
As against the estimated expenditure of £3,900,000,000 the estimate of the Chancellor of the yield from taxation for the current twelve months is £1,360,000,000. That is in the White Paper. Though that may be somewhat under the mark it is probably not very far out. Next we have to take into account the savings. How much have the Government got from savings? —new savings, because they are the only savings which are of value for this purpose. Figures have been given of savings for the current twelve months as being £1,200,000,000. Speaking from memory the sum was £1,160,000,000. They are now running at a higher figure, about £26,000,000 a week, but it has not been anything like so much for the whole of the current twelve months. Some of this is not new money. Some of it is conversion from loans which have not been paid. I think I am correct if I suggest that savings from new money in the current twelve months might be in the neighbourhood of £1,200,000,000. If that is added to the £1,360,000,000 from taxation we arrive at a total of £2,560,000,000, but there is still a deficiency of £1,340,000,000.
The next item on the credit side is the capital assets liquidated for purchases in the United States. Now, according to the evidence given two or three weeks ago by Mr. Morganthau in Washington, these have averaged over the whole sixteen months of the war about £40,000,000 a month, that is to say roughly £500,000,000 a year. This may be a little wide of the mark because the purchases may have been more in the latter part of the year than in the earlier part. But take the figure at £500,000,000, and add to this the £2,560,000,000 and we arrive at a total of £3,060,000,000. There is still, however, a gap of £840,000,000 between that sum and £3,900,000,000. We are not at the end of our resources, however; we can reckon on various items which will reduce
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the gap still further. There are certain automatic sources of saving which operate in war-time, the Chancellor of the Exchequer has told us, and which do not operate in peace-time. There is, for instance, the Unemployment Insurance Fund, which is not being used to anything like the full extent, and there are other sums. There is the increase in Dominion balances, and there are other items. I am afraid that I am optimistic, however, if I suggest an aggregate sum for all these items of £340,000,000, but I will do so; I will make the Government a present of that. Adding that, we arrive at the figure of £3,400,000,000. On that basis there would be a still uncovered gap of £500,000,000. I hope that that is too much; if the noble and learned Viscount on the Woolsack can do something to enlighten us and to reassure us about this matter, I for one shall be very grateful to him.
The noble Lord, Lord Balfour of Burleigh, quoted an article which appeared in the Economist a week or two ago and which suggested that next year—we have to look ahead—the gap might be £1,800,000,000, or £150,000,000 a month. So far as I am concerned, I will say at once that I think that figure is far too high; I do not think that any such gap is in the least likely to come about. Unless the Government do something, however, I can conceive that the gap may be distinctly more than £500,000,000, and that is a great deal of money. It is all very well for the Chancellor of the Exchequer to pooh-pooh to some extent the whole idea and to say that the danger has been very greatly exaggerated. Sir J. Wardlaw-Milne, a recognised authority on such matters, said only last week that the gap is still, when everything has been taken into account on the credit side, an enormous one. In effect, all this means—and this is the vital point—that we have run into a period of unbalanced Budgets, unless the Government do something; and that is the beginning of inflation. It was unbalanced Budgets in France which led to financial disaster, which led to the depreciation of the franc, and which led in the end to a very great reduction in the purchasing power of the franc.
The noble Lord, Lord Balfour of Burleigh, dealt with certain constructive proposals. I think that I agree with all that he said on these matters. I cannot deal

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with them at all fully now, because there is not time. He referred to more taxation. That is needed especially in the lower ranges of income and should, I think, certainly include a lowering of the Income Tax exemption limit. The increased expenditure of the country has meant an increased income for large numbers of people, and very largely for people in the wage-earning class. In view of the fact that excess profits are now taxed 100 per cent., it would only be equitable if the same principle, or something on those lines, were applied to excess income. It would be difficult, no doubt, but not impossible; the united intellects of the Treasury and the Inland Revenue are quite capable of evolving a plan which would work and which would bring in a good deal of money.
Then the noble Lord spoke of a wages policy; and of all the measures needed to avoid inflation. I agree with him that the chief one is a national wages policy. There was a valuable article in The Times some months ago by Mr. R. H. Brand, in which he said:
"Determination of salaries and wages can no more be left to the decision of private persons—namely, to employers or employed, with or without arbitration—than the determination of private profits."
Up to the present the Government have not really faced this question. They have a profits policy profits are taxed 100 per cent. They have, in part, a prices policy: certain prices are controlled. They have, in part, a rationing policy certain commodities are rationed. But they have no wages policy. I entirely agree with the noble Lord that there could be stronger and more persistent appeals—I do not say that there have not been some—to the Labour and trade union leaders themselves on this matter. When I think of what was accomplished in the last war by Mr. Lloyd George, by conference and so on, I find it difficult to believe that all has been done that might have been done in that way. I am certain that it is entirely wrong for Mr. Bevin to say, as he did a few weeks ago when speaking to munition workers, "I do not care how much bonus you earn." That is not the right attitude; inflation is not going to be stopped in that way.
As a matter of fact there is a very strong case against inflation, which ought
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to appeal not only to trade unionists generally but even to the highly-paid munition workers, for all will suffer in the end. They have to live not only through the war but after the war; and the worst evils of inflation in this country, and particularly in Germany, came after the war in the case of the last war. Those who are now receiving these very high wages will find in the course of time that they are adversely affected, and proportionately they will be more adversely affected than their at present less fortunate brethren.
We are all, of course, agreed on one thing, and that is that there must be no reduction in the minimum standard of living of the poorest section of the community. I believe that we are all agreed about that; but, apart from that, I do not think that all wage-earners can expect to have pay which will enable them to maintain the same standard of living as before the war. Very few of the better-to-do classes are able to maintain the same standard of living as before the war; and I submit that, provided there is no encroachment on the minimum standard of the poorest section, it is not unfair—in fact, it is only right—that some of the better-paid workers should take their share in bearing the burdens of these days. As things are, I think it would be true to say that the average rise in earnings of the workers exceeds the rise in the cost of living. In some cases, of course, the increase in earnings greatly exceeds the rise in the cost of living; in particular, it is not defensible that some munition workers should have their wages so much increased that they are earning from £8 to £12 a week while many men conscripted for the Army are receiving, apart from the allowance for wife and children, only 2s. 6d. a day. It is not a sufficient reply to say that the munition workers are labouring for long hours; many of the soldiers are undergoing much greater hardships than the munition workers, and this is a disparity which should never have been allowed to come about.
There are certain other things which I can merely name, because I must conclude, but which I certainly think should receive the consideration of the Government. I refer to the extension of rationing, and to the definite prohibition of the purchase of certain things, as is now done,

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for instance, in the case of new motor cars. Moreover, I suggest that there should be a definite campaign urging the reduction or personal consumption. So tar, not a great deal has been done in mat way. This is a democratic country, and there are plenty of Members of Parliament and Ministers who could take part in such a campaign. As I have already said, much was done by personal appeal in the last war, but that method has not as yet been employed very much in this war. must conclude. I do feel that unhappily—I wish that it were not so—there is sufficient cause, on a fair consideration of the pros and cons of the case, for disquietude. As I say, up to the present the policy of the Government has been a negative one. It will be two months before the Budget is introduced and, when it is introduced, the discussions are much more likely to be concerned with taxation rather than with inflation, and yet apparently, according to what happened last week, the Government consider that there is nothing mere to be done about inflation, at any rate until the Budget. Surely in this matter it would be the best and wisest and most prudent thing to have a margin of safety.
I will say at once that as far as I am concerned I am not taking an alarmist view of things. I do not do that; I do not believe that it is justifiable. I am not suggesting that there is likely to be in this country a runaway inflation. J am not suggesting that there is likely to be in this country a collapse in currency, such as there was in Germany after the last war in the greatest currency collapse in history. I do not say that; I am very anxious not to over-state the case. It is always a mistake to over-state your I case, especially if it is a strong one. But the Lord Chancellor himself the last time we debated this matter in your Lordships' House put before us the illustration of a man in a boat approaching a waterfall, and the noble Lord, Lord Balfour of Burleigh, gave us something similar, and suggested that whereas you might control the boat in the circumstances for a period, you might be over the: fall and down into great disasters before really you were aware that that would happen.
As I say, I am not suggesting that you will go over the fall, but I am suggesting quite seriously that you may very well have such inflation a; there was in the
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last war unless the Government do some thing—you might have more—and that a very serious thing. When the cost-of-living index went up to nearly 270, that was a very serious state of things, and it ought not to be, because it need not be. There are so many things in war, and in this war, that it is beyond the power of any Government to control. They do their best, but there are certain things that it is not possible for Government officers to control. But this is something which could be controlled, no doubt about it. It is getting a little late now in some respects, but even now the situation is well in hand, and I would urge upon the Government that they should change their attitude and do something to deal with inflation before it is too late.
LORD ELTON: My Lords, anything which the noble and learned Viscount on the Woolsack says in reply is bound to carry far beyond your Lordships' House, and I should like to echo the appeal already made to the noble and learned Viscount that he should give us a bold and encouraging reply—and certainly in the present circumstances of the nation no reply which is no: bold can well be encouraging. The sort of questions which force themselves insistently upon one's mind present themselves as usual at both extremes of the scale of income. At the upper end one would like very much to know whether His Majesty's Government are satisfied that the Excess Profits Duty is working smoothly and that no considerable proportion of what might have been profits is finding its way into more or less successfully camouflaged alternative channels and thus evading taxation. At the other end of the scale—and this is really the fundamental point in this debate—we all want to know whether His Majesty's Government have or have not a wages policy, because I entirely agree with both the noble Lords who have already spoken that there is no evidence whatever up to date that His Majesty's Government have-any policy for wages whatever, and, goodness knows, there has been plenty of time for the Government to frame a policy.
This is no new problem. I well remember how, I think I am right in saying, in the first two months of the war, in a factory of which I know, the employees

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demanded a rise in wages explicitly on the grounds that costs had risen owing to some recent additions to taxation. The request was instantly acceded to by the management, although this was not even an industry which had any special connection with the war; with the inevitable result, I imagine, that sooner or later that rise in wages was passed on in the form of higher costs to the consumers, very few of whom are in a position similarly to raise their incomes to meet additional taxation. And so eventually that factory would have given its own small additional impulse to the momentum with which we are probably approaching the danger point of that vicious spiral of which we have heard so much.
Then there is the whole tremendous question, so admirably dealt with by the noble Lord who introduced the Motion, of the great increase in wages in certain war industries—43 per cent. I think was a figure quoted by Lord Balfour. I do not know—I do not know whether the noble Lord knows—what the view of the Government is on that problem. Clearly there are several tenable and arguable views. It would be a tenable and arguable view to say that these substantial rises in the incomes of anyone earning, let us say, less than £5 or £ 6 or £7 a week—whatever arbitrary point you like—shall be regarded merely as part of that process which has now been going on for thirty or forty years, the process of a redistribution of the national income which is bound to accelerate in the near future. On the other hand it is surely possible to take the view that although any man is entitled to higher pay for longer work or for harder work, there is something to be said for establishing the principle that no man is entitled for the same service to receive higher pay because the country is at war.
There is surely a moral basis as well as an economic basis for the sort of argument which both noble Lords have put before your Lordships. To take that view requires courage; it requires the sort of courage which our totalitarian enemies are constantly charging us with not possessing. There was some hint in the speech of a junior Minister, addressing a society of undergraduates in Oxford University last week, that the Government were intending to take some definite line—
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not a mere policy of drift, but some definite line—with regard to the problem of the rapid and substantial increase in munition wages; whether in the form of some adjustment of taxation or deferred savings, as commended by the noble Lord, Lord Balfour of Burleigh, was not disclosed. I can only say for my part that I hope very much that the noble and learned Viscount is in a position to disclose that at least there is some Government policy, and I hope very much that it will be a courageous policy.
THE LORD CHANCELLOR (VISCOUNT SIMON): My Lords, I very much agree with the observation made at the beginning of his speech by the noble Lord, Lord Arnold, that when so important a subject as this is down upon our Order Paper for discussion it is regrettable that it should have to take place at an awkward hour when the House is comparatively empty. The noble Lord who raised this matter to-day has, as before, rendered a public service by so doing. It cannot be other than of vast importance, as well, of course, as of very great interest, to analyse this complex problem of inflation. I merely beg for one concession to begin with. If by any chance I were to make any remark on this subject which appeared in the smallest degree to relieve the blackest apprehensions, I do hope that I shall not on that account be accused of being complacent or indifferent in such a matter. Certainly I, myself, feel my withers quite unwrung.
I have reason to remember the first Budget of the War and the speech made when it was introduced. I venture to think that anyone who refreshes his memory by reading that speech will find that it dealt very concisely and clearly with this subject of inflation. If your Lordships can recall your memories of that time you will find that when that Budget was introduced the proposals it contained were not regarded as trumpery and half-hearted, but were regarded by many serious persons, including some members of your Lordships' House, as being staggering in their exaction. Of course, that is nothing to what we have had to face in subsequent Budgets, and I have no doubt that we are still far from the end. I do suffer from one handicap which is inevitable and for which I again ask your Lordships to grant me proper

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indulgence I am not seeking for shelter for myself in any circumstances, but the fact of the matter is that there is a certain difference between the Chancellor of the Exchequer and the Lord Chancellor. Discussions which bear on the approaching Budget and debate how much weight should be given to this or that factor, as in the interesting debate we have had to-day, raise matters on which I cannot possibly say anything at all. It must be, in the nature of things, for the Government in another place: and the Chancellor of the Exchequer himself to say. We must remember that it must be in the House of Commons rather than in the House of Lords that statements of Government policy are made which bear directly upon budgetary problems. Subject to that, I am at the disposal of the House and will do my imperfect best.
I do not think it is altogether useless to ask oneself, first of all, what we really mean by this word "inflation." Naturally, experts understand it thoroughly, such as those who have spoken to-day and many others, but I am bound to say I am not entirely convinced that everybody outside who uses the word has a precise definition at the back of his mind when it is used. It is used sometimes in loose controversy—not of course in debate here by those distinguished members who have spoken—as though, in substance, inflation was proved by rapidly rising prices. Of course, as indeed was pointed out by Lord Balfour, prices may rise, and rise very much, in circumstances which do not involve this inflationary influence at all. You would expect prices to rise in time of war. To give a simple illustration as I go, the black-out is very likely to involve that more hours have to be spent in producing a particular article. The difficulty in bringing materials or manufactured goods over the sea, more indirect routes, occupying more time with heavier insurance—all these things tend to promote a rise in prices, even a very substantial one. But that is not really the point involved in inflation at all.
If what I may call the real costs of things rise, then there is no reason for saying that inflation is operating although prices may very considerably rise. T only mention that in order to get it out of the way. I certainly am not the person to lay down any final or formal definition, but from such study as I have been able
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to give to this subject as a very earnest student, it would in substance, I think, be correct to say that inflation means this. It means a particular kind of rise in prices—a rise in prices so marked as to amount to a substantial lowering of the purchasing power of money which is attributable—this is the essence of it—to an excess of the total quantity of monetary purchasing power over the available supply of goods and services. As everybody in the House knows, it is an extremely difficult thing, especially when circumstances are changing so rapidly, to evaluate and quantify these things and to pronounce a confident judgment as to what will be the result.
I would like to point out that the very definition of inflation manifestly requires us to look at the matter from two sides. You may have the side of the supply of purchasing power very rapidly increasing, and that I presume is one of the reasons why the noble Lord who has just spoken and the noble Lord who preceded him said something about the rapid rise-in wages. You may also have to look at it, of course, from the side of the supply of goods and services. In a normal condition the two sides equate, they balance. If you get a serious dislocation between the two sides you may get it either through a rise on the one side or a fall on the other. At the beginning of the war our attention was principally directed to the side which is connected with the danger of an increased supply of purchasing power. Our experience of the last war, and I expect the experience of any great war, warns us of that danger. At first therefore the overmastering fear was the fear of a colossal war-time expenditure so uncontrolled that it would raise the whole level of spending on the part of those who receive salaries and wages. In the later developments, the other side of this matter is equally important. There has been an enormous restriction of supplies. At this hour and in these circumstances I shall not give illustrations, but everyone who has even indirect contact with his domestic housekeeping knows that there has been—largely by the action of the Government and largely by the circumstances of the case—an enormous reduction in all sorts of ways in the supply of goods and services.
It is important to bear in mind that either of these sides may vary so as to

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produce anxiety. Speaking for myself—and I am speaking after consultation with those who advise me—I am disposed to think that it is the second of these two elements that is the one to which very careful attention must be given at the present time. I should myself have somewhat doubted whether the increase in the aggregate money income of the community, resulting from our war expenditure, has been as great as many people apprehended a year ago. It is quite true that a great many skilled toilers are getting greatly increased wages. My noble friend who spoke last called attention to a striking case. It is also true that a vast number of people in this country have never been so poor in their lives, and probably in all quarters of the House we know quite well that there is in fact not a temptation to indulge in increased expenditure, but, on the contrary, every kind of effort is being made to discover ways and means of avoiding it.
In the case of the administration of industry what has happened in many cases is that an enterprise, because of war conditions, is avoiding or postponing all sorts of expenditure which in peace-time it would undoubtedly undertake, such as the maintenance of its property in a full state of repair and even improving it by the use of reserves. All this kind of expense element in industry has in the nature of things been postponed, and it is for reasons of that sort and not out of any sort of complacence or ignorance or want of either clarity or courage—those I think were the two virtues which my noble friend most particularly desired if possible to be embraced, and he is quite right—it is not for the want of those things but it is because there are enormous restrictions of an increasingly drastic character upon the supply of goods for the civilian market in consequence of our having to concentrate the whole of our resources as far as we can on the purposes of war. We have had to cut down non-essential imports ruthlessly in order to make more shipping available for war materials and war supplies of all kinds.
We have had to restrict and almost stop altogether the manufacture of a large range of household goods for the home market in order to free materials and labour for the war effort, and at the same
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time of course make our very best effort to maintain and increase our exports by every means in our power. If you add to the circumstances of the war the way in which air attacks make the stock of goods in warehouses and in shops less than they otherwise would be, the net result is that there are far fewer goods to buy to-day, and that is why I say I believe the second side of the inflationary problem really is so important to-day. I respectfully suggest, speaking I need hardly say not simply on my own judgment, but after such help as I have been able to get on this subject from Government Departments, that it must not be overlooked in order to concentrate on increases in spending power in a certain section of the communities. It is too much to say that it is all due to increases in wages in recent months. Certainly the centre of gravity of this problem, as it is viewed by those experts in the Treasury and elsewhere who are labouring on the matter, has somewhat changed. It has been said, at any rate with some degree of truth, that we have had to pass from a surplus of money to a shortage of commodities.
Now I should like to say one or two words on the noble Lord's Motion. He said quite frankly and fairly he was sure that we as a Government would affirm the proposition with which he started he asked if His Majesty's Government adhere to the policy of avoiding inflation. Certainly we do by every conceivable means in our power. Of that, of course, there cannot be any question. But the noble Lord really only starts his question in that way because of what he has to say afterwards. May I here make a respectful comment? He wishes to draw attention to the fact that inflation is inevitable "if expenditure greatly exceeds the sum of taxation and borrowing in a given period." Naturally when drafting a question, one has to use brief language, but I think some of the terms of that assertion require to be elucidated. "The sum of taxation and borrowing." Of course that is not the whole story. Indeed, the interesting analysis of the noble Lord, Lord Arnold, just now, showed how other things come in. I am sure my noble friend who raised this question would not fail to include them: for example, the call made during the war upon our reserves of gold and of foreign securities to finance purchases overseas,

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as well as. the substantial sums that we can be said to have borrowed as a country through various channels, though the Government itself may not have been the direct borrower from countries overseas.
There is another way of putting this same point, and if I am criticising what my noble friend said, I hope he will not accuse me of employing dialectic. I will try and state the matter in as plain terms as I can. It is very important to remember what is the overseas aspect of this matter. In a great war like this we are bound, of course, to increase our adverse balance of payments and in a certain sense that really means that foreigners are lending to us. But it is even more important to observe that the purchases which this country makes abroad, even though they be purchases at a high figure, even though they have the effect for all I know of providing foreign workpeople with larger rewards and increased payments, do not affect our own problem of inflation at all. It is our domestic transactions which are essential for this purpose. Purchases from overseas may land us in all sorts of other difficulties. they may land us in a greatly increased debt and all sorts of things, but the increased spending power, the creation of which is one of the dangers which create inflation, means the increased spending power of our own population. It is nothing to the point to say that the British Government in the course of carrying on the war have very considerably increased the spending power, which I dare say they may have done, of various people overseas.
That is really a very important qualification. In so far as our Government expenditure is incurred for the purpose of buying from abroad—and that does account for a substantial part of it—how ever disadvantageous the ultimate result may be to us, it does not produce immediate danger of inflation because the expenditure did not contribute to increasing the level of incomes at home. That proposition, I think, will be accepted by all well-instructed economists and all who are students of this subject who are interested to examine it. It is plainly very relevant when you come to figures in this discussion, and my noble friend Lord Arnold, when he worked out his calculation so clearly just now, when he spoke of Gov-
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ernment expenditure was including Government expenditure made abroad. That is one of the reasons why those who have special charge in the expert sense of this important question do not subscribe to the extremely gloomy picture which is painted, no doubt for our encouragement and to stimulate what are thought to be faulty endeavours.
The noble Lord referred to an article which I have also seen which was recently published in the well-known economic journal, the Economist. I do not want to enter—it would be unseemly—into a detailed controversy with the author of a particular article but I think your Lordships' House is entitled to know what is the view which is taken by the Government and their advisers of the particular calculations in that article. The conclusion in that article is based on some extremely speculative estimates. The conclusion quoted by the noble Lord is that in the next year we may expect—I rather think it means we may expect as a minimum—a gap of £1,800,000,000—of course an enormous amount. It is obviously very difficult to forecast what is going to happen next year, and no one is to blame because the calculation is speculative, but the way in which it is arrived at is remarkable. The author bases the result-on a very interesting study by Professor Pigou, who says that recorded figures for the first year of war show that in his view the national income in the first year of the war rose by 25 per cent. It must of course have risen by a good deal because of the decrease in unemployment, the overtime that is worked all over the place, rises in salaries and wages, and this learned economist taking past figures says, "I believe that the national income in that first twelve months rose by 25 per cent."
The author of the article in the Economist assumes as a basis of his calculation a continuing increase at the same rate, that an increase of 2 per cent. every month will go on month after month all this year and next year too. That appears to be a rather rash assumption. One would have thought that with the pool of unemployment being drained, with the control of prices becoming more and more strict, those things would make some difference to the continuous swelling of the national income. But this article is based on the view that it will go on in-

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creasing at the rate of 2 per cent. each month for the whole of this year and the whole of next year. Therefore he reaches a very large figure for this year's national income—as I understand, a very much larger increase than has been reached by those who have examined the matter for the Government. He finally comes to the conclusion that next year our national income will be no less than £9,000,000,000. It is a very large figure, which can only be reached by presuming this monthly increase. Having in that way reached what I venture to call a speculative figure for the national income next year, he takes an assumed percentage of it to arrive at Government expenditure next year. I think your Lordships will see that my noble friend Lord Arnold may very well turn out to be justified in saying that that particular calculation was far in excess of anything he would suppose to be likely to be right. Whether it will be right remains to be seen. If it is right, it is not because of any calculation in the article at all. It seems to me that really it is not a piece of close statistical reasoning at all. It rather belongs to the class of warning immortalised when the fat boy said to the old lady of Dingley Dell: "I want to make your flesh creep."
LORD ARNOLD: I am extremely sorry to interrupt the noble and learned Viscount, but may I ask him if he would make one point clear? I think it is important. I entirely agree with everything he said just now, but I would point out that the author of the article in the Economist is dealing with the gross national income, and, as the noble and learned Viscount is aware, there is a difference between gross national income and national income as calculated by a great many other statisticians.
THE LORD CHANCELLOR: That may be true. But I was saying that the article is one which starts with a figure ascertained in the first year of the war and then claims that it can safely be supposed that the corresponding figure will be £9,000,000,600 in a year's time.
LORD ARNOLD: But it is a figure of gross national income to begin with.
THE LORD CHANCELLOR: Now I would like to say one word on the point definitely put to me: Is it possible to
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evaluate the gap? That is a most proper question and a most interesting subject to which I have given some little attention although of course I cannot speak myself with any great authority. The conclusion that is reached by those who are working on this matter is that no reliable estimate of the gap is possible. You cannot have more than a rough estimate of the magnitude of what is called the gap. Just see what the elements are which have to be measured. You have got to start with a Budget deficit and I have no doubt that that can be estimated within a certain range.
I do not think I subscribe to the comment of my noble friend Lord Arnold on the estimate in the Budget which was I think £3,500,000,000 expenditure compared with an actual total of £3,900,000,000. When you are dealing with such enormous figures and dealing with a war which is taking every moment additional shapes and calling for new commitments, is it a very grave reproach if the Chancellor of the Exchequer says tentatively that he imagines that the expenditure in the year will be so-and-so and out of such enormous totals the actual figure turns out to be £400,000,000 more? I think it is asking rather more of those marvellous human machines that work in the Treasury than is reasonable.
Next, you have to take into account the extremely difficult figure of the adverse balance of international payments. Some of us have made speeches on that subject bringing together all sorts of figures, but having to admit in the end that much of it is highly speculative. It is particularly difficult to deal with all those "invisible" items which in time of war are so hard to measure owing to novel and changing conditions. Thirdly, you have to bring in new savings, but I do not think it is correct that you find that out just by adding together these three striking figures as Lord Arnold did; figures for the production of which we and the whole country are so infinitely indebted to Lord Kindersley. There are other savings going on as well. Many companies today instead of spending are putting more aside because they do not know what the future has in store. Many humble people are keeping their money locked up in some place because they do not know what might happen in the event of air

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raids or invasion. The important thing here is that people should not spend. If you could stamp the extra spending power, which people may be getting, with the further qualification that they would not spend it, no harm would be done. It is the act that they can spend it and do spend it that causes the difficulty.
Many items ought to be taken into this calculation. There is the fact that in many great enterprises they are not undertaking the expenditure which they normally would. All such things have to be brought in before you get a calculation which would enable you to say what is the true nature of the gap. All I can tell the Mouse is this, that while the authorities are constantly alive to this danger they are, even though all of them may not have the opportunity of making speeches about it, of the view that the argument which is being used to establish that there is so great a gap as many students suppose is greatly mistaken. They sincerely believe that, in this connection, matters are being handled in this country infinitely better now than they were being handled before. We know that large restrictions are being put on spending, and saving is being encouraged, so that in this matter the country has a policy which does not deserve" to be treated as half-hearted or unduly sanguine.
May I be allowed one word in conclusion? The noble Lord, Lord Arnold, urged that we should get a margin for safety. He means that we should not only not be got into these dangerous inflationary waters, but should get a long way above them. That is a counsel of perfection because we have to fight a war and we have got to do it whatever it costs and be prepared to face risks in various quarters so far as we cannot avoid them. The thing that must come first is fighting and winning the war. I do not seek or desire to minimise the importance of this subject; I merely say we cannot: so conduct affairs that in the midst of this, the most terrible war of all times, there will always be ensured an abundant margin for safety. I think it is for us to see that there are known throughout the country the efforts which are being made with all our energy and thought. My own impression is, having followed this closely, that these efforts have been and are being appreciated. I thank Lord Balfour of
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Burleigh for raising this matter again and for his most instructive speech. Let us all make this "personal appeal" of which Lord Arnold spoke. I make it my business to go about once a week or once a fortnight to one of these meetings in the country and do the best I can, not of course criticising the Government's efforts, to urge the people to realise the importance of saving and not spending, and the reason why. No doubt many of your Lordships do the same. That is at least a contribution still left to the House of Lords though in some respects its financial powers are limited. I agree with the noble Lord as to the importance of frankness and courage. I have tried within the limitation of my powers to speak with frankness. I do not think that this country will be any the worse if it believes that even this trial can be overcome if we all work together to secure that end.
LORD BALFOUR OF BURLEIGH: My Lords, I should like to thank the noble and learned Viscount on the Woolsack for what he has said. I shall not detain your Lordships for more than a few minutes, but I must take some exception to his statement that overseas purchases do not affect the domestic situation. The overseas assets have to be acquired, and the Government have presumably to pay for them in sterling. His contention is, I think, true only to the extent to which the overseas seller of the goods docs not exercise the purchasing power so obtained. I was glad to hear what the noble and learned Viscount had to say about the size of the gap. We must, of course, accept his statement that in the deliberate view of the powers that be, that gap is much less than the figures I gave indicated. Your Lordships will recollect that I did not put forward those figures as being my view of the situation; I gave them as having been published in the public Press. I am particularly glad to hear the view of the noble and learned Viscount that the gap, next year at all events, does not show a prospect of being so big. He was not so reassuring about the gap this year, nor did he tell us much in answer to the evidence which I put before your Lord ships about inflation.
Most significant of all, the noble and learned Viscount did not refer to the question of a wages policy. I hope that that means that the question of a wages policy is under real and serious consideration,

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and that he simply did not find it possible to say anything about it. It is for that reason that I did not interrupt him before he sat down and remind him that he had not referred to it. It is a point on which all of us who spoke insisted more than on anything else. The last thing that I want to do is to embarrass the noble and learned Viscount. He said that he was being frank, but in that respect he was not being frank; perhaps it was because he could not be. I hope it is because the Government are now really taking this subject into consideration, and that in due course we shall be given the benefit of the result. I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

MINISTRY OF HEALTH PROVISIONAL ORDER (SHIPLEY) BILL.
Brought from the Commons; read 1a; and referred to the Examiners.

CONSOLIDATED FUND (No. 1) BILL.
Brought from the Commons, endorsed with the Certificate from the Speaker that the Bill is a Money Bill within the meaning of the Parliament Act, 1911; and read 1a.
Then, Standing Order No. XXXIX having been suspended. Bill read 2a; Committee negatived; Bill read 3a, and passed.
House adjourned during pleasure.
House resumed.

SUNDAY ENTERTAINMENTS ACT, 1932.
Orders made by the Secretary of State for the Home Department, extending Section I of the Act to the
Borough of Beccles;
Urban District of Hitchin;
Urban District of Newton Abbot:
Laid before the House (pursuant to Act) for affirmative Resolution and ordered to lie on the Table.

STANLEY ELECTRICITY ORDER, 1941.
Special Order proposed to be made on the application of the Stanley (County Durham) Urban District Council:
Laid before the House (pursuant to Act) for affirmative Resolution and referred to the Special Orders Committee.

ROYAL COMMISSION.
The following Bill received the Royal Assent:
Consolidated Fund (No. 1).
House adjourned.