Lords Sitting of 8 May 1946

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers.
The Lord de Clifford—took the Oath.

GOVERNMENT STATEMENTS.
VISCOUNT SAMUEL: My Lords, I beg to ask the noble Viscount, the Leader of the House, a question of which I have given private notice. It is to ask, in view of the fact that an important Government statement was made in another place yesterday without it being made also in this House, whether he can give an assurance that this will not be regarded as a precedent on other occasions.
THE SECRETARY OF STATE FOR DOMINION AFFAIRS (VISCOUNT ADDISON): My Lords, I can quite fully and freely give the noble Viscount the assurance which he asks, and I must accept full responsibility myself for the fact that the statement was not made here yesterday. Between the time of the decision to make it and the meeting of the House I had not an opportunity of informing other noble Lords, and afterwards I was fully employed in work in connexion with the Dominion Conference. I will take care, however, that the precedent which we have set before is fully and faithfully observed.
VISCOUNT SAMUEL: I am much obliged to the noble Viscount.

BURMA LEGISLATURE BILL. [H.L.]
LORD AMMON: My Lords, on behalf of my noble friend the Earl of Listowel I beg leave to introduce a Bill to amend the law relating to the Burma Legislature (including the law relating to the franchise in Burma), and to move that it be read a first time.
On Question, Bill read 1a, and to be printed.

BORROWING (CONTROL AND GUARANTEES) BILL.
Brought from the Commons, read 1a, and to be printed.
NORTH WEST MIDLANDS JOINT ELECTRICITY AUTHORITY PROVISIONAL ORDER BILL.
Read 2a (according to Order), and committed.

SUNDAY ENTERTAINMENTS ACT, 1932 (URBAN DISTRICT OF TEIGNMOUTH).
LORD WALKDEN: My Lords, I beg to move that this Order be approved.
Moved, That the Order made by the Secretary of State for the Home Department under the Sunday Entertainments Act, 1932, for extending Section 1 of that Act to the Urban District of Teignmouth and laid before this House yesterday, be approved.—(Lord Walkden.)
On Question, Motion agreed to.

ECONOMIC POSITION.
2.34 p.m.
LORD CHERWELL LORD CHERWELL rose to call attention to the present state of the economic position in this country; and to move for Papers. The noble Lord said: My Lords, since I put down this Motion, we have all been saddened by the news of the death of Lord Keynes. The whole House, I am sure, will agree in deploring that we cannot benefit to-day from his wisdom and his power to elucidate these complicated matters. I make no apology for raising this question, for nobody I am sure can deny that the economic position of the country gives cause for grave anxiety. If, in the course of my analysis, I should state some obvious elementary economic truisms, I trust I may be forgiven, I can only plead that a truism is so-called because it is true.
Two separate though, inter-related problems confront us. We have to consider, on the one hand, what are the prospects of a country with a stationary population, in which 40 per cent. of the national income is taken away in taxation and in which wholesale prices have increased

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by 75 per cent. in six years. More pressing are the particular difficulties facing a country dependent on imports for more than half of its food and nearly all of its raw materials, which has sacrificed in its struggle for freedom most of its export trade and has lost in that cause the greater part of its foreign income from investments, insurance and banking and other sources, which has accumulated foreign debts amounting to nearly £4,000,000,000, and has selected that very moment to turn upside down many of its principal industries in largescale experiments in nationalization and in Government control.
On the broad issue my contention is as follows: A country which makes no attempt to balance its Budget, and sustains its expenditure by the printing press, is heading straight for galloping inflation. This course the Chancellor of the Exchequer rightly repudiates. But if the Government wish to spend 40 per cent. of the national income without gravely unbalancing the Budget they must and do take most of this out of the pockets of the great mass of the population earning low wages and salaries, for there is nothing worth having left in the pockets of the rich. This will result in demands for higher wages and salaries which will, of course, lead inevitably to further rises in prices unless production is stepped up to meet the increase. The simplest remedy is to economize and to spend less. If the Government cannot or will not do this, they should try to increase production instead 'of hampering it at every turn, removing all incentive to effort and trying to run themselves vast, complex industries which demand a lifetime of study. If they cannot carry through either or both of these policies to an adequate degree, the only hope—though I agree it is a slender one—is to persuade people to be content with less by dispelling the idea, once for all, that they can get something for nothing.
Never in our history, so far as I can see, has the danger of inflation loomed larger. Slow, gradual depreciation of the currency over the centuries has always been with us. Ever since the Middle Ages, except during the nineteenth century, the value of money has been falling at the rate of about 7 per cent. per annum, or one half in a century.
This is perhaps not an unhealthy corrective to the tendency for purchasing power to accumulate in the hand of the rentier. It is smaller than the normal increase in technical efficiency per head—about 1½per cent. in the last century—and is much smaller than the standard rates of interest. Although it gives old people a chance to explain how much cheaper things were in the good old days, it is not sufficient to cause a loss of confidence in the stability of the currency to a point at which people are deterred from working and saving and planning ahead. But the drop in the value of the pound in recent years has been of a very different order. In the last six years, so far as I can make out, its purchasing power has fallen by something like 10 per cent. per annum. At this rate it would halve in value every 7½ years, and would drop to 3s. in twenty years. Formerly there may have been some who said: "Inflation only hits the rentier. Serve him right! "But today, with all our insurance, contributory pension schemes and so forth, we are all rentiers, and any inflation hits all alike. A decline such as has been taking place over the last six years would, if continued, not only cheat all our people out of their savings and pensions, but render all planning impossible and spell the doom of our position as an industrialnation. This lamentable result will, it seems to me, be very hard to avoid if our present gigantic expenditure and resulting high rates of taxation cannot be reduced.
The reason in my view is simple. Less than fifteen per cent. of the national income accrues to individuals receiving over £I,000 a year, and less than seven and a half per cent. by the time they have paid Income Tax and Surtax. If the Government have to extract thirty per cent. or forty per cent. of the national income from the taxpayer, the major part of it must clearly come from the wage-earning and smaller salaried classes in one form or another. Instead of being able to get the money from a small group of rich people, it is the great bulk of the population which has to pay. If the money is collected by indirect taxes, the prices of all the articles on which they are levied rise and the taxpayer complains of the increased cost of living. If direct taxes are levied, there is so much less in the wage packet for the wage earner and his wife to spend. The consequence in both cases is obviously

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a demand for higher wages and salaries. And these higher wages and salaries increase the cost of production, once again raising the cost of living and the vicious spiral is in full swing.
What are the Government doing to combat the danger, which I gather they recognize as clearly as anybody? As to economies, nobody can claim that these featured very extensively in the Budget speech. This is not surprising; economies are never popular. Moreover, the dialectical retort to any demand for any economies is cheap and obvious; the Government spokesman has only to say, "Where do you propose to make them?" If the critic makes a concrete proposal he is pilloried, and if he does not he is ridiculed. I am sure the noble Lord who is going to reply will not descend to such ignoble tactics. We are not here to score debating points or to win verbal victories; we are really concerned with the proper answer to a serious problem. Nobody outside the Government can weigh and measure the pros and cons of the various economies or be expected to make specific suggestions. I will content myself with listing the increases in some of the outstanding civil items between 1936–37 and 1946–47. The cost of central government and finance has gone up from £2,000,000 to £11,000,000; foreign and colonial expenditure has increased from £9,000,000 to £76,000,000; education has gone up from £58,000,000 to £131,000,000; health, labour and insurance has gone up from £162,000,000 to £346,000,000; trade, industry and transport has risen from £45,000,000 to £147,000,000, and pensions from £45,000,000 to £107,000,000. Then there is a rather mysterious item called Common Services (which includes, I understand, Government works, buildings, maintenance, information services and stationery) which has risen from £9,000,000 to £83,000,000. I may perhaps mention that printing and stationery alone account for £13,000,000 per annum, or about half what was spent on the pre-war Air Force. It is not for me to quarrel with any of those items individually, but when one sees this vast increase one cannot help wondering whether persistent, unremitting efforts are being made to check undue and wasteful expenditure. So much for the Civil Estimates.
The Service Estimates are harder to criticize, but all the same the expenditure of £1,660,000,000 in a year in which we expect to be at peace—twice the normal pre-war Budget—does give rise to misgivings. Naturally we all wish to treat Service-men properly, but Service pay is only a trivial item in this sum. If demobilization proceeds as is promised we shall not average much more than 1,600,000 men under arms every year. We shall, therefore, be spending something like £1,000 per serving man. Can this really be justified? Then again, are we quite sure that the strength could not be further diminished, that the numbers have really been reduced to a minimum, and that the natural and commendable desire of the Service Chiefs to be on the safe side has been taken into account? Every one of the items which together add up to this vast sum can no doubt be proved to be most desirable, but are they all absolutely essential in our present straitened circumstances? Would the danger to which cuts would expose the country compare with the danger of inflation? That is the test. We are told, of course, that these figures are the minimum required to fulfil our commitments, but is not one of our first commitments to avoid inflation, with its catastrophic results on the people's standard of living? Surely we must cut our coat according to our cloth and not enter into commitments which can only be fulfilled at such vast expense as would cripple the country.
In small matters nothing can exceed the meticulous care with which the Treasury scrutinizes every item; it is in large matters of policy that the urge for economies seems to fade away. I will return to this in connexion with our balance of payments. It is, of course, common form to complain about the increase in the numbers of the Civil Service, but having worked with them, I have far too great an admiration and respect for their ability and zeal to join in the hue and cry. The numbers required in the Civil Service are the result of Government policy, and if the Government keep interfering more and more in the civil life of the community it will require more and more civil servants to carry out the work. I was struck, I must admit, by the increased ratio of female to male civil servants. The number of full-time male civil servants has gone up by about one quarter whilst the number of female civil

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servants has gone up three and a quarter times, presumably to cope with all the various forms and the typing which are required. I hope my Civil Service friends will forgive me if I recall the old couplet:
"And all the tripe that I dictate
will now be typed in triplicate."
Before leaving the question of expenditure perhaps I might ask one question. The Chancellor told us he expects to spend about £3,800,000,000 in 1946–1947. It would be helpful, and I trust reassuring, if the Government spokesman would give us some idea of the expected rate of expenditure in the various quarters of the year and perhaps even for 1947–1948. I imagine they must have those figures if they have made their forecasts. So much for economy.
What are the Government doing to increase production? Their intentions are, I am sure, of the best, but their measures appear, from our point of view, to be rather deplorable. Nobody complains about their maintaining a certain measure of control, allocation and so on, but there is a vast difference between broad general controls during the period of transition and all the petty, finicky, detailed control throughout everybody's daily life. Permits, licences, and so on have to be obtained for every trivial activity; nobody can be trusted to do anything that does not receive the rubber stamp of officialdom's approval. The other day the Lord Chancellor betrayed a trace of human frailty—very unexpected and pleasant, if I may say so, in a Socialist—when he confessed to an instinctive horror of filling up forms. May I commend to him one incident within my knowledge? A man responsible for an estate belonging to a charitable institution and anxious to rebuild six cottages had to fill up 187 pages of forms. I do not know that he has finished yet.
It is not so much that permits are with-held as the appalling loss of time involved in getting them, and time at the moment is of the essence. Houses are going to rack and ruin while the Minister fiddles, if I may use the word. Anybody who ventures to help himself without first obtaining all the permits from all the various offices is threatened with penalties up to seven years' penal servitude. Whether the President of the Board of Trade, refreshed no doubt by contact with Mr. Gandhi's austerities, will augment
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our clothes ration remains to be seen, but it is disquieting, to say the least of it, to observe that the only major industries lagging behind the building materials industry in the rate of recovery to pre-war employment figures are the textile and clothing industries.
Even more serious than the hampering petty restrictions is the threat to take over large parts of our industries by the Government. In the last century there was an idea that the only way the working man could be protected from exploitation was by nationalizing industry. It was in this period that the obsession that this was the universal panacea grew up. But for a generation or more it has been clear that there are other much more effective and convenient methods of safeguarding his interests and it might have been hoped that the Government would have realized this. Generations of agitation and propaganda in the coal-fields have, of course, created such a psychological condition that the Government's decision to nationalize the coalmines was intelligible. Their gratuitous decision to close the Liverpool Cotton Exchange, with all the direct and indirect losses this involves, is bound to arouse antagonism amongst Senators from the Southern States on whom we are depending in the loan negotiations is a more serious symptom. There was no demand for this from the extremists, no mandate. It almost makes one think Ministers are taken in by the claptrap some of their supporters spout on the soap-boxes, who pretend nationalization is an end in itself.
I will not enlarge upon the Government's proposals concerning the iron and steel industry, as these will no doubt be dealt with more authoritatively by others next week. I merely recall that the Lord President of the Council announced in Canada that the case for nationalization would have to be made individually on its merits for each industry. Now apparently it has been decided to nationalize the iron and steel industry before the case has even been considered and a special board is to be set up, not to discuss whether it is desirable or whether nationalization is feasible, but merely how it is to be carried out. Of the story that the case for nationalization would have to be made out on its merits of course nothing remains. It may

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be that some political reasons not immediately apparent to more simple Conservatives underlie this remarkable decision. It must be very awkward going away for a pleasant family party at the seaside at Whitsuntide knowing that an affiliation order will be served upon one as soon as one arrives. But it is not for me to delve into the mysteries.
LORD PAKENHAM: There is a visitors' gallery at Bournemouth.
LORD CHERWELL: The noble Lord is more conversant with it than I am. What else is the Government doing to assist production? One method seems to be to reduce to a minimum every material incentive to effort by those capable of making a notable contribution. Apparently they pin their faith to eloquent exhortations and are determined to reduce so far as possible the prospects of more solid reward. This might be very well in an ideal world but unfortunately however elated noble Lords opposite may be by the results of the Election we are not yet living in a completely ideal world. It is all very well to entreat people to lay up their treasure in Heaven but unhappily not everybody is quite so confident, as no doubt are noble Lords opposite and, of course, their neighbours on the Bishops' Benches, of getting there to enjoy it. In war, under the impulsion of common danger, people will make unheard of efforts without thought of gain. In peace-time there is a regrettable tendency even amongst quite decent people to expect some material reward in this world for the work they do. This is recognized on all hands in connexion with "pay-as-you-earn." Indeed, anybody who blames the small man for refusing to work overtime because a fraction of his wages is taken away is regarded as a sort of Blimp. On the other hand, the possibility that a richer individual might be deterred from extra efforts because 75 per cent. or 90 per cent. or even 97½ per cent. of his earnings will be confiscated if he does, does not seem to enter the Government's calculations at all. If it is as much as mentioned we are told that it throws a lurid light on the lack of patriotism of the richer members of the community.
I will not weary the House by discussing this curious ethical question. Broadly speaking there are few rich men, not
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because most people do not want to be rich but because the majority have not got the aptitude and qualities which enable people to become rich. Apart from inherited wealth people in the main earn money by producing or manufacturing or arranging something which meets the needs or desires of the community. The qualities required may not be very amiable. I do not happen to be particularly attracted by them myself. But that is neither here nor there; these people deliver the goods. In some cases methods may have been used which are not particularly nice and in a few cases practices may have been indulged in which are anti-social. This is a good reason for curbing the practices, but not an argument for getting rid of all the exceptional people who have the knack of producing what the community wants. You do not discourage poets because Byron kicked over the domestic traces. You do not eliminate housepainters because Hitler was once a housepainter. If cattle are eating your vegetables you do not get rid of the cattle but you put a fence around your vegetable plot. But that is not the way of the Chancellor. "If thine eye offend thee pluck it out," seems to be his motto. And he appears to be very easily offended. The fact that high salaries are only given for good value does not impress him. He is out of sympathy with high pay so the community had better do without the services of the few specialists who can fill the bill. Rather a few cheap cheers for an attack on the rich than more goods and services for the benefit of the masses.
Most people do not mind how comfortable their neighbours are provided they are reasonably comfortable themselves, but there are some soured people who do not mind how uncomfortable they are themselves provided they can make their neighbours equally uncomfortable. This second class no doubt applauds the Chancellor's line. But the Government need not pander to them; they will vote Socialist anyhow. One might have hoped that the futility of egalitarianism would have been brought home to everybody by the great experiment made in Russia twenty or thirty years ago. All the revolutionary favour, all the compulsion of the Ogpu was not sufficient to achieve the required output. The difference in incomes in Russia to-day is notoriously far greater than ours. Not

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long ago some Russians visited an Oxford college. When dining in Hall with the undergraduates they asked who the people were sitting at the High Table. On being told they were the teachers they asked if they got the same food as the undergraduates, and the undergraduates told them they did. The Russians evinced great amusement and their spokesman said, "In Russia the teachers get twice as much food as the students. In that way the students all work hard so as to become teachers."
LORD LINDSAY OF BIRKER: I never found any undergraduates who believed we got the same food.
LORD CHERWELL: The noble Lord the Master of Balliol may have been singularly unfortunate. It has been said that you can only get a horse to work by the carrot or the whip. In Russia they tried the whip, and have had to offer the carrot as well. His Majesty's Government disclaim the policy of the whip, but refuse to offer the carrot. Apparently they think that they can get the horse to pull by more or less harmoniously chirruping by the Prime Minister relieved from time to time by objurgations from his colleagues. Well, we shall see.
The Government's other contribution to the production drive is to threaten to nationalize our major industries. Whether this be a good or a bad thing in the long run it does seem most unfortunate to have seized this most critical period to make such far-reaching experiments. All these great industries depend upon a large volume of knowledge and experience gained by thousands of men in a lifetime's work and study. If, as we are sometimes told, the same men are to continue running the industries, what is the urgency of all this fuss and trouble? If it is to be a different lot of men, the hopes of efficient production are slender. I must confess I often wonder whether all the Ministers really believe, themselves, that nationalization will increase efficiency. Take the case of coal. For 150 years now coal has been our great industrial asset, our one indigenous raw material, essential for production at home and sought after as an export abroad, for which we could obtain good value. Yet the other day the Minister who is to be in charge of the nationalization of mines recommended
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home users to turn over from coal to oil. He does not seem to have much faith in nationalization. I am afraid that the prospects of the Government initiating a great up-surge of production are slender.
If the Government cannot economize and cannot increase production, the only hope of avoiding inflation—admittedly a very faint one—is to make the public realize what the position is, and trust that people of their patriotism will refrain from insisting on increased wages and salaries. After years of propaganda in the opposite sense this will be no easy task. It only Command Paper 6784 could be simplified and distributed it might have a most salutary educative effect. Table 12, for instance, shows that taking the private incomes of all persons in the United Kingdom as a whole, only about 9s. 3d. or 9s. 4d. in the pound flows to people with incomes under £250 a year; 4s. 9d. to people with £250 to £500 a year; and 2s. 7d. to people with incomes from £,500 to £1,000.
Now I do not know at what income level a man passes from the class of the deserving, down-trodden poor to the class of the bloated, hateful rich. But I do not think anyone would draw the line below £1,000 a year gross—that is to say, £750 net, about equal to £300 a year purchasing power before 1914. If we draw the line between the sheep and the goats at £1,000 a year—even at the risk of leaving many of the noble Lords opposite at large amongst the goats—it is plain that only 3s. 5d. in the pound of income in private hands in the United Kingdom goes to people with over £1,000 a year gross—that is, before tax is paid. And is. 7d. of this 3s. 5d. is taken away in Income Tax and Surtax, so that only Is. 9d. is left. Thus very little remains to confiscate. Even if everything over £750 were taken away, the gain would only amount to about 6d. in the pound of the total national income. The corresponding figures for £2,000 gross, that is to say, £1,300 net are is. 6d. to 7d. and 1¾d. That depleted hen-roost, at any rate, is not worth robbing.
For forty years now a large section of the British public has been persuaded that it is possible to get ninepence for fourpence. This was and is perfectly true. The wage earner could get ninepence for fourpence by taking the extra

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fivepence out of the rich man's pocket. Unfortunately, in his innocence, he now tends to think that he can get 9s. for 4s. Is it not time to make it plain that the rich man just has not got the 5s. he wants? Compare the figures I have mentioned with the sort of outgoings we contemplate, mostly admittedly spent in most desirable ways. About £250,000,000 a year for instance is spent on food subsidies. This has to be collected from someone. As we have about 20,000,000 people gainfully employed in the United Kingdom, it means that the Government take about 4s. 9d. a week from each of these peoples' earnings. When people say that the Government are paying £250,000,000 a year to keep the prices of food down, what they really mean is that they are all contributing 45. 9d. a week in one form and getting it back in some other form. Take education, a most excellent objective. This costs £129,000,000 a year; 2s. 6d. a week out of the pocket of each person gainfully employed. Or take old age pensions, just over 2s. a week out of everybody's pocket, or family allowances, £57,000,000 in a full year, about 1s. 1d. out of everybody's pocket, or the social services, £450,000,000 a year, something like 9s. a week out of everybody's pocket.
When people say that they are only paying 8½. a week for a free health service, do let us be clear that the Government contribution of 2s. 3½d. comes out of the wage-earner's pocket just as directly, though not so obviously, as the 8½d. I am not for one moment attacking these various items of expenditure. What I am attacking is the idea that you can get, or are getting, these amenities by soaking the rich. The rich have been soaked. And the whole yield is only about one-third of the national expenditure. Every item over and above this—two-thirds of the national expenditure—must and does come directly or indirectly out of the pockets of the poorer classes. Our food and drink, our clothes and tobacco do not fall like manna from heaven. What we consume we must make or buy. If the public like to ask the Government to spend one-third of their income for them, they must make up their minds to the fact that they will only have two-thirds left in their pockets
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to play with. No amount of juggling with figures or currencies can alter this.
We can, of course, increase the number of shillings by 50 per cent., and reduce their purchasing power to two-thirds, but the brute result will remain that one-third of our wages will be handed over to the Government to disperse, and only two-thirds will be left in our pockets. In many cases, indeed in most cases, this will be a very good thing. It is far better that the Government should give all the old people their pensions, and abstract two shillings a week from everybody's pay packet for this purpose, than that these old gentlemen and old ladies should be left to the mercy of individual charity.
Is it not the duty of Parties to make this plain? Surely our people should be proud to think that they have consented to—indeed, insisted upon it. Only if the great broad masses fully realize these very crude, economic facts is there in my view a hope that they may comprehend that any increase in wages and salaries must inevitably be counterbalanced by a corresponding increase in prices, so that the purchasing power of their money and their savings will dwindle and vanish, leaving them no better off in the meantime. Naturally, with the gradual improvement of technical efficiency, we may hope that the output per head will increase, and to this extent wages and salaries can safely be raised. But it would be foolish to expect any spectacular change in our life-time. About one and a half per cent. per annum has been the average for a century or more, corresponding to an improvement of about fifty per cent. in twenty-seven years. I maintain that we should be very rash to anticipate anything much greater. Any greater rise in wages is bound to mean inflation. Of course if hours of work are reduced while wages and salaries are fixed, the result will be exactly the same inflationary effect. In other words, if we produce less we shall have to consume less, however much we may cheat ourselves by devaluing not only the money we earn but also the money we have saved.
There may be some hope in putting this simple argument across, but it will not be easy. A much more difficult topic is one on which the noble Lord, Lord Pakenham, touched recently, namely the question of relative wage rates. We all know the vicious spiral which enures because

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each of two or more industries claims that it should be paid more than another. How are these delicate questions to be settled in a society in which we have full employment? In the modern world, in which sub-division of labour has been carried to extremes, each body of workers in turn can hold the community up to ransom. The noble Lord said the other day that the Government intended to fix wages according to the relative attractiveness of the job.
LORD PAKENHAM: It was not what I said, but I am sure the noble Lord will make it plain as he goes on.
LORD CHERWELL: I hope that the noble Lord will expand this a little more when he comes to it. Something of the sort, of course, does obtain in certain industries where extra remuneration is given for unpleasant jobs. It is known I believe as "dirt money," and, in the Navy, as "hard-lying money." I should hate to have to say how Ministers would fare if that were the criterion on which their salaries were fixed. At any rate the right reverend Prelates would certainly suffer. Seriously, would not this course also tend to cause inflation? It is much easier to raise wages than to lower them, and each adjustment would tend to increase the average level. To take a specific instance, would the Government try to attract engineers in Lancashire into the cotton trade by lowering engineers' wages, or by raising the cotton spinners' wages? I cannot see them doing the former. But to raise wages throughout the cotton industry, would increase not only the amount of money in circulation but would also put up the price of cloth and we should have inflation from that one single adjustment.
I fear I have kept your Lordships very long, but before resuming my seat I must say something about the immediate, urgent and pressing question of our balance of payments. Here also we are in the grip of one of those unpleasant, immutable laws, which in science we call conservation laws, which boil down to the simple proposition that you cannot get something for nothing. In war time, it is true, the United States supplied us under the Lend-Lease Agreement with a large part of our needs without making immediate claims. Canada made a similar most generous arrangement. Other Dominions and neutral countries allowed us to buy on
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credit and in this way, during the whole of the latter part of the war, we were able to keep up our imports whilst letting our exports drop to less than one-third of their pre-war volume. But nobody can go on living on credit for ever. Unless we can soon pay our way we shall have to cut down our imports.
We cannot expect foreign, or even Empire countries, to continue to send us goods without an adequate return, merely in order to keep the people of this island living at a higher standard than their efforts justify. No tricks or jugglings with the exchange will get over the fact, however painful, that in the long run we shall have to pay for what we import by exports in one form or another. Only if we have something to give which the foreigner wants shall we be able to get from him what we want. As everybody knows, we have lost the interest on a great many foreign investments, made in the century of our industrial preeminence, which we had to sell in the early days of the war, before Lend-Lease started. To make up for this, if we want to import as much as before we shall have to increase the volume of our exports by something like fifty per cent. over the pre-war figure. Over and above the loss of our investments abroad we have accumulated foreign debits approaching something like £4,000,000,000. A great part of this was reckoned at inflated prices, and often the money was spent in defending the creditor country. Much will depend upon what arrangements can be made about these foreign debits. But whatever is done, a vast increase in exports will clearly be required.
Unfortunately in the twenty years between the wars there was a general decline in the volume of our export trade. It was not catastrophic, but it was unmistakable. Now we have not only to arrest this decline but to expand the volume of our export trade by something like seventy-five per cent. One hundred years ago we were ahead of all other countries in manufacturing technique. Engineers from all over the Continent tried to worm their way into our factories to learn about our processes. British goods surpassed all others in quality and we alone were in a position to export in quantity. To all intents and purposes we could make our own terms and our export trade led the world. Unfortunately,

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things have changed. From being the only nation with a large surplus of first-class exportable wares we have become only one amongst several. Unless we can produce goods better and cheaper than our competitors the foreigner will buy from them, instead of from us.
It is clear that we cannot jump up the volume of our exports in a few months from thirty per cent., to which they had fallen in the war, to 150 per cent. or 175 per cent.—five or six times the war figure—which is necessary if we are to pay our way. To tide over the transitional period, the Government, quite properly in my view, have endeavoured to secure a loan from the United States. This loan is now being debated by Congress. If we obtain it, it will give us the necessary breathing-space, provided that we work hard and efficiently and that nobody throws a spanner into the works. But it will not last for more than two or three years. By 1948 or 1949 we must reestablish some sort of balance in our external trade in some form or another. If we cannot raise exports to the desired level we shall have to reduce imports. There is no getting away from that, and the reduction of imports with all the austerities which it would imply, will certainly not commend the Government to the electorate.
Nobody denies that the Government realize the supreme importance of redressing, the balance of trade, but many doubt if they are setting about it in the best way. Export industries are very properly given high priorities on paper and exhorted periodically by Ministers at weekends to strenuous efforts. But they are all still subject to the petty delays and restrictions which impede and hamper industry throughout the country. All the newspapers a fortnight ago paraded the fact that the volume of our exports had now reached nearly ninety per cent. of the pre-war figure. That is very satisfactory as far as it goes, but it is only about half way to our target. Above all, even at the risk of seeming pessimistic, I think we must remember that we are operating today in a transitory sellers' market. For five years now almost all the countries in the world have been deprived of manufactured goods. Almost any firm can obtain as many orders as it likes—or perhaps I should say dares to accept—but this back-log of demand will be filled
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in a few years, and then the pinch will come. So we ought to make hay while the sun shines.
I have already referred to the difficulties of nationalization. These difficulties are very much more serious when we are concerned with our export trade. Here we have hundreds and thousands of firms, each with their own contacts and customers abroad, all of them anxious to do business and build up goodwill. How can we possibly expect to get similar efficiency from one vast nationalized industry? How can we expect individuals in the industry to throw themselves into rebuilding our shattered trade with enthusiasm when they know not only that the major part of their earnings will be taken away but also that in a short time they are apt to be supplanted by a gaggle of Government employees? We cannot really expect great efforts, from a swimmer struggling against the tide if he is told that he is scheduled for the lethal chamber in any event. What we are really concerned with is not so much exports or imports singly but their difference which constitutes our balance of trade.
There was great jubilation in the Press recently because exports had increased by £7,000,000 over the figure of the previous month. There was much less emphasis placed on the fact that the imports had gone up by £23,600,000, a vastly greater figure. The unfavourable balance, in other words, had increased by £16,600,000. This export deficiency is due to solid material imports. Nothing, so far as I can make out, is included for what we might call invisible imports, namely the enormous expenditure still, I believe, going on for all sorts of purposes abroad. It is here that vast savings could be made by clear hard decisions. I have referred to the huge foreign debt which has grown up during the war, when we were obliged to spend, £,1,500,000 a day in the various countries we were defending. Are these huge sums still being expended? Are these enormous sterling liabilities continuing to pile up against us in India, Egypt and all the countries of the Middle East? What is the position? Can we be told whether our liabilities are growing and if so, at what rate?
The Government stated the other day that they expected a negative trade balance of £750,000,000 in the coming

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year. Are they prepared to tell us how much this will be quarter by quarter, or better still, give us some approximate forecast of the imports and exports of the expenditure abroad which is anticipated for each quarter of the year? They must have the figures otherwise they could not have made their forecast.
It is very hard of course for a rich man to come down in the world and have to economise, but it is better than going bankrupt. It is the same with countries. Naturally we should all prefer to be free and generous with our money. Fifty years ago we could afford it. Today the position is utterly different. Yet we go on forgiving debts and handing out cash all over the world—£80,000,000 to U.N.R.R.A. one year and £75,000,000 the next; £46,000,000 to Greece, plus a cash gift of £10,000,000. Huge debts are forgiven to Poland and vast sums expended in Italy. Worst of all I see in the Civil Estimates that £130,000,000–2s. 6d. a week out of every wage-earner's income—will be spent by the civil government over and above the costs of military occupation in Germany this year. Really we must get out of these free and easy habits. There is enough talk about austerity at home. Let us practise some of it abroad.
I cannot help observing an alarming similarity between our position to-day and that of Holland after the War of the Spanish Succession. At the end of the seventeenth century the United Provinces were one of the world's great Powers; they negotiated on equal terms with France, England and Sweden. Their alliance was sought, their words were carefully weighed in every Chancellery in the world. They fought a series of wars in one generation. In all they put forth gigantic efforts. In none were they defeated. In the two last, helped by their allies, they were victorious. They had exhausted themselves. Ever since then they have played no significant part in the history of the world. To-day we also suffer from the exhaustion of two stupendous struggles. Only by the most anxious care can this country be nursed through its troubles and hope to recover the strength which will enable it to maintain the position in the world which it has held for two and a half centuries. This is no time for vociferous claims or for rash experiments. Least of all is it time for partisan
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squabbles. Only if we all put our shoulders to the wheel and refrain from extravagance in behaviour as well as in demands can we hope to recover the strength and balance and poise which enabled this country to save Europe four times in as many centuries from domination by a single Power and to set an example of decency, toleration and freedom to the world. I beg to move for Papers.
3 25 p.m.
LORD RENNELL: My Lords, I do not propose to follow the noble Lord down the road that he has chosen to tread. I understand that he is not happy about the position. In fact I do not think any aspect of it really appeals to him. But the difficulty, really, in dealing with the subject is not that of finding fault, but of finding a remedy. Where there is a Motion of this breadth before your Lordships' House, without any particular issue on which to hang the discussion, I think it is incumbent, as the noble Lord said at the beginning of his remarks, either to offer an alternative suggestion or to point to something which has been done which was wrong, and to point out what the speaker, it he had been in the Government's place, would have done instead. On neither of those points did the noble Lord make himself very clear. I do not wish the noble Lords opposite to interpret what I say as being agreement with their views—far from it. Many of their doctrines and policies—indeed most of them I think—are utterly repugnant to me. But I do find myself in very considerable sympathy with their position at the present moment of having to reply to this particular Motion, because I am not aware that up to date any of the measures which have been agreed and enacted are substantially different from those which had been agreed by the previous Government.
The noble Lord spoke at some length in the early part of his speech about the cost of social services, the cost of the Civil Service and the cost of administration generally. All those measures which have been enacted and which are in contemplation, all those increases in pensions, salaries, and wages—except only the increase in the wages of the Armed Forces of the Crown—have had general support, I think, by all Parties in this country. The social legislation in contemplation, broadly speaking, under the so-called Beveridge plan and under the national

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health plan—if not precisely in the form in which it has been presented—has had the support and the enthusiastic support of every Party in this country. If, therefore, the schemes are enacted by the present Government, it is difficult to criticize them for doing what I venture to suggest any other Government would have found themselves obliged to do, and would I think have done with enthusiasm. The cost of these Services is obviously great, but if some of us feel that it is too great, then it is incumbent, as Lord Cherwell himself said, to get up and say "We do not agree with them because we cannot afford them." I am not aware that the noble Lord has said that about any single measure, but I think that is the only thing to do. I do not believe we can broadly criticize and say we are living beyond our means without saying in which respect the cloth is insufficient to meet a particular coat. I am coming to the question of nationalization in a minute.
The second point which I would like to make about the noble Lord's Motion is that it is a very difficult one to discuss at this moment. It happens, through no fault of the noble Lord, that his Motion has fallen upon a day which is probably the eve of the first vote in the United States Senate on the loan. Many of us have felt that a loan of that nature is desirable—on that there is no difference. There may be differences in regard to terms. In reviewing the economic situation of this country to-day, however, we have to bear in mind not today's position but what the position is likely to be to-morrow if that loan is not agreed to by the United States Senate. I therefore submit that a review of the economic situation to-day, bad or good as it may be, is premature at this moment. That is the additional and second reason why I do not wish to pursue the noble Lord down the road he has trod, either by making if it were possible alternative suggestions, or indeed by an analysis of the situation in the country, which I do not myself think is as black as he has painted.
I think we shall all have to take stock—the noble Lords opposite, the noble Lords on the Benches from which Lord Cherwell has spoken and my noble friends here—if the unfortunate happens and the American Loan is not acceptable
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to His Majesty's Government in the form in which it may be proposed. I am sure no one in your Lordships' House will fail to recognise that that will involve a complete new stocktaking of our whole economic situation and policy. It may alter fundamentally the views and policies of the Party to which the noble Lords opposite belong.
But whatever the outcome of that is, the situation to-morrow, according to whether the loan is accepted or rejected, will be so vastly and fundamentally different from what it is now that I do not believe any useful purpose will be served by analyzing the position to-day. If we find that this loan is passed, I think an early opportunity should be taken to review the whole situation; but if the loan is not available to us, then I feel sure that the noble Lords opposite will wish to give opportunities to your Lordships to debate the position, because a very serious one will have arisen. The point I am raising was brought out in the discussion on the Bretton Woods Agreement when Lord Keynes spoke to your Lordships on the subject.
Another point which I would mention is rather more particular—the question of financial policy in regard to foreign payments, payments to Governments abroad, subsidies and grants-in-aid to which reference has been made, payments to U.N.R.R.A., and our own balance of payments. On that last subject I would say that it is very difficult for anybody outside the Government offices really to determine what is the position of our balance of payments. The ordinary citizen cannot have the information available, and it is extremely difficult for him to assess even the figures which are published, but there is no reason why the figures which are published should be so obscure as they sometimes are. I refer in particular to a point with which the noble Lord who is replying will probably deal, and that is the inclusion in our visible trade figures of certain items in respect of exports to U.N.R.R.A. and N.A.A.F.I., which in my view ought not to figure there or figure only with qualification. I regard the inclusion of those in the gross export figures of visible trade as entirely misleading. They may amount to something of the order of £7,000,000 to £10,000,000 a month, and when they are deducted the visible export trade figures are not as good as the spokes-

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men of the Government have alleged them to be. That does not alter, obviously, the policy of pushing exports as much as possible. It does, however, mean that we have to push exports which we are paid for, and not include among them exports for which we pay ourselves.
LORD PAKENHAM: May I correct the noble Lord on that point now? It appears that the proportion to the total exports of the kind of exports to which he has referred has remained roughly constant throughout the period since the end of the war. So the published statements he has in mind are more correct than he imagines.
LORD RENNELL: I thank the noble Lord for making that point, but the proportion is very high. I have not the figures with me, but I shall be corrected if I am wrong. I think the last published monthly figures showed exports of £67,000,000 or £70,000,000, and if my figures are right—and I think they are derived from the noble Lord's replies in your Lordships' House—the N.A.A.F.I. and U.N.R.R.A. exports amount to about 10 per cent. of our visible exports, and that is a very substantial amount. Whether it has remained constant or not, the actual figure is large and ought not to be there. On the balance of payment figures, however, I would like to say that they have shown a very substantial improvement. Is it quite fair to take stock of our balance of payment figures within twelve months of the termination of hostilities with Germany and less than twelve months of the termination of hostilities with Japan, and say that our position is bad, not so bad, or whatever it is? I submit it is much too early, after a war of this magnitude, even to discuss the balance of payment figures as reflected by visible trade. It is because those figures are so out of keeping with reality no doubt that all technical experts have agreed in urging on His Majesty's Government, if they needed any urging, the necessity of contracting a loan in the United States to see us over the reconversion period.
I think it is equally difficult to discuss the level of prices in this country at the present stage. I frankly have been surprised that the rise in prices, the depreciation in currency to which Lord Cherwell referred, has been as small as it was
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during the war years. I think it proves not only the value and the efficacy of the economic and financial controls which were instituted during the war, but it abundantly proves all those doctrines that Lord Keynes spent twenty-five years preaching to this country and which have now been broadly accepted by every Party here. This is perhaps one of the most remarkable of all the phenomena with which we are faced now in contemplating the economic situation.
There is no authoritative, responsible person in this country who has not got the fear of inflation before his eyes every day. We are all aware of it and we draw attention to it. We all have it at the back of our minds as a very great fear. Strangely enough, the corollary to it is there too. We are nearly all of us agreed upon the financial devices—critics call them devices—the financial measures which ought to be taken to prevent that inflation. We have, in other words, learnt at the feet of Lord Keynes in twenty-five years how to manage our currency, and the proof of that resides in the success with which it was managed during the six years of war. We have also learned to accept that the measures for controlling and managing a currency are right, and there is practically no dispute among people about that now. If, therefore, we all accept the fear and the danger and most of us also accept the remedies, is there anything then left between the various Parties except to take up one specific subject after another and to say "That is the thing I would have done differently and that is the thing you should have done differently?" With that measure of agreement both as to the danger and as to the measures which must be taken to avoid that danger, there is no room for a general jeremiad on the economic position of this country or of the iniquities of the Government in power, whatever Government may be in power.
I therefore return to the point with which I started, and that is that when we know and can take stock of our economic position, that is to say, after we know the result of the deliberations of the American Congress on the loan, a more fruitful occasion will arise to discuss the whole subject than is, I submit, the case now. If it is discussed again, either because we have failed to get the loan or because we have got it, then, if we do not agree, we must discuss the subject

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on the basis of specific points and not on the broad issue of saying "How shocking is the state of affairs and, generally speaking, all you are doing is wrong."
I wish to close with only one remark, and that is that I would not wish any of the noble Lords opposite to feel that what I have said, which may appear to be some defence of the present policy, has been said because I agree with it; I do not. Notably on the issue of nationalization I subscribe entirely to what the noble Lord, Lord Cherwell, has said.
3.23 p.m.
LORD STRABOLGI: My Lords, your Lordships have listened, I think for the first time, to a speech from the noble Lord, Lord Rennell, from the Liberal Front Bench. Perhaps he would allow me to congratulate him on speaking from that excellent position and also to congratulate his colleagues of the Liberal Party on the great accretion of strength that his joining them on the Front Bench will, I am sure, mean to them. I thank the noble Lord, Lord Cherwell, for giving me a very pleasant sensation by his speech. When I listened to it, and enjoyed it, as we all did, I realized for the first time that the second world war was really over. Soon after the end of the first world war I listened in another place to dozens of speeches which were not so good in form but which were practically the same in content, all talking about the wickedness of the Government's extravagance and our approaching ruin. In those days it was not a Socialist Government but a Coalition Government in which the Conservatives held a predominant position. Those speeches all talked about the wickedness of the Government's extravagance, the bloated Civil Service, the waste, and, of course, the need for economies, without ever beginning to explain where we were to begin to economize. Unfortunately in those days that series of speeches, like that we have heard from the noble Lord, Lord Cherwell, though not so good as his, eventually had a cumulative effect and in consequence we began the disastrous process of a helter-skelter deflation, a contractionist policy, with rationalization forced on some of the basic industries by the Bank of England, rising unemployment and a premature return to the Gold Standard.
All that followed on the same kind of argument that your Lordships enjoyed
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so much when delivered with so much grace and wit by the noble Lord. Again I hear the echoes of the terrible danger of inflation. But I have been hearing of inflation ever since I could hear anything at all and understand it—long before the first world war. As the noble Lord, Lord Cherwell, pointed out, over the last four or five centuries (I believe ever since the discovery of the great gold mines in South and Central America and the great silver mines in the New World), there has been progressive inflation, a progressive increase in prices in terms of the money of the day. And, quite apart from wars and the effects of wars, there is a new potential inflation in the great new gold strike in the Orange Free State quite recently. Not only the new deposits of gold which are being discovered, especially for example in Siberia, but the modern methods of extracting gold by themselves would create inflation. I would with great respect say this also to the noble Lord, Lord Rennell. We can go too far in threatening and alarming the general public with this alleged danger of inflation. There is a natural answer to it, indeed almost a corollary, and that is that while there has been this continuous inflation roughly from the time of Queen Elizabeth onwards, enhanced of course by wars—the South African war alone led to a considerable change in the price-level, and that was a mere skirmish compared with the first and second world wars—parallel with it there has been an enormous increase in the potential of production of modern industry.
The reason why my noble friends in the Government have interpreted the policy of my Party, which was endorsed by the country, of nationalizing certain industries is because they are convinced, particularly in the case of coal and iron and steel, that in no other way can the country take advantage of the technical and scientific advances and improvements that are ready to hand. With its policy of cartelization, monopoly, deflation and rationalization, modern capitalism is incapable of taking advantage of the great discoveries of science and of the improved modern methods of production. Only in war, and for war purposes, do we see full advantage taken of this great new field of production and the increase of wealth. One more passage in the speech of the noble Lord, Lord Cherwell, so like the speeches I heard after the first world war

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—and of course no Conservative speech is complete without it—was the usual attack on Russia. This time, however, the complaint was that the Russian specialists were apparently paid too highly or treated too well.
VISCOUNT SWINTON: I thought the noble Lord was paying their policy a high compliment; he called it good commonsense.
LORD STRABOLGI: I am sure the noble Lord, Lord Cherwell, can answer for himself. He is quite quick enough in the uptake to answer me. I am sure he will do it when he exercises the privilege of replying, and I shall listen with my usual delight to what he has to say. There are two matters that I wish to bring particularly to your Lordships' notice, and especially to that of my noble friends in the Government. May I say with great respect that the constructive part of the noble Lord's speech, with which I am sure we all agreed, concerned the urgent necessity to increase our exports from this country. There is common ground there. I am going very briefly to suggest two ways in which I believe this can be assisted at the present time. Without the European markets I do not know how we are going to increase our exports to the required level. Europe is our nearest and most natural market and has always played a great part in our commerce. Without the recovery of Europe I also take a somewhat gloomy view of the possibility of increasing our exports to the level required.
The greatest trouble in Europe is the chaotic state of transport. There are markets there open to us which we cannot reach because of this transport trouble. Certain of the European countries have made a very good recovery. Belgium, Holland, Czecho-Slovakia, the Scandinavian countries and I believe even the Poles are going ahead and putting their house in order. Take the case of Czecho-Slovakia particularly, because that is an inland country which can be a most valuable market for our exports, which can provide us with certain raw materials particularly timber, which we badly need, and steel which we badly need, but which we cannot reach because of these appalling transport conditions and obstacles which are almost irremovable. May I beg
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particularly the noble Lord, Lord Pakenham to mark my next words. I know he will pass them on. This is quite a serious matter. The villains of the piece are the occupying military authorities—
A NOBLE LORD: Russia.
LORD STRABOLGI: It is quite irrespective who. The Russians, the Americans, ourselves and the French are all equally to blame. The various military authorities all seem to regard their zones of occupation all over Europe as existing for their own purposes and they do not realize that through those zones ought to be passing a growing and increasing natural and legitimate commerce. They seem to find it necessary as soldiers to put every kind of obstacle and obstruction in the way of the exchange of goods across their zones. Not only do they annex locomotives and wagons which they take a fancy to or which they think they need, quite irrespective of what is in them, and turn out the goods and sometimes keep them for months, but the Americans demand payment in dollars for the use of the transport lines through their zones from people who have not got any dollars. We demand sterling but fortunately there is a little more sterling in the world. Generally speaking there is an immense delay in getting any sort of traffic through these zones.
Furthermore the ports in the Baltic and North Sea, and this includes Hamburg which is in the British zone, are almost useless for all ordinary traders and merchants because all the berths are continually occupied for military purposes and it is extremely difficult for any merchant to get a berth in which to unload his goods if he is importing or to ship them if he is exporting. This is obviously hampering our trade with several countries in Europe and the inland countries are amongst the most important. I know that this is a matter which does not rest merely with His Majesty's Government but also with our Allies and I know that great efforts are being made to free the Danube waterway which is of great importance to Southern and Central Europe. Yet I think this matter has not been given a high enough priority and that not enough energy and drive have been put into the problem of clearing the channels of trade and commerce.

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The same difficulty applies to ordinary travel. Unless you can go by air it is almost hopeless to go by train. You may have to wait weeks unless you are a very important person, and the ordinary British commercial traveller and the ordinary merchant or agent is not treated as a very important person although he should be. The other difficulty is the shipping shortage, and here I have also a constructive suggestion to make. I understand that owing to the lack of sailors a great many American merchant ships are laid up. The American crews were there for the war only and they think they have done their job and are going back to their farms, shops or ordinary civilian occupations. Thus many Liberty ships and all kinds of cargo ships are laid up for lack of crews. There is a world shipping shortage which is hampering the recovery of trade including our own export trade. We have the sailors and so have the Dutch, the Danes, the Norwegians and others who would co-operate with us in this matter. I do not think it is necessary to purchase these ships because after all we have an immense building programme of merchant ships in our own shipyards.
Some credit is due from the noble Lord, Lord Cherwell, with regard to British ship-building because it is doing extremely well and has had every encouragement and with success from the Government. I understand the Americans are asking rather a high price for their ships on sale but surely it would be worth while to charter them for a period at the present time. I cannot imagine the American Government or the American shipping board refusing. Rather than have ships lay up rusting why not charter them when we have got surplus officers and sailors to sail them. In every country today, as the noble Lord, Lord Cherwell, has said there is a demand for our goods but our difficulty is shipment and there is great congestion in our ports already and in the warehouses because of the lack of shipping to take out our exports. There are all these ships laid up idle and it does not make sense to me that something has not been done. These are the two suggestions I make. I do not expect any reply to them now because the noble Lord, Lord Pakenham, has to deal more with the philosophical side of this debate but I feel sure he will pass my suggestions on.
VISCOUNT STONEHAVEN: Before the noble Lord sits down could he tell us what we should use for dollars.
LORD STRABOLGI: If we can spend $80,000,000 a year on films surely we can spend some dollars to charter ships which will pay their own way and help our vital export trade.
VISCOUNT STONEHAVEN: It is still dollars.
3.55 p.m.
LORD DARWEN: My Lords, I have felt the gloom very much of Lord Cherwell's picture, lightened as it was by the wonderful flashes of wit, but I do feel that the situation is much more temporary than he seemed to suggest. I want to address myself in the main to one side of the position which he put forward and that is the question of nationalization. I hold perhaps a rather unusual position in the Labour Party, having been in business all my life, and yet I do feel very strongly indeed upon this question not only from the ethical point of view but from the economic point of view as well. It always seems to me that the conflict between the two points of view can never be solved largely because we use completely different yardsticks. When we are considering the question of public service we measure it by pubic service. When we are considering private enterprise we measure it by public service. When we are considering private enterprise we measure it by private profit which may be and often is a completely different thing from the public service. It is not at all necessary to serve the public in order to make high profits. In fact it would almost be true to say that very often the ratio is in inverse proportion.
There is a second point I want to make. I feel strongly on this because it arises out of my own experience. It is, I think, fundamentally important in considering this question of nationalization not to think of the separate units in an industry which may be all very efficiently run and yet the industry as a whole may be inefficient because of the competition within it, because no separate unit can really know what the other units are doing, and therefore cannot know what the total output of the industry is going to be as compared with its possible merits. I think that that is true, and that

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it has been true for many years, of my own industry—the cotton trade. It is not, I think, mainly inefficiency in the separate units but inefficiency in the industry as a whole that has given rise to most of the difficulties in that industry.
Therefore, when Lord Cherwell asks "If it is to be run by the same men what is going to be the advantage under nationalization? "I would say that the advantage is going to be that you are going to get unification of the industry and the elimination of the very costly competition between the units in the industry. Further than that, you are going to be able to fit that industry into the general plan of your national economy, into the general scheme by which you are going, to meet the needs of the nation; you are going to be able to fit it into the scheme of international co-operation which we shall be compelled, sooner or later, to build up, in a way which cannot be done if an industry is run entirely by small conflicting units.
The next point I wish to make is that private enterprise—and I think most noble Lords will agree with this—failed completely in the inter-war years to provide full employment for our people and at the same time failed to provide a decent standard of living for our people. That was a colossal failure; it was a failure that would justify a very big programme of change. I believe it was that failure which had the effect of carrying the Labour Party into power at the last General Election. The people, I am convinced, were determined that the conditions of those interwar years should not return, that we should not again have mass unemployment and a depressed standard of living. The Coalition Government accepted responsibility for the government of this country and I think that they accepted the responsibility for all time for the maintenance of full employment. That is the central consideration that the present Government have to keep in mind. They have to keep in mind that they must justify themselves by maintaining full employment, and if they maintain full employment then the nation can afford all the justifiable expenditure that is being and will be incurred.
It is, I am sure, being very clearly realized that that full employment can
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only be maintained by keeping the standard of living rising steadily as production rises. I believe that it is going to be impossible to do that without a very large measure of national control over the whole—or almost the whole—field of industry. I have been an employer for a great number of years, and I really cannot visualize a group, of employers sitting down in conference together to make a decision something, on these lines: "Well now, production powers have increased ten per cent. during the last two or three years, and so we shall have to increase wages by ten per cent." I cannot see employers doing something like that voluntarily. Therefore, I say that there has got to be some means by which the Government will have power to see that the standard of living in the country does keep pace with the power of producing wealth.
I agree that the rising standard of living, which I believe we shall attain, is going to involve more and more imports, and that the crux of the whole question is going to be the ability to pay for our imports by means of exports. Lord Cherwell told us that we should have to expand our exports seventy-five per cent. There are great differences in figures which are given, of course, but I am inclined to think that that is an understatement. At any rate, if we want to keep the standard of living rising exports will have to continue to rise. I suggest that if we are going to be able to expand our exports, one of the first things we have got to do is to see that our exporting industries have a good economic basis upon which to work. Personally, I think that the nationalization of coal and transport and of the basic industries of the country generally is an essential economic basis for the development of our export trade. I was very greatly interested to see that Courtauld and his friends have decided in favour of the nationalization of all the services that they use in their industry. That is very significant. It means that they, at any rate, recognize that a better service is rendered by a nationalized industry than by private industry, and they want the industries that they need and use in their own industry to be nationalized. I submit that we need this sound economic basis for our industries, and it is only with providing that economic basis that the Labour

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Party's programme is at present concerned.
The next important factor for success in our export trade—an essential factor. I believe—is international cooperation. What was the state of our international trade after the first great world war? The whole amazing system by which international trade had been built up was largely destroyed by that war, and it has never been completely rebuilt. It has been further destroyed during this last war, and our position as an exporting nation is going to be infinitely more difficult this time than it was after the first great world war.
I believe that we shall be compelled, sooner or later, to set up national import and export boards to meet this difficulty. During all the years that the cotton trade was losing money hand over fist the importers who were bringing imports into this country were reaping in profits fully as much as the export trades were losing. If you had national import and export boards it would be possible, on a joint balance sheet, so to arrange things that the losses on exports were balanced by the profits on imports. It would mean in actual practice that you would be paying a better price in exports for your imports than you were before; but it would enable you to carry on the export trades, to keep your people employed, and to pay for the imports that you require. I believe that you cannot develop your export trades through international co-operation without a very large measure of co-operation—nationalization at home. You cannot have all these hundreds and thousands of firms which the noble Lord, Lord Cherwell, spoke about, competing with each other, and on that basis expect to build up a system of international co-operation. He said that no juggling with the exchanges could save us. But I do believe that with national import and export boards, and with international co-operation, we could save the position of the export trades. We are the greatest international market in the world, and if we could use the tremendous power which we have as purchasers we should be enabled to carry on our international trade. Therefore I believe that it is essential, if we are going to develop our industry, raise our standard of life, and meet the difficult situation which the noble Lord, Lord Cherwell, has put before us, that all
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industries should be fitted into a national plan and into international co-operation. If we do that, we shall avoid any return to the terrible conditions of the inter-war years.
4.13 p.m.
VISCOUNT SWINTON: My Lords, I think that all your Lordships will agree that the House owes a debt of gratitude to the noble Lord, Lord Cherwell, for marshalling the facts of the present position in a in way which I certainly have not seen them set out and evaluated in any written or spoken word. If the debate had done no more than that, and if his speech had contained no criticisms and no suggestions it would have served a very useful purpose. But I think my noble friend Lord Rennell—he is not in his place—did less than justice to the noble Lord, Lord Cherwell, when he said, as I understood it, that Lord Cherwell was hardly entitled to deploy this situation in the way he did unless he offered concrete suggestions and that he had failed to offer any such suggestions. I listened with great care to my noble friend's speech, and I am bound to say that I thought that he offered very definite suggestions. The noble Lord, Lord Rennell, said that we were not entitled to criticize the action or inaction of the Government because we were committed to certain policies of expenditure which are common to all of us—pensions, social insurance and the like. My Lords, I entirely repudiate that line of argument. I am not going back in any degree upon the commitments which we undertook when we were all together, because that was a policy which we entered upon in the genuine belief that it was right, and in the belief that if we all pulled together and pursued a sane economic policy, then we could pay our way and assume these great responsibilities. Therefore we are indeed entitled, not by way of destructive criticism but by way of constructive criticism, to say that matters like nationalization, particularly at this time, are not going to help.
I thought there were a good many non sequiturs in the course of the speech of the noble Lord who has just spoken, if he will forgive my saying so. For instance he said that we should never be able to get an export trade unless we nationalized all our industries, not only industries

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which will take part in export but those which will take part in imports.
A NOBLE LORD: He said nothing of the sort.
LORD DARWEN: Not industries, but the national import and export boards would be the trading agency. It would not mean the nationalization of our industry.
VISCOUNT SWINTON: We are going to carry further the magnificent experiment of abolishing the Liverpool Cotton Exchange?
LORD DARWEN: Quite.
VISCOUNT SWINTON: I do not think that this will find a ready echo from the Liberal Benches, whose members in another place used to take me very greatly to task for not paying enough attention to the merchants of the world, who really knew all about business. I have sometimes thought that my friends on the Liberal Benches overrated the value of the merchant as against the value of the producer, but I am quite certain that the only way to get that export trade back is to use all those agencies which for generations have built up that knowledge of markets, as well as the goodwill which has made it possible for us to have this infinite variety of export trade with all the different markets of the world. I should have thought that nobody would appreciate that more than somebody from Lancashire.
Then the noble Lord said that we were to get rid of competition. The competition we shall be up against in the export trade is not internal competition in this country; it is the competition of sellers and manufacturers ail over the world, selling in the markets of the world. I wish we could be a little clearer on these simple facts. The position of today is really no guide to the position two or three years hence. Anybody can sell to-day. It is easy to sell in a seller's market, and the risk we are running to-day is that we may be selling goods which do not come quite up to the mark. I think many of our goods are maintaining the highest standards, but the real test and the really difficult and testing time is going to come in a few years' time when the great void has been filled, and when productive capacity is
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available—and after a war you always have a vast productive capacity; the productive capacity of America has greatly increased—and when we are using all the great new factories which we have established. That is why we feel it is so frightfully risky to be embarking on these experiments at this very critical time when, as my noble friend says, time is of the essence of the contract the whole way along the line.
Then the noble Lord said that we measure the success of private enterprise by the profit it makes. So far as I am concerned I think nothing is further from the truth. I am not in the least a theoretician on nationalization or private enterprise. But the case has got to be made out by the nationalizer, and we have also got to make out our case. The case is primarily upon the plaintiff. The point is: What is going to give you the best result? That does not necessarily involve profit, although, quite frankly, I think you will be more successful if you carry on business at a profit than if you carry it on at a loss. The only concern I know which can go on carrying on business at a loss is the State, and even the State cannot go on doing it for very long without bankrupting all the people who have to contribute to it, because that means that every loss which is made must come out of the pockets of the taxpayers who—I apologize for being so elementary in this—really, except for a most infinitesimal fraction, and that a diminishing fraction all the time—are not the idle rich or even the non-idle rich. They are of course the great mass of the people of this country. But we measure the success of private enterprise not by profit but by production and ability to sell, ability to sell at reasonable prices to our own people, and ability to sell in the only way you will sell in the markets of the world, at competitive prices. That is the test, and the only test. I do not say that private enterprise is without its faults. I believe it has had its losses, but it has paid for its losses and not the taxpayers. I do not say it has not had its faults. Put the faults right, but do not—this is the very life of the people, as we all admit—take these frightful risks.
The only other point I wish to make is with regard to economy. It is easy to say that one has no business to criticize expenditure unless one can say, "This

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ought to be reduced," or "That ought to be reduced". That is not really a fair or adequate answer on the part of the Government. Only the Government knows where the economies can be made. But I think the charge which my noble friend and I would make is a two-fold one. Given the whole of the expenditure, which we are prepared to honour, in the increase of our social services, what does require a very great deal of explanation is, that, having budgeted for a whole year of war, and, having had only three months of war, an economy of something like £800,000,000 was all that was obtained. Can anybody suggest that the Budget for the current year does not show an expenditure which is lavish to a degree? I go a stage further and say this. I remember very well in the last Government which we were all in, when Sir John Anderson was at the Exchequer, that even in war he kept a shrewd eye on getting value for money. One of the things he was always inculcating—and he was absolutely right—was that the moment war was over it was the duty of the Chancellor of the Exchequer, not only as the watch-dog but as the financial partner of every Department, to join them in seeing where every economy could be made. Quite frankly—I speak subject to correction—I do not remember ever hearing the present Chancellor of the Exchequer express any admiration for economy or give any advice, much less injunction, to his colleagues, that they were to be careful in their expenditure. On the contrary, the impression—I think everybody in this House will bear me out—left upon me "Spend as much as you can." That honestly is the impression he is giving, and it is not good.
My final points with regard to economy are these. Economical administration is efficient administration, and it does not mean crippling enterprise. If I may venture to take examples from ordinary enterprise, the greatest advances in trade have been made by firms who have been most scrupulous and careful in the economy of their internal administration. Indeed, that is why they have had large funds and large reserves at their disposal which have enabled them to go and make these ventures. And I would also say in Passing that unless there are those reserves, and unless there are reserves in the hands of private individuals, too, to
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make these ventures, we may lose a great many new opportunities which are not so big at first but which do require people to take great risks, and three or four of which may fail but a fifth succeed. People sitting in all quarters of this House know from their own experience, in the businesses with which they are connected, how, because they were prepared to go and make a venture with their private fortunes or with funds entrusted to them—let us be frank about it—very often by rich people, generally by rich people—they succeeded, and that, as a result, businesses to-day with great capital and giving great employment have come to this country and stayed in this country. I know that the noble Lords opposite will say, "Well, that will all be done by the Socialist Government." I wonder. I have been in Governments a long time. I have a great respect for the public administration. I owe it deep debts. But there is one thing it does not do or does not like doing, and that is taking risks.
LORD QUIBELL: Does the City of London?
VISCOUNT SWINTON: Yes, the City of London does, very often. Certainly a great many more things have been financed by the City of London. I do not say that sometimes certain people have not been too conservative. I have not agreed with everybody, but, broad and large, certainly private enterprise, whether in the City of London or from other quarters, has found the wherewithal to go into ventures out of which great businesses have sprung. But that is not the business of Government. They do not understand it. Civil servants do not understand it. What is more—and there is nothing Party about this—what is certainly going to happen every time is that you are going to have questions asked and criticism made in Parliament. One reason why some civil servants do not very much like Parliamentary democracy is that so many questions get asked, and they get terrified of question time. Everybody puts down questions, and the more you take the whole business of the country into your own hands, the more detailed questions will be asked—and quite rightly. You cannot escape it. The moment you begin to take Government control of every industry, inevitably the result is going to

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be Parliamentary questions. The Minister will not take the risks and the civil servant will be greatly disinclined to take them, because he will say: "It is not my money; I must play for safety, for certainty." I appeal to anybody, quite irrespective of politics, who has had a lot of experience of administration, whether as a civil servant or as a Minister of the Crown, to say whether that is not the necessary, inevitable and, I would add, the right trend; because we must keep Parliamentary control.
My final point is that you waste so much on what I may call the non-effective vote. I am not sure whether I am using exactly the right expression, but I think the House will appreciate what I mean. That vote, in a sense, is on two sides. My noble friend has quoted the example of a Charity which wanted to build six cottages, and which had to fill up 187 forms. That threw a searchlight on this position. The more of that kind of thing you have, the larger the staff you have to engage and the more people you take off productive employment and put into non-productive employment. After all, every civil servant is adding to the overheads of the business of this country. You have to have a certain number of them, and you are very lucky in those you have got. But do let us apply at any rate the best principles of business if we are going into State enterprise. The thing you always watch in business—otherwise you end up in Carey Street—is your overheads. You ask, "Is the percentage getting too high—the non-productive expenditure?" In fact, when you go into the export trade, where even eighths count in the price at which you have to sell, you must pay particular attention to this point. If you are going to add thousands or tens of thousands to the number of officials who have to be carried on the books—that is on the books of the taxpayer and of industry—you are adding to the unproductive costs. At the same time, you are not adding it only once, but twice over, because the firm is also put to unlimited extra expense; they have to take on an enormous number of extra staff to do this unproductive work of filling up forms.
I am not going to say anything stupid, such as, that we can get rid of all controls the present time. Of course we can-
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not. On the other hand, I am perfectly certain we can get rid of a good many, and enormously simplify others. You should trust people a little and give them a broad directive on which to go. You can have a penalty to hit the man who is wrong and who is doing the wrong thing. I would rather see him put out of business. What is happening to-day, however, is, as I have said before, that you are trying to command every platoon in an army, trying to do everybody's job, and the result is delay and extra expense which falls on every business twice over—once in respect of the officials whom you have to employ in performing your side of the business, and then over again in respect of those the individual business has to employ in filling up your 187 forms. That is adding in a colossal way to expenditure.
Whether we have State enterprises or private enterprises, we have to sell in the markets of the world and build up the balance of our export trade by selling the best quality at competitive prices. If we cannot do that, it does not matter whether it is private or public enterprise that is trying to sell the goods, we shall fail to sell them. Then, indeed, we shall be in a gloomy position.
4.38 p.m.
LORD PAKENHAM: My Lords, I know the whole House are very grateful and have shown their gratitude in a number of ways already to the noble Lord, Lord Cherwell, for introducing this topic in a speech which perhaps he will allow me to say, with the permission of the House, was fully worthy not only of this House but of another "House"—I refer to Christ Church, where we resided together for so long. I have heard it said, I do not know with how much truth, that the right honourable gentleman, Mr. Winston Churchill, has described him as the other half of his brain. Well, without plumbing the secrets of that mighty instrument of cerebration, I feel, particularly comparing the speech of the noble Lord today, with all its life, fire, youth and gaiety, with the speech of Mr. Churchill in Edinburgh, that perhaps we have the better half, as also many other excellent things, in this House.
A great number of issues have been raised: a great number of arrows have hit the mark, or only just missed it, or occasionally missed it altogether, and I

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must warn your Lordships that I am afraid I may detain you rather longer than all of you might wish. Perhaps I might suggest to those who are not good at listening to long speeches that it might be more interesting to retire for refreshment now and come back later. It would also be more heartening for me at the later stages. Be that as it may, I feel you all agree that an immense subject of this kind does require a full statement from the spokesman for His Majesty's Government. I will try and cover all the points raised in my statement, rather than take them one by one, but perhaps in advance I can allude to one or two matters straight away. I was particularly grateful to the noble Lord, Lord Strabolgi, for bringing forward what appeared to be most helpful and constructive points. Whether, like other points that seem helpful and constructive in this friendly atmosphere, they will lose their helpfulness and constructiveness when exposed to the bleak light of Whitehall, I have no means of knowing, but I will certainly lay them before the proper authorities. I would also like to congratulate the noble Lord, Lord Darwen, on giving me such solid support.
The noble Lord, Lord Cherwell, indulged in a number of interesting personal references with which I will not attempt to compete, because his hand is clearly in better practice at that kind of thing than mine. I must say, however, that the personal references he made, in a very friendly spirit, to some members of the administration would, I am sure, if they were here, be repaid with interest. Since they are not here, I would only tell him that while we in the past, when we have felt we were the Cinderellas of politics, have been inclined to regard noble Lords opposite as the Ugly Sisters, now that fortune has come our way we look upon them as Sleeping Beauties, working off the result of what Gibbon would call their "dull and deep potations of Party doctrine" and waiting for a Prince Charming to come along to wake them up. All the more so if he were a Professor of Experimental Philosophy at Oxford, or I think we may say after to-day, a Professor of Experimental Statistics.
Now we come to the more solid matters raised. I am not going to say very much to-day about the tremendous issue of nationalization, which we on this side
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believe in so strongly and which noble Lords on the other side dislike. I am governed in that decision not only by a glance at the clock but also by the fact that a week to-day we debated a Motion on this subject brought forward by the noble Lord, Lord Teviot and I am sure the last thing your Lordships would wish would be for me or for any other spokesman of the Government to cover the same ground twice. Therefore I will soft pedal on that a little, but perhaps I may say one thing about it. Some of the noble Lords opposite, while possessing no great enthusiasm for nationalization in the abstract, particularly dislike the idea of its being introduced now. They ask "Why cannot you let us alone a little longer?" They remind me of Saint Augustine who, in his unregenerate youth, offered up this prayer: "Teach me continence and chastity, O Lord, but not yet." I seem to remember that that was what the saint prayed to heaven be fore he was converted.
I feel we are agreed in this House that we are all really concerned with one entity, one set of figures, and that is the amount that we in this country can produce either directly for ourselves or so that foreigners will take it and give us their goods in exchange. Whatever may have been the position before the war, when we had a small unearned income from abroad, now on the morrow of the war, we are faced with the fact that we must rely on our own exertions. We had, you remember, a small unearned income from abroad; it was a good income, as unearned incomes go, but, with apologies to Saki, as unearned incomes go, it went. We have very little left of it to-day, and we have to depend on our own exertions. We have to watch three factors, and I know I have noble Lords with me in this. We have to watch the productivity per head of this country, we have to watch the total manpower whose services we actually use (because it is no good having them available if we fail to make use of so many of them, as before the war) and we have to ensure, by democratic and peaceful means, that those services are turned on to the kind of work most necessary, including the kind of work and production which will enable us to purchase imports from abroad. Those are generalities.
I do not wish to spend too long on describing the position in which we were

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placed as a result of the enormous economic sacrifices we made during the war. They are, I think, familiar to the House, and if they are not, may I refer your Lordships to the statistical material published at the time of the Washington loan negotiations. The noble Lord, Lord Cherwell, in one of the most brilliant passages of economic description to which I have listened, summarized the position as he saw it. I think he took rather a gloomy view of it, and he must not take me as entertaining exactly the same view of the position after the war as he entertains, but let us at any rate take that very gloomy summary as a starting point, without accepting every single detail contained in it. If we ask ourselves now what steps this elected Government of ours actually took when it was returned to power last July, it seems to me that five main decisions were taken. Of course noble Lords opposite, many of whom have had infinitely greater experience of high Governmental positions than I have had, or perhaps am likely to have, know that good government is not merely a matter of decisions of principle; there are also countless administrative acts which in the long run perhaps matter even more and which can only be judged by results. But let us look at the decisions of principle that were taken, because I feel, with the noble Lord, Lord Rennell, that some rather interesting points arise.
As I said, there were five decisions taken. First of all, there was the decision to nationalize certain selected industries, leaving eighty per cent., or perhaps somewhat more, of industry operating for private profit. That was a decision which would not, of course, have been taken by another Government if it had come into power, but I feel that even the greatest enthusiasts among us or nationalization will hardly claim that nationalization has as yet had any influence one way or the other. I hope that noble Lords opposite will be equally generous in admitting that point. It could be argued that the psychological effect on industry is bad, but it could be argued the other way round, that the majority of people wanted nationalization and, therefore, that there is, psychological reason to suppose it has bucked up more people than it has depressed. I am perfectly content to argue the matter on those lines, but I am trying to be gener-
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ous, and assuming that it has not as yet, taking the present position, affected the country's fortunes one way or the other.
If we take the other four decisions, it is impossible to say that noble Lords opposite, if they had been in our place, would not have taken them also. In the first place, there was the decision to demobilize in an orderly fashion according to the Bevin scheme—a scheme initiated by Mr. Bevin but which received the warm approval o: the whole Coalition Government. That plan of demobilization was probably rather less rapid than other plans which could have been evolved, but we have all agreed I think that it was much more fair and much more orderly, and that in the long run it has worked out very well. I have no doubt whatever that noble Lords opposite would have proceeded at that rate of demobilization.
Another very important decision was taken, or so historians will regard it, although in this country it seems to come so naturally that I do not think we have taken much account of it. That was the decision to remove nearly all control over labour and to say to the population, not only to the working man but to the shopkeeper, "You can work or start a business if you choose." We have freed labour. We have restored to a very large extent—much more rapidly than perhaps seemed possible during the war—the freedom of the Englishman to choose his own job. That was a very important decision, and I do not doubt that it would have been taken by noble Lords opposite.
The third of these decisions that I feel would have probably been taken (at least I hope they would have been) by noble Lords opposite, was the decision to retain controls. That is the kind of matter that cannot, of course, he argued in a sentence or two in the abstract. I agree with the noble Viscount, Lord Swinton, that it is necessary to study the operation of particular controls before a verdict can be given. But, by and large, I do not doubt that, with the world scarcity that then prevailed, which is still prevailing and which may prevail for some time to come, noble Lords would have retained a large measure of the war controls.
Finally, we come to a decision which a great logician, the noble Lord, Lord

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Cherwell, and I hasten to say, the noble Lord, Lord Lindsay, would perhaps describe as a particular instance of the previous point which is so striking that I think we must attend to it for a moment. A decision whose importance it seems to me it is impossible to exaggerate in discussing the economic positions of our country was taken by the present Government, courageously taken and courageously adhered to, although it has not everywhere been a popular decision, to concentrate a far greater effort on export than before the war. I hope that noble Lords opposite would have taken that decision, and if so let them share the credit. If they disclaim any decision of that kind we are perfectly willing to appropriate all the credit ourselves.
It is a fact well known to your Lordships that we found ourselves faced after the war, whatever Government was in power, with the necessity of increasing exports by something between fifty per cent. and seventy-five per cent. over the prewar figures. They had dropped during the war to a third, and it was decided in all these circumstances to try and secure that the proportion of our manufactured goods going to export, instead of being fifteen per cent. as before the war, would be twenty-five per cent. after the war. That was a very big derision of principle indeed, and it has been as I say courageously adhered to. Perhaps I should also mention another decision which hardly comes on quite the same plane. I mean the decision to preserve the price level. I agree with what the noble Lord, Lord Fennell, said about our control of the price level and our arrangements generally. Historians will attach a great deal of importance to that. Enormous advances have been made on what occurred after the last war, but I will not refer to it under these general headings.
There you have the major decisions which were taken. You have also had countless administrative acts since—most of them we believe wise, some of them no doubt foolish—which were taken by high and low members or officials of the Government. Now let us have a look at the results. I am not going to claim for a moment that everything good that has happened is the result of the Government's policy and everything bad which
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has happened is the result of some uncontrollable world situation—of course not. There is a healthy democratic convention in this country that a Government stands the brickbats when things are going wrong and collects all the halfpence it can when things go rather better than was expected, and I am observing that convention this afternoon. Before trying to establish any kind of rest or coming to a verdict, I would just like to be allowed in a sentence or two to refer to the enormous work of reconversion that has gone on.
Since the war ended 5,000,000 people have been brought out of the Services or organizations supplying the Services, and 3,000,000 have become engaged in civilian industry. If you ask why such a gap—I know the mathematical gap will not have eluded the noble Lord—the answer is that a million of them are women or old people who have retired from active participation and nearly another million are either taking their paid holiday after leaving the Forces or represent a small increase, because it is a very small increase, in unemployment. At any rate there has been that enormous reconversion illustrated by those figures of manpower which, of course, in physical terms represent an overwhelming turnover in plant and machinery as well as man-power. Can we work out any kind of basis, any kind of yardstick, for saying whether things have gone well or badly? I do not myself believe it is much good trying to produce selected figures drawn from industries which suit our book rather more, if we are to be met, if not to-day on another occasion, by more figures drawn from industries which suit us less well. I will just allude to the steady upward rise in industrial profits. Taking 1942 as the base, in 1943 there was an increase of twelve per cent.; there was a further small increase in 1944, and when we come to the present day we find that the increase is twenty-one per cent. over 1942. I do not want to stress those figures very much. There is a small increase of profit which shows at any rate that from that point of view things have not been going too badly. There have, of course, since the end of the war been increases in the values of Government at securities and ordinary shares. These are small straws, and I do not want to lay too much emphasis upon them.

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Let us get back to those three great tests, productivity per head, the use we are making of our labour as shown by the employment figures, and the allocation of our labour between urgent and less urgent occupations. If we take productivity, I am afraid it is impossible to give any definite figures. It is quite wrong to suggest, as was suggested by an eminent spokesman of the Opposition in another place, that productivity has dropped by twenty or thirty per cent. since the end of the war. I have talked to all the experts I can find and not one of them can see any ground for a dismal conclusion of that sort. You would expect productivity to be somewhat lower during the process of reconversion than during the war, or during the period of peace, when reconversion is complete, but as far as we can find there is no evidence that productivity has on the whole declined since the end of the war. There is no evidence, taking it by and large, to prove that it has substantially increased. There has been a small rise in coal-mining. I might select a few industries where there has been a rise, and I have a list of seven in my hand, but I have also a list of seven where it seems there might have been some slight decline. I do not think we have sufficient grounds at the moment—I say that deliberately because it is not to the credit or discredit of the Government—for saying there has been a rise or fall in productivity per head since the end of the war.
If we look at employment and the use we are making of our man-power, I think we can say that on the whole unemployment has been pretty low during the period of reconversion. At the present time it is running at the level of about 2.7 per cent., with 372,000 unemployed. It is only fair to mention that while we certainly should not add to that figure the large number of people who are taking paid holidays after leaving the Services, yet the fact that they are not at the moment actively employed does make it impossible to take any special credit for the comparatively low unemployment figure. I would be misleading your Lord-ships if I did not point to one rather disconcerting aspect of the unemployment figures and that is that rather more than two-fifths of the unemployment is concentrated in the development areas. There
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are signs of the reappearance of the old depressed areas.
It may be asked: "What is the Government doing about that? "The answer is that we are operating, with a great deal of energy and with the highest priority possible, the Distribution of Industry Act, which was passed by the Coalition Government during the war. We are operating that Act in a way that will be, I think, of interest to your Lordships. It certainly is a marked advance on what was effected in this field before the war. We hope, as a result of the way in which we are using this Act and other collateral measures, that something more than 400,000 jobs will be found in the development areas—the position, as noble Lords know, is worse in Scotland and South Wales than elsewhere—beyond what were found in a standard year before the war. It is hoped that those jobs will be found directly as a result of our initiative, and if you count in indirect work and services, distribution and so on, that should flow from the direct provision of work, there is good ground for believing that the problem will be eventually solved.
But, of course, your Lordships are entitled to ask, "How soon?" That is a very relevant question when thinking of the human issues involved. I am hound to say that—not through the fault of this Government, nor through the fault of any Government—it will not be before the middle of 1947 that we can expect a really substantial impression to be made on unemployment in these development areas, as the result of the Governmental measures to which I am referring. I am not boasting of the position in these areas, nor yet am I trying to hide it. I want your Lordships fully to realize the specially difficult conditions which relate to unemployment at the present time. Still on the subject of man-power, I come to the question of allocation. The noble Lord, Lord Cherwell, somewhat misunderstood what I said on an earlier occasion. I have not yet reached the point of life where I can repeat myself with any certainty or any acceptability, and as time is going on I would refer the noble Lord to the rather detailed statement which I made on the subject of manpower in this House a few weeks ago. What I then emphasized was that the policy of the Government was, so far as possible, to make occupations where labour was short more attractive, and by that means to

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make people move into them and away from the occupations where labour was plentiful.
LORD CHERWELL: By raising wages!
LORD PAKENHAM: It is not, I am afraid, so simple as that; if it were, it could be done very quickly. There are a great number of ways, including the improvement of conditions in the industries concerned—
LORD CHERWELL: Raising costs!
LORD PAKENHAM:—to which I would call the attention of the noble Lord. Within this variegated saga that I have laid before your Lordships of upward struggle, with one or two difficulties and set-backs, I have at least one success story to recount to the House. I have suggested that in other respects the record contains some things which are encouraging, and some that are discouraging. But, in this particular connexion, things have gone very much better than any one expected a few months ago. I am referring, of course, to the export trade. Progress in the export trade, in the last six months, has been astonishingly good. The hour is now late, and we can perhaps on another occasion discuss it in detail—maybe next week, when the noble Earl, Lord Dudley, has a Motion on the Paper, and the noble Lord, Lord Teviot, has another. But I desire to place it on record now, that the progress which has been made in the export trade has exceeded all expectations.
At the end of the war our export trade had risen to something like forty-five per cent. of the pre-war standard. It had sunk below that during the war. According to the March figures, it has now gone up to close on ninety per cent. of the prewar standard. The April figures are not in my possession, so I cannot lay them before the House, but it is anticipated that they will show a further rise up to well over ninety per cent. In other words, we have more than doubled the quantity of exports as the result of what has been done in the nine months period during which the present Government have held office. I think, therefore, that I may well say that I am in no need of the sympathy which the noble Lord, Lord Rennell, was good enough to extend to me. Here is something of which we
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are entitled to boast. We should have to take a count if things had gone the wrong way, but we are entitled to have, if not a bouquet, a poesy or a nosegay, because things have gone the right way.
VISCOUNT SWINTON: Might I ask the noble Lord if he would spare just one flower from the posy for private enterprise which has exported the goods?
LORD PAKENHAM: I am in a generous mood. Let us shake hands all round on it. There is a point in that same connexion which I must impose on the House. Some people may say that we have been almost too successful. That is something which I think the noble Lord had not actually thought of. He would, I am sure, regard it as unworthy. But there are people who will say that we are exporting too large a proportion of our current productivity. I would point out that nearly sixty-five per cent. of the manufactured exports in March were not goods which are ordinarily bought or sold in shops. Of the remaining thirty-five per cent. only about three-fifths—that is, only twenty-two per cent. altogether—of the exports were goods of types which are in short supply here or to which some form of rationing has been applied here. I mention that because, perhaps, some noble Lords may be inclined to wonder whether we have not, in fact, been rather overdoing the export trade.
I must express my regret to Lord Cherwell that I am unable to break up the figure of £750,000,000 which was given by the Chancellor of the Exchequer for the total deficit during the current year. The figures I have just been given might suggest that it would be substantially reduced, but, for various reasons, we are not at the moment in a position to submit that firm conclusion to the House. I must leave the matter fluid, though I think I may add fluid in the right direction—if the great scientist sitting opposite will permit the use of such a phrase.
With further apologies for detaining your Lordships, I must come to the financial aspect of matters. I pass over—though I have already touched on it—the great achievement that is represented by the maintenance of a stable prices level, and by the fact that no-one today argues that money and credit are being wrongly distributed, or are even, so far as lies in

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the power of governments and banks to prevent it, in short supply. The financial problem—apart from the Budgetary problem—must be held to have been handled in most successful fashion. Let us shake hands again all round. When we come to the Budgetary position, noble Lords will no doubt insist upon a little detail. It may be argued—though I do not think that it has been seriously argued by the noble Lord who initiated this debate, or by any other speaker to-day—and it can be argued that we are not being taxed enough at the present time in view of our total expenditure. It might also be argued that the wrong kind of taxes are being imposed. That would, perhaps, be hardly a suitable subject for us in this House, unless I have my constitutional procedure a little wrong.
We are left, however, with the very great question: Is our total expenditure too high? Here it does seem to me that we are entitled, all of us in this House, to agree that our total expenditure is undesirably high, and does represent a high: proportion of our total national income, without casting the blame on anybody. I do not feel that the noble Lord, Lord Rennell, did any injustice to the noble Lord, Lord Cherwell, when he pointed out that the noble Lord, Lord Cherwell, had not been able to mention any large field of economy. It is all very well for the noble Lord, Lord Cherwell, and the noble Viscount, Lord Swinton—who spoke so cogently on so many subjects which would carry me rather far afield to answer—and for noble Lords opposite to say: "We are not the Government, and we have no idea at all where big economies can be made." It is not so very long since they were the Government. They know where economies are possible, and where they are not.
I do not feel myself—I must not use an expression I should regret—that noble Lords opposite are at their most elevated when they come down to us, or when their friends in another place come down to the House, and say "We know nothing at all about these things. We are innocents who have no conception about how you can make these economies, but we know in our bones that you are very bad and incompetent for not being able to make them." It may be that
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some of the noble Lords might be able to make these economies. We have no means of knowing; we shall not have, perhaps, for a great number of years. But we can be sure of this, that no Government, ready to discharge the international and domestic responsibilities which we are all agreed must be discharged, could have effected any substantial economy.
I will ask the noble Lord, when he makes his final remarks, if he can indicate what order of magnitude, because I know he is a great authority on order: of magnitude, this economy is intended to comprise. Is it a 20 per cent., a 10 per cent. or 5 per cent. economy? The Government were given no indication in another place; they were simply told that there were these vast economies, and that it was quite impossible to begin to point to them. I must just reply to the noble Viscount, Lord Swinton, regarding his statement that the Chancellor of the Exchequer was not interested in economy. I do not think we should allow that to go from this place. It was a taunt brought up in the House of Commons, to which the Chancellor of the Exchequer replied at some length when he wound up the Budget Debate. In his final reply, in emphasizing his interest in economy, he referred the speaker back to his original Budget statement, and I can only refer the noble Viscount, Lord Swinton, to that statement. The Chancellor of the Exchequer dealt with this very subject, to the extent of two columns of Hansard.
You will want to know, my Lords, whether we think there can be much reduction in the future. As the Chancellor said in his Budget speech, a good deal of our present expenditure is in the nature of transient and terminal charges, arising from the war. Of the total Budget expenditure of £3,887,000,000. £1,667,000,000 is for the Defence and Supply department, and of that £576,000,000 is terminal and will not recur. In addition, the reduction of defence forces and munition industries to the level already explained in the Defence White Paper will start off Defence and Supply expenditure on a lower level next year. Among the Civil Service votes there are also similar transient charges, such as £90,000,000 for U.N.R.R.A. and

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£80,000,000 for the Control Office for Germany and Austria.
On the other hand—here again we must face it—the annual cost of the major social services will rise by £200,000,000. This is the estimate of the increase, so far as the central Exchequer is concerned, in the period between 1946 and 1948. It should be remembered, however, that about half of that sum is due to this great health service which is, if not in some of its aspects at any rate in its quantitative aspect, approved of by noble Lords opposite. Nearly £100,000,000 of the £200,000,000 increase will come from the development of the great new health service. Much of that will represent simply a transfer from rates to the central Exchequer, and it should not, therefore, be regarded as any kind of additional burden on the community.
We are apt to exaggerate expenditure where social services have increased. Before the war social services cost us £60,000,000, which was 5.6 per cent, of the total national income in 1938. In 1946 they are estimated to cost 6 per cent. of the total national income, so there has not been much rise yet. In the years between 1946 and 1948 there will be this rise, but a great part of it will be due to the national health service and, as I have said, a considerable section of that will simply be a transfer from rates to the central Exchequer. I would emphasize to noble Lords opposite that we are not ashamed of this increase in the expenditure on social services. We are proud of them. They represent a development which during the last forty years has transformed the life of many millions of people in this country. The process is not completed yet, and if noble Lords opposite choose to share the responsibility for these great increases, I say "Let them share it." We are certainly not going to be dog-in-the-manger about it. But if they criticize us for increasing them too far I say "Let them go their own way and we shall rejoice to go ours," because on this very important question we are quite sure that, by and large, the money has been spent in a way in which it could most usefully be spent.
There is an argument, however—and I think it is one that weighed heavily with the noble Lord, Lord Cherwell—that although these things are desirable they do represent a very heavy charge on our
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national exertions. It will be suggested that they are transferred from those who produce to those who do not produce. It is not possible to accept that argument, or to reject it, in a single sentence. Undoubtedly these social services increase the producing power of the community. They provide the nation with better brains and healthier bodies, and it may be that they have not been without influence in reducing the number of industrial disputes after this war to a level which compares very favourably indeed with that which followed the last war. It is impossible to estimate their precise effect, but we do admit that a process has been going on during recent years of transferring income from those who could most afford it to those who were in greatest need. We say that that process has not yet reached its full completion.
The noble Lord touched on another aspect of the budgetary question and then referred to inflation. I think that his language was somewhat overdrawn, but we are at one with him in admitting the seriousness of the danger. We would rather take the gloomy view with him than the optimistic view of the theorists on this subject. We are perfectly prepared to be pessimistic with the noble Lord, because we believe it is better in this matter to face the worst at once. The Chancellor has said that, if we all play our part, and if the controls are kept on—which I hope the noble Lord will accept—if the National Savings campaign is carried on with the same intensity and the same resolution as during the war, then the danger of inflation will be averted. But the Chancellor has made it plain that, ultimately, the only way to overcome the danger of inflation is to produce more goods, so that there will not be too much money running after a limited supply of goods.
On the subject of incentive, and generally on the whole question of production, there is much that might be said. The Chancellor has removed tax burdens from the shoulders of millions of people in his two Budgets and certainly has appeared to have benefited industry very considerably by removing the Excess Profits Tax. I say "appeared to," because he seems to have occasioned a very marked rise in the value of ordinary shares in consequence, and generally I think that industry is pleased, when it is not in a political

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mood, with the way the Chancellor has handled that problem. I think the Chancellor has gone as far as was possible to lighten tax burdens and generally to stimulate production. But we do admit that in the years ahead we must go still further, we must find some way of going still further in removing the tax burden, whether from the shoulders of working people or from those in the higher income groups. We do agree that we must give businessmen more encouragement and incentive than it has always been possible to give in the past, but we are convinced, first, last and all the time, that the social services must in no circumstances be cut in order to ease the burden on the larger income groups.
In conclusion, I would just submit this to the House—since we have had a very absorbing, at times controversial but, on the whole, I think, educative debate—it is quite true that we on this side are seeking to confer a great expansion of social rights on the mass of the people; but whether you look at the duty of saving, or whether you look at the duty of making a wages policy work, or making a full employment policy work, we are agreed—we are the first to tell the country—that new social rights do involve new social duties. We are quite sure that those new duties will be undertaken in the same spirit in which the duties which fell on the whole population during the war were undertaken. But we quite agree with the noble Lord, Lord Cherwell, when he says that all classes of the community must realise that we are now in the same boat together.
There was a time before the war when it was perhaps too common on one side to talk about the idle rich, and too common on the other side to talk about the idle poor, or, at any rate, to say that the poor would become idle unless they were hounded along by the whip of the starvation motive. We find very little disposition in any part of the country to-day to talk about the idle rich or the idle poor. As a result of two great wars within thirty years too many rich and too many poor lie idle together, and I would suggest that, if we have gained nothing else from the war, we have, at any rate, gained a deeper, a more urgent sense of our common destiny, and of the fact that we are all roped together in the ascent of
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the mountain. These spiritual elements are impossible to measure by the ledger or balance-sheet, but, if we stick simply to the material aspect of things with which we have been concerned to-day, I say we can once again face a future rich with hope. I only wish the whole of suffering humanity had as far a prospect as this small island, but great country, whose influence for good was never so much needed, and whose power for good was never so obvious as it is when we gaze around the stricken world of to-day.
LORD CHERWELL: My Lords, there has been quite an agreeable change in the usual procedure. Instead of the usual polite phrases about the value of the debate, Lord Rennell thought it might do harm. I hope and believe that I did not say anything that might impair the chance of our getting the American loan. I did hope I had made it clear that I was putting forward two or three lines of action about the way inflation could be avoided, but I will not reiterate them now. I will not take up the time of the House by discussing the points made by the noble Lord, Lord Strabolgi. His views on inflation I am glad to see are not shared by his Party, so I will not discuss the merits of them. I think my noble friend, Viscount Swinton, made it plain that, far from attacking Russia, I was pointing out how very sensible they were in not being led away by doctrinaire theory, and in recognizing that it was necessary, if you wanted to get production, to give incentives. Still less will I follow him in his own attack on Russia when he complained about their not helping Central Europe in their transport problems, on the Danube and so on.
LORD STRABOLGI: The noble Lord will appreciate that I said all the military zones were equally bad.
LORD CHERWELL: The fact that the others may be bad does not seem to me to excuse the Russians. The Russians are occupying the greatest part of Europe—especially Central Europe. I would be very hesitant to join in any attack on Russia for their failure to look after the transport of Central Europe. I will not go into what I conceive to be the fallacy of the noble Lord, Lord Darwen, about the power of the market. The power of the market is a very transitory thing. People will take your goods if they want to

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sell to you, but after a time they are not going to take bad inferior goods they do not want, simply because they can sell you something you want. They will change their production effort into some line so that they can get the stuff they want. I do not think it would be desirable for me to follow the noble Lord, Lord Pakenham in his series of fairy stories. I quite see that "Cinderella" comes first and then "The Sleeping Beauty," and the next one, as far as I remember, is "Beauty and the Beast." But it might be misunderstood if we went any further on that aspect.
LORD CALVERLEY: The Beast was transformed.
LORD CHERWELL: There was also a Beast with a number, but 666 is rather higher than we have actually reached. I will not follow him in his reminiscences of St. Augustine. I well remember another gentleman, often quoted as an example to us in other respects, who said that we all want to go to Heaven but not immediately. I think it is much on the same lines. As I said at the outset, I do not think it is fair to ask us to give details as to where we should make cuts, but I certainly did not suggest for one moment that we should cut the social services. I said that the public might well he proud in insisting on having these services.
What I do want is that these facts should be made plain to the public, so that they should realize, when they are made to pay taxes, that these go in meeting their own amenities. They cannot get it out of the rich; they have not enough left. If the wage-earners knew this, they might understand that it is no good asking for higher wages to make up for what they have to pay in taxes. There is nothing that can be gained in this way. It is just plain arithmetic. We of course applaud the increase in exports. Nothing was mentioned about imports, but the period is very short, and I agree it is difficult to deal with these month by month. I will not go into the question of the rise in the price of ordinary shares. Many people might say that that is because the City is afraid of inflation. The first thing that happens when people fear inflation is that they buy ordinary shares, and when ordinary shares go up as the result of purchase, I should say that the reason is
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that people are anxious about the value of currency. As I say, however, those are big questions to start discussing at this time in the evening.
As to the amount of economies that could be made, I do not mind saying that I think the figure should be between ten and twenty per cent. I will not go into the question of how economies can be made. I know how difficult it is to make them. I had a lot of trouble of this sort in the war. There is always some admirable reason against everything you bring forward. The only thing you can do, if you want economy, is to say to a Department: "This is the total amount you can have. We cannot give you any more, and you will have to make do with it in the best way you can." That is the only possible way, and I hope noble Lords will recognize the fact.
I was very pleased to hear the noble Lord say that the Government did recognize the importance of improving the incentive to effort on the part of those people who do deliver the goods. I did not say as suggested by Lord Darwen, that a big profit meant a big output. What I said was that people do not pay a large salary because they like the other man's appearance; they pay a large salary because a man produces something that is wanted. If a man can get a large salary, it means that he is doing something that is required by the community and that few other people can do; it is a rare capacity that is worth paying for. If it is worth paying for, it means it is worth that much to the community, and if you remove the incentive to people to use their talents, then the community as a whole will lose. I am very grateful to the noble Lord for his reply, and for the perhaps rather unmerited compliments that he paid in the course of it, and I hope the House will agree to my withdrawing the Motion.
Motion for Papers, by leave, withdrawn.

STANDING ORDERS COMMITTEE.
Report from, That the Standing Orders not complied with in respect of the Petitions for the following Bills:
Royal London Ophthalmic Hospital, Royal Westminster Ophthalmic Hospital, and Central London Ophthalmic Hospital (Amalgamation, etc.)
West Sussex County Council (Shoreham and Lancing Beaches, etc.)
ought to be dispensed with, and leave given to introduce the Bills. Read, and agreed to.

ROYAL LONDON OPHTHALMIC HOSPITAL, ROYAL WEST MINSTER OPHTHALMIC HOSPITAL, AND CENTRAL LONDON OPHTHALMIC HOSPITAL (AMALGAMATION, ETC.) BILL. [H.L.]
WEST SUSSEX COUNTY COUNCIL (SHOREHAM AND LANCING BEACHES, ETC.) BILL. [H.L.]
Presented, pursuant to leave given this day, and read 1a.

INDIA AND BURMA (BURMA MONETARY ARRANGEMENTS) (AMENDMENT) ORDER, 1946.
Report from the India and Burma Orders Committee, That they have examined the Draft Order as required by the Standing Orders of the House; that in their opinion the Order does not raise important questions of policy and principle: that the Order is founded on precedent: that in the opinion of the Committee the Order can be passed by the House without special attention and that no further inquiry is necessary before the House proceeds to a decision on the Resolution to approve the said Order.
Read, and ordered to lie on the Table.
House adjourned at twenty-six minutes before six o'clock.