Lords Sitting of 16 May 1946

Preamble
The House met at four of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers.

INDIA: STATEMENT BY THE CABINET MISSION.
THE SECRETARY OF STATE FOR DOMINION AFFAIRS (VISCOUNT ADDISON): My Lords, I would ask your Lordships' permission to make a statement on India. In view of the great importance of this statement made by the Cabinet Mission and his excellency the Viceroy it has been deemed necessary that it should be read to your Lordships in full. I am afraid it will take a little time, but I will ask your Lordships to bear with me as well as you usually do. The statement is as follows:
"1. On March 15 last just before the despatch of the Cabinet Mission to India, Mr. Attlee, the British Prime Minister, used these words:
"My colleagues are going to India with the intention of using their utmost endeavours to help her to attain her freedom as speedily and fully as possible. What form of Government is to replace the present regime is for India to decide; but our desire is to help her to set up forthwith the machinery for making that decision.…
"I hope that the Indian people may elect to remain within the British Commonwealth. I am certain that she will find great advantages in doing so.…
"But if she does so elect, it must be by her own free will. The British Commonwealth and Empire is not bound together by chains of external compulsion. It is a free association of free peoples. If, on the other hand, she elects for independence, in our view she has a right to do so. It will be for us to help to make the transition as smooth and easy as possible."
2. Charged in these historic words, we… the Cabinet Ministers and the Viceroy… have done our utmost to assist the two
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main political parties to reach agreement upon the fundamental issue of the unity or division of India. After prolonged discussions in New Delhi we succeeded in bringing the Congress and the Muslim League together in conference at Simla. There was a full exchange of views and both parties were prepared to make considerable concessions in order to try to reach a settlement, but it ultimately proved impossible to close the remainder of the gap between the parties and so no agreement could be concluded. Since no agreement has been reached, we feel that it is our duty to put forward what we consider are the best arrangements possible to ensure a speedy setting up of the new constitution. This statement is made with the full approval of His Majesty's Government in the United Kingdom.
3. We have accordingly decided that immediate arrangements should be made whereby India may decide the future constitution of India, and an interim Government may be set up at once to carry on the administration of British India until such time as a new constitution can be brought into being. We have endeavoured to be just to the smaller as well as to the larger sections of the people; and to recommend a solution which will lead to a practicable way of governing the India of the future, and will give a sound basis for defence and a good opportunity for progress in the social, political and economic field.
4. It is not intended in this statement to review the voluminous evidence which has been submitted to the Mission; but it is right that we should state that it has shown an almost universal desire, outside the supporters of the Muslim League for the unity of India.
5. This consideration did not, however, deter us from examining closely and impartially the possibility of a partition of India; since we were greatly impressed by the very genuine and acute anxiety of the Muslims lest they should find themselves subjected to a perpetual Hindu majority rule. This feeling has become so strong and widespread amongst the Muslims that it cannot be allayed by mere paper safeguards. If there is to be internal peace in India it must be secured by measures which will assure to the Muslims a control in all matters vital to their culture, religion, and economic or other interests.

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6. We therefore examined in the first instance the question of a separate and fully independent sovereign state of Pakistan as claimed by the Muslim League. Such a Pakistan would comprise two areas; one in the North-West consisting of the provinces of the Punjab, Sind, North-West Frontier, and British Baluchistan; the other in the North-East consisting of the provinces of Bengal and Assam. The League were prepared to consider adjustment of boundaries at a later stage, but insisted that the principle of Pakistan should first be acknowledged. The argument for a separate state of Pakistan was based, first, upon the right of the Muslim majority to decide their method of government according to their wishes, and, secondly, upon the necessity to include substantial areas in which Muslims are in a minority, in order to make Pakistan administratively and economically workable.
The size of the non-Muslim minorities in a Pakistan comprising the whole of the six provinces enumerated above would be very considerable."
I will not read the tabular statement but it will be circulated in the OFFICIAL REPORT. The effect of it is that in the North Western area, that is the Punjab, the North-West Frontier Province, Sind and British Baluchistan, the Muslim population stands to the non-Muslim in the proportion of 62.07 per cent. to 37.93 per cent. and in the North Eastern area, that is Bengal and Assam, the proportions are Muslim 5r.69 per cent. and non-Muslim 48.31 per cent. The statement continues:
"The Muslim minorities in the remainder of British India number some 20 million dispersed amongst a total population of 188 million.
These figures show that the setting up of a separate sovereign state of Pakistan on the lines claimed by the Muslim League would not solve the communal minority problem; nor can we see any justification for including within a sovereign Pakistan those districts of the Punjab and of Bengal and Assam in which the population is predominently non-Muslim. Every argument that can be used in favour of Pakistan can equally, in our view, be used in favour of the exclusion of the non-Muslim areas from 'Pakistan. This point would particularly affect the position of the Sikhs.
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7. We, therefore, considered whether a smaller sovereign Pakistan confined to the Muslim majority areas alone might be a possible basis of compromise. Such a Pakistan is regarded by the Muslim League as quite impracticable because it would entail the exclusion from Pakistan of (a) the whole of the Ambala and Jullundur divisions in the Punjab; (b) the whole of Assam except the district of Sylhet; and (c) a large part of Western Bengal, including Calcutta, in Which city the percentage of the Muslim population is 23.6 per cent. We ourselves are also convinced that any solution which involves a radical partition of the Punjab and Bengal, as this would do, would be contrary to the wishes and interests of a very large 'proportion of the inhabitants of these provinces. Bengal and the Punjab each has its own common language and a long history and tradition. Moreover, any division of the Punjab would of necessity divide the Sikhs, leaving substantial bodies of Sikhs on both sides of the boundary. We have therefore been forced to the conclusion that neither a larger nor a smaller sovereign state of Pakistan would provide an acceptable solution for the communal problem.
8. Apart from the great force of the foregoing arguments there are weighty administrative, economic and military considerations. The whole of the transportation and postal and telegraph systems of India have been established on the basis of a United India. To disintegrate them would gravely injure both parts of India. The case for a united defence is even stronger. The Indian Armed Forces have been built up as a whole for the defence of India as a whole, and to break them in two would inflict a deadly blow on the long traditions and high degree of efficiency of the Indian Army and would entail the gravest dangers. The Indian Navy and Indian Air Force would become much less effective. The two sections of the suggested Pakistan contain the two most vulnerable frontiers in India and for a successful defence in depth the area of Pakistan would be insufficient.
9. A further consideration of importance is the greater difficulty which the Indian States would find in associating themselves with a divided British India.
10. Finally, there is the geographical fact that the two halves of the proposed Pakistan state are separated by some

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seven hundred miles and the communications between them both in war and peace would be dependent on the good will of Hindustan.
11. We are therefore unable to advise the British Government that the power which at present resides in British hands should be handed over to two entirely separate sovereign states.
12. This decision does not, however, blind us to the very real Muslim apprehensions that their culture and political and social life might become submerged in a purely unitary India, in which the Hindus with their greatly superior numbers must be a dominating element. To meet this the Congress have put forward a scheme under which provinces would have full autonomy subject only to a minimum of central subjects, such as foreign affairs, defence and communications.
Under this scheme provinces, if they wished to take part in economic and administrative planning on a large scale, could cede to the centre optional subjects in addition to the compulsory ones mentioned above.
13. Such a scheme would, in our view, present considerable constitutional disadvantages and anomalies. It would be very difficult to work a central executive and legislature in which some ministers, who dealt with compulsory subjects, were responsible to the whole of India while other ministers, who dealt with optional subjects, would be responsible only to those provinces who had elected to act together in respect of such subjects. This difficulty would be accentuated in the central legislature, where it would be necessary to exclude certain members from speaking and voting when subjects with which their provinces were not concerned were under discussion. Apart from the difficulty of working such a scheme, we do not consider that it would be fair to deny to other provinces, which did not desire to take the optional subjects at the centre, the right to form themselves into a group for a similar purpose. This would indeed be more than the exercise of their autonomous powers in a particular way.
14. Before putting forward our recommendations we turn to deal with the relationship of the Indian States to British India. It is quite clear that with the
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attainment of independence by British India, whether inside or outside the British Commonwealth, the relationship which has hitherto existed between the rulers of the States and the British Crown will no longer be possible. Paramountcy can neither be retained by the British Crown nor transferred to the new government. This fact has been fully recognised by those whom we interviewed from the States. They have at the same time assured us that the States are ready and willing to co-operate in the new development of India. The precise form which their co-operation will take must be a matter for negotiation during the building up of the new constitutional structure and it by no means follows that it will be identical for all the States. We have not therefore dealt with the States in the same detail as the provinces of British India in the paragraphs which follow.
15. We now indicate the nature of a solution which in our view would be just to the essential claims of all parties and would at the same time be most likely to bring about a stable and practicable form of constitution for All-India.
We recommend that the constitution should take the following basic form:—

(1) There should be a Union of India, embracing both British India and the States, which should deal with the following subjects: foreign affairs, defence, and communications; and should have the powers necessary to raise the finances required for the above subjects.

(2) The Union should have an executive and a legislature constituted from British Indian and States representatives. Any question raising a major communal issue in the legislature should require for its decision a majority of the representatives present and voting of each of the two major communities as well as a majority of all the members present and voting.

(3) All subjects other than the Union subjects and all residuary powers should vest in the provinces.

(4) The States will retain all subjects and powers other than those ceded to the Union.

(5) Provinces should be free to form groups with executives and legislatures, and each group could determine the

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provincial subjects to be taken in common.

(6) The constitutions of the Union and of the groups should contain a provision whereby any province could by a majority vote of its legislative assembly call for a reconsideration of the terms of the constitution after an initial period of ten years and at ten-yearly intervals thereafter.

16. It is not our object to lay out the details of a constitution on the above programme but to set in motion machinery whereby a constitution can be settled by Indians for Indians.
It has been necessary, however, for us to make this recommendation as to the broad basis of the future constitution because it became clear to us in the course of our negotiations that not until that had been done was there any hope of getting the two major communities to join in the setting up of the constitution-making machinery.
17. We now indicate the constitution-making machinery which we propose should be brought into being forthwith in order to enable a new constitution to be worked out.
18. In forming any assembly to decide a new constitutional structure the first problem is to obtain as broad-based and accurate a representation of the whole population as is possible. The most satisfactory method obviously would be by election based on adult franchise but any attempt to introduce such a step now would lead to a wholly unacceptable delay in the formulation of the new constitution. The only practicable course is to utilise the recently elected Provincial Legislative Assemblies as electing bodies. There are, however, two factors in their composition which make this difficult. First the numerical strengths of Provincial Legislative Assemblies do not bear the same proportion to the total population in each province. Thus, Assam, with a population of 10 million, has a Legislative Assembly of 108 members, while Bengal with a population six times as large, has an Assembly of only 250. Secondly, owing to the weightage given to minorities by the Communal Award, the strengths of the several communities in each Provincial Legislative Assembly are not in proportion to their numbers in the province. Thus the number of seats reserved for
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Moslems in the Bengal Legislative Assembly is only 48 per cent. of the total, although they form 55 per cent. of the provincial population. After a most careful consideration of the various methods by which these points might be corrected, we have come to the conclusion that the fairest and most practicable plan would be—

(a) to allot to each province a total number of seats proportional to its population, roughly in the ratio of one to a million, as the nearest substitute for representation by adult suffrage.

(b) to divide this provincial allocation of seats between the main communities in each province in proportion to their population.

(c) to provide that the representatives allocated to each community in a province shall be elected by members of that community in its Legislative Assembly.

We think that for these purposes it is sufficient to recognize only three main communities in India, General, Moslem and Sikh, the "General" community including all persons who are not Moslems or Sikhs. As smaller minorities would, upon a population basis, have little or no representation, since they would lose the weightage which assures them seats in Provincial Legislatures, we have made the arrangements set out in paragraph 20 below to give them a full representation upon all matters of special interest to minorities.
19 (1) We therefore propose that there shall be elected by each Provincial Legislative Assembly the following numbers of representatives, each part of the Legislative Assembly (General, Moslem or Sikh) electing its own representatives by the method of proportional representation with single transferable vote."
Again I will not attempt to read the tabular statement but it will be circulated in the OFFICIAL REPORT. The statement goes on:
"For the process of electing their representatives the Provinces are grouped into three sections.
Section A comprises Madras, Bombay, the United Provinces, Bihar, the Central Provinces and Orissa. These will have a total representation of 187 members, composed of 167 General and 20 Muslim.

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Section B comprises the Punjab, the North West Frontier Province and Sind, with a total representation of 35, composed of 9 General, 22 Muslim and 4 Sikh.
Section C, consisting of Bengal and Assam, has a total representation of 70, composed of 34 General representatives and 36 Muslims.
To these will be added, in Section A, one representative each of the Chief Commissioners Provinces of Delhi, AjmerMerwara and Coorg, and, in Section B, a representative of British Baluchistan. The combined total, therefore, for British India will be 296.
"(II) It is the intention that the States would be given in the final Constituent Assembly appropriate representation which would not, on the basis of the calculation of population adopted for British India, exceed 93; but the method of selection will have to be determined by consultation. The States would in the preliminary stage be represented by a negotiating committee.
(III) Representatives thus chosen shall meet at New Delhi as soon as possible.
(IV) A preliminary meeting will be held at which the general order of business will be decided, a chairman and other officers elected and an Advisory Committee (see paragraph 20 below) on rights of citizens, minorities and tribal and excluded areas set up. Thereafter the provincial representatives will divide up into three sections shown under A, B and C in the Table of Representation in subparagraph (1) of this paragraph.
(V) These sections shall proceed to settle provincial constitutions for the provinces included in each section and shall also decide whether any group constitution shall be set up for those provinces and if so with what provincial subjects the group should deal. Provinces should have power to opt out of groups in accordance with the provisions of sub-clause (VIII) below.
(VI) The representatives of the sections and the Indian States shall reassemble for the purpose of settling the Union constitution.
(VII) In the Union Constituent Assembly resolution varying the provisions of paragraph 15 above or raising any major communal issue shall require a majority of the representatives present
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and voting of each of the two major communities. The Chairman of the Assembly shall decide which, if any, resolutions raise major communal issues and shall, if so requested by a majority of the representatives of either of the major communities, consult the Federal Court before giving his decision.
(VIII) As soon as the new constitutional arrangements have come into operation it shall be open to any province to elect to come out of any group in which it has been placed. Such a decision shall be taken by the legislature of the province after the first general election under the new constitution.
20. The Advisory Committee on the rights of citizens, minorities and tribal and excluded areas will contain due representation of the interests affected and their function will be to report to the Union Constituent Assembly upon the list of fundamental rights, clauses for protecting minorities, and a scheme for the administration of tribal and excluded areas, and to advise whether these rights should be incorporated in the provincial, the group or the Union constitutions.
21. His Excellency, the Viceroy will forthwith request the provincial legislatures to proceed with the election of their representatives and the States to set up a negotiating committee.
It is hoped that the process of constitution-making can proceed as rapidly as the complexities of the task permit so that the interim period may be as short as possible.
22. It will be necessary to negotiate a treaty between the Union Constituent Assembly and the United Kingdom to provide for certain matters arising out of the transfer of power.
23. While the constitution-making proceeds the administration of India has to be carried on. We attach the greatest importance therefore to the setting up at once of an interim Government having the support of the major political parties. It is essential during the interim period that there should be the maximum of co-operation in carrying through the difficult tasks that face the Government of India. Besides the heavy tasks of day-to-day administration, there is the grave danger of famine to be countered, there are decisions to be taken in many matters of post-war development which will have a far-reaching effect on India's future and

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there are important international conferences in which India has to be represented. For all these purposes a government having popular support is necessary. The Viceroy has already started discussions to this end and hopes soon to form an interim government in which all the portfolios, including that of War Member, will be held by Indian leaders having the full confidence of the people. The British Government, recognising the significance of the changes, will give the fullest measure of cooperation to the Government so formed in the accomplishment of its tasks of administration and in bringing about as rapid and smooth a transition as possible.
24. To the leaders and people of India, who now have the opportunity of complete independence, we would finally say this. We and our Government and countrymen hoped that it would be possible for the Indian people themselves to agree upon the method of framing the new Constitution under which they will live. Despite the labours which we have shared with the Indian parties and the exercise of much patience and goodwill by all, this has not been possible. We, therefore, now lay before you proposals which, after listening to, all sides and after much earnest thought, we trust will enable you to attain your independence in the shortest time and with the least danger of internal disturbance and conflict. These proposals may not, of course, completely satisfy all parties, but you will recognise with us that, at this supreme moment in Indian history, statesmanship demands mutual accommodation and we ask you to consider the alternative to the acceptance of these proposals. After all the efforts which we and the Indian parties have made together for agreement, we must state that, in our view, there is small hope of a peaceful settlement by the agreement of the Indian parties alone. The alternative would, therefore, be a grave danger of violence, chaos and even civil war. The gravity and duration of such a disturbance cannot be foreseen, but it is certain that it would be a terrible disaster for many millions of men, women and children. This is a possibility which must be regarded with equal abhorrence by the Indian people, our own countrymen and the world as a whole. We therefore lay these proposals before you in the profound hope that they will be
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perated by you in the spirit of accommodation and goodwill in which they are offered. We appeal to all who have the future good of India at heart to extend their vision beyond their own community or interest to the interests of the whole 400 million of Indian people.
We hope that the new independent India may choose to be a member of the British Commonwealth. We hope, in any event, that you will remain in close and friendly association with our people. But these are matters for your own free choice. Whatever that choice may be, we look forward with you to your ever-increasing prosperity among the greatest nations of the world and to a future even more glorious than your past."
[The tabular statements referred to by Viscount Addison are as follows:

TABLE OF POPULATIONS.

Muslim.

Non-Muslim.

North-Western Area—

Punjab

16,217,242

12,201,577

North-West Frontier Province

2,788,797

249,270

Sind

3,208,325

1,326,683

British Baluchistan

438,930

62,701

22,653,294

13,840,231

62·07

37·93

per cent.

per cent.

North-Eastern Area—

Bengal

33,005,434

27,301,091

Assam

3,442,479

6,762,254

36,447,913

34,063,345

50·69

48·31

per cent.

per cent.

All population figures in this statement are from the most recent census taken in 1941.

TABLE OF REPRESENTATION.

SECTION A.

Province—

General.

Muslim.

Total.

Madras

45

4

49

Bombay

19

2

21

United Provinces

47

8

55

Bihar

31

5

36

Central Provinces

16

1

17

Orissa

9

0

9

Total

167

20

187

SECTION B

Province—

General.

Muslim.

Sikhs.

Total.

Punjab

8

16

4

28

North-West Frontier Province

0

3

0

3

Sind

1

3

0

4

Total

9

22

4

35

SECTION C.

Province—

General.

Muslim.

Total.

Bengal

27

33

60

Assam

7

3

10

Total

34

36

70

Total for British India

292

Maximum for Indian States

93

Total

385

NOTE.—In order to represent the Chief Commissioners' Provinces there will be added to Section A the member representing Delhi in the Central Legislative Assembly, the member representing Ajmer-Merwara in the Central Legislative Assembly and a representative to be elected by the Coorg Legislative Council.
To Section B will be added a representative of British Baluchistan.]
4.31 p.m.
VISCOUNT SIMON: My Lords, the statement that has just been read to us is, as we all realize, of such importance and of such complication that we shall wish to give it the most careful consideration, and no doubt will wish to see it in print before we attempt any extensive comment upon it. For myself, I only want to ask one question, but perhaps before I put the question I may be allowed to say this. The document shows with what industry and devotion the three Cabinet Ministers in India have pursued their very difficult task. I think we shall be at one in feeling that that recognition is due to them immediately. The publication of the document I think will have another effect. It will bring home to vast numbers of people in this country, who have perhaps been confident that they knew the solution of the Indian problem, how frightfully complicated that problem is, and how, with the best will in the world, it is not only one of the greatest but one of the most difficult tasks to find a satisfactory solution.
The only question I would venture to address now to the noble Viscount, the Leader of the House, is this: Twice in the document, once at the beginning, and once at the end, rather more at length, there is a reference to the setting up at once of an interim government. I do not think it will embarrass him if I ask him this question to make quite clear what is involved in that phrase. Of course, if by setting up an interim government is meant that new men will be chosen to sit in the Viceroy's Council, that is not a constitutional change; that is merely a change
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in personnel, which happens from time to time in this country, too. It is, as I gather, intended to make a rather more widespread change instead of making a more limited change of personnel. I certainly should not myself call that any change in the constitutional government now provided for and in India, and it is largely a matter of discretion as to who the individuals chosen may be. But, of course, if by setting up an interim government in India was meant anything more than that, quite different questions would arise.
Your Lordships are aware that, under the Government of India Act, 1935, as indeed in a different form in earlier Statutes dealing with the Constitution of India, the Viceroy of India has what are called reserved powers and special responsibilities. I would like to be assured that when this document, put forward with the authority of the Government, speaks of creating or setting up an interim government in India in the meantime, it does not mean that there is to be attempted some modification either explicit or implicit in those constitutional provisions, because of course there is cast upon the Viceroy, under the existing Constitution, in particular the duty of protecting minorities, the duty if occasion calls for it of certifying legislation which the legislative bodies in India do not pass, and also, in the realm of administration, of overriding or taking upon himself to decide grave matters which he thinks are not being satisfactorily dealt with without the exercise of his special powers. I do not attempt to define the range or seek to enlarge it. I am only pointing out that this phrase about the importance of setting up an interim government in India at once might be understood—I hope it might only be misunderstood—as involving constitutional changes.
I would ask if my noble friend opposite can tell me if my reading is right, that what it really means is that, in place of individuals who have so recently been the members of the Viceroy's Council, other individuals will take their place—not appointed by the Viceroy, not appointed by any political Party, but appointed by His Majesty on the recommendation of the Secretary of State. As long as it is clear that that is what is involved, certainly for my own part

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I should not seek to question the discretion which decides that it may be well to have a change of personnel. That I do not think is an embarrassing question. It is literally a question of seeking elucidation, and, while many questions occur to me, and I have no doubt to others who are interested in this matter, and who have had occasion to consider it, I think, for my own part, it is much wiser to examine the document at leisure and study the relation of all its parts rather than attempt to conduct a sort of impromptu cross-examination across the table. The matter is much too serious for that and the document itself is manifestly the result of the most intense labour and consideration by Ministers on the spot.
The next thing which I suppose we ought to do is to see what is the result of making this public announcement in India. Is it going to be received favourably by the great communities or not? About that I would only venture to say what I think every honest man ought to say: that my profound hope is that these proposals thus put forward will meet with the favourable reception which is desired. When we have learned more about the way they are received, and when we have had the opportunity of studying the document more closely, I imagine that my noble friend the Leader of the opposition, with the assent of the Leader of the House, will want to get arrangements made that we may have some further discussion or at least some further questions put on this all-important subject.
4.42 p.m.
VISCOUNT SAMUEL: My Lords, uppermost in your Lordships' minds will, I feel sure, be a sense of the obligation we owe to the three Ministers who have been charged with this very arduous duty, and especially perhaps to the member of our own House who, by virtue of his office as Secretary of State, had the primacy of responsibility. Lord PethickLawrence, undeterred by the burden of years, by an oppressive climate and by the arduous and at times apparently hopeless task that had been entrusted to him, pursued it, so we learn, with unflagging enthusiasm, vigour and resourcefulness. When the Indian Parties, after coming close together, again fell apart, it would have been easy for the Ministers to have issued a statement affirming certain
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platitudinous principles and expressing kindly regrets, and then to have abandoned their task. That would have been done if it had been true, as has been freely stated by Indian politicians for years and echoed sometimes in the United States, that Britain's purpose was not to promote Indian self-government and independence but rather secretly and subtly to foment Indian divisions in order to re-establish and maintain our own rule.
The Ministers did not take that course because that accusation has been wholly untrue. On the contrary, they have presented now a complete and definite scheme. Because it is complete it is necessarily complex, and for that reason, as has just been said by the noble and learned Viscount who has preceded me, your Lordships are unlikely to wish today to enter into any closer consideration of this document. That would be a sufficient reason, but there is another. It is common to all Parties that this matter is for the Indians themselves to decide, and therefore, as the noble Viscount has just said, it would be right to give time for Indian opinion to express itself before we in this Parliament begin to examine the matter and to express an opinion of our own.
For my own part, having had an opportunity, through the courtesy of the Leader of the House, of seeing beforehand a copy of this document, I would only give as a first impression the opinion that it is admirably framed for the purpose in view. That is all I had intended to say, reserving to a rater occasion any further observations, but what the noble Viscount, Lord Simon, has:just said with regard to the interim government prompts me to say that, for my own part, I do not share his apprehension. This establishment of an interim government as a first step towards the later developments has been advocated by myself for the last two Years I rejoice that it is now to be carried out as a first step in what must necessarily be a long process. I do not think it likely that any constitutional difficulties will arise, and if the Government does really consist of the trusted representatives of all the Parties, it is very improbable that there will be the friction between the Viceroy's Council on the one hand and the Legislative Assembly on the other which has hitherto prevailed, and therefore questions of certifying important

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measures like the Budget which the Legislative Assembly may refuse to pass are unlikely to occur.
That is all I would wish to observe on this occasion. Three wise men have gone from the West this time. The West, no doubt, has always had much to learn from the East in matters of religion and philosophy; but the East has much to learn from the West in questions of statesmanship, and not least perhaps from this country which, for centuries, in spite of many errors, has shown great resources of statesmanship. Those resources have now been placed at India's service without stint and without reservation of any kind, and we may hope that now, after decades of controversy, they may have helped to show the way to a happy settlement.
4.48 p.m.
VISCOUNT ADDISON: My Lords, I thank the noble Lords who have just spoken for what they have said and for the manner bf saying it. I am sure my colleagues out in India will greatly appreciate the tributes which have been paid to them and to their sincerity and devotion which, as the noble Viscount, Lord Samuel, has just told us, was without reserve. I think, too, that the advice that has been given to us that we should wait to ascertain, after the publication of this Paper, more of its effect upon Indian opinion, is very wise counsel, and I am glad that your Lordships have received it favourably. I note what the noble Viscount said as to the possibility of discussion at some future date, and, taking account of the observations I previously made, we shall no doubt be able to consider it between the Parties in the usual way. I think the answer to the noble Viscount's question is a fairly clear one. It is a change of personnel, which we hope will be effected agreeably and satisfactorily and will inspire confidence, as the noble Viscount below the Gangway has just said. The powers, duties and obligations will remain as before.
VISCOUNT SIMON: It would need another Act of Parliament.
VISCOUNT ADDISON: No, it will not need another Act.
VISCOUNT SIMON: No, I say that nothing further could be done without an Act of Parliament.

INDIA AND BURMA (BURMA MONE TARY ARRANGEMENTS) (AMEND MENT) ORDER, 1946.
THE POSTMASTER-GENERAL (THE EARL OF LISTOWEL): My Lords, I beg to move the Motion standing in my name.
Moved, That an humble Address be presented to His Majesty, praying that the Order be made in the form of the draft approved by the House on Tuesday last.—(The Earl of Listowel.)
On Question, Motion agreed to: the said Address to be presented to His Majesty by the Lords with White Staves.

BORROWING (CONTROL AND GUARANTEES) BILL.
Order of the Day for the Second Reading read.
4.50 p.m.
LORD PAKENHAM: My Lords, I rise to move the Second Reading of the Borrowing (Control and Guarantees) Bill. We are all of us interested in the subject of borrowing. Some of us are born borrowers, some achieve borrowing and some have borrowing thrust upon them, but into whichever category we fall, I am sure we are interested in this Bill, which represents a relatively small, but an important, part of the Government's plans for ensuring full employment and stable conditions of finance. The Bill is very short and contains indeed only two operative clauses. May I suggest to your Lordships that we shall lose much of the point of the Bill unless we firmly grasp at the beginning that these two clauses are two sides of the same shield? Speaking broadly—I shall have to supplement this a little later—the first side of the shield, Clause 1, protects us against inflation such as we are threatened with now, as the noble Lord, Lord Chenwell, was very much to the fore in telling us last week, and as we admit is the case although I think he exaggerated the danger. The second side of the shield, Clause 2, protects us against deflation such as cursed us in the years before the war. It is not confined entirely in its operations to periods of depression, but still it can be regarded primarily as a weapon against deflation.
One further word of explanation before coming to the text of the Bill. At the time of the introduction of the Bill in

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another place, the Government published a Command Paper (No. 6726) containing a memorandum of policy (which no doubt your Lordships have studied or are studying), showing the general background of the Bill and announcing the Government's intention of setting up a National Investment Council composed of very eminent persons, skilled in finance, with advisory functions. The same Command Paper also contained a draft of the Order which it is proposed to make under Clause 1 of the Bill when, as I hope, it has been passed by your Lordships and received the Royal Assent. In this Second Reading speech I shall concentrate on trying to expound the total intentions of the Government as represented both by the Bill before the House and the Draft Order, but your Lordships may of course be interested during the discussion to-day and subsequently in the precise relationship between the Bill and the Order, and naturally I shall try to satisfy any curiosity on that point.
Coming to the text of the Bill, Clause 1, in a sentence (I am afraid I shall have to take a good many more sentences than one to develop it) gives power to the Treasury to control all new access to the capital market. This raises three classes of question, the machinery of control, the principles upon which control will be operated, and the field—that is, the kinds of money-raising and issuing of shares that are covered by the control. It is substantially true to say, and I would ask your Lordships to note this very carefully, that alike in machinery, principles of operation and territory covered—that is, the kind of borrowing and share-issuing covered—the arrangements envisaged in the Bill are substantially the same as those which have functioned for the past six and a half years under Regulation 6 of the Defence (Finance) Regulations.
Take first the machinery of control. The Capital Issues Committee will continue to be the advisory body on whose recommendations the Treasury acts in particular cases. I cannot emphasize too clearly that this Committee does not determine broad policy. The broad policy of the control is a matter for the Chancellor of the Exchequer and the Government of the day, and the Committee's function is to apply that policy to par-
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ticular cases. Your Lordships will naturally require to know, if you are not already aware of it, who is the Chairman of the Committee. It is no bureaucrat swathed in red tape; it is no professor from the London School of Economics draped in a red flag; it is none other than the noble Lord, Lord Kennet, who is a member of this House, now far above Parties but, of course, an ex-Conservative Cabinet Minister who, I believe, drew his original inspiration from Liberal sources. It is my duty, as spokesman for the Government, and, for reasons with which I will not trouble the House, a peculiar personal pleasure, to pay a tribute on behalf of the House to the splendid work which has been put in, without question of remuneration, by the noble Lord, Lord Kennet, and his Committee throughout these past years.
It is true of course that the work of the Committee has not been entirely free from criticism. Whose work has? I had a letter a day or two ago, when it was known that I was going to move the Second Reading of this Bill, running as follows: "I don't know what your opinion of the Capital Issues Committee is, but I can tell yon mine. It's got whiskers on it." I feel, my Lords, that you will resent that slur, as I do, on a most public-spirited body of men, but in so far as any vestiges of hair adhere to the cheeks of the Committee, they are being rapidly eliminated and a clean-shaven, stream-lined model will take the field in future., I can assure the House that we have the greatest confidence in that gallant and distinguished sailor, Lord Kennet, to apply the Nelson touch to the armada of issues which will no doubt sail past him in the months and years ahead.
What about the principles upon which the Committee will make their recommendations and which, as. I have explained, will be the responsibility of the Government of the day? In the very broadest sense they will remain those behind Regulation 6 of the Defence (Finance) Regulations, a Regulation which will lapse when the new arrangements have been finally completed and come into operation. They are, first, to ensure that the order of priority of schemes for raising new capital accords with their relative importance in the national interest—that is of immense importance

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—and secondly, to secure proper timing of the impact upon the market of any new issues which have been approved in principle. In a somewhat narrower sense the Committee will act in accordance with the memorandum of guidance (Command Paper No. 6645), which was issued to them by the then Chancellor of the Exchequer, the right honourable gentleman, Sir John Anderson, on May 31, 1945, at the conclusion of the war in Europe. I would stress that date. It was not some directive for issue while the war in Europe was still going on; this directive under which they are acting at this moment and under which, until we make a change—which is not contemplated—they will continue to act, was a directive issued by the late Government when it was known that the war in Europe was over.
Now we come to the types of operation, that is, the ways of raising money or issuing shares, which are covered by Clause 1. The Government's main intention here, I think, will be fairly clear, but if we find ourselves plunged, during my remarks or later, into a bog of technicalities I am sure we can rely on the noble Lord, Lord Piercy, to extricate us. He is one of those experts on financial theory who are allowed to speak on this subject without ridicule because he has also succeeded in financial practice as Chairman of the Industrial and Commercial Finance Corporation. He is one of those magicians who, if we entrust to them one talent, turn it into ten. I have no such advantage myself. I do not know whether other noble Lords who are going to follow me have any advantage over me in that respect, but I am afraid I am one of those who find it hard enough to keep my single talent rolled in a napkin. As we know, that is condemned in Scripture, though it was probably easier in those days than it is to-day.
The simplest thing, if we are trying to see what kind of borrowing and what kind of issuing is to be controlled in future, remembering that the area will be substantially the same as now, though as a matter of fact on balance slightly smaller than now, will be to take first the maximum area of money-raising and share-issuing which is covered by the Bill, and then see how it is reduced in practice by the exceptions listed in the Bill and the Order. I hope that your Lordships will
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not be too frightened by the initial statement of the kinds of borrowing control, because it is in fact qualified in important ways, as you will see in a moment. These are the kinds of financial operation which will now come under Treasury control, the Treasury acting in particular cases on the advice of this independent committee.
First of all, any borrowing of money in Great Britain, including in particular, of course, borrowing by means of mortgages or debentures; second, any raising of money in Great Britain by the issue of shares; third, any issue of shares or debentures or other securities in Great Britain, even where fresh money is not being raised; four, any circulation of offers for sale in Great Britain of existing overseas securities, not, be it noted, of existing domestic securities the circulation of offers of which is at present controlled, but will be freed under the Bill before the House. That is why I say the area in future will be slightly smaller than at present. Those four cases are all where money is being raised or the shares issued or circulated in Great Britain, but in the fifth case, it is any issue abroad by a British company, or by an overseas government or company using the British Register.
The provisions I have just described are, of course, immensely far-reaching, and unless they were qualified by exceptions would make it difficult for the borrowing section of your Lordships' House to obtain accommodation from the lending section. It would be necessary, if those were strictly adhered to without qualification, for anyone who wanted to borrow a sum of money to obtain the permission of the noble Lord, Lord Kennet. There is, however, one statutory exception, and there are other exceptions in the Order. The one statutory exception, the one class of money-raising that I have mentioned which is specifically exempted in the Statute, is the borrowing of money by any person other than the local authority in the ordinary course of his business from a person carrying on a banking undertaking, that is to say, a banker. I hear a slight sigh of relief going up. You may remember when we were discussing the nationalization of the Bank of England there was a certain amount of argument as to what exactly a banker was. I am not sure that I am able to take that matter very

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much further than it was taken on that occasion. We are still entitled to borrow from bankers so long as we are functioning in the ordinary course of our business.
I desire to make it plain beyond any shadow of doubt that there is no intention of using the control under Clause 1 for any except substantial dealings. I call the attention of the House to Part II of the Order, which will later on, of course, have to be laid before this House and another place. In Article 8, paragraph 1, it is specifically laid down that the consent of the Treasury will not be required where the same person does not seek to borrow more than£50,000 in one year, though there are one or two exceptions to this exception. I do not think the exceptions will worry us at the moment. The two main exemptions from the rule: of Treasury control over borrowing and raising money and over issues generally are (1) borrowing from a Bank in the ordinary course of business, and (2) borrowing sums of less than£50,000 in one year. I think that that lets most of us out, but of course there may be one or two exceptions. To those exceptions should be added borrowing on quite short bills of exchange, ordinary revenue borrowing by local authorities, and borrowing from Departments of Government and borrowing by building societies and industrial and provident societies.
Those are the exceptions which, between them, particularly if we attend to the first two, liberate a large field. There are, however, three further points which I must touch on—as briefly as possible, I assure the House—and in respect of which the Order may require, and in two out of three cases certainly will require, some modification. They are bonus issues, amalgamations, and borrowing between associated companies. I should explain here on the point of future procedure that before finally revoking the existing Defence Regulation under which the Capital Issues Committee procedure functions, and before finally bringing the new Order into force, the Chancellor of the Exchequer intends to give the new National Investment Council an opportunity to offer its comments on the Order generally, and in particular he has announced his intention of asking the advice of this National Investment Council regarding the much-debated problem of bonus issues. That is to be specifically
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referred to this Advisory National Investment Council. That is the first of the three points I mentioned, where the Order might require modification.
As regards the second point, amalgamations, the Chancellor of the Exchequer has made it clear that he will modify the terms of the Order to narrow the field of its operation in respect of amalgamations. The intention is to exempt amalgamations from the procedure of control in cases where, as the result of the amalgamation, all but one of the companies concerned disappear. No one has any objection to amalgamations as such, but apparently this is one of those cases where it is very hard to give the honest amalgamator his due without letting the rogue get past, but the Chancellor of the Exchequer is trying very hard, and has announced his intention of exempting amalgamations in the kind of case I mentioned.
Thirdly, there is borrowing between associated companies. It has been pointed out with a good deal of force in a number of places, that the draft Order as it stands will have the effect of bringing under control various types of transactions between associated companies for the first time. They are not controlled under the existing regulation. This, I hasten to assure the House, was not the Government's intention, and I am able to announce this afternoon that after careful consideration it has been decided to amend the draft Order to meet this particular point, and substantially to restore the existing position. This announcement is being made for the first time in your Lordships' House this afternoon, and I am in hopes that it will give considerable satisfaction and reassurance here and outside.
At present, Article I (2) (b) of the draft Order exempts from control borrowing against short-dated bills of exchange and promissory notes. It is now proposed to extend this exemption to cover completely unsecured loans where the money is repayable on demand, or not more than six months after demand. This will be effected by an alteration of the draft Order. Of course, there may be other minor modifications of the draft Order which I am not in a position to announce this afternoon, but those are the main issues which are likely to involve, or may possibly involve, some considerable modification of the draft Order. That concludes my explanations

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of Clause 1, and after rapidly running over Clause 2 I will, with your Lordships' permission, take you back to examine the reasons for both Clause 1 and Clause 2.
We may call Clause 2 the expansionist clause, if, in doing so, we do not fall into the mistake—because it would be a mistake—of regarding Clause 1 as restrictionist. Both clauses are expansionist. But Clause 1 is expansionist only indirectly and in the long run, while Clause 2 is expansionist directly, immediately. Clause 1 selects and stabilizes, Clause 2 stimulates and strengthens or—if the House prefers it—aids and abets. Clause 2 empowers the Treasury to guarantee loans to facilitate the reconstruction or development of an industry or part of an industry in Great Britain up to a limit of£50,000,000 in any one financial year. This power to stimulate industrial development is primarily a reserve power for use when a slump threatens, but even in more normal times also there may be cases of a special character where this clause would be of much value.
Your Lordships will recall that similar powers of guarantee have been provided by earlier legislation, notably by the Trade Facilities Acts, 1921 to 1926. The powers here sought differ in being wider in scope and unlimited in point of time. This is intended to be a permanent addition to the Government's armoury. I understood that the spokesman for the Opposition, winding up the final stage of this Bill's progress in another place, expressed himself as pleased with Clause 2 except that he said it did not go far enough. He gave it his blessing but regretted that a larger sum than£50,000,000 was not included in the Bill. I should perhaps add that it is really intended to deal with industries as a whole or with substantial parts of an industry rather than with particular undertakings as such.
Having given a brief explanation of the way in which these clauses are intended to work, perhaps I may be allowed to add a few general observations about the necessity for this Bill. Clause 2 should give us no trouble. I think we can say that it was finally agreed in principle all round in another place. The only regret expressed was that it does not go still further than it does. As regards Clause 1, a certain difference of opinion is undeniably possible, but I would suggest to your Lordships that
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the range of difference is considerably smaller, when one goes into the matter, than it would appear to be at first sight. I want to try to point out as much common ground as possible, and I would suggest that all responsible persons are agreed that in the present transitional post-war period—whatever particular term of years we may understand by that expression—control over the raising of fresh money similar to that employed during the war must be continued for a considerable while. I think it is fair to argue that that is clearly implied in the instructions to the Capital Issues Committee which were issued by the then Chancellor of the Exchequer on May 31, 1945, a date, I repeat, which came after the ending of the European war.
It is common ground between all of us, I think, that during the years immediately ahead there is going to be an exceptional demand for capital to effect repairs and carry out developments that were impossible during the war. It is common ground, also, that owing to the shortage of labour, materials and consumable goods during the reconstruction period there is, at the present time, an abnormal risk of inflation. Your Lordships will recall that my noble friend Lord Cherwell speaking from the Opposition Front Bench, when he made his very considered statement last week, called the attention of all of us in no uncertain terms, to the abnormal risk of inflation. Again, it is common ground, I believe, that we want to do everything in our power to keep interest rates as low as possible in the immediate future. We all recognize that unless we continue to possess, as we possess at this moment, machinery such as that of Clause 1, a far greater demand for capital may show itself than can be met by the existing supply. The consequence without Clause 1 would be that either many urgent projects from the national point of view would be thrown out or suspended in favour of others which from the national point of view were less urgent, though possibly more attractive to the investors.
The whole front against inflation might be seriously weakened, or the rate of interest might rise steeply. Possibly one or two of these things might occur or all three disastrous consequences might raise their heads at once. Therefore, for the transitional period, Clause 1 is surely necessary, and I cannot help thinking

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that there will be general agreement in the House on the necessity for it during the period in question. I want to be perfectly frank with the House. If I could have any low motive for concealment, no motive would serve because exposure would be very rapid. I am anxious to make it clear that, of course, Clause 1 is not intended—nor for that matter is Clause 2—to be a transitional clause. We are not simply asking for these powers for the transitional period, as we have asked and obtained from the House certain powers of physical control, to deal with the emergency which is very urgent just now and may last some years. Food rationing is one of the controls which comes to the mind, and no doubt other examples will readily occur to your Lordships on the sort of control which we hope to see disappear with the emergency.
No legislation is eternal. This Government may be supplanted by another Government, though, at the moment, the prospect of that is remote. But still, the Government may be supplanted—these things have happened—and even if that possible eventuality does not: come to pass, the authors of legislation may desire to modify it, in the light of experience, later on. But with that qualification we do intend, with the permission of the House, to ensure that Clause 1 becomes part of the permanent structure of our economic arrangements. So also with Clause 2. Perhaps your Lordships will allow me, before I conclude, to explain why we require these as a permanent feature of the economic landscape. A great revolution has come over the economic thought of this country, and, indeed, of the world, during the last fifteen years. It is associated pre-eminently perhaps, as has already been well said, with the name of Lord Keynes, but many others have played a part. A great gulf separates us from the misunderstandings and conflicts of 1931, as can be best seen, perhaps, from the agreed White Paper on employment policy which was issued by the Coalition Government in 1944.
We are all satisfied, I think—certainly we on this side of the House are satisfied, and I hope that noble Lords on the opposite Benches are satisfied also—that a new technique is being evolved for the prevention of mass unemployment. But suppose we succeed—as we certainly
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mean to succeed—in the efforts which we are making to that end? What is going to be the resulting picture? I ask your Lordships to bear with me a few minutes longer because I feel we must give these proposals careful study if we are going to pronounce on them and judge them. If we succeed, mass unemployment will be eliminated, the trade cycle will be damped down, widespread conditions of depression will be no more. That is what we are aiming at, and what we have aimed at for many years. We believe, and I think that most noble Lords, opposite believe also, that a great technical advance has been made towards a solution of these problems. So we are hoping that conditions of permanent boom will obtain in this country. If we are going to have a boom we shall always have inflation just round the corner. I would like to emphasize that thought.
In any time of boom there is always a risk of inflation. In other words, inflation is not something which arises only in times of full employment and scarcity but: also in time of full employment and prosperity. In these circumstances we are quite clear in our minds that: the Government of the day will in future always have to consider what is to be the total amount of investment desirable in the country's interest, if inflation is to be avoided. The Government will have to consider how much investment can be permitted, or should be stimulated. Once they have taken that course some method of discrimination as to rival demands for money will have to be adopted—some method other than that of allowing rival applicants to compete for the available supply of funds on the strength of what they imagine to be the attractiveness of their project in the eyes of the investing public. Whether or not: our method of selection is to be the one chosen, some method will have to be adopted, if I am correct in saying that under permanent conditions of full employment inflation will be just around the corner.
The latest refinements of economics, my Lords, can usually he reduced to common sense, and sometimes uncommon nonsense. In this case I would suggest that they fall into the earlier category. The case for Clause 2, which is a practical step to combat depression and promote development, is accepted all round. The short run case for Clause 1 is also generally

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accepted, on the ground that in the transitional period the demand for capital may well outrun the supply. The case for the long run operation of Clause 1, when we pass from the present condition of scarcity to one of relative plenty, is that we shall still retain one vital feature of the present state of affairs—namely, the risk of inflation. If some of you find all this much too optimistic, and believe that human nature does not progress as fast as that, and that we shall see a good deal more depression in the future, I would remind you that in times of depression Clause 2 would be the relevant clause, and there would be no thought of Clause 1 to restrict the total amount of productive investment. In other words, if we fail we shall urgently need Clause 2. If we succeed, as of course we mean to do, and believe we shall, we shall need Clause 1; and need it very badly.
I do not suppose that in this struggle, in our determination to secure full employment and stable conditions for our people, there is anybody who wishes us to fail. No noble Lord in this House wishes us to fail or wishes to see a repetition of the economic waste and social tragedy of the years between the wars. Some noble Lords suffered from that tragedy in their persons, and many others through their friends, and all of us in our consciences. We believe that this Bill which is before the House, although not one of the major measures necessary to secure full employment, is a small but necessary link in the chain of the measures which are required. I am sure your Lordships will wish with me to pass beyond financial technicalities to the human realities lying behind. I hope, and believe, that your Lordships will desire to give it a Second Reading. I beg to move.
Moved, That the Bill he now read 2a.—(Lord Pakenham.)
5.25 p.m.
THE EARL OF MUNSTER: My Lords, with the rest of your Lordships I have been very much impressed with the exposition by the noble Lord, Lord Pakenham, of this very complicated Bill, and with the very easy and lucid manner in which he has avoided nearly all the controversial points. I fear, therefore, that the remarks which he has made have done
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nothing but aggravate the fears of the Opposition. This small Bill is one, if I may so describe it, of an unholy trio. The noble Lord described it as one "further link in the chain." I think it will prove a further link in the chain of complete financial control in a Socialist, theoretically-planned State. Of course there is no difference between any of us on the necessity, if we are to recover economically, to produce exports for the world markets, in the greatest production drive in our history. Nor has anybody disputed the need, during the transitional period, for a temporary continuance of certain financial controls which it was found necessary to impose during the war years. As a safeguard against the possibility of a wide scramble for new capital it is certainly a wise move.
But the Government have fashioned their legislation and shaped this Bill, and the noble Lord fashioned all his arguments, on the conditions which prevailed in war-time, not in normal times of peace. There seem to me to be two perfectly distinct phases. There is the transitional phase. Here, as I have said, we are all agreed that some control is necessary. Then there is the post-transitional phase, when we trust that normality will have returned to take the place of scarcity and insanity. These two phases should surely be clearly distinguishable; but the Government have seized the opportunity to saddle industry and the individual lives of citizens with permanent controls which are designed to achieve some advanced political theory.
If this measure were directed to the protection of the savings of 'the people from fraud or from share-pushers or bucket shops, or from any other financial trickery whatever, we on this side of the House would be the first to give the Government every possible assistance in bringing the Bill into operation as rapidly as possible. But, my Lords, it does nothing of the sort. We are told today that it is to provide protection against inflation. I have not heard before that inflation is likely to be with us for the rest of our normal and natural lives. The noble Lord may ask why the Opposition show such ever-increasing signs of nervousness towards the Government's financial policy. The answer, in the first place, is that we have a very responsible Minister of the Government, the Lord Privy Seal, who told us recently that pounds,

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shillings and pence have now become meaningless symbols. So far as the very near future is concerned, it may be that he is right. At the same time we have had very little exhortation from Ministers in words—and certainly, as far as I am aware none in action—to reduce our national expenditure.
Again, we have Ministers who are responsible for great public departments touring the country and make irresponsible outbursts against the whole system of private enterprise. Many of them have taken very little heed of the Prime Minister's clarion call for the expansion of trade and above all for the creation of good relationships between management and workpeople. At the same time consumer goods have not come up to expectation and we know from personal experience that since the return of the Government to power the queues have grown more and more.
Added to all this we have another restriction. This Bill, as the noble Lord truly says, permits the Treasury to make orders for regulating borrowing and the raising of money, except through a banker carrying on in the ordinary course of business. Thus, an additional burden is to be placed on all private enterprise by the permanent ham-stringing of all new capital issues. As the noble Lord said, this will be done by the Capital issues Committee, which was a body set up as a war-time expedient, and which in fact did do excellent work during these difficult years. But the noble Lord will remember—and I hope your Lordships will, too—that the purpose of that Committee was to prevent new issues other than those which were absolutely necessary and vital for the war effort. I would be the first to pay my respect to the noble Lord, Lord Kennet, and the others who worked on that 'Committee. Certainly, it can only have been a thankless task. But I do hope that the delay, which has been caused to many firms, who in the past went to ask for authority to raise capital, will certainly 'be minimized.
What is this Committee intended to do in the future? It is to be the instrument for licensing and for timing all investments under the direction of the Treasury and, therefore, working in the very narrow limits of Treasury instructions. Many firms have now been exhausted after
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the rigours of war, and they quickly demand a transfusion of capital, but there is not much chance, as far as I can see, of any immediate revitalizing under the terms of the Bill. Some firms have sufficient liquid assets for new equipment, but any firm which is unable to finance its re-equipment from its own resources and requires funds for that purpose, will have to queue up in hopeful anticipation that some other applicant with an equal claim has not been to the Capital Issues Committee before and managed to obtain all the funds which are available for public investment.
I come now to the iron and steel industry, which was dealt with yesterday afternoon, in the reply of the noble Lord, Lord Winster. Will they, in present circumstances, go to the Capital Issues Committee? Will they go to the Capital Issues Committee to ask for authority to raise a loan when they are completely ignorant of the Government's intention with regard to what portion of their industry is to be taken over? Of course not. The noble Lord, Lord Winster, told us yesterday that the Government would have very considerable capital expenditure for their nationalization follies. (He did not use the last expression: he said "for their nationalization purposes.") If that is 'so, then it stands to reason that there will be less capital in the market which will be available for other industrial development, and, if there is a lack of certainty as to when the Government are going to borrow or not, it will automatically hold up and arrest normal industrial development.
We are told—the noble Lord used the expression to-day—that all licensing and timing of investment is to be done in the national interest. What is the national interest What is the national interest likely to be in the next few years? I cannot help thinking myself that it is time this very meaningless phrase was dropped, because it was rightly described the other day—and I commend this to the noble Lord—as a substitute for thought, and generally used to hide the indecisions of, His Majesty's Government:. But nevertheless the Chancellor of the Exchequer did interpiet these words—" the national interest." He interpreted them to mean—giving preference to those products for the home market which meet the broad necessities of the people rather

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than to those which cater for more luxurious tastes. Surely in many things there is a very narrow margin between what is a necessity and what is a luxury.
For myself, I sincerely hope that the Capital Issues Committee will give full consideration to all new industries or to any new processes of manufacture and to businesses perhaps outside or on the border line of what I really think was a very ill-defined conception. I hope myself that this Committee will not find themselves in future in the position of being an important financial committee working as a deterrent and as a severe handicap to trade when the steady growth of new industry is so very urgently required. I cannot help but believe that this Committee may shortly find themselves in the position of a policeman with orders to hold up, and indeed it may be to arrest and stop, the steady flow of new trade for the benefit of the priority-labelled nationalized motorcar.
It is intended, as the noble Lord said in the course of his speech, to set up a National Investment Council which will not be a statutory body, but a part-time body which will be wholly subservient to the Chancellor of the Exchequer's wishes. It is to assist the Government in the organizing and stimulating of investment, so as to promote full employment. It is going to take the place of the National Investment Board, a machine which was so widely advocated by noble Lords opposite during the course of the General Election, and which has now been shelved and cast upon the rubbish heap. The noble Lord said in the course of his opening remarks that it will consider and report to the Chancellor of the Exchequer on bonus issues and on borrowing from associated companies. But it has been already laid down that the first priority in everything will be reserved for the Exchequer, and further, that any advice they may give the Chancellor can be disregarded, as the final decision rests with the Cabinet. I really cannot help but think—
LORD PAKENHAM: If the noble Lord will forgive my interrupting, may I ask whether he is relying on something that I said?
THE EARL OF MUNSTER: I was relying exactly on what the Chancellor of the Exchequer himself said in another place.
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I cannot help thinking from his description of them that this high-powered body of collective wisdom will find themselves very shortly more like a facade than a good instrument of Government policy. For a few moments, let me turn very briefly to the clauses in the Bill. The noble Lord explained them at some length, and I will not go into them again except to make certain suggestions. It is true that the first clause gives the Treasury power to control all new access to the capital market, and after the passing of the Bill the draft Order Which is set out in the Command Paper will come into operation, but of course it will not, as I understand it, be anything like the draft Order which is printed in the Paper at the moment. I think the noble Lord himself told your Lordships of various alterations which the Government had already agreed; this Order when it comes before the House, and any other Order in future, will require a negative resolution, and I cannot help thinking that when there is a Bill such as this, where such immense powers are given to the Government, and to the Treasury in particular, this is stretching Government by Order to most unnecessary limits, and going well beyond what was ever intended. I do hope that the noble Lord will think again, and discuss this matter with his right honourable friend to persuade him that it would be in the best interests of all concerned if these Orders require an affirmative resolution.
As the noble Lord says, there is much to be said for Clause 2, which he described as a weapon to be used against deflation. If inflation is round the corner at every stage in our career, it is a little difficult to see when it will arise; but I think the noble Lord should give us some indication of the terms and conditions of any loan which would be issued, and when it is likely to make use of the powers contained in the clause.
Now I come to the Schedule of the Bill, which I am sorry to say holds highly objectionable features and which includes quite undiscriminating powers of entry and search. There are any number of points which we may desire to ask your Lordships to discuss on the next stage of the Bill, and I would commend to Lord Pakenham and to the Lord Chancellor for their consideration the powers which are contained in paragraph I of the Schedule.

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I do not think it is desirable that courts of summary jurisdiction should have such immense powers of punishment. There are very large penalties involved in that schedule. There are many difficult points of law which would have to be discussed and decided if any case should be brought up by the Director of Public Prosecutions. We do think that in matters of this sort the case should be taken before a judge by way of indictment. I will leave it to the legal experts in your Lordships' House to argue, but, as I have said, we think this should be altered, and in any case it will need very careful consideration before we finally part with the measure.
I have spoken a great deal longer than I intended. There is a large number of other points which I should like to make, but I think I have probably said sufficient to indicate to your Lordships that we believe this Bill will restrict industry rather than stimulate it, and thus will become a deterrent and a handicap to full trade recovery. However much the Government desire to co-operate with industry—and I frankly believe they do—they seem to work in a very mysterious way. If they really wish for full partnership with industry and to create that spirit of confidence whereby and through which industry can prosper and flourish, let them refrain from introducing legislation which contributes little or nothing to permanent constructive recovery and work out in place thereof a proper economic scheme which will achieve the ends they, we, and all business people, have in mind.
5.44 p.m.
VISCOUNT BUCKMASTER: My Lords, I think it was Rabelais who said that man was born to be but a borrower or a lender. If that is so, how unfortunate is our fate, because every one of us can come within the scope of this Bill, so wide are its powers. Though this be so, I must agree with the noble Lords with whom I am privileged to sit in accepting the necessity for a measure of control during what my noble friend Lord Pakenham has called the transitional period. But a measure of control is not at all the same thing as you have in this Bill. Here you have a control absolutely unlimited in time, which endures for ever, and which in extent is as wide as it is possible to be. Under Clause 1 the Treasury, by Order, can do what it likes. You have already a measure of control in regard to borrowing
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in force, as the noble Lord has admitted. That was, I understand, under the Emergency Powers Defence Act. By the Control (Services and Supplies) Act passed last year, the extent of control was to terminate at the end of a period of five years. In other words, the borrowing which is now controlled under the Act to which I have just referred, was to be controlled for a period of five years only. Why do we need unlimited control? Why must it go on for ever?
When I see a Bill like this, and when I see, as I do, the other Bills and proposals perpetually passing through another place, I feel that this urge to control, to interfere, to assert authority over every phase of our public and private lives, is just like some forest fire raging through the land, feeding on all it consumes and growing and spreading as it feeds. The Chancellor of the Exchequer in another place called this Bill "short, simple and streamlined." Now my noble friend, if he will forgive a note of criticism from a member, though much less distinguished, of the same University, has also become a slave to this most popular adjective. He used it, I think, in regard to the Capital Issues Committee, and here is where my note of friendly criticism arises. He seemed to me slightly confused in his metaphor, because I understand he spoke about streamlining their whiskers. That is an operation of which I have no practical experience.
Let us revert to the Chancellor of the Exchequer's description of the Bill as "short, simple and streamlined." It may well be that. But a machine-gun bullet is all those things and is a most deadly thing, and so the powers conferred under this Bill can inflict mortal wounds on the industry and export trades of this country, should they be misdirected. The noble Lord will, I am sure, accept my statement that I do not suggest that the Chancellor of the Exchequer will abuse his powers. But he is a human being; he is subject to the chances of public and human life. We shall not always have him, and, as I say, the powers are utterly unlimited.
Now the noble Lord will say, with truth, that these powers are expressed in Orders. I agree that that may be so. But these Orders do not receive what I would call the protection of the restrictive processes which a Bill endures in its passage through another place and your

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Lordships' House. These Orders receive no publicity at all. Nobody knows anything about them. They can be seen, but in fact they are not. They go through almost in secret. I do not suggest that that is done on purpose, but that in fact is the result.
May I, with you Lordships' permission, draw your attention to a most unfortunate position? Here we have a Bill reprinted with Amendments, of which there were not many, on May 8. The draft Order, which is the heart and soul of the Bill, was printed in January. Clause 1 of this Bill is an empty thing without this Order. It is expressed through the Order, as the noble Lord has said. Yet we have not got this draft Order.
LORD PAKENHAM: I did not actually say that. But I do not want to interrupt.
VISCOUNT BUCKMASTER: I welcome the noble Lord's intervention. Would he please continue?
LORD PAKENHAM: I certainly will not continue, because I know how dangerous that is. I twice attempted it yesterday. I think I will wait until my reply. But I did not use that precise expression or mean it.
VISCOUNT BUCKMASTER: I am Grateful to the noble Lord for his intervention. He will not, I am sure, interpret it in any offensive way if I say that I do not quite understand what he means. Clause 1 confers upon the Treasury the power to make any regulation with regard to borrowing which it pleases by Order, and this is the draft Order which it is pleased to make. I say that Clause 1 means nothing unless you interpret it in terms of this Order. I ask noble Lords whether they agree with me or whether they do not. To revert to my original point, from which I am not being deflected by the intervention, this draft Order is dated January. The Chancellor, in another place, has told us of many things which he may or may not do in regard to this Order. How can we debate this matter when we have not had a reprint of the Order? Why should not we be brought up to date? Why should not we know what the Chancellor proposes to do? Why should we have to labour, as I have laboured hour after hour, reading reports in HANSARD of proceedings both in Committee
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upstairs and on the floor in another place to try to find out what the Chancellor's intentions may be? It is a perfectly easy thing to have the Order revised as a draft and brought up to date.
There is another point in regard to this of which my noble friend may not be aware, although he has had a far wider experience than I have. Discussion on this Order was ruled out of order in another place. We agree that Clause 1 means nothing without the Order, yet the Order is a thing we are not allowed to discuss. It is probably only by the courtesy of your Lordships that I, who am a modest and humble apostle of the doctrine that one should obey the rules and orders of your Lordships' House, am now being allowed to discuss the draft because probably I am out of order in doing so.
A NOBLE LORD: The noble Lord, Lord Pakenham, did it.
VISCOUNT BUCKMASTER: It does not follow that because my noble friend did it that he was not out of order too. I am surprised at the noble Lord's suggestion that it should not be. I believe I am out of order in discussing it, but, be that as it may, I wish, without over-emphasizing this point, to illustrate to your Lordships the real danger of legislation of this kind. You give unlimited powers in perpetuity to the Treasury and I cannot believe it is right. I fear I have dealt rather more fully and forcefully with the point than I was intending to do.
The noble Lord referred to Clause 2, with which I did not propose to deal but I think in view of his remarks something should be said about it. I am not an economist; I can only put forward my submission, which is that these grave economic crises, these slumps with their attendant unemployment, which the noble Lord, which I and which all your Lordships are anxious to avert, cannot be entirely averted by any planning. They can be diminished but they cannot entirely be prevented. What I suggest to your Lordships is that when certain factors are present, then the inception of these crises is due to economic forces which neither the Chancellor nor my noble friend will be able to control. It is the ravages of the boll-weavil in the Southern States of America, or super-

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abundant rain in some other area causing a shortage of one crop or a glut of another which depresses prices, breaks markets, causes alarm and prevents buying. While I accept and am in agreement with my noble friend in regard to the purpose of Clause 2. I do not accept or believe that the sum involved,£50,000,000, can possibly arrest any one of these grave major disasters. If anyone doubts that planning cannot by itself achieve all that the noble Lord thinks it can or questions whether those forces of nature which man cannot control will interfere with it, then he has in the sphere of food a most sorry and a most striking example.
There are two points, technical and wearisome, upon which I should like briefly to touch. Your Lordships have been in the past most indulgent to me when I have spoken on matters of this description and I have no wish to trespass on your Lordships' courtesy to-day. I will endeavour to be brief, and I will try also to be lucid. The first point concerns unit trusts. When this matter was debated in another place unit trusts, which are brought within the ambit of this Bill by Clause 2 (1), were of course discussed, and someone rather naively remarked, in a way which might have a humorous appeal to those who follow the light programme of the B.B.C., "What is a unit trust?" The basis of a unit trust is that it should acquire in bulk a wide range of securities covering a large field of investment and the purchase of those securities is effected by a management company. The unit trust itself is not a company, it is not a body corporate, and therefore it has a special clause to itself in the Bill. The management is a company. I hope I have made myself clear so far.
My noble friend said that the Chancellor proposed in his new Order to make amalgamation possible. May I say at once that I am entirely with him in this regard? Nobody could be more with him than I am in hoping to see amalgamation permitted to a reasonable degree. But the point to which I wish to direct my noble friend's attention, if I may, is that in these unit trusts there is a very real danger involved in this question of amalgamation. Your Lordships will appreciate that the holder of the unit is a small man The securities are bought in the
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market in the ordinary way and the full professional charges are paid. There is no question of any jealousy by other interests in this matter. In addition the management expenses are paid. Therefore it is a costly form of investment for the small man, but he cannot exercise any vote; the management can be sold over his head. If he were a shareholder in an investment trust he would come to an extraordinary general meeting or to the annual general meeting and protest against the change, but as a unit holder in a unit trust he cannot protest. I can assure the noble Lord that during the war considerable changes in management were effected. I do not wish to say too much or to go too far, but one group, for example, has acquired control of at least ten others. As the unit holder neither knows necessarily what is happening and has no power to prevent it if he does, I do feel that here is something which should receive attention either now or when the recommendations of the Cohen Report are brought into effect.
The other point concerns the issue of bonus shares. The noble Lord has spared me the task of saying very much in this connection because I gather the Chancellor's heart is not yet completely hardened. The Chancellor, however, did say that he would welcome discussion on this point and perhaps I may, therefore, be allowed to make a few brief remarks. Perhaps I might put it to your Lordships in the simplest way. A company has over a period of years paid out, year by year, less than it has earned and has by that means built up a reserve fund. Let us imagine that it decides in the end to capitalize its reserves. First of all the underpaying of its dividends and the retaining of its earnings must: be an operation which the Chancellor himself would bless.
Having done that over a period of years, it now decides to capitalize its reserves. A shareholder, we imagine, holds I,000 shares of£I and he receives a free bonus of another I,000 shares of£I for nothing. Now the assets of the company are not altered; the total value of the shares or holding remains the same. There is no intrinsic question of bonus in this at all. What may happen in the future, whether in the end it may turn out a good transaction, depends upon the course of trade and on the skill with which the company

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is managed. I would suggest with respect that an operation of this kind is one which should commend itself to the Chancellor in that the reserves, having been capitalized, cannot any longer be distributed as dividends.
I will not pursue that point, but will now turn quite shortly to the Schedule. My noble friend will, I am sure, forgive me if I say that I am sorry indeed that he should have avoided it. I wish I had always found it so easy to avoid so difficult a question in debate. I do not propose to discuss the generalities of this Schedule. If a man commits a crime, he must accept the punishment which the law provides, and with regard to penalties, I have nothing to say. But the penalties are only part of the Schedule. Under this Schedule the man who commits these offences has no right to trial by jury. I am sorry the noble and learned Lord Chancellor is not here to correct me if I am at fault. The protection given by the Summary Jurisdiction Act that proceedings must be initiated within six months of the date of the offence has gone; twelve months is now the period.
Another point which I think is also of major importance is the protection conferred on a Bank in its relationship to its customers, that confidential relationship which existed—I cannot say how long—and has been so jealously guarded, and which even the noble Lords opposite, and their colleagues in another place, protected in Section 4 (3) of the Bank of England Bill. That relationship, so recently protected, is swept away entirely by the Schedule—gone completely. In addition to that, the Treasury have power to apply to a magistrate for a search warrant. They do not have to adopt the ordinary procedure and go to the Court and ask for papers. They can get a search warrant from a Justice of the Peace, and then they can nominate not only a policeman but anyone they choose, a man in no official capacity at all, who can be ordered to ransack the citizen's house, search through his papers, and see what he can find. Might I add that in regard to such an operation, the Treasury are not bound by that secrecy which binds them where questions of Income Tax are concerned? I do hope that I am not detaining your Lordships unduly, and that I am not overstating my case. I feel very strongly over this.
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This is a conception of democracy, of the rights of man, which, though it may obtain among other Governments, is one which should be utterly foreign to our own. I must ask the noble Lord quite bluntly what are these grave crimes which he imagines can be committed? We are allowed to borrow up to£50,000;from a banker in the ordinary course of business. The only transactions I can see are the borrowings from the public. Those large loans can only be effected through an issuing house, or a firm of brokers, and they instantly attract publicity. I cannot understand what it is the Chancellor fears. Is it some esoteric band of villains plotting in secret grave crimes against the State? Why he should arrogate to himself powers such as these, far transcending anything that is necessary, especially when as I have pointed out you have a reasonable measure of control in existence, is something which I cannot understand. To my mind no Government have ever taken a heavier hammer to hit so small a tack, or, I think I might say, so large a sickle, to cut so small a blade of grass.
6.5 p.m.
VISCOUNT MAUGHAM: My Lords, may I say a word on the aspect of this Bill as it presents itself to anybody who has had training in the law? My noble friend who has just spoken has referred to what we should be able to do under the Bill, and has said, for instance, we should be entitled to borrow£50,000 from our banker for the purposes of our business, but as he himself realizes, at the moment that is not a matter we can discuss here at all. We have got nothing to do with that. We are concerned with the Bill as regards, for instance, the Treasury power to make certain orders. It is true a draft Order was published in some way and it has not, as I understand, become a permanent Order, but even if it had been, it can be altered the day after to-morrow. It does not bind anybody, and in any case it can only take effect after it is made, and if it is not revoked. The only thing we have got to consider here—and it is a very, very serious problem—is whether it is right, in order to carry out the excellent intentions which my noble friend Lord Pakenham has put before your Lordships, for that purpose to invest the Treasury of the country, a Government

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Department, for all time with a complete power over the financial methods which are adopted in this country for the purposes of our trade.
I doubt very much whether the noble Lord, in presenting this Bill to your Lordships' House, has realized that under it the Treasury could prevent me borrowing£10 from my noble friend if I was desirous of borrowing it; could stop the whole of the pawnbrokers in the country from carrying on business; could make it impossible for the building societies to lend a single penny to the working classes, when we know that sums lent amount to millions in the course of a year; could stop the City of London dealing with accommodation bills, and could prevent ordinary persons borrowing on overdraft from their banks. Those are the powers which, without any provision for limitation, without any possibility for this House or the House of Commons to express any opinion about them, the Treasury can exercise as soon as this Bill becomes law, subject to any orders which may or may not be made.
I confess to a sense of surprise to hear my noble friend, who has presented this Bill in such glowing terms, presenting it on the footing that the hopes and present intentions of the Government with regard to an Order in Council will become law when this Bill becomes law. An Order made by the Treasury is not part of the laws of the land. It is a Treasury regulation, and you may give powers to punish something which you think is against it, but it is only a Treasury regulation, and it lasts as long as the Treasury thinks fit. To my mind there can be no worse example of legislation presented to this House than the legislation by a general power given to a Government Department without any way of keeping it within the bounds which are reasonable, and which the Legislature ought to approve.
There is no borrowing which cannot be affected by powers given under this Act, if it becomes law—absolutely no borrowing whatever with a single exception which I shall not forget because it may be mentioned to me. Paragraph (a) of Clause 1 (1) is not to apply to the borrowing of money—now consider these words "by any person (other than a local authority) in the ordinary course of his business from a person carrying on a banking undertaking."
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Take my own case. I do not carry on any business. I have not got one. I shall not be able to go to my bank and borrow—1,000 if the Treasury, when this Bill is passed, makes it illegal to do so. I am not in the habit of using very violent language, but it does seem to me preposterous that the provision in that paragraph should be introduced in this Bill without any qualification. There seems to be no object in doing so because the Government knows perfectly well what are the borrowings—what they describe as the raising of fresh money—which are intended to be the subject of the Treasury orders. A list of the sort of loans to be subject to Treasury control could be written out. Why not insert them in the Bill? The Government, as I say, know perfectly well what they are. But sooner than do that they desire this universal power which may be used in the future, I suppose when a Communist Government is in power (we in this House, no doubt, will regret it), to prevent the carrying on of business in the ordinary way in which business has been carried on for a hundred years.
I am not sure that bills of exchange will not be hit by orders that may be made. Certainly accommodation hills may be hit, and also promissory notes. Certainly all transactions with respectable people in the money-lending business—and there are respectable money-lenders—may be stopped by the operation of a Treasury order under this Bill, when it comes into force, unless my noble friend Lord Pakenham can be persuaded that really it is absolutely wrong to give, will not say a blank cheque, but an unlimited power to the Treasury to issue orders with regard to all kinds of borrowing in Great Britain.
I am not going to keep your Lordships here at this late hour because I know that there is at least one more speaker who desires to address you, but I cannot help thinking that that, as it stands, is a terrible defect of this proposed measure, and that it ought to be remedied. When I come to the Schedule, I see that persons who contravene any provision of any order are to be liable to certain penalties. That means, as I think the noble Earl, Lord Munster, has sad, that a court of summary jurisdiction may have the power of selecting between three maxima penalties—£100, the amount of any money borrowed—say£50,000 because that is to be the minimum of money

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transactions—and "the nominal or market value, whichever is the greater, of any securities to the issue, sale or other disposal of which (whether actual or projected) the transaction in question relates."
That may be£1,500,000 or more. And the infliction of the penalties is to be at the discretion of a court of summary jurisdiction. I confess that it is the most astonishing provision which I have ever so far come across in any recent Bill. I will not go back to anything enacted prior to my own lifetime, but I can say that it is the most astonishing provision that I have ever seen. I cannot help thinking that a provision like this is wholly without example. Then take the provision with regard to search warrants. If a man is suspected of not having paid the whole of his Income Tax there is no power to grant a search warrant because a Justice of the Peace is satisfied that he may not have paid his tax in full. Why should this extraordinary power to grant search warrants be provided under this Bill? It states that a justice of the Peace may grant a search warrant—
"authorizing any constable, together with any persons named in the warrant and any other constables, to enter the premises specified in the information, (using such force as is reasonably necessary for the purpose)…"
As I understand it, a search may be made through every single document and every safe where documents may be kept, for the purpose of ascertaining whether there is anything which will help the Treasury in proving that a breach has been committed of the provisions of an order made by the Treasury. Here again, we are invited to make a precedent which I think would be a very disastrous one.
I am not here to say—though I do not think it very likely, having regard to the terms of the Schedule—that it is not possible that there may be dishonest people who would wish to disregard the provisions of a Treasury order. But I say that to give this sort of Gestapo power to constables, acting on the general belief of a Justice of the Peace, which involves entering people's premises and searching through all their papers, private and public, for the purpose of stopping any evasion of the regulations, is a remedy which will have far more serious consequences in the interference with the private rights of citizens than any injury that
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occasional breaches of regulations can possibly amount to. On these two grounds, which are all I mention because other matters which I might have mentioned have been dealt with already, I do urge the Government to see if this Bill cannot be in some respects amended before we reach another stage.
6.19 p.m.
LORD PIERCY: My Lords I rise, I hope, with a proper appreciation of the lateness of the hour, and I can assure your Lordships that I do not mean to detain you long. I should like, first of all, to refer briefly to two rather minor points. One is the point about bonus issues. The Chancellor of the Exchequer promised in another place that that matter would be referred to the National Investment Council and your Lordships are well aware of the proposed composition of that Council. If I might say so to your Lordships, I believe it would be sagacious to leave that question to be considered by that Council and not to agitate it in your Lordships' House.
VISCOUNT MAUGHAM: That does not bind us.
LORD PIERCY: In any case, I think that it is a Committee point, rather than a point for Second Reading. The other point is about unit trusts. Since the noble Lord, Lord Buckmaster, is not present, I will make my point in the shortest possible way. It is a technical matter and, again, really a Committee point. In my view, in suggesting that amalgamations of managers of unit trusts import grave peril to the interests of unit holders, the noble Lord left out of sight the most material fact in the matter. Strictly and accurately, a unit trust is a trust. It is governed by a trust deed which, in my experience, is laboured over, and very tightly drawn, and administered, usually, by one of the great banks. The rights of the unit holder cannot be materially impaired by a transfer of the management of the trust.
Turning to the real subject of this debate, my noble friend Lord Pakenham explained the objects and provisions of this Bill with his usual lucidity. He pointed out—I thought with great clearness—that while the two powers which are taken under the Bill have immediate relevance to our existing situation yet

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they have much greater relevance to the long term—that in fact these powers are proposed to be taken on a permanent basis as part of the measures for carrying out the responsibility which all Parties, I believe, agree that all Governments henceforth must bear—that of endeavouring to maintain a high and stable level of employment. That point, it seemed to me, was evaded with great adroitness in the delightful address of the noble Earl, Lord Munster. I sympathize very much with the objection which he feels to any kind of regulation of the daily business of the city. Of course that is vexatious. When he states that the noble Lord, Lord Pakenham, is fashioning his arguments upon war-time conditions one must dissent. The provisions of this Bill were fashioned with relevance to the familiar pattern of boom and slump, which will not be eradicated from our economic system without a great deal of pains and trouble. I do not go with the noble Viscount, Lord Buckmaster, in feeling that ultimately you cannot cure the slump, I do not think you can class the causes which bring about these great tides in business with the forces of nature. I will freely admit, on the other hand, that one of the best statistical economists in this field, after writing an extremely interesting book in which he traced fluctuations in prosperity to variations in rainfall, wrote another book where he traced these things, Literally and accurately to the influences of the Pleiades.
For dealing with this question of employment, of boom and slump, a considerable measure of control of the economic system is inevitable. In the other House a member of the Party opposite, an advocate of an economic general staff and of something like a national investment board, made this observation:
"There are three totals which determine at any time the general level of business activity—the totals of income, of consumption and of investment. As soon as the Government have settled these aggregates they have accomplished the main task of the employment policy."
The implication of that, and it is a sound implication, is that there are these three great aggregates, national income, consumption and investment, which must be controlled. The Bill before us has reference to the third of these aggregates, the volume of investment. To control the volume of investment powers of two kinds
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are necessary, as the noble Lord, Lord Pakenham, pointed out. You must be able to restrain and you must be able to encourage. So far as the question of restraining is concerned, it is quite clear, I think, that some power to control new issues and borrowings, other than ordinary bank borrowings, will be permanently necessary for any Government which essays the task. One ought to point out, however, that these controls will be only part of these necessary to determine the volume of investment. At the moment, behind the financial controls dealing with new issues, which account for only a small part of the total funds expended in any year, we have certain physical controls. How long they will remain we cannot say, but it is perfectly clear that to control the volume of investment in relation to these two other aggregates permanent apparatus will be needed, bringing in besides the powers of the Bill, possibly some other administrative control and probably physical controls. All this has to be worked out by experience.
As regards the other power in the Bill a guarantee is a useful thing; and£50,000,000 in a year is an amount not to be sneezed at. Under the Trade Facilities Act, which was a very effective Act over a period of five years, as far as my information goes,£74,250,000 was put up in the form of guarantees to 162 concerns. But the point, I think, is this. While on the one hand the figure of£50,000,000 shows that the Government's intentions are substantial, on the other hand to fix a limit of that kind—or any limit—does ensure that any larger scheme will be brought before Parliament. That is an excellent feature and a matter of financial prudence. As I said in the case of the other power in the Act, it may well be that the provision of guarantees will not be all that is required in the way of positive encouragement in time of threatened depression in industry. There may also have to be differential rates for writing down capital expenditure; there may have to be grants, or other devices. These various points, too, will have to be worked out.
The main point is this. We have by no means necessarily taken the measure of these great tides in prosperity which, by creating at low points armies of unemployed,—

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threaten the whole structure of our society. The newer economics suggest techniques which may enable us to control this thing. I think that in the long run we will work them out. But the essential idea of these techniques is to apply deliberate planned control of this important phase of economic life.
It may be that we are taking the wrong road in going for control—I do not think so—but that is the road we are on; and, in the long run, personally I hope—I might say I believe—that we shall vindicate this new theory and these new techniques. In the meantime in the general pattern of this great attempt you have what I think is very properly described as a stream-lined Bill, which brings forward quite simply two powers which are necessary for any Government that essays this task. Apart from detailed questions about the design of the Bill, the Order procedure, the penalties, and things like that, I cannot believe that in principle there will be found in this House any disagreement on the basic proposals of this Bill.
6.32 p.m.
LORD SALTOUN: My Lords, the noble Lords, Lord Pakenham and Lord Piercy, talked about restraint and encouragement. The best way to choke weeds or restrain weeds is to encourage crops, and I can give your Lordships a very good measure of the way in which crops have been discouraged in this country. I know that His Majesty's Government are not the only Government to discourage private enterprise.
I believe, in my part of the world, in quite a small town, the savings of the inhabitants amount to something like£100,000. Everybody pats themselves on the back, and says, "Look how the savings movement is growing." But fifty years ago, when I was a boy, you would never have got that. It would not have been possible, because every man who saved too started in an enterprise. That was the enterprise that built up this country, and if you encourage good enterprises you will not have any need to discourage bad enterprises, because the bad enterprises will be choked out by the good. As far as that is concerned, I will give His Majesty's Government credit for one thing, and that is that they are the first Government that have not pretended
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to encourage private enterprise, and have said that it is truly evil.
I have only got one small point of importance. It is not a committee point. I do not think that it would permit of an Amendment. It is with regard to Clause 1 (1) (c). That, apparently, if I read the Bill rightly—perhaps the noble Lord will correct me if I am wrong—will have the effect of preventing a company with an authorized capital of, say,£100,000, and an issued capital of, say,£50,000, from issuing the remainder of that capital. That is all right, if the Government wish to do that. But I would like to ask if they are going to do it like honest men, because that company when it was formed had to pay duties on its authorized capital, and if it is meant now to prevent the issue of that, the duties ought to be refunded—the stamp duty and other things. But the serious thing for me in this Bill—and it is very serious—is Clause 1 (3) coupled with Clause 4 (2) and the Schedule.
Clause 4 (2) deals with a method of doing business to which our people have been inured for countless generations, and if, in the carrying out of business of that kind, they trespass on Treasury regulations, of which they may not have heard, they are to be imprisoned. I will not add anything to what noble friends, the Earl of Munster and Viscount Maugham, have said, except this, that people cannot wisely be threatened with imprisonment for doing things which have no turpitude, which are not morally disgraceful, and which the common conscience of the country does not accept as wrong, because the only result of doing that is to destroy the effect of prison, to take away all disgrace from prison. I remember that the late Duke of Atholl was visited by police officers on an occasion at Blair Atholl. They told him that, if he continued in what he was doing, he might be sent to prison. His answer was perfectly clear. He could have said: "If you send me to prison, I shall not be the first Atholl to go to prison, and I may not be the last, but you will never persuade any man, woman or child in Scotland that I have done anything to deserve it." That is going to be the effect if you bring in these hard penalties for things which have no moral turpitude.
To illustrate what I mean I will just give your Lordships an example of a matter, which came to my knowledge and

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which came before the Capital Issues Committee during the course of the war. Everybody is throwing flowers at the Capital Issues Committee. I have no complaint about them. I am perfectly certain that they carried on their work with the greatest care, labour and pains. But when you are dealing with organizations like this, what you have got to remember is that people like Croesus, and perhaps Clarence Hatry, go to the top. The smaller fry have to go to the people at the bottom, and they do not always get the same treatment.
The instance I am permitted to give you is a very simple one. I know all the details of it. There are only three characters who come into it—a buyer, a seller, and a financier. The buyer, who was very busy with matters connected with the war, unexpectedly received repayment of a large sum of money during the course of the war. With it, he decided to buy landed property, and he bought it from the seller. The property was bonded up to the hilt with an insurance company. It would have been perfectly easy for the buyer to go to that insurance company and say: "I am buying this property. I want a bond on it. Will you accept me, and also assign the existing bond to me." Then the whole thing would have gone through, and there would have been no borrowing at all. Instead of that, the seller gave notice to the insurance company, and the buyer went to a finance house and said, "I want to borrow such and such a sum on this property, will you advance it?" They said:" Oh, yes. "He told them all about the bond and everything. A few days later the financier said:" I cannot give you the money. I have just learned from my London office that this is against Treasury Regulations." So the buyer went to his bank and said: "I am in a hole. If I do not pay the money on the agreed date, I shall be in a most frightful fix. I shall have actions right and left. It may even ruin me. Will you lend me the money?" They said: "Certainly." They lent him the money, and he paid it. He wrote to the Capital Issues Committee, and said: "This has happened. It is only a technical thing. What will you do? Will you sanction the thing? Because I want to pay the bank. If you do not sanction it, I cannot pay the bank back." The first thing
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the Capital Issues Committee did—of course it was only dealt with by a junior—was to write and ask what the reasons of the seller were for selling the property. Very properly, the buyer said: "I think you had better refer to him." As a matter of fact, the seller might have been a bankrupt. Supposing he had said that, that is a very serious thing to say in business. However, he referred them to the seller. The next thing he got was a letter from the Capital Issues Committee saying that it appeared to them that the issue constituted an offence against the Regulations, but that, having regard to all the circumstances, they did not propose to take any further steps in the matter on that occasion, but drawing his attention to the seriousness of the offence.
In ordinary business language, that is an imputation on a man's good faith. What happened was that the buyer went to the financier and said: "Look here! I have had this imputation made on me." The financier said: "It is not from anybody that counts. It is only from a Government Department. We do not pay any attention to a thing like that." It is not a good thing for any responsble Government Department to have that sort of thing said about it. This was a public letter which had to be shown at the Stamp Office; it was not a private letter. That: business terminated, as a matter of fact, by the buyer writing to the Minister and getting a proper letter. It is quite simple. He only said, "I do not read the same meaning into it as you do," and put the whole thing right.
But here is an offence which is an entirely innocent one. The buyer could not possibly know, and the very man who wanted to borrow the money did not know how the Regulation affected him. Yet there are all the penalties specified in the Schedule hanging over the head of a man who does a perfectly normal and proper business transaction like that, if the Treasury happens to take a sour view of it. That is a very serious thing to pass in any Act of Parliament. I cannot help thinking that it would be wise for the Government to take some thought before they decide on these extremely severe penalties, involving imprisonment, and make them possible for offences which may be purely innocent and which very often the ordinary citizen Las no possible means of knowing he is committing.
6.42 p.m.
LORD LUKE: My Lords, I will not keep you for very long, but I am not going to make the customary apology for rising so late in the debate, because I think this is a most important measure, and if you will bear with me for a few moments on some points I shall be grateful. First of all, I wish to comment on one or two things that the noble Lord, Lord Pakenham, said. He made rather a great point of the fact that these powers are the same as those that have existed already for six years. I think he said it twice and made a great point of it; but I do not think he really justified their perpetuation for ever. No doubt in the transitional period they are necessary, but I do not think he made out a good case at all for keeping them on perpetually. However, he did say something which I shall read to-morrow and which was very interesting although it has not been dealt with by noble Lords since. He said something about restoring the position with regard to borrowing between associated companies. I was very glad to hear that, and I shall read it with great care tomorrow. He also tried to make out a case for both Clause 1 and Clause 2 being expansionist. Clause 2 no doubt is expansionist in a time when expansion is necessary, but I can hardly read into Clause 1 anything that is expansionist, because it seems to be entirely restrictive, for we have in that Clause the control of new money and the direction of investment. I would suggest that the experience of present applications is not a very happy one.
At the end of his speech, the noble Lord said he looked for the co-operation of all in not wishing the task of His Majesty's Government to fail. Well, I think we are all agreed that we want to see rehabilitation and we do want to see them succeeding in their task. But something he did not say, and which I must say from this side of the House, is that I do not see any willingness on the part of His Majesty's Government to see the success of the system to which they are so hostile. Lord Winster, in the debate yesterday, said this: "The State can borrow money much more readily than the private owner and can ensure that capital resources are made available cheaply at the right time and in the right places." I suppose he was running a little previously to the event, because that
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is what is hoped for in this Bill. He also said that we must expect Socialist measures from a Socialist Government; and that, of course, is what this measure is, because it is perpetuating the borrowing of money and it is no exception to the Socialist rule. But I would ask whether it is any good my protesting or seeking to give advice.
In this Bill and in others—we had it yesterday on the subject of nationalization—it seems to me that His Majesty's Government are not going the right way to provide an amosphere of confidence. As the professed enemies of capitalism they are not, of course, likely to bring in legislation that would help that system, and this Bill makes the raising of capital more difficult. It is quite logical from the Socialist point of view. I would make this point, however. While so many industries are restricted, under paragraph 9 (b) of the draft Order which has already been quoted by the noble Lord, Lord Pakenham, the industrial and provident societies are excluded—and I imagine that would include the whole of the co-operative movement—from the operations of the Bill. That, I think, is a little indicative of the sectional point of view taken in framing this Bill.
We have in the Capital Issues Committee the arbiters of all the issues and applications that are put before them. I do not wish to question their knowledge and experience, but I do wish to give an instance of what has happened recently when issues of capital have been brought before them. I wish to deal particularly not so much with the issue of bonus shares but the bonus element in the issue of shares. Take, for example, a company that wishes to issue 4s. shares at a price of 6s. We will say, for argument's sake, that the existing 4s. shares of the company are standing on the market at 8s. and they wish to make an issue at 6s. Permission, to my knowledge, has been granted in the case of one company. Now a similar company that desires to issue£1 shares that at the moment are quoted at£2, may wish to make the issue at thirty shillings. You will observe that the conditions are exactly the same, but expressed in different figures. Application in the second case is not granted, and no reason whatsoever is given for the refusal. In each of these cases the company has put the value it considers justified on the shares it wishes to issue. The

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value of the shares is estimated by the company itself and the value of the shares on the open market is presumably settled by what people think they are worth. The third party is the Capital Issues Committee, who apparently take a different view from that taken by either of the other parties. I do suggest that directors of companies know best the value of their shares, and if they put a higher value on them than they think they are worth they are liable to penalties. It seems to be that the Capital Issues Committee try and urge them to incur those penalties by issuing the shares at a higher price than their value. This seems very unsatisfactory and it does not give cause for?very much confidence in the future of investment.
We are always hearing the expression "stream-lined" and I am going to bring it in again. This, of course, is a streamlined Bill, but I would suggest that it has stream-lined brakes on this occasion and that we do not see very much about the motive power and the acceleration of the machine. No doubt—and a very good thing too—it is calculated to prevent speculation, but I think His Majesty's Government are making one or two experiments which might quite easily be classed as being in the speculative sphere. You can easily prevent people from investing money but you cannot force them to invest in directions in which they do not wish to invest unless you create confidence. You are taking away the liberty of decision of people as to how they should invest their money. Of course, that is all right at the moment, but no doubt the Government have some other scheme in mind by which these people's money will not belong to them. Perhaps that is one of the Government's future steps. I say to the Government that they should catch criminals by all means, but why do they put all industrialists and financiers in the dock? This country's wealth was not built up by criminals.
Finally I would like to quote a statement issued by the Association of British Chambers of Commerce in which they said that the effect of these proposals could only be to impair the credit of the Treasury—which, under the Bill, would rely on force—to reduce the total volume of investment, to prevent the re-establishment of an international money market in Great Britain, to create distrust and un
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certainly and to place a further brake on recovery from the effects of war.
6.52 p.m.
LORD PAKENHAM: My Lords, I am grateful to all the noble Lords for the compliments to myself which, if not actually expressed in their remarks are no doubt understood. I must begin by repeating what I said more than once in the course of my remarks. It comes into my head again after listening to the contribution from the noble Lord, Lord Luke, which came so much from 'he heart that I know we value it very much. I must repeat that we are continuing a machinery and continuing to operate the principles which were introduced by a Conservative Government and which were going to be continued if the Conservative Government had got into power again, as far as we had any means of judging. I must repeat that. The noble Lord, Lord Luke, cited the example' of the cooperative societies and suggested that their exemption was a remarkable example of sectional outlook. They have been exempted since 1939; they were exempted by his own Government.
LORD LUKE: It is the perpetuity to which I take objection.
LORD PAKENHAM: I do not feel that that is a very strong answer. The noble Lord asked me the sinister question, "Are the cooperative societies concealed here?" The answer is that they were placed there by a Conservative Government, continued there by the Coalition Government and, as far as we have any means of judging, they were going to be continued there by the Conservative Government so long as this measure continued. We must bear these things in mind; that is the background against which this discussion should rake place. May I turn to the forceful remarks of the noble Earl, Lord Munster? He will forgive me if I do not traverse the whole of the ground with him, but there will be other opportunities for discussion. Speaking broadly, he denied three main propositions regarding Clause r. He denies, and we insist upon, fie necessity for deciding how much investment is desirable. He seems to feel that if you allow the working of some invisible hand in economics and have no interference we shall get about the right amount of investment—

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Can the noble Earl, with his experience of finance, looking back on the years between the wars, or can any other noble Lord, suggest for one moment that in this country we got anything like the right amount of investment during the years between 1918 and 1939? The amount fluctuated violently but I think few of us, looking back, can say the experiment between the wars of leaving it to chance or to the arbitrary working of the profit motive was a success. Secondly, he feels that if we are going to select between issues it is impossible to select according to the national interest. I am afraid I did not get down the quotation he gave but I understand that some spokesman of the Opposition elsewhere derided that expression most effectively. Where do we get this expression from which the noble Lord thinks is so unworthy? I find in the memorandum issued to the Capital Issues Committee that the right honourable gentleman Sir John Anderson, the then Chancellor of the Exchequer, instructed them to determine the order of priority of capital issues "according to the relative importance in the general national interest."
A NOBLE LORD: That was in time of war.
LORD PAKENHAM: If we can find a solution in time of war along these lines surely it is not hopeless to search for it in time of peace. The noble Earl made many other interesting points but the final one he made which I wish to take up is the suggestion that the machinery we shall set up is bound to be very slow. I feel there may be some misconception on this point and that noble Lords may imagine it takes some months as a general rule to get an issue through the Capital Issues Committee. I feel the House would be interested to know that the average time is a period of one month. Sometimes it is less and sometimes it is more. It may be done in two days and it may take longer in a difficult case.
The noble Viscount, Lord Buckmaster, surprised me. When he told us that he was going to attack the Bill I got the wrong idea altogether; I thought he was going to attack it because it did not go far enough. He is speaking for the Liberal Party, and that was the line their spokesmen took in another place. They supported the Bill, which I gather the
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noble Viscount does not, or would wish he did not have to. In another place the Liberal Party supported it and their spokesmen complained that this Investment Council was not a real body with teeth in it.
If the noble Viscount consults the standard Liberal work on the subject, the Report on Full Employment, written by Sir William Beveridge, he will find—I am quoting the chief Liberal spokesman during the General Election, Sir William Beveridge—that we were told there was to be a Board which was to have "powers of obtaining intelligence," and given the "power of regulating investment by public and private enterprise alike," and that the Board should "exercise those powers in pursuance of a national plan prepared by itself and approved by Parliament." If the noble Viscount had come along and said, "This is a milk and water Bill, this is not what some of us Liberals have died for in the past" I might have understood his point of view. For him to come along and say "It goes much too far; this is tyranny and dictatorship" seems to me to be very strange, coming from a spokesman of the Liberal Party.
VISCOUNT BUCKMASTER: May I say what the Liberal policy was. The Liberal policy—I quote from the Liberal Yellow Book—was a Board of National Investment, which Board was to deal with all Government funds and to make loans to approved societies at home or abroad. It was not proposed to give this body power of control over private investment. I am sorry to interrupt. May I say first that I am with you in wanting control but I disagree with you in wanting it permanently, and secondly, that I consider myself an exponent of the policy in that book.
LORD PAKENHAM: The noble Lord is far more an authority on that book than I am, but I seem to remember it was published about 1928. Am I wrong?
LORD BUCKMASTER: I think the noble Lord has now defeated me.
LORD PAKENHAM: That is the date on which I would place a wager. I think we must take my old and revered chief, Sir William Beveridge, as the spokesman on this point. I do not know what his attitude is to the present Bill, if it differs

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from that of the noble Viscount, Lord Buckmaster, and I am not surprised that the noble Lord has been deserted by all his colleagues on the Liberal Benches.
I will not deal with the juridical points raised with so much authority but, in my view, in such a misconceived fashion by the noble and learned Viscount, Lord Maugham. He was good enough to express regret that he had to leave. I hope he will put his legal conundrums to me on a later occasion and if I fail to answer them, they will be dealt with by a much higher authority than myself.
The noble Lord, Lord Saltoun, touched my heart, as he always does, because there is no doubt that there is a real man who believes what he says. There is no doubt whatever about that, but I wondered whether his heart was in the right place when he suggested these penalties were going to be inflicted on those who showed no moral turpitude. Is A not a glaring case of moral turpitude if you break the law on a very large scale? It is not a question of someone raising a few pounds, but we are thinking of very large operations outside the law and of bad men in some way obtaining a very large sum, something more than£50,000 from the public.
LORD SALTOUN: I gave an instance of somebody who did not know the law.
LORD PAKENHAM: If the noble Lord was taking a case of someone who did not know the law, then of course, he is taking what I think will be a rather remarkable case, if he is thinking of any kind of financier. I should imagine that any financier in whom any of us are likely to impose much confidence will study this rather short Bill and I hope rather short Schedule. We are dealing with very large sums. I am sympathetic to the suggestion that a man may slip up on some small point, but I do not feel any sympathy at all for a man who must know the law, and who then steals from the public in defiance of the law of the land.
LORD SALTOUN: There is an enormous amount of business which goes through outside the city of London.
LORD PAKENHAM: I cannot believe—I can only express an opinion—that any financier operating on a substantial scale, and it is those who are relevant here, will not take the trouble to study
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this short Bill, rather short Schedule, and presumably very short Order.
LORD WOLVERTON: It is the Orders which matter, is it not?
LORD PAKENHAM: It is; they are also undoubtedly very important. The Orders certainly matter, and I have been criticized, and I think wrongly criticized, in the House for trying to explain the Order to-day, because I do feel the Orders matter. Let me explain to the noble Lord who has just intervened, and others, that we are going much further than is usual with legislation of this kind in publishing a form of draft Order. It would be perfectly within our province to offer the House the Bill and say that the Order would eventually be laid before both Houses. We are going much further than that. We are giving to the best of our ability, an indication of what the Order will be. I indicated earlier some slight changes which may be needed in deference to opinions such as those held opposite. I should repeat, in case anybody missed the point, that the Order, when it does come, will be laid before both Houses. If we desire to alter it, then a new Order will have to come before both Houses.
May I conclude with one further word which arises from what the noble Lord, Lord Luke, said. He criticized me quite fairly and understandingly for suggesting that not only Clause 2, which he agrees is expansionist, but also Clause 1 is expansionist. I did admit in my original exposition that Clause 1 is indirectly expansionist. I drew a distinction, and the noble Lord was not discovering anything which I did not place before the whole House. May I just say this? Can any man in his senses regard the period between the two wars as having been one of expansion? We take the view that the fact that 14½per cent. of our population were unemployed on the average during that tine is a clear sign that those were anything but expansionist years. In fact the trade, the industry, and the labours of our people all through that time were lamentably restricted. We believe that certain powers of regulation and control contained in this Bill are vital to immediate stability and ultimate expansion.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

TRADE DISPUTES AND TRADE UNIONS BILL.
Read 3a(according to Order) and passed.

POLICE (SCOTLAND) BILL. [H.L.]
7.7 p.m.
Amendments reported (according to Order).
Clause 6:
Compensation of officers prejudicially affected.
(2) Any person who, immediately before the date on which an amalgamation scheme came into force, was an officer employed by a constituent authority or by a joint police committee and who, at any time within five years after the said date, relinquishes office by reason of his having been required to perform duties which are: not analogous or which are an unreasonable addition to those which he was required to perform immediately before that date shall, for the purposes of this section, be deemed, unless the contrary is shown, to have suffered direct pecuniary loss by reason of the determination of his appointment in consequence of the scheme.
LORD WALKDEN LORD WALKDEN moved, in subsection (2), after "date," where that word occurs for the second time, to insert
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"(a) has his services dispensed with or his emoluments reduced, otherwise than on the ground of misconduct; or

(b).''

The noble Lord said: My Lords, this Amendment is proposed in order to bring the measure into harmony with the Scottish local government compensation provisions in respect of servants who become redundant, or whose emoluments are adversely affected. I beg to move.
Amendment moved—
Page 5, line 39, after ("date") insert the said words.—(Lord Walkden.)
On Question, Amendment agreed to.
LORD WALKDEN LORD WALKDEN moved, in subsection (2), after "appointment," to insert "or the diminution of his emoluments." The noble Lord said: My Lords, this is a consequential Amendment. I beg to move.
Amendment moved—
Page 5, line 45, after ("appointment") insert ("or the diminution of his emoluments ").—(Lord Walkden.)
On Question, Amendment agreed to.
House adjourned at eight minutes past seven o'clock.