WAR AND POST-WAR COMMITMENTS.

HL Deb 25 October 1944 vol 133 cc651-711

2.10 p.m.

LORD TEVIOT rose to call attention to the approximate cost of the war and the post-war financial and other commitments; also to examine likely methods of meeting this expenditure; and to move for Papers. The noble Lord said: My Lords, it is my custom when addressing your Lordships' House to be as short as possible and to mention as few figures as possible, but I am afraid on this occasion I am going to be longer than usual and I hope your Lordships will bear with me. I am also afraid that in order to advance my arguments I shall have to mention quite a number of figures. The object of my Motion is to face up to the realities of the situation as I see them. This is a big subject and a complicated subject, but I feel very strongly that discussion of it in your Lordships' House will help in its consideration. It should be a completely non-political subject. My great anxiety is that we seem to-day to be taking steps to spend a great deal of money without realizing the necessity of making the money in order to be able to spend it. I can quite understand an outsider, not very familiar with the world's affairs, saying: "Well, these people must have been having a great time of prosperity and are now cashing in on the profits." My view, however, is that never in our history have we been in such a critical and difficult time. My anxiety is lest all the sacrifices, the toil and the sweat undergone so splendidly by our people during the war will have gone for nothing and that we shall not be able to carry on as we would wish to do in peacetime.

I believe we should tell the people everything. I was told not very long ago by one of our most successful Generals that now, before a battle, they told the men everything so that a man went over the top knowing exactly what was going to happen, knowing of the strategy and the tactics that were being employed. I believe we ought to take the people into our confidence in regard to the difficulties of the future because I think, no matter how great those difficulties may be, the people will stand up to them and face them. But I am very apprehensive about not telling them everything. In studying the position I have come across some astonishing figures which I for one had no idea of previously. Let me take a sample. In 1914 we had a population, roughly speaking, of 38,000,000 in this country. The National Internal Debt at that time was £656,000,000. If I am right in my arithmetic the burden per head of population at that time was £17 To-day, in 1944, we have a National Debt of certainly £23,000,000,000 and possibly more, with a population of 45,000,000. I work that out roughly as a burden of £500 per head of population. That is an enormous jump and it seems to me that that ultimately must be a burden on industry In 1919, after the last war, our Internal Debt was £4,823,000,000 and at the beginning of this war it was £7,400 000,000. It is interesting to note that at that time our National Debt was practically the same as that of the United States of America with three times our population and three times our annual capacity.

I ash your Lordships to remember that plain situation in order that we may face up to the realities of our position to-day. In September of this year our National Internal Debt was £20,000,000,000 and Lord Keynes has told us that we have external liabilities to the amount of £3,000,000,000 which will probably rise to £4,000,000,000. I do not know what your Lordships think about it, but there we have the figure of £23,000,000,000 to £24,000,000,000 and before we are out of this war it may be that the National Debt will be somewhere in the region of £30,000,000,000. This colossal debt is bound, I think, to be a burden on industry no matter what economic experts say about it. My Motion is somewhat of a second edition to that very line Motion put down by my noble friend Lord Glasgow of last July. Unfortunately I was not able to be here then, but I have read some very admirable speeches that were made. Since that date the military situation has gone tremendously in our favour and what in those days I might describe as anxious speculations regarding the future have now become grave anxieties of to-day.

I am going to take as my starting point this—I wonder what my noble friend Lord Southwood will say to it—that war destroys wealth and therefore a nation is left poorer after a war than before it. There are two results: first, the destruction of existing wealth in the shape of houses, factories, shops, docks, railways and so on; and secondly, a diminishing production and accumulation of new wealth in those peace-time forms which give life its necessities, comforts, amenities and luxuries. That is the effect of war as I see it. In addition to this we have an appalling destruction of human life. I do not think that we can measure what fiat means to us in the economic sense, but it must mean a tremendous loss. We must not forget that as a result of all this the nation must be poorer. In my view, if we do not realize that, and tell our people that, we shall be committing a grave social sin in deceiving our people. Hitler built up a dream world to delude the Germans and the result is now clear. It may be said that the Germans liked to be deluded and should bear the consequences. I agree, but I am very anxious that our people shall not suffer the same experience.

In the spring of 1943 there were three important social factors: first, the physical volume of output of British industry; secondly, the average weekly earnings of our workers; and thirdly, the aggregate amount of small savings, naturally mostly the savings of our workers. Asfar as statistics go 1943 was a year of abounding prosperity. The worker had never been so well off. Yet with all this wealth he did not find it very easy to come by a substantial meal when he went out for the day, and when he wanted to buy for himself and his family some new clothes and boots he had the money all right but perhaps he had not, and generally he had not, the coupons. So you have this extraordinary situation of great wealth and poverty mixed up together. In the White Paper on the "Sources of War Finance," I find from pages 18 and 19 that our national income is just under £8,200,000,000. That is all that the nation has to spend. We often hear people say: "Oh, let the Government pay, let the Treasury pay." But the Government and the Treasury have no money whatsoever except what they get from the national income; that is to say, out of the taxpayers. I do not think we can rub that in too much.

It was admirably expressed the other day in another place by my right honourable friend Mr. Ralph Assheton, the Financial Secretary to the Treasury. In 1943 the personal expenditure on consumption at market prices was just under £5,000,000,000. Public expenditure at home and abroad was £5,200,000,000. We are left therefore with this position, that with income £8,200,000,000 and total expenditure £10,200,000,000, there was a deficit of £2,000,000,000. This has been made up by borrowing which has been of two sorts, by making use of pre-war savings abroad and, in so far as this has not sufficed, by creating and borrowing a large new amount of banking credit. Here is the source of employment in war years. It is really employment financed out of income plus capital. In the White Paper I find that in 1938 our income was £4,600,000,000 and personal expenditure £4,100,000,000; that is, exactly 90 per cent., or shall we say 18s. in the pound. In 1943 our personal expenditure was 6o per cent. or 125. in the pound. Some people say that the drastic curtailment of necessities, comforts and amenities can be continued without difficulty. I profoundly dissent. I need only rely on the evidence of my own eyes. I see queues outside shops and inside a supply of goods that is very meagre indeed. It is common knowledge that war produces full employment at high wages. Unfortunately it is not common knowledge that those things that can be done during the war cannot be done in peace-time without leading the people into a fool's paradise, from whence they will be very drastically expelled. That is what I am frightened of, and in my view this sort of finance must stop.

It cannot go on, but we are told by some that it is to go on. Sir William Beveridge now—fortunately, I think—sitting in another place was reported in The Times on September 28 as saying at Southampton that after the war we must make a new Britain free of social evils without regard to money costs. My fear is that this new Britain will very likely be a bankrupt Britain. I am not an economist, and I have no out-of-date theories. I content myself with up-to-date theories. When I see politicians chucking about thousands of millions as if they were like, we may say, tennis balls, I think it is high time to ask His Majesty's Government to tell us within a reasonable margin for uncertainties how many thousands of millions they propose to call on the taxpayers to provide in the earlier years of the coming peace. When I say "taxpayers" that term means everyone—not only those who are drawing incomes from securities, but the wage earners and everybody else in the country. In July last my noble friend Lord Southwood seemed to be a little indignant with my noble friend the Earl of Glasgow for saying that this country would be poorer after the war than before it. He did not quite say that the country would be richer, but he did say that it would be potentially richer. I am looking forward to hearing the noble Lord tell us—and I hope that he will join in the debate to-day—where he gets his potentiality. I have tried very hard to find it, and if he can show that I am wrong and he is right nobody will be more pleased than I shall be. I might answer him with a debating point to the effect that I am not so much looking for potential riches; what I am looking for is present riches measured in pounds, shillings and pence, and capable of transference to the Chancellor of the Exchequer. I prefer to examine the grounds on which it seems to me that the noble Lord based his argument.

They are simple, and simply stated. It is taken for granted, so far as I can see—I am delighted to see the noble Lord smiling because I am hoping that he is going to come back at me on this —that British industry having done what it has done for the purpose of winning the war, can do the same thing for the purpose of winning the peace and even improve on the figure achieved. No one has more pride than I have in the industrial record of the country. I saw, in the long journey that I took some two years ago, every evidence of the colossal war effort of our people. There has been nothing finer in our history. But I am surprised that the noble Lord should really and genuinely feel—it certainly appeared to me that he did—that we can carry on after the war as we have done during the war. No two markets can possibly be more different than the market in the war and the market after the war. In the one case we have a single buyer with an imperative demand and a bottomless purse. In the other case we have many different customers with multitudinous demands, and, moreover, a limited purchasing power, and we are competing with other nations in the markets of the world. Is there anything in regard to business which can be more different than those two things? The industrial result now described by the catch-phrase, if I may so put it, of full employment was reached over and over again before the first world war. And I confidently hope that it will again be reached after this war. But it will only be reached in the same way because there is no other way. That way is turning out goods that the rest of the world and our own people need at prices they can afford to pay. That is the only possible way.

We have a wonderful ability in this country—I do not say the power, and I do not say the will for we have both—but that ability depends closely on the post-war demands of the Chancellor of the Exchequer to finance post-war policies of the Government. It is quite plain—I feel sure that I shall rot be contradicted upon this—that the same cheque or bank note cannot do two things. It can help to meet the demands of the Chancellor of the Exchequer, or it may go to Industry. It cannot do both, and no socializing schemes can make it do both. The importance of money in this national industrial system was very well set out the other day, I thought, in the Economist. I quote from that paper: In a modern community, those who save do so it money, and the largely different set of persons who place the orders for the capital goods have to possess themselves, by some means or other, of the money necessary to cover the cost of those capital goods. The first question to be asked is, therefore, is there at adequate supply of money? My Lords, £s. d. are not meaningless symbols as Mr. Arthur Greenwood deemed. They are the motive power of the industrial machine.

The question as to how much money will be available after the war is not a question of an economist juggling with out-of-date theory, but the most practical of all questions demanding an answer on the threshold of the post-war world. I notice, with some amusement, that the node Lord opposite is smiling at my humble remarks. I only hope that, perhaps, they will get dealt with in detail afterwards. To answer the question precisely will riot be possible until we get the last White Paper on the Sources of War Finance, followed by the first White Paper on the Sources of Peace Finance. We can get only a rough idea of how much is likely to be in the kitty, so to speak, after making certain reasonable assumptions. Naturally, I do not expect an exact answer as to what the Chancellor of the Exchequer is going to take out of it, but it is necessary that industrialists should have a clear notion of where they stand.

The first subject of speculation is the amount of the annual national income after the war, since this is the source, and the only source, of all private and public expenditure, and cannot be exceeded by the Government without borrowing; and borrowing cannot go on indefinitely. I am afraid that I have to get back to figures again. The national income in 1943 was, as I have said, roughly £8,300,000,000, and for the four years 1940 to 1943 inclusive averaged £7,500,000,000. Let us remember that in 1938 the national income was £4,600,000,000. That was the last more or less normal year. I have given some attention to this subject and have taken the advice of various people whose judgment I respect. I am told that I may be putting it too high, but, in order not to overstate my case, I will take the national income for the four years after the war began as being roughly £7,000,000,000 per annum. It may be a great deal less.

I venture to remind your Lordships that this is the aggregate of all personal, private and earned incomes and includes all wages, salaries and so on. I admit that these figures are dull and difficult to remember, but from the figures which I have quoted it will be seen that in 1938 90 per cent. of the annual income was spent on consumption goods and services at market prices, whereas the proportion in 1943 was as low as 6o per cent.—that is, a difference between 18s. in the pound and 12s. in the pound. Unless we imitate the attitude of Hitler in Germany before the war, there will be a marked difference here. Hitler's slogan was "Guns, not butter." Are we to substitute for it "Social security, not beef and beer"? That is the sort of question with which we are faced. No one wants a better Britain after the war more than I do. The noble Lord, Lord Woolton, referred to social stability in the debate last July, when he said that it was the foundation of a better Britain; but social stability will not be secured by enforcing in peacetime all the avoidable privations of war. I do not wish to see our people slaving in order that we shall spend more than we can afford.

I assume that these serious considerations will be borne in mind by the Government and will have their effect on policy, with the result that our people will be permitted to spend, say, 75 per cent. of the national income on the consumption of the things which they like to consume. This is a half-way house between 1938 and 1943, and would absorb £5,250,000,000 of the national income of £7,000,000,000. I call special attention to these figures, though I apologize for giving them. The total national income I estimate as £7,000,000,000, with an expenditure on personal consumption of £5,250,000,000. These master items have to be examined in connexion with the inevitable necessity of reducing war-time taxation as soon as the war ends, which the Chancellor of the Exchequer has stated must be done. It is true that these two amounts are estimates, but they are the best which I can deduce for the early post-war years from the 1943 figures.

The figure of £5,250,000,000 for the aggregate of personal expenditure on consumption at market prices includes postwar indirect taxation. This branch of our twofold system of taxation has grown enormously during the war. In 1939 the shadow of war was darkening the sky and I do not look upon the Budget of that year as a normal one, but indirect taxation was estimated to bring in £349,000,000 in that year. The estimate in this year's Budget is £1,038,000,000, a growth of £689,000,000. Indirect taxation now amounts to an average of nearly £100 per family per annum. It will be economically necessary to reduce this tremendous burden in order to release the volume of purchasing-power necessary to maximize employment. I think it was Mr. Gladstone who said many years ago that the more you leave in the taxpayers' pockets the more prosperous the country will be, bearing in mind that 90 per cent. of the goods made in this country are consumed in this country. I assume, therefore, that the current burden of £1,038,000,000 is rapidly reduced after the war, let us say to £700,000,000. Even then it will be just double what it was in 1938.

I now turn to the difference between £7,000,000,000 and £5,250,000,000, or £1,750,000,000. This brings me, curiously enough, to within £250,000,000 of the Chancellor of the Exchequer's estimate for this year, which I think was £2,000,000,000. This £1,750,000,000 has to provide, after the war, not only all direct taxation but all the expenditures of our people who are not paying direct taxation, and I should say that this is a fairly useful yardstick for measuring what it is possible for the Government to do after the war in spending public money. In July last my noble friend Lord South-wood expressed the view that the Government would be required after the war to spend not less than £1,200,000,000 more than in 1938. In the financial year 1938–39 the Government spent £927,000,000. The noble Lord shakes his head. I will of course bow to him if I am wrong but I took this out of Hansard. In 1938–39, as I say, the Government spent £927,000,000. Add to this the noble Lord's £1,200,000,000 and you get over £2,100,000,000. The Chancellor of the Exchequer will get £700,000,000 of this from indirect taxation; this leaves £1,400,000,000 to be got from direct taxation in order to reach a balanced Budget, as contemplated by the noble Lord. This leaves £350,000,000 to provide for all the expenditures of the people other than those who pay no direct taxation, which expenditures are on this analogy to be left after the war at their maximum war-time level.

It seems to me that social stability, referred to by the noble Lord, Lord Woolton, is in jeopardy here. He described social stability as a foundation stone of post-war recovery and reconstruction, but there is a snag here. In 1943 the Chancellor of the Exchequer owed to the Income Taxpayers a sum of £305,000,000 in the shape of Income Tax paid during the war to be refunded after the war. I think it is a reasonable estimate to say that this amounts to £400,000,000 now. Is this sum, owing to the taxpayer, to remain unpaid because war-time Income Tax is said to be required for post-war policies? If that is so, social stability, instead of being secure, seems to me to be very severely jeopardized. And in view of what I have said people cannot be permitted to eat their cake and have it; that seems to me to be the point. Our industrialists are feeling, and have in fact expressed, the very urgent need for a broad outline of post-war Government policy, indicating the expenditures proposed to be allocated to them and the sources from which these expenditures are likely to be met. I hold it to be wrong, very wrong, to keep industrialists in the dark. While I do not expect that we shall do away with the black-out altogether—the position is difficult and very obscure—I would like to see a bit of a dim-out on this question. It is a most urgent need in regard to the preparation for the future. I think it ought to be estimated with reasonable accuracy, and I hope that we may hear something about it to-day.

Then there is another thing that disturbs a great many people. The whole of the future in regard to Government expenditure is based on the national income. We know that that has got to fall. As in the past, probably it will be a fluctuating income, yet here we are making ourselves responsible in the future for immense sums for all time. That is the worry of a great many people. Many of these items of expenditure no doubt do not amount to many hundreds of minions, but take the retirement pensions alone. Under the social security scheme they are to cost £160,000,000 in 1945; but the estimated cost in 1975 is £324,000,000. You may think that I am looking rather a long way ahead as many of us will not be here then, but I think that at a moment in our history like this we have to look ahead a long way and that £324,000,000 is twice as much as the estimate for this item next year. So that if this one item has to remain a constant percentage of our national income it seems to me that our national income in 1975 will have to be double what it is in the early postwar years. But unfortunately it may not turn out to be true; it may be that I am too optimistic. In 1940 the figure was dust under £6,000,000,000; in 1938 it was as low as £4,000,000,000 and it may be that my noble friend Lord Woolten had this same dubiety in his mind when he recently said this: We must avoid the creation of a state of affairs in which the overhead charges for getting ideal conditions are such as to prove beyond the earning capacity of the country. These are striking words, and it is a tremendous pity that they passed almost unheard and unheeded, simply because they do not chime in, as I see it, with the extravagant assertions of our so-called advanced thinkers. I noticed in the Press only yesterday that a very eminent member of the Socialist Party sounded a note of warning in a speech he made. I refer to the speech of Mr. Shinwcll—a very sound and very wise speech.

It is true that we must put down the Government's claims as the first charge on the national income, but there are other charges. Among these is the vital annual charge which will be required re-equip British industry, to make it capable of producing the nation's income required for all these vast purposes. This efficiency can only be produced by vast expenditure of money capital on more and better capital in the shape of materials, tools, machinery, power, ships and buildings; in short, doing again for the purposes of peace what had to be done for the purposes of war, but the money going into industry. A most important illustration of this comes to one's mind. In September no doubt your Lordships noticed that the President of the Board of Trade called on the Lancashire cotton industry to set about making a radical readjustment for its post-war operations, but the industry itself, in a joint statement representing all the interests involved, had some months before issued a report having the same end in view. One of the things set out therein was that they would require £40,000,000 worth of new and improved machinery to enable them to do this very thing. Forty millions! What is £40,000,000? It takes a lot of finding. One looks hack and realizes the difficulties that are before us. It is not as a Scotsman or, in a humble way, a banker that I look upon this question of finding these great sums to re-equip our industry. It is something we have got to bear in mind, for it means the one thing on which these Social Services are built. Sir William Beveridge says that this cannot happen without full employment. That means the re-equipment of industry. I am very anxious to see some way by which this enormous amount of money can be found in view of the great sums the Government require to find.

I am sorry to be so long; I am nearing the end now. It is the basis of my appeal that at the present time, from the information I have from all over the country, there is a sort of industrial darkness, and I believe the Government should do something at once to state as accurately as possible the post-war claims they intend to make on the resources of our people. I have said that I put the national income at £7,000,000,000 after the war. I ask what is the Chancellor of the Exchequer going to take out of that for his own purposes. In 1938 he took 20 per cent., in 1943 he took 37 per cent. I give him 30 per cent. for his post-war purposes, with the warning that any long continuance of this high percentage will be economically dangerous and socially perilous. Thirty per cent. Of £7,000,000,000 is £2,100,000,000. Service of the Social and Civil Services will cost about—I am trying not to overstate the matter— £500,000,000. Service of the National Debt at the level reached at the end of the war I put at, roughly speaking, £600,000,000. These two items equal £1 100,000,000. Then I must take into account what the Chancellor of the Exchequer is going to refund to the tax-payers. I have put that at, roughly speaking, £400,000,000. Twenty per cent. of the E.P.T. is to be refunded, but 10s. in the pound will be deducted as unpaid Income Tax. I put the total refundable at £200,000,000, making £600,000,000 in all. I assume that, adopting the practice familiar to most people, he will pay this debt by instalments spread over, say, four years—£150,000,000 per annum.

Out of this £750,000,000, the Chancellor of the Exchequer will have to provide, first, the cost of the Armed Forces, secondly, the cost of war pensions and gratuities, thirdly, this country's share of the cost of the occupation of Germany, fourthly, the Treasury's share of the cost of repairing war-time damage, fifthly, the Treasury's share of the increased cost of Social Services, including education, and, sixthly, all subsidies to keep the cost of living index as low and stable as possible—a very formidable list. In fact it is a list from which I shrink. This £750,000,000 will melt away like snow in the sun with this burden upon it. It is because of my own efforts to look into the post-war financial position, which have given such disturbing results, that I appeal to the noble Viscount who is to reply to tell us what we can do in the very serious condition in which we find ourselves. As I have already said, let us tell the people what the true position is, and they will stand up to it, but do not let us go about the country telling them they are going to have this wonderful new world to live in. I hope it will happen. I hope that noble Lords opposite who believe it will happen will tell us how it is to be done. It may happen; but in my view it will not happen for many a year. We have got to go ahead very cautiously, to economize all we can, to spend wisely and never unnecessarily, and no more than we can afford. If we do otherwise we may injure our people and bring grievous suffering to them.

We must face up to the realities of the position. As I read some of the speeches, they are just humbugging our people who have not got the figures before them. In the middle of it all, please God, we shall be able to keep our people employed, properly housed, properly clothed, and well fed, but vague perorations about potential wealth are merely in my view—I hope the noble Lord will forgive me—mischief-making. Practical advice on statesmanlike lines as to how we are to recover from our losses in the war is what we want, and public exposition of sound policy as to how it should be done. In conclusion let me say this. I apologize for keeping your Lordships so long and for having mentioned so many figures. I only hope I have been lucid enough to get my point of view over. I beg the Government to come out and give a clear and lucid picture of our difficulties as they can, and I believe, as our great people responded in war, so they will respond in peace. I beg to move for Papers.

3.10 p.m.

LORD SOUTHWOOD

My Lords, I hope that the noble Lord, Lord Teviot, will forgive me if I say with great respect that I think this House has seldom listened to a speech which will spread more gloom than the speech he has delivered here this afternoon. So far as I can see from what the noble Lord said, we are at the edge of a financial abyss and that the only thing we can do now is almost to abandon hope. Let us see if that is the position. The noble Lord challenges the claims I made in my speech in this House in July last. I do not propose to go over all the ground again. I tried then to make my case quite clear. I will, however, endeavour to allay his fears as to the country's post-war financial stability, and that I take it is what the noble Lord wishes.

Let us look at the position. The noble Lord takes exception to my claim that this war will leave us not poorer but potentially richer. First of all, is not the short answer to be found in the speech of the Governor of the Bank of England at the Mansion House luncheon, only a week or two ago? Having mentioned our heavy post-war burdens, Lord Catto added these significant words: But the productive capacity of the country and, therefore, the national income have also very substantially increased since the end of the last war. I am sure the noble Lord will not challenge Lord Catto's authority.

This increase in productive capacity has gone on at a tremendous pace, especially during the present war. Mr. Oliver Lyttelton has said that, under the stimulus of war, the output per head in the aircraft .industry has been rising at the rate of 2 per cent. per month against an average of about 1½ per cent, per annum for general engineering before the war. Even allowing for the wide differences between war conditions and those of peace it is, I am sure, quite safe to say that we may look forward to greatly increased productive capacity after tae war. During this war new discoveries and inventions have become great commercial possibilities. The use of photo-electric cells and X-rays, the application of high speed tool steel, improvements in factory lay-out, in jigging and tooling, in standardization, in simplification and so on have made enormous advances. These and other factors have so augmented our power to produce that there can be no question of post-war privation or scarcity if only we will harmonize finance with technology.

As a practical contribution to the debate, should like to offer a few suggestions for improving financial technique in the light of our post-war Budget responsibilities. First, I plead that the Government should lose no time in establishing the National Statistical Office, quite independent of Party politics, to ascertain and publish at intervals the facts concerning our capacity to increase production. These facts should be used as a basis for estimates of capital development. Our prime necessity is, of course, to avert inflation. The correct approach is not so much to stabilize the exchange value of sterling but to safeguard its purchasing power in our biggest market—,the home market. After the last war we first permitted prices to soar, and then, after 1920, we allowed them to fall catastrophically with the effect of increasing the real burden of all fixed charges. I suggest that this time we must avoid inflation and deflation alike, and the more urgent reed of the moment is to avoid inflation.

First, the cost of living must not be allowed to rise. We must give our work-people confidence in sterling. We must see that their wages buy as much as possible. This means something more than avoiding the premature abandonment of rationing and price control. It means we must continue to stabilize the cost of living at round about 3o per cent. over that of 1938, as it is at present. Many of us were very disturbed at the Chancellor's statement in his Budget speech that he could no longer regard that figure as sacrosanct. He said costs were rising. Now, with the European war nearing its end and with technological development transforming our factories, we should certainly not accept the inevitability of rising costs. Efficiency and far-seeing management is the answer. To reduce the present subsidies—even to refrain, if necessary from augmenting them —is to provoke wage disputes which of course we all desire to avoid. More than anything, rising prices destroy work-people's confidence. When they find the pay packet does not buy as much as it did they naturally want higher wages. And that brings me to the Purchase Tax. There is, of course, no sense whatever in keeping down the cost of living with subsidies while driving it up with a Purchase Tax. After the transition from war to peace, the Purchase Tax will have outlived its usefulness, which is to curb civilian consumption at a time when production has to be concentrated on munitions. The Purchase Tax can have no place in post-war Budgets.

And there are other and powerful reasons why we should stabilize the currency with cost-of-living subsidies. For five years we have been inducing people to buy war loan on patriotic grounds and the response, I am sure your Lordships will agree, has been truly remarkable. The time is near when many of these people will have to sell their war loan to renew their domestic equipment. They are surely entitled to expect that the Government has done everything to maintain the purchasing power of their money. But that expectation will be sadly disappointed if the cost of living is allowed to rise above its present level. The House will remember that the Prime Minister in his broadcast of March, 1943, referred to the "sacredness" of the savings of the people, and insisted that over a period of ten or fifteen years there ought to be a steady continuity of values. We must not forget, too, that the Government have just published, and presumably intend to enact, a social security plan based on fixed contributions and benefits with no provision for variation to meet cost-of-living changes. To enact such a scheme, and then to whittle down its benefits by letting prices rise, would be a betrayal of all that social security means. I submit, also, that the Government should state more clearly than is conveyed in the White Paper on Employment Policy that monopolists will not be free to make their own price-fixing arrangements. The interests of the consumer must be safeguarded.

Now, my next suggestions are designed to safeguard the taxpayers. Budgetary practice ought to distinguish between capital expenditure and current expenditure. A very simple test would be to regard as capital outlay that which, if financed by a private firm, would be treated as a capital charge and not as a running expense. I submit that we should follow the example of Sweden and present two separate Budgets yearly: a current Budget to be financed out of revenue and a Capital Budget to be financed out of loans. Roads, schools, housing, afforestation provide examples of what should legitimately be financed out of loan, not out of taxes. This Capital Budget will necessitate up-to-date statistics, which reinforces my plea for a National Statistical Office. Given the needful administrative changes, we should be able so to arrange that, at any time, when the volume of private trading shows signs of falling off, employment could to a considerable extent be maintained through expansion of State investment in useful public works.

National debt is not in itself an evil so long as it is covered by assets which make possible an increase in national income. Nor need all the assets be revenue-producing: roads, for instance, produce no direct revenue but indirectly they increase the nation's efficiency and therefore augment its capacity for production. Nor need national debt destroy confidence, even though it be so large that any practicable sinking fund would make no appreciable impression on it in the lifetime of any of us or our children. Our Victorian forbears, whose Budgets were 'prepared by financial purists like Mr. Gladstone, made no serious attempt, with their puny sinking funds, to pay off debt, which they could easily have done if they had been so minded. The £850,000,000 debt of 1817 was still £650,000,000 nearly a hundred years later. When we entered the last war, we were still paying for the battle of Waterloo! Obviously confidence had not been destroyed! Before I leave this question of debt, I want to say that I hope we are very close to the time when the Government will not have to tie up any more of the people's money in loans that represent only the means of destruction by war.

We all, of course, realize that money will be needed to finance not only the raising of the standard of living of the poorer classes, but also for capital extension by businesses large and small. I am not seeking to convey the impression that the State can do everything—not at all; but I do suggest that the policy should be to leave both businesses and individuals with enough money to finance their requirements for necessary equipment as soon as the goods become available, subject, of course, to such control as the circumstances of the time may dictate. The noble Lord has been telling us a lot about our National Debt. Our total National Debt of nearly £20,000,000,000 on March 31 last, as shown in the last Budget, included nearly £5,000,000,000 of floating debt, comprising Treasury Deposits by Banks, Treasury Bills and Ways and Means advances. It was money—I quote from The Times of September 3o, 1942— created by the banks by the simple process of taking up Treasury Bills or Bonds and crediting the Government with the corresponding amount. Practically all the floating dent"— I am still quoting from The Times— and a certain amount of the funded debt consists of new money created by the act of lending. That is the end of my quotation from The Times.

The position therefore is that the banks are deriving interest at 1⅛ per cent. per annum from loans which, as The Times made clear, represent only book entries. But the position is very different when you proceed to fund this sort of loan. You collect the money from the public by borrowing it, and you pay the money to the banks, who use it to cancel Treasury Bills and so on—which is quite right and proper. That is the end of the transaction, so far as the banks are concerned. But it is not the end so far as the Government are concerned—not for many generations. The public, having parted with its cash, expects interest, not at 1⅛ per cent. but at more like 3 per cent. The floating debt of £5,000,000,000 at 1⅛ per cent. interest costs the taxpayer some £56,000,000 a year in interest charges; but the same amount of funded debt at 3 per cent. interest costs the taxpayer £150,000,000 a year in interest charges (less, of course, Income Tax). So, there is an annual inflated charge of £94,000,000 with no tangible assets to set against it. I submit that, now the war is near its end and the investment market will be in great need of money for peace-time development, the Government should allow this floating debt to remain floating; thereby not only relieving the burden of taxation, but also avoiding imposing a strain on the capital market, the full resources of which will be needed for financing national development. Let the floating debt continue to float and not be funded. When the transition period is over, we shall not need any more huge war loans or victory loans to drain away money from the consuming market or the investment market. The only Government loans we shall, I hope, need then will be those for social betterment.

And now I turn to the thorny topic of German reparations, on which I would only say that we must avoid the error into which we fell last time—when the reparation goods created unemployment by competing with British industry. Reparation ships and reparation coal were cases in point. Suppose we take, say, £50,000,000 worth of German reparation goods in a year and proceed to sell them on Government account in the British market, Obviously we shall divert £50,000,000 of British purchasing power from British goods; British trade will be hit to that extent. The way to avoid that undesirable consequence—I dare say it will be disputed by many—is for the Chancellor of the Exchequer to increase the spending power of the people by the £50,000,000, through reducing Income Tax to that extent.

Finally, I come to the international aspect of the post-war financial position. Fears lave been expressed concerning the possible consequences of our Government adopting some such scheme as that pro- posed at Bretton Woods. On this I would only say that if, as I have advocated, we stabilize the cost of living in this country, and at the same time insist on a policy of employing our productive resources fully, we need have no fear that the pound sterling will ever depreciate in any sense that really matters. No currency can possibly depreciate so long as its purchasing power in the home market is assured. There is, however, one aspect of international monetary cooperation on which we on these Benches rest high hopes. It concerns capital investment in backward industrial countries. We should like to see the advanced industrial nations get together and agree on a concerted move to develop the producing power of the backward countries. Such a move would not only provide work for the factories of countries like our own, making capital goods for export, but also increase our national income and reduce, as a consequence, the burdens of our debt obligations and social commitments. It would also enrich mankind through augmenting the world's total production, and it would certainly improve international relations through raising the standard of living in less fortunate lands. I must not keep your Lordships longer as there are many speakers to follow me.

These, my Lords, are but a few suggestions to meet the heavy commitments the war has brought upon us. If adopted, they would, I am sure, not only meet these liabilities but leave ample margin for the social security legislation to which the Government are committed. I submit that there is no need for pessimism. The people of this country will never submit to going back to the pre-war days of slumps and booms—unemployment and the "dole"—nor, with our increased productive capacity and the rapid march of science, is there any need to do so. In spite of all the noble Lord has said, I am still unrepentant! I repeat that if after the war the plans I have outlined are skilfully handled, the country will be not poorer but potentially richer.

3.30 p.m.

LORD MOTTISTONE

My Lords, we have listened to two extraordinarily interesting speeches. My contribution is on somewhat different lines. I think it was Mr. Asquith who referred to a speech in the House of Commons as "filled with inspissated gloom," and I think we can almost describe my noble friend Lord Teviot's speech in those words. And that is all the more serious because while Lord Southwood, as we know from what he said, is an optimist, Lord Teviot we know is a man of quite remarkable and outstanding courage, as his record shows. What are we to do when a man so courageous views the future with so much alarm? I would say this. The truth lies, as always, between the two extremes. I can give some reasons for bringing comfort to the wounded soul of Lord Teviot, for bringing another ray of sunshine into this gloom.

All that Lord Teviot said in the way of facts and figures I understand to be perfectly sound and true. The remedies which Lord Southwood suggested may not fill the gap because a nation is exactly like an individual: if it persistently overspends it goes bankrupt and sinks into the position that bankrupts reach in a country like ours. As we know, they are often to be seen walking about without any soles to their boots. We cannot afford to run any risks of getting into that position, for the obvious reason that we depend entirely for any of the assets to which Lord Southwood referred, and which we all know to exist, on the valour of the men who are fighting our battles overseas. If we were to lose this war practically all our assets would vanish. If we win it, I believe that we can win through, and that we shall be able to afford some measure—I hope the full measure—of such munificent things as the Beveridge Report. I believe it to be possible, but, of course, it is obvious that everybody has got to try his hardest. If we were to fail to try our hardest then we should rightly be judged as traitors to those who are fighting so valiantly for us.

If by any sloth or indolence on our part we were to allow things to slide by saying: "Oh it will be all right on the night; we will vote the money all right and it will come along all right;" that would be very wrong. There is nobody on these Benches, or indeed in any quarter of the House, who would dream of doing such a thing consciously. But there is a danger; it is no use pretending that there is not. I quite agree with Lord Southwood that we shall weather the storm, but in order to do that it is obvious that we must have with us in these days the people of the country as a whole. If they do not agree with the plans Parliament proposes and the Government of the day bring forward, and they go the extreme, either from panic or from a wild spirit of recklessness; if they do not follow the advice of the Government, whatever the complexion of the Government may be—and here may I say that we have seen in this debate how completely remote from all Party divisions are these questions which we are discussing to-day—if the people do not play up, we are sunk, we are doomed, without a shadow of doubt, as so many countries have been doomed.

In this connexion I would cite the example of Paraguay, a tiny country which completely disappeared, as a community of human beings as we know it. The people of Paraguay went to war, they went on fighting and they went on borrowing money, until, finally, their wretched country, which before had been a nice-seeming place, was just a desert inhabited by people to be accounted as little different from the beasts of the field. That description I take from the words of one of the people of Paraguay. But that kind of thing cannot happen here for a reason which I am shortly going to give. The moral of the whole business is that you must take people into your confidence, as Lord Teviot said. You must tell them how matters stand, tell them that all the reservoirs of wealth that existed before have now nearly run dry, and that the figures given by the Chancellor of the Exchequer show conclusively that there is no more big reservoir to be tapped. You must make them understand that they have got to make up their minds, that they have got to decide whether they will pay for social reform or spend the money and "go bust." They can decide and they will.

Why did these many countries to which I have referred, go under? It was because all the money was concentrated in comparatively few hands. What has happened in our country to give us heart of grace for the future is most surprising. During the eighteen years that I have been connected with the National Savings Movement—and I need hardly say that I am pleading on its behalf now—I have learnt how to get statistics from the Department concerned, and I have some here which will astonish your Lordships. How far has it gone, this spreading of the consciousness of an interest in the country, of what used to be called—it was an expression used by Mr. Gladstone —a stake in the country? As Lord Addison will well remember, at the time of the End of the last war we were faced with the same problem of how much we could afford to spend on social reform without danger of repudiation or inflation.

Here are some simple figures relating to the small savings of the people. I believe, that the conclusion to be derived from them is most surprising. On December 31, 1918, just after the last war, there were £734,000,000 in small savings—a big sum. To-day, in these same categories there are £4,500,000,000. In that short space of time the figure has multiplied more than six times. Now let us take the amount of savings per household. That too is a very surprising figure. Of course, it is difficult to get it, quite right because of Eire Ireland always provided a puzzle for the statistician and always will, but sally very little difference is made by either excluding or including Eire. At the end of the last war, on an average, the amount invested by the small investor in Government securities calculated on a household basis, was £65 per household. To-day the figure is £380 for every household. That, as I say, represents money invested in Government securities. I leave out all questions of building society money, trade union funds, and so on, which amount to very considerable sums. But the fact is that in respect of the occupants of practically every house you pass as you walk along the street there is this investment of £380.

How many people are there who are holders of these securities? There are 17,500,000. I see the eagle eye of Lord Kindersley upon me, and if I quote a wrong figure he will, I hope, put me right. There are 17,500,000 individuals, out of our population of 45,500,000, who hold Savings Certificates. There are 18,500,000 individuals who have money in the Post Office Savings Bank, and another 3,500,000 who have money in trustee savings banks. A great many of these may be the same people, but I am advised by statisticians that it can be said with certainty that not less than 20, 000,000 individuals, and probably considerably more, are the holders of Govern- ment securities, out of a total population of 45,500,000.

When, therefore, Lord Teviot appeals to the people to be wary, he is appealing to people who have the power themselves to decide whether they shall succeed or fail in the task which Lord Southwood—and I agree with him—put before them, of financing these great schemes of social reform which will, I am sure, make a new heaven and a new earth in Britain—the Beveridge Report, financed and brought about; an end made to unemployment, as I am sure that it can be. We went wrong at the end of the last war, and we know it now. We can put an end to unemployment, and we can pay for what has to be done, but only if people keep steady and do not go wild or, what is even worse, become depressed and miserable and cease to lend their money gaily to the Government when Lord Kindersley says: "Now is the time to lend and enjoy yourselves: you can spend later on." I hope I have accurately described the kind of thing he says. It is because I am sure that we can weather this storm, though only by supporting this savings plan, that I have ventured to detain your Lordships for a few moments.

3.43 p.m.

LORD STRABOLGI

My Lords, this is really, as Lord Southwood has explained, the renewal of a battle which began last July with a very fierce attack by the noble Earl, Lord Glasgow, a battle which I thought had been ended by the complete defeat of the prophets of gloom by the speech of Lord Southwood in that debate, in which I assisted him as well as I could. Apparently, however, the prophets of gloom are not content with their worsting, and we have now a great reinforcement for them in the person of Lord Teviot. I shall endeavour to support the two noble Lords who have last spoken in trying to dispel this gloom which has been spread in your Lordships' House by the noble Lord, Lord Teviot.

On behalf, I am sure, of my noble friend Lord Southwood, and of other noble Lords who are interested in this matter, I should like to thank Lord Mottistone for his cheerful speech. If I may venture on one word of disagreement—it is only a matter of emphasis—it is this. Twice Lord Mottistone said that it is for the people to decide as to our future financial and industrial policy. That is perfectly true, but surely the people need a lead in this matter, and who can give a lead better than himself? I was very glad to hear his speech to-day. I should like to put a very few suggestions to Lord Teviot and to other noble Lords who, I understand, are here in force to support him. He quotes us again and again a comparison with 1910, before the last war.

LORD TEVIOT

1914.

LORD STRABOLGI

It is the same period—before the last war. That was, of course, a period which was the end of a hundred years of peace, apart from a few minor conflicts, a period of great industrial expansion. We were, on paper, at the top of our prosperity just before the first World War. It is possible, however, to make the same sort of comparison of the burden of indebtedness and the difficulties of Chancellors of the Exchequer if you compare 1914 with, say, the reign of King Henry VII, when we had just emerged from the devastating Wars of the Roses, and England appeared to be almost bankrupt. What was the burden of taxation then? What was the National Debt then, compared with 1914? What was the national income in those days? I suppose that the population of this country was about 12,000,000. We had not the advantage in those days of the union with Scotland and therefore the advantage of leadership such as we now get from Lord Teviot and other distinguished Scotsmen. We had no Colonies, and a very small Mercantile Marine. Most of the country had been devastated in the Wars of the Roses, and there were plague and famine throughout the land. Yet that was the turning point in the history of England, and it was followed by the great Reformation, the Elizabethan epoch, and the great Industrial Revolution.

The three centuries which followed the end of the Wars of the Roses and the coming of a strong king, in the person of Henry VII, and a strong Government, saw this country emerge as a great Power and take the place of the Mediterranean Powers and of Spain as a great mercantile and navigating country, building up an immense overseas Empire. Yet the Lord Teviots of those days—such of them as had survived the Wars of the Roses—could have painted an even gloomier picture than has been presented to us this afternoon.

What was the reason for that great expansion from seeming catastrophe? I will try to link this argument with the present situation. This great expansion and development and increase of wealth and prosperity, and indeed of happiness, in this country, and to some extent in the whole of Europe, arose from two tremendous events. One was the decay of the feudal system brought about in England by the Wars of the Roses and the other was the Reformation, leading to an even more devastating war on the Continent, the Thirty Years War. But, because Europe was free from the shackles of feudalism and of the medieval Church, there was a sudden release of human genius and inventive capacity and adventure, with all the tremendous results which followed. I venture to suggest that the two World Wars through which most of us have lived, although they have brought about great material destruction and, to a, certain extent, great moral harm, as all wars do, have released new forces, new energies and a new spirit of adventure in mankind with which we can reconstruct and rebuild, and not only make good the material damage but open out a new and happier vista of human society not to be compared at all with that in which most of us have lived.

It that is to be done, however, we want leadership, and courageous leadership. I do not always see eye to eye with our present Prime Minister, but he showed the right sort of leadership after Dunkirk, when we faced the world almost alone and most people outside these islands thought that we were utterly defeated. After this war we can be made out to be terribly poor, bankrupt, impoverished. We may have lost some of our Colonies, and it may take a long time to reconstruct our commerce and to restart our trade. It is possible to paint a very gloomy picture and depress the people and do a great deal of harm. At the same time, as Lord Southwood has pointed out, it is possible to indicate the immense possibilities in front of us; and in the few minutes for which I shall speak I am going to indicate some of those possibilities.

We are bound to hear before this debate closes something about our export trade and the terrible difficulties of our merchants in the future. I had made to me in the list day or two the report of a very able economist who has been studying the Middle East market for one of our great industrial concerns. There is there an unsatisfied demand, and the purchasing power available, for an immense amount of equipment and goods of all kinds. The countries dealt with were Turkey, Syria, Iraq, Palestine and Egypt. In those countries there is a demand for agricultural machinery, pumps, vehicles for transport, textiles, fertilizers—a whole range of products for which the people of those countries have the money to pay, for those countries are comparatively rich as the result of the war. The peoples of the Middle East have accumulated purchasing power, and they need these things and desire to raise the general standard of life. In those countries which I have mentioned—supposed to be poor countries—there is an unsatisfied demand for goods to the estimated amount of £200,000,000. They have the purchasing power, and we can meet this demand because we have the capacity to produce every one of the goods which those people require In Palestine there is a sterling balance in their favour of £98,000,000 and there are large sterling balances in Turkey and Egypt.

I have seen a survey made of the position in Belgium and France since their liberation. The need there for goods which we have in abundance in this country is tremendous, and for an obvious reason. The Germans took for war purposes the very things—machine tools, asbestos, tinplate and that sort of thing—which we had to produce in great quantities here for war purposes. The result is that Belgium and France are very short of these things, of which we are beginning to have a superfluity, and as soon as the fighting stops we shall find ourselves with a great superfluity of them. We have a market available immediately at our doors in France, Belgium and probably in Holland, which is greater than the one I mentioned in the Middle East and which it will take us all our time for some years to satisfy. The same applies in many other parts of the world. If we go about it in the right way we shall have no trouble whatever in keeping our mnufacturers who serve the export trade very busy indeed. I can satisfy the noble Lord about the sources of that information if he has any doubt at all about it. With regard to the export trade, we can rest perfectly easy in our minds, provided our people have the courage to go out into those markets and have the energy to exploit them.

Something, however, is needed. The noble Lord, Lord Teviot, spoke of the Lancashire cotton industry and the need of £40,000,000 worth of new machinery. I have seen a higher figure, but I will take £40,000,000, needed for the Lancashire cotton industry to bring it up to date. Lord Teviot is a shining light in the City of London; he is a banker, and I believe he used to be interested in the capital issue market. I should like to ask him this question, if he will be good enough to reply when he winds up the debate. How would he like to go into the City of London, now or after the war, to try to raise £40,000,000 for re-equipping the Lancashire cotton industry? Would he do it if we took half-a-crown off the Income Tax and abolished the Excess Profits Duty? Would he do it if we took five shillings off the Income Tax? Would he guarantee to go into the City of London and raise that amount?

LORD TEVIOT

The noble Lord has asked me a direct question. My answer is that that entirely depends on how the Government handle the present situation which I have endeavoured to picture to your Lordships to-day.

LORD STRABOLGI

If I understand aright, the noble Lord means that if the Government of to-day do not satisfy the City of London the money will not be forthcoming. Is that his answer? If it is it is a very curious answer. It is a sort of—I do not like to use the word "blackmail," it is what the French call chantage. Then there is another question. The coal industry is very backward in its machinery and requires about £200,000,000 worth of capital equipment and new machines. Provided he is satisfied with the Government of the day would he be prepared to undertake the capitalization of the coal mines with new equipment to the extent of £200,000,000 —even if we reduced taxation? He is very optimistic if he does think so.

LORD TEVIOT

The noble Lord is putting up some very hypothetical questions, which I do not think I or anybody else in your Lordships' House can answer on the spur of the moment.

LORD STRABOLGI

Those are most practical and immediate questions. The noble Lord's whole thesis is that out of the public's savings are made the investments we need to finance capital expenditure. That is his whole case, and he says you have to encourage those financial circles by reducing taxation so that more money becomes available for their capital issues. That is the whole case upon which he bases himself. I venture to say that I should be very much surprised if he and his colleagues in the City of London would be prepared under the most favourable circumstances to raise £40,000,000 for new machinery for the Lancashire cotton industry, or £200,000,000 for the coal mining industry. It cannot he done, because those two industries do not now create the confidence to enable the City to raise from the public—from the public, mind you—£240,000,000. The fact of the matter is that there are people on these Benches who could solve that problem of the noble Lord. It cannot be done in the City of London, it can only be done by our collectivist method, and that will need courage and a planned economy.

I apologize to the noble Lord, Lord Teviot, and the other noble Lords who have taken part in this discussion for going back to Henry VII. I did so for reasons I explained. This country was in a much worse condition then than it is now. The noble Lord, Lord Teviot, quoted Mr. Gladstone. The noble Lord can possibly remember that in Mr. Gladstone's time there was a great outcry when the Budget was touching £100,000,000 a year—it was bankruptcy, ruin! Did something fall from the noble and learned Viscount on the Woolsack?

THE LORD CHANCELLOR

I was merely thinking to myself that the Budget never touched that figure in Mr. Glad-stone's time.

LORD STRABOLGI

I said that people were talking of it, were saying, "If this extravagance goes on we shall find ourselves with Budgets of £100,000,000, and we shall be bankrupt! "And there was grave apprehension of an Income Tax of is. in the pound. The Teviots and Stan-hopes and Glasgows of those days were full of gloomy forebodings. We have just heard from the noble Lord, Lord Mottistone, the figures of the present colossal and crushing taxation and our enormous National Debt, but also of the great savings of the public. His is the spirit I prefer. Keep that bold front, and do not continually spread gloom and despair and fear of bankruptcy, but rely upon the genius and patriotism of our people. Then there will be no need to fear for the future of Britain.

4 0 p.m.

EARL STANHOPE

My Lords, I found myself in agreement with Lord Southwood in a great deal of what he said, but I was a little doubtful about several of his points, amongst others the one referring to a Capital Budget. Now I understand why he put that fonvard. It was in agreement, of course, with Lord Strabolgi who wants to nationalize everything, and so he puts in a Capital Budget. May I give them both a word of warning? Many years ago I was travelling in Australia, and I asked how the nationalized railways there were getting on. In one of the States I was told this was the practice. They were put under three directors appointed by the Government, and the directors were continually being pressed by politicians to extend the railways to this or that constituency in which they were interested and where they might expect to gain votes. The directors—the leading one among them was a C.P.R. official before going to Australia—refused to have anything to do with the matter unless they had an absolute power of veto on all these proposals, and unless the Government, when they ordered a line to be built, laid a special Capital Budget before the Victorian Legislature. See what happened. These politicians had to make good their case when they extended a line of railway so that it was not a charge on the taxpayer. That did not go on very long because in many cases these railways were extended purely for political and voting purposes. They lost money, and the taxpayers did not like it.

Therefore I suggest to Lord Strabolgi that when he talks about the State financing the modernization of the coal industry, he will find he will have to make good his case to the taxpayers of this country who find the money. If the State can earn interest on such capital expenditure, so can the private investor. If you get confidence in the coal industry, the cotton industry, or any other trade you will find that the private investor will be prepared to come in and play his part. It will be entirely unnecessary for the State to take the place of the private investor. If you put the State in the position of the private investor you will not get that energy, that drive, or those other qualities mentioned by Lord South-wood as being absolutely essential if we are to build up the productive trade of this country. You will only get that from private initiative, private interest in the work and the freedom of thought which comes from private initiative. The noble Lord, Lord Strabolgi, talked about the great increase in our trade after the Wars of the Roses when it was freed from feudalism and religious interference.

LORD STRABOLGI

The medieval Church.

EARL STANHOPE

Yes, the medieval Church. He now proposes not to free us from the shackles of Government control, but to put us more in the shackles of Government control and cripple all that energy and enterprise which he thought so much of in times past. A great many people—I do not think Lord Southwood is among them-seem to think that the whole of this problem is quite easily settled is we increase our production. That is only a half-truth. Let me give examples which I think are right, and in any case a great many others could be given by your Lordships who know more about this subject than I do. Go to a newspaper proprietor and say to him, "As soon as the paper control is off I suppose you will print as many papers as your presses can print."

LORD SOUTHWOOD

As many as the public will ask for, not so many as the presses swill turn out.

EARL STANHOPE

Quite. The public will demand a large increase in the number of newspapers printed, but supposing that demand is for one million copies, does any sales manager imagine that a newspaper would be wise in turning out two millions? Your presses can turn out two millions. Why not do it? The answer is because you only produce as many as are required by the public. Take the case of cigarette lighters. We are now buying cigarette lighters and pipe lighters —not very good ones—at 6s. each. When the war is over and we can buy matches again, how many of us are going to pay 6s. for a cigarette lighter such as is produced to-day? Of course the demand will go down. Therefore the real complete answer is that you must produce the things that the public require at the price they are prepared to pay.

For a country like Russia, the Soviet Union of course makes it a very simple matter for her home producers. She is extremely rich in natural products, and she has to go nowhere else to find the raw materials required for her manufactures. All she has to do is to put on adequate tariffs and adequate controls and quotas to keep out competition from abroad. Therefore she can sell to her people as much as her people require to buy at such prices as she pleases. That is not our problem. We have to sell abroad and' to export in order to get the raw products which are necessary for our home industry. That is our difficulty, and that is what Lord Teviot has in his mind, I think, when he suggests we have to be extremely careful that we do not overburden our industry with overhead charges greater than they can stand. We have to compete in other markets with other nations, and therefore, if you are going to pile taxes on to the manufacturers of this country, it stands to reason that these prices are going to be extremely high and non-competitive with other countries.

I made this statement some two years ago when the matter was debated before. Then the noble Viscount on the Woolsack said that I had forgotten the question of coal. I had not, but I wonder if he thinks our coal is going to get a very ready sale after this war. Even before the war began, in the days when the rest of the country was in a fairly prosperous condition, before the great slump, the most depressed areas in the country were the coal exporting areas. What was the reason? It was because coal from this country cost more than coal from other countries. It is true it was better coal, but it was expensive. As a result people began to use oil, electricity, water power, and the rest in place of coal. For five whole years now they have had to do without our coal, and our coal is not going to be any cheaper. In fact we know it is going to be a great deal more expensive. Therefore coal is not going to help us much in our export trade.

Yet many of us were startled to find that if we are going to keep up our standard of living we have got to increase our exports by no less than six times their volume in 1938. That is a gigantic task. The only way we can do it is by seeing that our overhead charges are kept down and our productivity increased to the utmost possible extent. In the old days it used to be said that wages all over the world came out at very much the same figure. Wages in this country and in the United States were high, and in the Far East they were extremely low, but when we took a line through these wages they came out roughly level because of the very high expert and skilled advantage the workmen of this country possessed and our high rate of production. That, I am afraid, has been a good deal undermined by automatic processes, where one man or woman can look after a number of machines turning out a vast number of articles. Skill thus counts for less; but there are still many openings for the skill and drive of the people of this country.

On a former occasion I talked of "luxury trades." That was a wrong description. Perhaps a better description is "highly finished articles," such as motor cars, wireless sets and the rest. I am quite certain we can find a large market for these things not only in the Middle East, as Lord Strabolgi said, but also in South America and elsewhere; but only if we can sell at a competitive price. It is essential for every one of us to realize that we must do all we can to help to keep production in this country going to the utmost possible extent, to give every possible facility to manufacturers to use their skill, brains and experience, so that we may be able to compete successfully with other countries in the markets of the world. I entirely agree with my noble friend Lord Southwood that there is an immense market to be had in developing the backward countries, but let us remember this. How are those trades in those backward countries to be financed? Lord Strabolgi said we are not paying for this war by taxes or by credit, but we are paying for it by work. That is not a view all of us, I think, would accept because workmen have to be paid and services also have to receive their salaries. The war is, of course, paid for by credit and by taxes and unless you are going to tax the people of this country to finance that trade in those backward countries, it has to be financed by saving. As I said on the last occasion in July, people have a limited amount of money in their pockets and if you take too much of that money out of their pockets in taxes they have less that they can invest in production which is so essential, as we all agree, to the future of this country.

LORD STRABOLGI

Will the noble Earl forgive me? He has been kind enough to refer to me. He says we have to finance the exports of this country, or the trade of this country. Is he aware that there is a sterling balance in all these countries that I have mentioned? Palestine has a sterling balance of £98,000,000. They have that balance against us to pay for our goods. Then in Turkey and in Egypt they have sterling balances, and there is a balance of £2,000,000,000 in India. Those markets want our goods and they will have the money to pay for them.

EARL STANHOPE

£2,000,000,000 does not go very far when you are financing India for any length of time. I do not know what the ordinary trade of India was before the war. I am willing to agree that £2,000,000,000 goes a long way, but in many other countries there are no sterling balances. There is nothing in China and nothing in some of the countries of South America and in other places where there are great markets. Therefore I do not think I am in the least upsetting my argument when I admit that there are large balances in certain countries, because it must be remembered that in other countries there are very large debts indeed which will more than offset those balances.

But I do not want to take up any more of your Lordships' time. In July we were fed, I think, with a rather over-ration of soothing syrup from Lord Woolton when he replied on behalf of the Government. He did at any rate make this statement, which I again repeat, that we must not overburden industry with overhead charges which it cannot bear. And he did make another statement which I am quite certain my noble and learned friend on the Woolsack can certainly not agree with as an old Chancellor of the Exchequer. He said that the sole onus of responsibility in regard to expenditure rested squarely on the shoulders of Parliament. We are a democracy, it is true, but there is a thing in this country called a Government and this Government has got to govern whether there is democracy or not because anything else means mob rule. I am quite certain my noble and learned friend when he was Chancellor of the Exchequer found very little support for economy and careful spending from members of the House of Parliament. Therefore it is with the Government that this responsibility rests. It is they who have to say what is our position, and to show us that our position is indeed serious, but that it can be met if we manage to produce goods, and such goods as are required, at a competitive price. Only by freeing us from Government control and by keeping our overhead charges down to the lowest possible figure, shall we be able to do anything of the kind.

May I make one other remark which is perhaps rather beside what I have been saying? At the end of 1939 or the beginning of 1940 a very valuable report was produced by the Medical Research Council showing what were the maximum economic hours a man could work. One of the greatest mistakes that has been made by this Government in this war is that they have entirely forgotten that report and men in factories, and women too, have been working far longer hours, after Dunkirk, than was the economic limit. I believe they are still doing so at this moment in the repair of London. Let us realize, as Lord Woolton said, that to improve the conditions of the labour of people in our factories may be a wise and economic expenditure. That is not an overhead charge. It is not a wise thing to increase hours of labour. But let us realize also that that is an entirely different thing from loading industry with burdens which it cannot bear, and which bring it in no return whatever.

4.16 p.m.

LORD MONKSWELL

My Lords, the noble Lord who initiated this debate has told us what the financial position of this country is likely to be after the war. In listening to him and to subsequent speakers, I was surprised to hear that so very little attention was given to the subject of inflation. Inflation, to my mind, is by far the greatest danger which threatens us. Runaway inflation will destroy everything and it is impossible to exaggerate its danger. All plans and all undertakings are subject to the overriding condition that the currency maintains its value, and if these plans and commitments are of such a character as to make this impossible financial breakdown must ensue. In order to put things right, it is first of all important to decide what it is that is wrong. I should like to suggest one very simple explanation of our financial troubles which never seems to interest any appreciable number of people and is hardly ever mentioned in Parliament. It is that since the beginning of the last war this country has been living beyond its means.

During a war, while we are fighting for our lives, nobody expects us to live within our income. We have to keep going, whatever the cost, and leave the future to take care of itself. But, once peace returns, no country can go on permanently consuming year by year more than it produces. It may not be absolutely necessary to balance the Budget every year but if this is not done disaster is not far off. By balancing the Budget I mean much more than the Budget presented to Parliament by the Chancellor of the Exchequer every year. I mean that the total amount of goods and services produced each year in these islands must be at least as great as the total amount consumed and preferably much greater. As regards the official Budget, it is long since it was balanced out of income and for many years taxes have been largely raised from capital. It is also only too obvious that many persons have been selling out capital to meet their private needs. The root of the trouble is the absence of any material standard of value for the currency.

Theoretically, any one rigid standard is as good as any other but in practice gold is by far the most convenient. One of the great advantages of the gold standard is that any increase in the price of anything, including labour, is at once reflected in the increased price of gold and in an automatically diminished demand for the goods or services whose price has been raised—that is to say, the gold standard is a powerful influence in stabilizing at its market value the price of anything we buy. This is the precise reason why it is unpopular with idealists who dislike the notion of two and two making four, and appear to suppose that political action can supersede simple arithmetic. It is not necessary to have a great deal of gold to maintain the gold standard. What is necessary is that national production should not be less than national expenditure when both of them are measured by their free market values. The absence of any material standard of value at once removes the principal barrier against inflation. The politicians are then free to acquiesce in any demand that may arise for increased prices and not unnaturally the demands of the working classes, with their overwhelming preponderance of voting power, for increased prices for their labour, are constantly being accepted. But all this time nothing is being done to ensure that the supply of goods and services shall be increased to correspond with the increased purchasing power created. It is rather the other way. Increased wages are often accompanied by shorter hours.

It is true that improved methods, mechanization and so on may increase production, but no systematic action to produce this result has been taken and if it happens at all it is more a matter of luck than of foresight. What was achieved in the period between the wars was not greater national prosperity. It was a redistribution of national income in such a way that a much larger proportion was used for the purchase of consumer goods and in subsidies, which whatever their merits do not themselves produce any material object of value—it was used to secure present ease; and a much smaller proportion was used as new capital for the maintenance and increase of means of production—that is to say, for securing future prosperity. In these circumstances we experienced exactly what might have been expected—inflation of the currency owing to its greatly increased volume, uncompensated by an equivalent increase in production, and unemployment owing to the lack of fresh capital to provide new means of production. In saying this I am of course aware that the amount of what is nominally capital in this country is very large, but when examined it shrinks alarmingly. In too many cases it represents debt with no assets behind it. All holders of Government securities, for example, are obliged by law, for purposes of taxation at least, to regard the loans they have made as capital and in due course we all hope that assets will appear of the same or greater value. But they are not there now, and only a very small part of the National Debt could be sold out and used now if the war came to an end to provide new means of production.

It must be remembered that up to the outbreak of the last war, or at any rate up to the 1910 Budget, there was no question of this country being insolvent or going off the gold standard. What is the greatest change that has taken place in our internal finances since then? Obviously, the very greatly increased wages and subsidies that have been allotted to the working classes. It must be noted that subsidies in so far as they do not pay for themselves are just as much a cost of production as are wages. I think it is probably about right to estimate that on an average every workman and workwoman received in the years between the wars purchasing power—I do not mean money but purchasing power, wages and subsidies combined—double what he or she received before 1914. Put another way, the whole of the purchasing power available for distribution to the working classes before 1914 was in the interval between the wars sufficient for half of them only. Can anybody say that the production of goods and services kept pace, or nearly kept pace, with this increase? (Of course there is one other possibility, that the standard of living of the thrifty might have been so much reduced as to cover the gap, but I do not think there is any question that any such reduction was nearly great enough for the purpose.) If this was not the case, we have a complete and ready-made explanation of our financial troubles and a guide to their cure. The real purchasing power available—that is, the value of the nation's production—was insufficient to satisfy the demands upon it. The situation had to be met either by not employing workmen at all or by printing paper money with no backing in goods and services—that is, by inflation or by living on capital or by some combination of these methods. If what I have suggested is true, and I have very little doubt it is true, there are only two things that can possibly help—increased production and reduced expenditure. All the elaborate and incomprehensible vapourings of White Papers lead nowhere. We have taken the wrong road and if we wish to survive we must abandon it.

4.27 p.m.

LORD LATHAM

My Lords, I must apologize to the noble Lord, Lord Teviot, for not being able to be here at the commencement of his speech but I did arrive sufficiently early to hear that part of his jeremiad in which he seemed to reach a crescendo of gloom and despondency as to the future. Indeed he went on to imply that it was only those persons who took the gloomy view of the outlook who were in fact realists. I want to contest that view entirely. It is a common assumption of those who subscribe to the views of the noble Lord that those of us who sit on these Benches and the members of the Party we represent are mere idealists and have no experience in the world of realism. I want to ask who were the realists between these two wars. Were they not the bankers and economists of all sorts, kinds and descriptions who told us the proper thing to do was to contract, not to expand, to go back on the gold standard, to seek prosperity by pursuing a policy of scarcity? All that was supported by the people who then considered themselves to be realists and many of them still do so at the present time. Certain of them have been contrite enough to admit that they were wrong about the gold standard and that they were wrong about damping down production when what was needed was more production.

I wish to contest completely the view that only those who subscribe to the policy of gloom and despondency enunciated by the noble Lord, Lord Teviot, are the realists. The problem between the wars—this is apropos of what the noble Earl, Lord Stanhope, said—was not that there was not enough saving. There was too much saving. Saving was out of equilibrium with consumption and it was also out of equilibrium with investment. The trouble was not that there was too little saving, and it was not that industry could not get money to improve and perfect its machinery and its equipment. The money was there. But industry for reasons best known to itself, which are not unrelated perhaps to the profit motive, did not take advantage of these savings but adopted a policy which was approved by the Government of seeking to cure the problem of unemployment by a policy of economic scarcity, of damping down production and damping down consumption. It was even extended in one humiliating episode to reducing the unemployment pay of the unemployed by 10 per cent. That was one of the most humiliating facts in social history in the last generation. It was a disgusting episode.

EARL STANHOPE

Was it not a Labour Government who came in with the claim "We can cure unemployment" and failed to do so?

LORD LATHAM

It is no good for the noble Earl to play these tricks. I will have something to say perhaps about the record of the noble Earl himself if he will content himself in patience. I want to put this point of view: that whether you like it or not—it does not depend upon people making foolish speeches, and foolish speeches are bad by whomsoever they may be made—you will not be able to persuade the people of this country, who, with most of the effective labour power withdrawn from production and put into the Services, have nevertheless sustained this war for five years and produced goods—unhappily most of them for destruction I agree—to the value, as we have been told by the Chancellor of the Exchequer, of £24,000,000,000 (that is what we have spent in five years) that if we can do that for purposes of destruction we cannot maintain full employment during years of peace. If you seek to do it you will encourage discontent and, may be, tumult—let us be perfectly frank about the matter. I am not therefore suggesting that this country should pursue a policy of wastefulness or squandermania, but I do suggest that the country should face the problem in an objective way.

We have a large National Debt. That is the case. But nobody knows better than Lord Kindersley that all thrift must ultimately create debt unless you simply practise thrift by putting a coin into a stocking. There are two sides to the matter of every pound saved. One is the saving; the other is the debt which it creates if it is invested and used. Lord Kindersley and his associates, whom I wish well, cannot ask for additional savings without realizing and recognizing that savings if they be invested create debt, and the more thrifty people are the more debt is created. It is true that there is a difference between National Debt and debt created by subscription to debentures in companies or shares in companies. But debt is created just the same. And that brings me to the point whether Government expenditure or expenditure of local authorities is, of necessity, inferior in its quality or less advantageous to the nation than expenditure by private concerns. I reject the thesis that it is. The Government spend money, and local authorities spend money in much the same way as private enterprise.

LORD TEVIOT

May I just ask the noble Lord these questions? How does the Government and how do the local authorities acquire that money for spending to which he has just referred?

LORD LATHAM

In the same way that private enterprise does. Private enterprise obtains it by savings only. The nation obtains it by taxation as to one part, and by rates as to the other part. But it comes from the same pool. It is first created before either private enterprise, or the Government, or local authorities can get any of it and it is created by the same process—the work of human hands on raw materials. When the Government spend money on the Civil Service that expenditure is not necessarily bad. It buys clothes and food. It pays rent. It pays railway fares. In fact it is spent in just the same way as wages paid to servants of a public or private corporation. As a matter of fact, business in this country is fertilized very largely—and was before the war—by expenditure, sound economic expenditure, by the Government and by local authorities, creating very substantial assets, and, in addition to creating those assets, resulting in a return of social profitability the value of which cannot be estimated.

LORD TEVIOT

My Lords, I am so sorry to interrupt again, but may I ask the noble Lord another question? He suggested just now that it was the same thing when an individual invested his money in a private venture as when he had to pay the taxes of the country or the rates of a municipality. Does he really mean that?

LORD LATHAM

I will leave the noble Lord to read exactly what I said in the Official Report to-morrow. I do not propose to repeat what I said. I want now to come to the question of private enter- prise. I was, if I may say so with every respect, a little amused at what the noble Earl, Lord Stanhope, said with regard to Government expenditure. I remember, to his credit if I may say so, that a few weeks ago he was advocating the provision of, and indeed putting down Amendments to the Education Bill with a view to securing, better education. He took a leading part, I think, in insisting that no child below the age of eight years should be required to walk more than two miles to school. That, of course, cast additional expenditure on the local authorities who have to provide those schools. I applauded that, in a sense, but I cannot see how the noble Lord can have it both ways. If we are to have a more ample system of education in this country—and Parliament has so decided—it will mean more expenditure. It will mean more expenditure from the rates and from the taxes.

Now this is, I think, the real issue. The nation, by its activity, creates a certain pool of wealth which we express in pounds, shillings and pence. The Government might say: "The whole of that wealth shall be available for those who have made it." If that was so there would be no national services and no local services. The Government, however, say as to a certain portion of the money that it shall be paid to the Government by way of taxation, and that element of the pool shall not be left to be used by individual owners, but as Parliament may determine. There is another section in regard to which, under powers given by Parliament, the local authorities can say that of that pool they require so much by way of rates. And the local authorities spend it, I think, generally speaking, in a more socially beneficial way than its owners would spend it. Then there is the remainder which is available for the purchase of consumer goods, partly or wholly, and if partly the balance remains available for saving. The real problem that faces this country is to increase that pool, and it does not depend upon us entirely. Unfortunately, we are not a self-supporting country. We must import food and we must import raw materials. The approach to the problem in my submission should be how best can we enable ourselves to pay for the larger imports which the higher standard of living will require and the additional raw materials for which an expanded industry will call.

That does not depend, in my submission, on the amplitude or otherwise of the internal National Debt. I agree that as regards sterling balances held against us abroad and our external debt it is another matter; but as regards the internal National Debt, it is immaterial in this connexion. It is a redistribution of income, a redistribution, as it were, of rights as between the citizens who constitute the nation. No one would suggest that taxation should be oppressive, but I do want to enter this caveat. Taxation in the form of Income Tax, Excess Profits Duty or National Defence Contribution does not enter into overheads. These are taxes which are ascertained after the profit has been made; they depend on the profit and do not, therefore, enter into the cost of production. There are other elements of overheads to which I hope that industry, under the spur of the Government, will look. There is a good deal of waste in the overheads of industry, very largely resulting from inefficient methods and inefficient equipment. It is in that direction that research and examination will prove worth while. Taxation does not enter into price. I agree that unless there are adequate allowances for depreciation and the like, in order to enable equipment to be renewed and replaced, taxation can be restrictive, but outside that element I submit that since the taxation is on profits it does not enter into price.

I was very interested to hear the reference of the noble Earl, Lord Stanhope, to Australia and to the nationalized railway systems there. I remember in 1922 (I think it was) being very interested in a speech made by an eminent accountant in the City of London, now deceased, who was the Chairman of, I think, the only railway in Western Australia which was not nationalized. The burden of his speech to the shareholders in London was that it ought to be nationalized, and that it would be in the interests of Western Australia if it were nationalized. That seems to be a little at variance with what the noble Earl said. In conclusion, I wish to say that if we start upon the road to peace with the notion that we are going to be poor, with the notion that we cannot face our burdens, with the notion that we cannot provide for our people decent houses, decent social services and a reasonable standard of living, then we shall fail. In our approach to the problems of peace we need not doubt and despondency but courage and enterprise.

4.42 p.m.

LORD MESTON

My Lords, after the war the National Debt will stand at £25,000,000,000. If the whole of that debt is converted and consolidated on a 2½ per cent. basis, we shall have to pay £625,000,000 per annum by way of interest. The Civil Estimates will be greatly in excess of those for the year 1938 by reason of increased expenditure on social security, health, education, pensions and other services. The expenditure on the Defence Services will decline after the war, but will still remain heavy, having regard to our world-wide commitments and increases in the pay of the Forces. I am not a prophet, but I do not think it is far off the mark to say that the post-war Budget will be in the region of £2,300,000,000. So far as revenue is concerned, in 1943 taxation on the present basis yielded £3,100,000,000. In this connexion it must be mentioned that £250,000,000 of our present annual revenue is derived from the Excess Profits Tax, a special war-time imposition.

Moreover, we are living at present, as it were, in a balloon, for we are borrowing over £2,000,000,000 a year. This, in turn, creates many incomes which will cease or diminish when borrowing ceases, and when the war comes to an end we must either curtail borrowing on the present scale or go into liquidation. In the first two years after the war there will be a decline in the revenue, but no serious collapse of the revenue. During that period, the transition period from war to peace, the sale of war material and other factors similar to those which existed in 1919, 1920 and 1921 will create an artificial degree of prosperity; but thereafter—that is about 1947 or 1948—the revenue will decline, and, if its decline coincides with an increasing volume of financial commitments, we may expect startling Budget deficiencies.

We are constantly told that our capacity for increased production will carry us through our difficulties, but increased production is quite useless without increased consumption, and heavy taxation, not to mention also the burden of local rates, does not coincide with increased capacity for consumption. Further, we must not be led astray by wishful think- ing in regard to our export trade. I am sorry that the noble Lord, Lord Addison, is not here, and I hope that I shall not misquote him, but I well remember him saying on one occasion (and he was not contradicted) that our export trade, although important, represented only 12 per cent. of our total trade. If our export trade could be doubled it would represent only 24 per cent. of our total trade, and that in itself would not save the country. After the war we shall undoubtedly be in a better position than any other country, with the possible exception of the United States of America, to manufacture goods and export them abroad, but I am very doubtful indeed of the capacity of some of our customers to be able to pay for our goods for some years after the war.

We are sometimes told that there will be international agreements, the purpose and object of which will be to allocate markets to the various nations so as to eliminate wasteful competition between the nations of the world. So far so good, but where are those international agreements, and to what extent will they affect our export trade? There is a great deal of loose talk about increased production and international agreements, and in my opinion that loose talk is liable to do more harm than good. The fact of the matter is that we are living not only in a colossally inflated balloon but also in a fool's paradise. I understand that the aim and object of this debate is not to express our various views as to the best methods of conducting industry, but to ask His Majesty's Government for certain facts and figures. When we have those facts and figures it will perhaps be possible to have another debate and then explain how we are going to meet our commitments in view of the information which we have received.

4.49 P.m.

THE LORD CHANCELLOR

My Lords, the speech to which we have just listened has pleased us all by its brevity and its point. My noble friend defines the debate as one in which the Government are required to state certain facts and figures. I do not think, on reflection, that any reply from the Government can be expected to be of that statistical kind. My noble friend Lord Teviot, who introduced this matter, certainly takes a gloomy view, and what he asked was that the Government should say—I understand, say now—how much they considered the total of post-war expenditure would be, breaking it up, I suppose, into items. Well, that is, of course, a question which could not possibly be answered at the end of this debate, and I am not the man to do it; in any case it is in the nature of a prophecy or an estimate. What is reasonable is to ask whether the Government have appreciated and maturely considered the extent of the commitments that have been made and any commitments that may be contemplated; whether they have devoted their minds to the question whether this projected or proposed expenditure exceeds anything which the country can be asked to bear. I should be the first to agree with the noble Lord, Lord Teviot, that if the Government have gone into all this business quite lightheartedly, and have promoted an Education Bill and adopted plans of social security, and so on, without any endeavour at all to consider what will be the financial consequences, the Government would be deeply to blame.

The noble Earl, Lord Stanhope, if I may say so, was perfectly right when he said it is the Government that has the great responsibility in these matters, and I do not suppose anybody envies that side of the Chancellor of the Exchequer's duties at the moment. I do not think my noble friend said, but he almost implied, that Parliament has very little to do with it. Parliament, of course, has a great deal to do with it. In a democratic country the decision that is taken as to social improvement and the expenditure involved is a decision of Parliament, but it is a decision that is recommended by the Government; and the Government most certainly must take full responsibility for what they do. Therefore the answer I can give—and it shall only be brief—is of a modified kind, not entirely missing, I hope, my noble friend's points. I will tell him at once that it is of a rather more cheerful character than would appear from the tones in which he addressed us at the beginning. I did not hear anything he said very clearly, but I think that one of his sentences was, "Perhaps I have been too optimistic." Let me at once assure my noble friend that whatever the errors or omissions of his speech, no reasonable person would charge him with that.

It is true some noble Lord said earlier in the debate that this in effect is a continuation of the debate we had last July, with the same issues and the same problems, and I am glad to say that for the most part, though not entirely as on the former occasion, it has not provoked any strong Party feeling. No complaint can be made of course when a responsible member of either House calls attention to the heavy financial burdens which the war will leave with us, and to the additional charges which we shall have to meet in the cost of reconstruction and in the cost of those developments of various national services, especially social services, which are commending themselves to all Parties, and are being adopted by the general consent of Parliament. It would be foolish indeed—almost parallel to the distracting condition to which Lord Meston referred, of a fool in his paradise loftily surveying the scene from an inflated balloon—it would be the height of folly, in other words, if the Government were not prepared to face the question: "Have you, as far as you can, thought out what you are doing, and are you wise in advising the country to do it?" That is the business of Government. I am very willing to say what I can in justification.

Let me just deal with what is perhaps a small point, but I think the noble Lord, Lord Teviot, on more than one occasion in his interesting collection of statistics found himself taking a more gloomy view than the figures themselves justified. For example, he thought that he might safely ask us to assume that at the end of the war the National Debt would be £30,000,000,000. I remember that the noble Lord, Lord Southwood, in the last debate was more moderate: he thought £25,000,000,000 more likely. As we do not know how long the war will go on, nobody can be sure, but if you take any reasonable computation, I do not think you will get to £30,000,000,000. Lord Teviot really got that figure, if he will excuse my saying so, through overlooking an important fact. He added together an internal debt figure which now amounts to £20,000,000,000 and a second figure, the figure of balances owing to external creditors You cannot add those two figures together for the purpose of arriving at a correct total, because these sterling balances which belong to our external creditors, are left in this country, and they are one of the sources from which we have borrowed. They therefore come in on the side of the internal debt, as well as coming in in another category—as being sterling balances owing to foreigners. You therefore cannot add the two figures together.

My noble friend, despairing, I think, of the Government itself producing today its Budget for some future year, made a sort of skeleton Budget for himself, but I think he, at any rate on some occasions, brought in as though they were annual charges in the future some things which certainly will not recur. Was not one of the figures which he brought in the amount the Government would have to pay for war damage? But that will not go on year after year. That is in the nature of a capital payment, and while it may be very difficult to finance all these operations at the time it makes an immense difference whether you are talking about expenditure which is likely to go on or about expenditure which has got to be faced as a heavy capital charge once for all.

That leads me, if I may for a moment branch aside from the main argument, to one or two points to which the noble Lord, Lord Southwood, referred in a very interesting speech. He said and many people say, that really after the war what we ought to have is two Budgets, and one of those ought to be called a Capital Budget. I am sure I may say this for the Chancellor of the Exchequer, or whoever is Chancellor of the Exchequer when that time comes. I feel quite sure that the Chancellor of the Exchequer and his advisers would look at a large post-war programme very carefully to see how much of it is really a recurring charge and how much a capital charge, and would decide in the case of the capital charge whether it should be met by borrowing—borrowing with an annual interest charge—or whether it should be faced and paid out of the year's expenses, as we endeavour to do in dealing with most of our expenditure connected with defence in time of peace. But the real truth is, I think—here I shall be checked by the noble Lord, Lord Latham, if I am wrong—that people sometimes get rather a wrong notion as to the extent to which national capital charges really do appear in the Budget. Taking the instances which Lord Southwood gave, he mentioned two examples of capital charges, for schools and hous- ing. Well, the capital charges there are incurred by local authorities. They do not come into the national Budget at all. What comes into the national Budget, of course, is the grant that is made year by year to assist the local authority. If you look through the scheme of national expenditure, by which I mean central expenditure, you will find as a matter of fact that there is not nearly as much capital expenditure in it as many people are disposed to think.

As I referred to Lord Southwood, I shall answer him on another point. He urged that there ought to be a Central Statistical Office which should from time to time draw up a perfectly objective statement of financial and economic statistics. We in fact have such a Central Statistical Office already. It exists, and it has done very useful work for the Government during the war. If my noble friend will look at the White Paper on Employment Policy—Lord Monkswell thinks White Papers cannot be put to anything but the most degrading use!—he will see it is there stated that it is the Government's policy to develop this Central Statistical Office after the war. I very warmly welcome my noble friend's approval of that course.

If I may for a few minutes return to what is the central question put by my noble friend Lord Teviot in his very carefully prepared speech, I will say this. Some of the future recurring costs which arise out of the heavy burdens we have undertaken are already capable of calculation. We can make a rough calculation, as the last speaker did, of what will be the debt charge. Others of them are as yet incapable of being precisely calculated, though my recollection is that when we have come forward with any of these big schemes like the education proposals—the same is true of the social insurance proposals—we have always made public what is the best estimate we could give of the expenditure. Anyone who did not make such an estimate, whether a Government or a private individual, would be the most reckless of mankind; but you cannot ask the Government to pin itself to a precise figure. The question turns on many things, some of which are not known to any of us, either the Government or anyone else. If the price of materials, for instance, substantially varies, it will at once affect the outlook. The main point—and this is what Lord Teviot came largely to emphasize, and of course he is perfectly right—is that these future recurring charges involved in the burdens must come out of the proceeds of Government revenue. That is perfectly true. For all practical purposes—disregarding the interest on Suez Canal shares and one or two other odds and ends—Government revenue is made up of the sums that individual citizens have to set aside in the form of either direct or indirect taxation.

If I understand my noble friend's concern aright, what he is saying is, "Are you satisfied, when you come to the end of the war, that having regard to this list of commitments, you will be able, without grave injury to the country as a whole, to get by direct or indirect taxation enough to meet these commitments, so that the amount does not exceed the possible total the Government may get by taxation?" That is the real question, and I do not deny it is a very serious one. Of course the taxpayer will at the same time, under the social insurance scheme, be making his own contribution, which is not a very small one, if you look at the White Paper. But it is certainly not a fair comment that the Government in this matter have rushed in blindfold or have embraced these plans which have met with so much approval without facing this essential question. I do not think I should be justified in saying that it is this consideration which made it, in the view of some people, a rather long time before the plan appeared, but you may be certain that the most careful examination has been made by the Chancellor of the Exchequer and the Government of that particular question.

There is this to add. Lord Strabolgi referred to the days of Mr. Gladstone, when the total Budget never came to £;100,000,000. It never came to £100,000,000 in Mr. Gladstone's lifetime, and he would be greatly astonished if he could appreciate what is happening now. But we have got to remember that there is an enormous difference between the two periods. In the old Gladstonian days the purposes for which the Government taxed and spent money were exceedingly limited. Vast numbers of things which, with the common consent of everyone to-day, are properly shouldered and administered by the State, with the contributions which are got from the citizens, are things which were quite outside the Gladstonian ken. I, too, do not want to indulge in any Party reference, but I find it difficult to forget entirely that when the Old Age Pensions Bill came before your Lordships' House—and under Mr. Asquith's proposal it was a very modest old age pension of 5s. a week—there were most respected members of your Lordships' House who described it as a pauperizing of the poor and a grossly improper use of the power of Government. That is all changed long ago, and we do not remind one another of these ancient things.

There is thus a certain fallacy in dwelling too much on the fact that the Budget was under £100,000,000 in Gladstonian days. It was only £200,000,000 in the year before the last war. The truth is that there has been an immense revolution of thought which has affected every Party—it has affected the Party of the Right very powerfully—so that instead of looking askance at national insurance, which I seem to remember was the situation once, we are all tumbling over one another in our belief that that is a proper way of dealing both with questions of health and questions of unemployment. It follows necessarily that the State, taking a much greater part and having to raise a much greater sum of money, takes a much larger proportion of the income of the taxpayer than would have been tolerable in the old days. That has got to be remembered. As I have said, the annual interest charged on our debt can be roughly estimated, as Lord Meston estimated it just now; other matters are more speculative, but let me point out—because it is right we should dwell on the bright side as well as the dark side—that the financial policy which has been followed in this war in the biggest matters has turned out to be well justified and ought to receive approval.

Our financial policy was closely discussed and prepared for before the war broke out. We had only been at war three weeks when there was an emergency Budget which contained three large propositions. I do not think any one of them would have been accepted or would have been comprehensible to the economists of half a century ago. The first was that we must at once, immediately, put very heavy direct taxation on the citizens. One or two of my political friends were really doubtful whether the 7s. 6d. we started with was not going to be so heavy a burden as to distort, disturb and generally shake up the industrial machine, and whether it might not be dangerous to go so fast. It did not turn out to be so. While, of course, the 10s. in the pound tax is a terrific one for many people, especially when you bring in Surtax on top of it, there cannot be the slightest doubt that it was in fact a very wise and a very helpful plan to adopt heavy direct taxation immediately the war began. It has this enormously important result, and astonishingly so, that in this present year 52 per cent. of our Budget expenditure is being met out of taxation—and that could never have been done otherwise. No one, I think, can dispute that. Incidentally it had a second reaction in which my noble friends Lord Mottistone and Lord Kindersley have a special interest. If you put a sufficiently heavy direct taxation on people you will make it very difficult for them to spend foolishly at a time when you must do everything to prevent inflation.

That was the first thing and I think it was a great and wise thing to do. My noble friend Lord Teviot, surveying the matter as I am sure he does with every desire to be impartial, must put that on the other side of the account. There was a second proposition, that in war-time the Government should be able to borrow at a very cheap rate. The other day your Lordships may remember a question was addressed to me by Lord Samuel about Premium Bonds, asking whether the Government had any intention of going in for that species of State lottery. I gave the answer, but I do not know that everybody remembered that at the time the Premium Bond became a popular specific at the end of the last war, we were borrowing money at the rate of 6½ per cent.—and not too successfully then. The real argument then was: "If you have to raise more money you will have to give better terms still and you had better try another kind of proposal." That was the second thing and we fulfilled that because the truth is, at any rate in war-time when the Government exercise such a complete control over financial borrowing, it does not allow private enterprise to borrow except for a good reason. You can therefore really borrow what you want at a very cheap rate. The rate you must offer must be sufficient to induce people not to keep their money locked up in a drawer. We have at this very moment two loans going along most happily, as they say, "on tap." One is a 3 per cent. loan which is redeemable, I think, in 1975, the present Savings Bond issued at par, not at a discount, and the other the 2½ per cent. National War Bonds redeemable in 1954. Talk about Mr. Gladstone—clarum et venerabile nomen—if you could secure the attendance here of that mighty shade I think he would be greatly surprised to find we had been able to do that in the fifth year of the war.

The third thing was this method of national savings. I can well understand the criticism that some of the money comes from the banks and some from the Prudential Assurance and other companies, but the fact remains it is an immensely powerful instrument, magnificently managed by those who are in charge of it, which has not only produced a very large sum from the poorer citizens for meeting the expenditure of the war, but has done a second thing which is even more important—namely, it has dissuaded the ordinary small man in the small house and the small street from making a foolish and wasteful use of the money which is coming into the home. I most warmly agree with what has been said by two speakers from the Opposition Front Bench that the great thing is to realize we have got our own people trained up into this spirit of organized endeavour and what we want to do now is to make them feel that the call to that endeavour will not be less, but will be greater, when the war is over. That, I am sure, is the view taken by the Chancellor of the Exchequer.

While, therefore, I have not given an estimate of future Budgets—I really cannot do that, nobody can do it now—for whereas all other business is discussed for months in the Cabinet, in the single case of the Budget the Chancellor of the Exchequer ordinarily and traditionally turns up with his proposals under his arm, some fine morning, explains them to his delighted or astounded colleagues, and in the House of Commons the same afternoon makes his proposals public. While I am not able to do that, I hope my noble friend will feel that there is some ground for being reassured, when I tell him, as I do most solemnly, that these outlays, heavy as they are, are certainly most carefully studied by those re- sponsible for our finances. We never have asked the people of this country to endorse proposals like these of so extensive a kind without first doing our best to count the cost and estimate whether it is within the ability of the country to pay for them. I believe it is, and I think there are many considerations which go to show that, while it is indeed quite right to raise these matters, the right view to be taken after raising these questions from time to time is to realize the enormous importance of maintaining the spirit and the courage of the people.

I recall having read that at the time of the Napoleonic wars Pitt was challenged in the House of Commons to say what had the country gained by the Napoleonic struggle and Pitt replied: "Sir, she has gained everything that she would have lost without it." That is the real answer to those who look now with great anxiety at the future. The day may come, probably will come in this free country, when a certain number of people (the war being over and victory gained and when these matters have passed into history) will point with horror at these figures and exclaim about the commitments that were made at this time. That will not alter the fact that it is right to do what we have done and right to do it now when it is fairly popular. Let us resolve always that we will defend it if ever there be critics hereafter who get up and reproach us for what we have done.

5.19 p.m.

THE EARL OF GLASGOW

My Lords, as I have come all the way from Scotland to say my few words, I hope some of your Lordships will bear with me for not longer than a quarter of an hour. My noble friend Lord Teviot in his Motion has done a great deal to clear the air. He has had a very difficult speech to make. He has brought forward a number of facts and figures, none of which, in my hearing, have had any effective answer though the noble and learned Viscount on the Woolsack has cheered us up very much. I feel that I have been chid before I have made the remarks that I now intend to make.

My noble friend Lord Teviot has gone into action with all guns blazing and I cannot think of any effective reply to his damaging broadside. I do not think the noble Lord, Lord Southwood, said anything very effective, because his speech was full of suppositions, hoping that if such and such a thing might happen we should get all the good things we are looking for. The noble Lord complained about the rise in the cost of living. I always feel in a quandary on these occasions because one is promptly accused of stirring up strife between Parties, but one cannot face facts without stirring up strife between Parties. So I want to make this remark. The noble Lord complained about the rise in cost of living, but he did not go on to give the facts. The facts are that the rise in the cost of living is due to the continued demand for, and the constant giving of, higher wages. Prices have now for some time, certainly for the last four months, been below the general trend of wages in the country. I am a member of an industrial council and I have seen this going on. We have just given a rise of 4s. 6d. to manual workers employed by the council. I do not grudge it for a moment, but this demand for increased wages was debated and sent to a tribunal because the council did not approve of it. The increase was given, but not because of a rise in prices. It was given because engineers or some other body of workers had been given an increase. This position of affairs is not the fault of the Government.

There is no doubt, I am afraid, that the noble Lord who moved this Motion will find that to tell the truth about our commitments is not popular with the Press or with the uninformed public. Facts are at a discount and wishful thinking at a premium. Wishful thinking is something which should be well known to your Lordships because your Lordships have been thinking wishfully—or wistfully perhaps—for a considerable time. Some months ago it was suggested—I do not dare to say promised—that your Lordships should be paid travelling allowances, but the whole matter seems to have hung fire. Naturally I cannot expect an answer now on this point, but it is apparent that there is some hitch. As I am an advocate of delay for economical reasons in the expansion of Social Services, I cannot, even though I come from north of the Tweed, conscientiously object to delay in this small matter. I merely mention it as an example of wishful thinking.

I come back to the Motion on the Paper. Including the social insurance scheme the Government have committed themselves, if Parliament approves, to an increase of expenditure on the Social Services of £800,000,000. That is an underestimate, but what does it matter about the exact number of millions? We cannot tell what the number of millions will be, but it is round about that. During the most expensive war in history they have encouraged Parliament and the country to go in for an orgy of extravagance which, however worthy the object, may have terrible repercussions on the welfare of our people. And it is no ordinary Government that has done this. It is a Coalition Government of all the talents, and it is a Government which has admitted in Parliament that it does not know from what source the money is to come for the expansion of the Social Services. Nevertheless by the White Paper policy the Government continue to suggest that this expansion should go forward. The Rake's Progress is to go on and damn the consequences!

The Government must know that to provide £800,000,000 at this time, or even within ten years, when there are no sources available, is risky and imprudent. Any attempt to tack on this huge sum to our other commitments, which include interest on War Loans already running into thousands of millions, must add greatly to the chances of inflation and unemployment. Why are the Government suggesting this tremendous risk? My view that they have yielded against their better judgment to strong pressure is strengthened after reading the White Paper on tile social insurance plan. I expected to find in the introduction the conditions under which this huge expenditure might be met and a justification of such expenditure if those conditions could be fulfilled. I expected to read stern warnings that unless certain conditions were carried out—such as the cessation of all strikes, our ability to get the export trade going and increased in volume over the pre-war years—the social insurance plan would have to be postposed until the country could afford the cost. But there was nothing of this, even although both the National Health Insurance Bill and the social insurance plan could be delayed without any great hardship to the people; delayed until, in the words of Sir William Beveridge; the British community can so reorganize itself as to be in a position to meet the cost. It is true that Ministers of all Parties, to their credit, have warned the nation on several occasions of the conditions which will have to be fulfilled, but the Government as a whole have given no lead.

With regard to the second part of the noble Lord's Motion, regarding likely methods for meeting the expenditure, it certainly cannot be met by increasing taxation. Then where is the money coming from? For there is still such a thing as money. The noble Lord, Lord Woolton, has said that if we are to have State schemes for social betterment the cost will fall broad based on the public at large who will receive the benefits. The noble Lord is always very courteous and I hope he will not think me impolite if I say that anyone who thinks that this nice comfortable statement is an effective one is living in a dream. Is it likely that people will be prepared voluntarily to add to their taxation without compensation? Directly these taxes are placed broad based on the workers, the trade unions will demand a rise in wages to make up, with the heavy resultant increase in the wages cost in industry. However politicians may twist and turn, economic facts remain constant and if the nation decides to ignore these facts and the laws of supply and demand we shall be heading for financial chaos.

As I have said, there is no source from which further taxation can come, so the answer is that the nation must go slowly, carefully and economically. If I might dare to be constructive surely it might be possible for the Government to suggest to Parliament that with the exception of housing there will be no new expenditure on Social Services in the meantime and they should announce their policy of priorities. Very diffidently I suggest that the first priority should be national security, the second war pensions, the third housing, and the fourth war debt services. I would suggest that we overtake most of our housing arrears before we launch out on any further social service expansion. There is one economy that might be made after the war with Germany is ended, apart from a certain amount of demobilization—namely, the cutting down of the Civil Service Departments. But I must put against this the post-war burden on the ratepayers on which the Government may be forced to take action. At the present moment the burden on ratepayers is heavy enough and strong protests are already being made all over the country, but with the extra contributions to be thrown on them after the war—£80,000,000 for education alone—the burden will be insupportable and the Government must prepare themselves for something in the nature of a revolt which may result in large extra sums not at present estimated for being borne by the Exchequer.

I would like to refer to the statement by the noble Lord, Lord Southwood, in the debate last July, when he said that we must not repeat the errors of restriction and economy which were carried out at the end of the last war and led to unemployment. The answer is that surely it is arguable that unemployment between the wars was not due to the cause he mentions but rather to world conditions. If we had not economized we might have had five million unemployed instead of two million. However that may be we should, in my opinion, do our best to keep expenditure within reasonable limits. In order to get our export trade going, taxes will have to come clown, and it is doubtful whether wages can remain as high as they are now. I look on the statement, so often made by those who refuse to face facts, that we, in this country, can afford to pay as high wages as are paid in America, as complete moonshine. The United States is a self-contained country with a population three times the size of ours. With her large home market and the ability of her manufacturers to produce in bulk, they are in a position to pay high wages to their workpeople. The home market in the United States is so large that she has no need for an export trade, or to compete in foreign markets. This does not mean that she does not export. Of course she does, but she, unlike us, has not the vital necessity to do so, and more often than not what she exports is the residue of what she produces for the home market, and is sold abroad at a loss if you take into consideration the full overhead charges and spread them over this export output.

There was a motor car factory in the States which, before the war, produced a thousand cars a day. With the exception of about ten per cent. all these cars were absorbed in the home market. The ten per cent. were sold abroad at a price low enough to meet foreign competition. In other words they were sold at world prices. With our 45,000,000 people we are one of a few countries in the world which is not self-supporting. We have to import more than one-third of our food and our raw materials, and, in order to import, we have to export at a price which the foreigner will pay. Therefore, we cannot give the same high wages as are paid in America, which is self-contained with a large consumer population. The Minister of Labour was reported to have said on February 11 that: We have lost our overseas investments, pawned them, sold them and depreciated them, and after the war we shall have to live on our annual production year by year. I venture to repeat this statement to your Lordships because it is so important and necessary that everyone in the country should realize that everything that can be done to help our export trade should be done, if only to ensure, apart from anything else, that when the country is going through the pains and agonies of the change-over from war to peace production the nation will get enough to eat. The other day Mr. Kenneth Lindsay returned from a tour in the United States, and this statement by him has appeared in a Scottish newspaper: Amidst all the misrepresentation and misunderstanding over there, there is throughout America a profound admiration for the stability of Britain. For heaven's sake let us try to live up to that.

Finally, we have in this country, if they car be given a chance, some of the most enterprising and experienced industrialists in the world, and our working men have shown that, when they like, they can work hard and skilfully. The trades unions, led by patriotic men who have put country before Party, have done well throughout the war, but I venture to think that, as peace comes nearer, trade union leaders are losing their grasp of realities. It is a pity, for example, that the childish bickering between the protagonists of private enterprise and nationalization cannot be decided on the basis as to what is best in the interests of the nation at this very critical period, and certainly the resolution passed by the Trades Union Congress in favour of a forty hours week and a fortnight's holiday with pay, makes it appear as if they had not yet faced up to the fact that unless all hands work harder than they have ever done before, and goods are produced at competitive prices, the nation will not be able to afford any betterment in its social condition. That point of course has not been put by the noble Lord, Lord Southwood. He has not insisted that we have got to produce goods at competitive prices; but that in my opinion is the whole argument. If, somehow, our industrialists and the men they employ could be brought to work together in harmony and contentment for the resuscitation of our trade and for the prosperity of the country, then indeed our people may get all the good things they are looking for.

5.36 p.m.

LORD TEVIOT

My Lords, I will not keep the House more than one or two minutes. I am not at all sure that the word "gloom" which has fallen from the lips of some noble Lords, including, I believe, my noble and learned friend, has not depressed me much more than anything else in this debate. Nobody has endeavoured to combat any of the statements that I made, but I am accused of being gloomy because I have sought to state to the best of my ability what the situation really is. My noble friend Lord Meston did the same thing. He merely expressed his view of the situation. There was only one reassuring statement, and that was made by the noble and learned Viscount who sits on the Woolsack. It was to the effect that he was sure that the Government had the capacity to stand up to the situation as I had depicted it.

I could speak for a long time, particularly in regard to what my noble friend Lord Latham said. He rather gave the impression, or seemed to wish to give the impression, that I was amongst those who made foolish speeches. I do not mind that a bit. I came here to make a statement on the situation, which I believe to be one of great gravity, and I am hoping that the figures I gave and the situation which I depicted will have consideration. Indeed I may say that I am sure they will, and therefore I have derived great reassurance from what my noble and learned friend on the Woolsack has said. He has assured us that the Government have taken all these factors into consideration.

But I would ask the Lord Chancellor to remember this. In the course of the last few weeks we have had a speech in which a rather serious warning was sounded by the Chancellor of the Exchequer. We have also had one from the Financial Secretary to the Treasury. Statements have also issued from other important sources, warning us that we must be careful not to get into deep water in regard to expenditure. That is disturbing the minds of industrialists, and we want to know as much as we can possibly know as to what is the real situation for there are various matters which are very obscure to-day. We have had this reassurance of which I have spoken, and I am sure it will have an effect on all these people who are perturbed about the future. I thank the noble and learned Viscount for his very kindly reference to myself, and for his reply to the debate which I raised. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.