ECONOMIC SITUATION.

HL Deb 06 August 1947 vol 151 cc1035-99

3.13 p.m.

VISCOUNT SAMUEL rose to call attention to the economic situation; and to move for Papers. The noble Viscount said: My Lords, the Motion which I now beg to move has been upon your Lordships' Order Paper for some weeks, awaiting an opportunity for discussion in a crowded programme; and to-day, being a day set down some time ago, happens by coincidence to be the very day on which the other place are debating the same matter, and on which a Government statement of prime importance is to be made in both Houses. I am well aware that your Lordships' expectations are all concentrated upon that statement. So far as I am concerned, I have to speak before it is made, and with no knowledge of its contents. It is with me a case of first come, worst served. The goods are to be kept under the counter until 4.30 p.m., or thereabouts, and when I asked whether it would not be possible, as has been done on some occasions, to see beforehand a White Paper or a summary of the Government's statement, I received the answer, "Sorry; no Papers."

The Bill we have had distributed to us in advance. It confers the widest possible powers, as in war-time, on the Government of the day, and its value depends upon its application. It is not the powers which are to be conferred but how they are to be used which is of importance; and until we have the statement later this afternoon it is impossible to form any opinion on the merits or demerits of this measure. Therefore, I shall not endeavour to discuss it. My Motion has been couched in the widest terms, in order that any of your Lordships who has some special aspect of the economic situation prominently in his mind and who wishes to dwell upon it, should be at liberty to do so. Indeed, this vast subject, which contains a number of different questions, does contain many which are inter-related closely with one another—the balance of imports and exports, production and consumption, taxation and currency. All those things are inseparably inter-connected, and whenever you touch one you touch all the rest, so it is easy for us to lose ourselves in a maze of statistics and technical terms.

Happily, the facts of the case have been fully and frankly stated to this House, in a debate two weeks ago, in a speech given by Lord Brand, which has aroused widespread attention in this and other countries, together with a speech by the noble and learned Viscount, Lord Simon, who also made clear some of the principal facts of the situation. They are well known, and I shall not endeavour to repeat them; but I would first venture to draw your Lordships' attention to what are the causes of the present situation, for it is only when you arrive at causes that you can find your way to remedies. It is so in these matters, as in all matters, that the first step to remedies is to find the causes.

Here, in their origins, they are well known. The great nations of the world cannot devote half their manpower to destruction instead of construction, cannot devote themselves to destroying ships, bridges, railways, harbours, power plants, factories, houses, to disrupting the lives of the peasantries in the great producing countries of the world, and to robbing them of their essential supplies of fertilizers, feeding stuffs, and so forth, without having to suffer for it. When all this has been continued for six years, the world must expect to suffer. There is a Chinese saying: "In the track of great armies there must follow lean years." It was so after the Napoleonic wars when, in this country, the people lived through a decade of utter misery; it was so after the war of 1914 to 1918 when, subsequent to a few years of fictitious prosperity, the world was plunged into the most widespread and most severe economic depression that it had ever known; and now, two years after the great war, we see similar dangers impending.

It is true that we were able to overcome the immediate consequences of all those destructions to some extent. Your Lordships will remember that when the war was over it was widely expected that with the disorganization of transport over the greater part of Europe, the destruction of cities, the expulsion of masses of the population and millions of people wandering about homeless, in all probability the war would be followed by famine and widespread epidemics sweeping over Europe. Happily, those worst results were avoided, thanks to the energetic and successful action of the Allied Military Administrations, supported afterwards by the United Nations Organization and its organ U.N.R.R.A.

But contrast the conditions in the Eastern hemisphere with those in the Western hemisphere. The United Stases was not in the war for two years and, during that period, took a leap forward in productive capacity arid in prosperity. It suffered no devastation, it had no difficulties with regard to coal, oil, fertilizers, and it has lately enjoyed record harvests. Its people have a high technical capacity that enabled them to take full advantage of all those opportunities, and the result is that the United States now is enjoying a very great abundance both of production and of consumption. Lord Brand mentioned that the industrial output per man-hour in United States industry is sometimes double, sometimes treble,,.hat in our corresponding industries. One might give a comparatively small illustration to show the difference at this moment in conditions in the two countries, if one recalls that the London Times consist; of eight pages, the New York Times consists of forty, while the Sunday edition of the New York Times includes as many pages in a single copy as the whole of the Sunday Press of this country, London and provincial together. Price control having been removed in the United States to a great extent, prices there have lately been soaring.

As a result of all these conditions, international prices of food and materials compared with before the war are higher. Copper has doubled; wheat and lead more than trebled, cotton has risen fourfold, and maize fivefold. In this country, as an example, hardwood timber has doubled in price. Softwood timber, which is our chief requirement, multiplied three times. The noble Lord, Lord McGowan, in a recent address, mentioned that the .peat industry of which he is the head, Imperial Chemical Industries, paid in 1939 for its coal per ton, 195. 8d. It is now paying 42s. 9d., involving an additional cost of production in that firm alone of Dyer £3,500,000 a year. II: is true that we gain higher prices for our exports. For the first quarter of this year export prices stand at III per cent. above pre-war prices. But our import prices have risen by 140 per cent., meaning a much heavier costs on balance on a very much larger figure.

These rising costs have resulted in increased expenditures by Governments everywhere, for all their charges have risen, and in industries as well, for the working people cannot live on the money wages they received previously in the conditions to which they have been accustomed. As a result, many Governments have been driven to increase their currencies. Currency, as a consequence, has fallen in value and in several countries runaway inflation has resulted—Greece, Hungary, Italy and again in China, where the Chinese dollar was before the war equivalent to a Hong Kong dollar. Now the Hong Kong dollar will purchase 10,000 Chinese dollars. Even in France, that highly organized and progressive country, the franc, which in the memory of your Lordships was valued at 10½d. and regarded as Is., at the present time at the official rate is ½d. and at the unofficial rate one farthing, and a depreciated farthing at that.

These conditions present everywhere a very grave financial danger, because the whole economic system of the nations has been changed by the abandonment of the gold standard. In earlier years imports and exports were made to balance by changes, often fractional changes, in the bank rate which encouraged exports or encouraged imports, or discouraged one or the other. Depending on the fluidity of capital and labour and upon free markets for demand and supply, this automatic system was self-regulating. But it was found to result in an alternation of periods of good trade and bad. It resulted in depressions, bankruptcies, and unemployment on a wide scale, and that was borne by the populations because it was regarded as something inevitable, in the nature of things. They said: "We are having hard times," and waited until in the course of nature they came to an end. But of late, during the last twenty years or so, the peoples have decided on a different course, on what is called a managed economy, and it has been inescapable that we should do so owing to the course of events. And now all these affairs are not connected with any physical reality like gold reserves, which could be measured and seen and published, but the stability of currencies depends only on the policies of Governments and the wisdom of Parliaments. If a managed economy is managed well, all is excellent; but if it is managed badly we may be brought to utter ruin.

One other factor I would mention in relation to the special position of this country. The published figures show a very striking shift in the position of our imports which are published under the head of food and tobacco, comparing the sterling area and others connected with it with what are called hard currency areas—United States, Canada, Argentina, Cuba. I would invite the attention of your Lordships to this fact, which is very important but to which I have seen little attention directed hitherto. In 1938, the last year before the war, imports of food and tobacco which we had to pay for coming from what is now a sterling area were £207,000,000. Last year that had slightly increased to £227,000,000. That was in soft currency countries, but imports from the hard currency area in the earlier year, 1938, amounted to little more than £126,000,000 and last year amounted to £319,000,000. In the earlier year the amount from the hard currency area was one-third of the whole; now it is about three-fifths of a very much larger figure. There is one of the reasons of dollar shortage and one of the principal causes of the predicament in which we find ourselves.

So, my Lords, there is the series of causes that have brought us to our present situation—war destruction, short supplies, higher prices, rising cost of living, rising prices, expansion of currencies, and the danger of a runaway inflation. What is to be the remedy? One of your Lordships, speaking to me an hour or two ago about the speech I was about to make, said, "I hope you will be able to show us some way out other than hard work." Well, I am afraid that is not possible, but at all events one can indicate some way by which we can make hard work effective and see that it is not wasted by bad direction. The remedy, of course, those having been the causes, is to reverse those causes. If these have brought us to where we are, to do the opposite should bring us out again.

The world has been busily making good the physical destruction of the war. You will find everywhere bridges rebuilt, roads repaired, railways being re-established, factories being rebuilt, machinery being installed, and all that must have its effect. Ships, above all, have been built and they may bring those fertilizers which are so essential for the production of foodstuffs in the Far East, Central Asia, and the Middle East and for the prosperity of those agricultural countries on the prosperity of which the whole world so largely depends. And these courses should bring about lower world prices for the essential commodities. If that could come about, then the cost of living would fall. If the cost of living fell, then the strain on the currencies would be relieved without any diminution of the standard of life of the peoples. But it is important that that process should not be sudden, should not be catastrophic. In that way it would bring the holders of present stocks into ruin or bankruptcy and produce panics on the stock exchanges, and if the result were a sudden deflation the effect for the time being might be disastrous. If it were a gradual process, that would be the right road to recovery.

Our own position might well be very simply stated and has been simply stated in Parliament, in the Press, and in numerous economic addresses everywhere. We are buying more than we produce and sell, at present prices of imports and exports. The remedy is that we must buy less, or at lower prices, or sell more, or at higher prices, or we must do all those things. To put it briefly, we must cut down consumption, or increase production, or both. The quickest measure is to cut down consumption. That can be done almost instantly, while to increase production takes time. To cut down consumption is the more urgent matter; to increase production is the more important.

In adopting this short-term remedy of cutting down consumption we ought to be most careful not to prejudice and hinder the better long-term measure of increasing production. If you give the people, owing to your cuts in consumption, less food, less variety in their diet, less warmth, worse housing, fewer holidays, and, indeed, inadequate amusements, then the effect of that will be to lessen production also. We are continually hearing of the vicious ascending spiral—the rising prices, rising wages, rising prices again, and so on ad infinitum. But there is another spiral, equally vicious, the descending spiral—less consumption, meaning less energy and less efficiency, resulting in less production, and the less production again resulting in less consumption, and so on ad infinitum. Therefore, I trust the Government in the measures which they are going to pro- pose (I do not know what they are) will he very careful in any proposal to cut down the essential food supplies of the working classes of this country.

Furthermore, it should be remembered that if you cut down your imports ruthlessly, the matter does not stop time. What are imports to us are exports to some other country. If we cut down the exports of those other countries, they, also, will have to cut down their imports, and their imports are our exports. Consequently, you get the repercussion of cats in imports. in the cuts in exports, and your balance of trade may not, in he end, be improved at all. That kind of thing is happening at this very moment, with some of our suppliers from whom we are stopping purchases having in turn to stop their purchases from us; and, consequently, our export trade, which we are so anxious to increase, is damaged by our own act. If we proceed along that then we shall again be back in the position of the 1930's, when there were barriers and counter barriers erected all over the world against trade (this country, I am sorry to say, taking a leading part in he process), which resulted in the disastrous and prolonged depression of that period. We are told that we are obliged to cm our coat according to our cloth. But the amount of cloth is not something fixed for all time, and the policy we should seek to pursue is not less coat, but more cloth. I hope the Government Bill, which proposes above all to increase production—and agriculture is quite rightly mentioned as a prominent feature in that policy—will try rather to increase the cloth than to cut down the coat.

It will set up new targets, and I should feel more hopeful about the targets flat are to be proposed if our experience of those that have been set up in the last two years had been a happier one. We all know that it is much easier to set up a target than to hit it. But what has. happened to those that were proposed by the Government hitherto? A target was set up for our export trade—many people think lower than the circumstances required—but it has not been reached. A target was set up for coal production—again much lower than our circumstances required; there is a general consensus of opinion that it should not be 200,000,000 tons, but at least 220,000,000 tons—hut that has not been reached. The housing target has been abandoned. The savings target is not being attained. The cheap money standard which the Chancellor of the Exchequer set up has also not been reached. The only matter, it seems, in which expectations have been exceeded has been the rise in the birth-rate! It may be that I have omitted some cases where the figures set out to be reached have, in fact, been attained. I do not wish to be unfair, and would, therefore, specifically ask the member of the Government who is to reply later in the debate if he can give some comfort and encouragement to the House and to the country by mentioning any targets hitherto set up which have in fact been attained. This statement to-day is to give us a plan. The Economic Survey for 1947—that White Paper—in the first place, came much too late. It only appeared in February of this year, and it should undoubtedly have appeared in the preceding year. It was a survey, as its name indicates, and not a plan; it was a diagnosis, not a treatment. We will await the statement of to-day in the hope that it may be something much more.

I will make a few observations, very briefly, on specific points that many of us trust will be dealt with. The building of houses and the housing programme. The cost of new houses has gone up to three times, in many cases, what it was pre-war; and the increase in the costs of building has been greater in the last three months than at any time since 1939. We are always accustomed to watch the languid labour in the building trade. It would be interesting to know what inducement is to be given to the building worker to work with more zest. The wartime regulation which prevented bonuses being given in the building industry for better work has, at long last, been repealed. That ought to have been done years ago. The noble Lord, Lord Quibell, in this House, with much knowledge, courage and tenacity, has dwelt on this matter on many occasions. It would have been far better if his advice had been followed long ago. There has been, I believe, an inquiry into building costs. What has happened to that inquiry? When shall we get its Report? I would address a question to the Government on that point.

With regard to coal, we are accustomed to concentrate on the production of coal —the tonnage produced per man—and it is, of course, a matter of prime importance. But not less important is the question of the efficiency in coal use—the utilization of coal—a matter to which the Royal Commission, of which I had the honour to be Chairman now some twenty years ago, devoted very close attention. A recent Report of the Parliamentary and Scientific Committee, published a few weeks ago, mentions that 70 per cent. of the potential energy of the coal is being lost; only 30 per cent. is used in our furnaces. If that 30 per cent, could be increased to 33 per cent.—only one-tenth that would be equivalent to the production of 20,000,000 tons more coal, and would in itself go far to solve our immediate problem. That, of course, is a long-term achievement, but it is one which in the general plans of the Government ought not to be lost sight of.

Furthermore, a great loss in coal productivity is due to the great deterioration in the quality of coal during and since the war. The calorific value of the coal that is now sold is far too low. Of the 200,000,000 tons produced, no fewer than 25,000,000 tons is worthless ash, and all this has to be transported about the country and handled by labour, with no advantage to our productive power. The fuel crisis saved 2,000,000 tons of coal in the earlier part of this year, but it is estimated—so the Report of the Parliamentary and Scientific Committee says—that that saving of coal was produced at the cost of the loss of 200,000,000 in our exports.

Take the comparatively minor instance of paper. The Government use of paper has increased from 40,000 tons to 71,000 tons, and the Government now consume 3o per cent. more paper than all the publishers of all the books of every kind throughout the country. I asked a friend of mine who is one of the heads of one of the principal paper manufacturing firms, if he could give me an illustration which would bring home to your Lordships what is the extent of the present consumption of paper by the Government. He said that if the weight of paper now consumed by the Government were to be devoted to Government forms of the standard size of 13 inches by 8 inches, they would stretch end to end round the Equator, and not merely round the Equator but 120 times round the Equator. I think there might be some economy in consumption there.

Again, capital expenditure. I am sure that everyone was amazed to read not only that the Severn Bridge project has been approved—which is quite right—but that the work was to be put in hand in the immediate future. If the action to be taken with regard to the Severn Bridge is merely to complete plans and to do the necessary prospecting work and so forth, well and good, but surely this is precisely the kind of work that ought to be kept in reserve for times when it is necessary for State action to be taken to restore or maintain full employment, and not to put a demand upon steel production for an immense tonnage at a time when steel is in such short supply for construction so urgently required. Similar observations will apply to railway electrification and to a considerable part of the programme for new factories. Mr. Roy Harrod, the economist, indicates from Government figures that they now propose to allocate for the construction of new factories no less a sum than £119,000,000.

Are the Government going to do anything to check monopolistic restrictions, whether on the side of capital or of labour, whether from the trade associations or from the trade unions? I would ask, in parenthesis, whether we may hope that next Session we shall have some legislation to check the abuse of monopoly in industry, a matter upon which I think all Parties are now coming to an agreement. Who is to plan all these things? The Government have set up, after long delay, an Economic Planning Board under the chairmanship of Sir Edwin Plowden, but it is doubtful whether that Board is adequate, or could be adequate, to so vast a task.

I wish to ask, not as a subject for debate to-day, for it is far too wide for that but it is closely relevant to the subjects that we are discussing, whether the Government yet realize that the structure of the Cabinet itself is wrong for the present condition of our politics; that the Report of the Haldane Committee of thirty years ago urged that there should be a small Cabinet, perhaps of Ministers not heavily charged with departmental duties, who should be free to think, to explore, and to plan, and that that is one of the urgent needs of our country. We did it in 1916, again in 1931, and again in 1940. Whenever there comes a grave crisis w e revert to this plan of a small War Cabinet or Economic Cabinet, or whatever it might be, but afterwards we abandon it, and we have this great Cabinet of sort e twenty-two members who have to deal with an immense burden of departmental and legislative work. I would strongly urge that the country should give its early attention to this matter, for in fact the only adequate planning board is the Cabinet itself.

I come, in conclusion, to two other questions of a more political character. One is the question of taxation, which is a prime factor in all these matters, and the other is our relations with the United States of America. With regal d to taxation, your Lordships will have observed that several economists have been urging that so far from taxation being diminished, it ought to be increased in some form or other in order, as they say, to "mop up" excess purchasing power; that it is a good thing that there should be less money in the pockets of the people so that they should not spend, or should not create a demand for goods which do not exist or are in short supply and thereby raise prices still more. That whole argument appears to me to be misconceived. In the first place, if the increased taxation is to be used for military expenditure, or for an enlarged and excessive administrative machinery, then you are not mopping up purchasing power: you are merely transferring it from one group of people to another group of people, and very often you are transferring it from producers to non-producers.

Also, if the people desire to spend they will spend, because there are enormous is war savings easily available which can be withdrawn at any time by cashing certain securities or by withdrawals from the Post Office. It remains there in colossal masses of millions of pounds, ready to be called upon at any moment if the people wish to buy. So the remedy is not to take away money which belongs to the people, but to persuade them to spend it rightly or not to spend it at all but to put it by and postpone their purchases. The remedy, therefore, is not more taxation but a re-invigorated savings campaign which, if successful, will achieve the same purpose much more effectively and with much less heartburning. Furthermore, what right have the Government to maintain, beyond the need, taxation that was imposed and was accepted, without demur, for war purposes? People of all classes agreed readily to make whatever financial sacrifices they might be asked to make in order to save the country from conquest.

The Chancellor of the Exchequer, Dr. Dalton, took pride in the fact that he had reduced the taxation by £500,000,000, but that is a very inadequate sum. He has reduced it by £500,000,000, but he ought to have reduced it by very much more. Indeed, on each occasion that he retains any war taxation, he ought to justify his reasons for doing so. Otherwise, he is merely retaining for one purpose money which was contributed for another purpose, and that might be termed malversation of funds. Meanwhile, the money trickles away in this immensely swollen expenditure by the Treasury. We have a Chancellor of the Exchequer with a "song in his heart" and a hole in his pocket.

A great part of this expenditure is on the Defence Services. No less than 900,000,000 is devoted to the Army, the Navy, and the Air Force and to the occupation services in Europe and elsewhere. The Economic Survey presented this year showed that 11 per cent. of the income of the whole nation is now going on the Defence Services—more than two shillings in every pound on the average—although the German Army, Navy and Air Force are no more and it was because of them that we had to subscribe these enormous funds. The Italian as well have gone; the Japanese, too. If we are concerned with the adequacy of national defence, as we all are, we should remember that our own solvency is a factor in that defence. Our own efficiency and prosperity and political stability are prime elements in strategic power and the best contribution that we can make to the United Nations, and a prior condition to all others, just as an individual man's own health, efficiency and happiness are the first condition of his usefulness to his neighbours. Furthermore, our national security depends upon having some economic reserve in the event of a fresh emergency. With Income Tax at nine shillings in the pound, an immense Surtax and a heavy indirect taxation, to a total of £3,000,000,000 this year, there is no reserve in case of any further unforeseen emergency.

All this burden of taxation is indeed a check upon industry and enterprise. I have seen it stated, and I ask the Government whether it is true, that a miner, after he has worked for four days at the present rates, if he works a fifth day, for that day's labour after deduction of increased Income Tax, he will receive only two shillings and three pence or some sum of that kind. Consequently, knowing that if he goes down into the pit for that day, facing its dangers and discomforts and the heavy toil from morning till night, he will come back in the evening only two shillings or thereabouts the richer, he is very much tempted to stay at home and avoid labouring for so meagre a reward. The consequence is that not only do we not get the coal but the Chancellor of the Exchequer does not get the tax, so that we make the sacrifice without any benefit. I ask the Government whether this is true, and if it is true what action they propose to take.

Furthermore, if it is true that there is too much money chasing too few goods, if you impose penal taxation there will be less money; but at the same time if penal taxation discourages production you will have less goods; therefore if you have less money on the one side and less goods on the other your economic situation is the same as it was at the beginning. These violent remedies ought not to be adopted merely to show how courageous we are, how ready we are to make sacrifices if need he, to bear heavy taxation and the rest of it for the sake of the country, or how ready Parliament is to face unpopularity in order to save the people from themselves. All these arguments are beside the mark. Is the policy right or not right? Is it necessary or not necessary? Those are the questions that have to be answered, and all the rest is mere rodomontade. The conclusion is that the policy should not be ruthless taxation to prevent people having more money than in the belief of the Chancellor of the Exchequer is good for them, but a great reduction in this present burden of £3,000,000,000 a year. This is a matter especially for the other place rather than for your Lordships' House to scrutinize. But I confess we may feel great surprise that the other place has not appointed a National Expenditure Committee to go into these matters. I had the privilege to be the first chairman of the first Committee that was established in the years 1917 and 1918. I think we did good work. Certainly the Committee in the recent war did excellent work but they have been dissolved, and not reappointed, and it is astonishing that the other place have not yet appointed that Committee.

My last point is the political and economic relations between this country and the United States. The greatest change in world politics since the end of the war in 1919 has undoubtedly been that the United States of America is no longer isolationist. When they were isolationist that was a terrible handicap to the rest of the world. And now that Russia has become isolationist that, as we all agree, is obstructing the advance of mankind. But the United States now participates in the common burdens which rest upon the nations. If she did not participate—though she has done so in her own interest and for the sake of her own economic and strategic position (and it is right that she should do so) as well as from the sense of duty and good will and humanitarianism which is instinctive in the American people—if there had been no lend-lease during the war, no American Armies to come to aid us and our Allies in Europe, no supplies and armaments, no American Navy or Air Force at work, we should all be in a sad state at this hour. She emerged from the war bearing an immense load of taxation and a colossal debt.

In addition, President Truman in his Independence Day address this year, told us that the expenditure of the United States since the war in World Relief and Reconstruction and in the World Bank and Fund was nearly 20,000,000,000 dollars, or £5,000,000,000. If the Loan which is now coming to an end had never been granted the crisis in which we now are would have come in a much more acute form long before. As Mr. Ernest Bevin said on July 4: If ever a country merited thanks and not criticism it was the United States. I for one would whole-heartedly endorse that. We have further, at the present moment, the Marshall offer, and one may hope that some of the restrictions which were imposed as a condition of the American Loan may be mitigated. B it whatever America does, it is essential that Europe and this country shall become economically self-dependent. We haze looked to America for a breathing space and we have been given a breathing space. Perhaps we shall have a little further breathing space. But that we should spend our lives lying on our backs in a kind of economic iron lung, with air pumped into our lungs by the Americans, would be a position that would be quite intolerable.

From the standpoint of our domestic politics here the present crisis is, of course, an opportunity which offers a strong temptation to opponents of the Government to upset them since they dislike the Government's general policy. But the Government would have been very foolish if they had assumed that the crisis was nothing more than that. In 1931 the Labour Party was drilling into the people that the whole of the economic crisis of that time was a "Bankers' ramp." It was nothing of the kind. It was the result of irresistible economic forces. As the noble Lord, Lord Pethick-Lawrence, speaking on economic affairs for the Government said, earlier in this year: The crisis of 1931 was brought on and aggravated by wild movements of capital between financial centres. That has been obviated by controls which have since been imposed, but the Government to-day realize the reality of this crisis, that it is not some political machination, and that their whole life, indeed their very existence, depends upon dealing with it.

Those who, like Lord Brand, insist upon the reality of these dangers do not create them; on the contrary, they lessen them, because they save us from the shock of surprise which we should feel if they came upon us unwarned and unprepared. The Government are now asking us as a nation, to rally in their support for the measures, that they are about to take. I am sure-that the nation would he ready to do that, yet I feel in duty hound to point out to the Government that, if they expect that, they must conduct their affairs in general' with that object in view. Here, I would make special reference to declarations that have recently been made, and which caused me very great anxiety, by leading members of the Government, to the effect that they intend in the coming Session of Parliament to proceed with the measure of the nationalization of the iron and steel industry. I am convinced that that would be profoundly ill-advised. That industry is different from all the others that have so far been the subject of their nationalization policy.

This is not the occasion, however, on which to go into the differences. At the General Election, the nationalization of iron and steel was mentioned, but it was brought into no prominence; and it cannot be said that there is any specific mandate for a measure of that character. The Government have repeatedly said that they would not persist with nationalization unless the case were established, on the merits, in each instance. That has not been done with the iron and steel industry, and we have no information as the outcome of an impartial inquiry to tell the nation what are the conditions of which the Government complain. It may be thought that this is irrelevant to our present discussion, but it is not because, if the Government proceed with this policy, they will find themselves faced with a far stronger, and more determined and more widespread opposition than any that has attended the previous articles in their programme. They cannot expect to command the unanimous and cordial support of the nation for them and their policy if, at the same time, they divide it from top to bottom on a most important matter of political controversy. I feel bound to say that, and to say it in advance, for it may be the last opportunity before we meet for the King's Speech to be read to Parliament.

The dangers and difficulties that attend us are very great. When we here watch the introduction of some new Peer and welcome him to these Benches, we hear the Writ of Summons read, and in it are the words that he is "Summoned to attend without fail, on account of the difficulty of the said affairs" with which Parliament was asked to deal—"the difficulty of the said affairs and dangers impending." Those words have become common form. They can be traced back to the Writs of 'Summons of members of this House to the time of Edward III. For 600 years in Parliament after Parliament, and century after century, this House and the other Howe have been summoned to deal with the difficulties of the said affairs and the dangers impending. Sometimes those difficulties are very acute, and the dangers are very imminent. And it is such a moment to-day. They have been dealt with for 600 years. We shall deal with them again. I beg to move.

4.7 p.m.

THE MARQUESS OF SALISBURY

My Lords, this is, I suppose—indeed I hope—the last important debate in which we shall engage in this House before the House rises for the summer recess. It takes place, as your Lordships know, in what can only be described as somewhat sombre and menacing circumstances. I suppose we are all aware that an economic crisis is approaching with giant strides—a crisis which is likely, as the noble Viscount, Lord Samuel, has already said, to test to the utmost the courage and resolution of this country. This crisis, of course, has not come on us suddenly. I think most of us must have been aware of its steady, inexorable approach for a great many months now. It has been rumbling away in the distance like thunder, but undoubtedly a very large section of the British people, and, I am afraid, certain sections of the Government with their customary optimism, have hoped that it would pass us by. It is only now that we are starkly faced with the fact that the storm is close upon us, and that in a matter of months—or even of weeks—it is likely to break.

Anybody who rises to speak just at the moment that I do in this particular debate is clearly in a certain difficulty. First of all, I am in the difficulty that I am following the noble Viscount, Lord Samuel; and I hope he will allow me to say how admirable and comprehensive was the statement that he has given to the House, and how very effectively he has covered the whole of the ground. Moreover, as I think the noble Viscount himself said, we all know that the Government spokesman sitting opposite is to rise to his feet to make a statement of first importance directly I sit down. I do not know what is in that statement; and that inevitably, to a certain extent, as I am sure your Lordships will understand, if I may use a colloquialism, cramps one's style. At the same time, the essence of the problem which faces us is, of course, already well known, and moreover the discussions which we had on the Second Reading of the Finance Bill and to which the noble Viscount, Lord Samuel, has already referred, did, of course, follow much the same lines and cover much the same ground as that which is to be covered to-day.

In the course of that debate, as he himself said, there were two very remarkable speeches, one by the noble Viscount, Lord Simon, and one by the noble Lord, Lord Brand, which certainly deserve further examination by this House. Indeed, the very nature of our problem is, even for someone who is not a trained economist, simple to define, although I am afraid it will be extremely complex arid obstinate to resolve. The noble Viscount, Lord Samuel, has already adverted to this, but I should like, if I may, to reemphasize what he has said. What, after all, in the plainest possible words, is the cause of our present difficulty? As I see it, it is this. We were a very rich country and now, as the result of two disastrous wars, of which. I think we bore the main brunt, we are temporarily a very poor country. That is always an extremely uncomfortable position for anyone to be in. It is very easy for either countries or individuals to increase their expenditure and become more extravagant and luxurious. As I think Dr. Johnson once said—I paraphrase his words—"There is no such thing as a luxurious nation. Every nation is as luxurious as it can afford to be."

While it is the easiest thing in the world to spend more money, it is the hardest thing in the world to spend less. To economize, either for individuals or for nations, is the most unattractive of all policies; and yet that is what we have quite clearly to do. We are in the position, as I see it, as I think has often been pointed out, of a man who has had a serious operation. Through no fault of his own, he has had to undergo this operation, and it was the only alternative before him, apart from death. No doubt it is very satisfactory to him that the operation was successful, and that the mortal peril has been averted. But that operation undoubtedly was both enfeebling and very expensive; and clearly a man could not hope, after such an experience, to be as rich as. or richer than, he was before. On the contrary, he would have expended the savings of years on his medical treatment, and he has to re-create the wealth which has been dissipated before he can live anything like so well as he did before.

Moreover, as I am afraid is our case, he may have friends from whom he has borrowed, in order to carry him through this great emergency, and who have to be repaid. That seems to me, broadly speaking, exactly our situation; and, as Lord Samuel said in his speech, it has been complicated by the additional circumstances in the international sphere which make our situation—since we are a nation dependent on imports—particularly clangorous. I see not the slightest reason why, in the future, we should not be as prosperous as we have been in the past; or even far more prosperous; but we shall only recover if we are wise and prudent now, if we cut all unnecessary expenditure, if we work harder and save more. If we refuse to face facts, a3 a Government and as a people, if we continue to live above our income, if we attempt to make both ends meet, not by our own labours, but by sponging on our friends, there is nothing before us bet bankruptcy and misery. That is the hard bleak fact which is facing this country at the present time.

If I have a complaint against the Government it is that up to now they have not rammed it home sufficiently to the people of Britain. They have, as they constantly tell us, courageously faced the future, but they have not, until comparatively recently at any rate, even attempted to face the present. I well understand their difficulties. They have for years and years honestly preached Socialism as a cure for our ills, and they came into power at a time ideally fitted to try out their experiment. As I attempted to point out to your Lordships in the debate on the Address, at that time the country was already rigidly regimented for the purposes of a war, and no doubt they had a powerful and perhaps irresistible temptation to take advantage of a situation which might never recur.

But, my Lords, once they had embarked upon this experiment, it had to be made to appear to succeed. I filly recognize the difficulty before them. They could riot risk disillusioning their supporters. By hook or by crook those supporters had to be made to see immediate and concrete results of this new policy which was to be tried on the country. So the Government were driven on to a policy of increasing money wages, if not real wages, of shortening hours, of nationalizing industries (with all the dislocation which that involves), and of embarking on great and spectacular schemes, such as the Severn Bridge scheme, with all the risks that that policy involves. I will not now go into whether these things were in themselves desirable or not. I have no doubt that a good case can be put forward from the other side of the House for them, and an equally good case put forward from this side of the House against them. I imagine that on both sides of the House it would be cordially agreed that higher wages, shorter hours and better social services are in themselves excellent. I do not imagine there is any difference of opinion in any Party in this country on that.

Probably there might be more difference of opinion about the virtues of nationalization; but this is not the moment to debate that. The point I would make in this: that many of these things, however desirable they may be in themselves, may well be beyond our powers in the situation with which we are now faced. This is no time for overspending. I would ask the Government to remember the classical dictum of Mr. Micawber, that an annual income of twenty pounds and an annual expenditure of nineteen pounds nineteen and sixpence results in happiness, but that an annual income of twenty pounds, with an annual expenditure of twenty pounds and sixpence results in misery. Mr. Micawber was perfectly right, and this is a fact which is being painfully driven home to us at the present time.

We must first re-create our prosperity which was dissipated by war and then, out of the superfluity of the new wealth which is created, we shall be able to afford all those things which are now beyond our capacity. That is the course which has been adopted, I believe, by the Socialist Party of Belgium, and I suggest that the Socialist Party of this country would have done very much better to follow the same example. What was the purpose of Ministers trumpeting abroad and at home, as they have done, that "all is roses in the garden here," that the working people are better fed, and better off, and richer than they ever were before, when in fact they knew that this was only done by our living far above our income, and owing money in almost every part of the world? It only deluded the people here, and bewildered the people of other countries.

The Government were able to maintain this fiction by two devices. The first was the American Loan, to which the noble Viscount, Lord Samuel, has referred. As we all know, that money was lent by the American people to put us on our feet again. The idea was that it should be spent partly on capital goods, on modernizing industry, and so on, and partly on essential raw materials and foodstuffs. That was the purpose for which the Loan was meant. I do not say now, and I did not say at the time, that all the conditions attaching to that Loan were such as we should ourselves have chosen. For instance, I understand that Article 9 of that Loan is now being interpreted by certain sections in the United States as impairing our right to trade with the other nations of the British Commonwealth as and when we wish. That is a limitation which we, on this side of the House, have always disliked intensely. Any limitation of our trade with the sister nations of the Commonwealth is abhorrent to us, and I hope that the Government have made it clear to our friends across the Atlantic how onerously and how unfairly that provision is now working. But, broadly speaking, having got the money, I think it should have been spent for the purposes for which it was intended, instead of which a very great proportion of it was in fact frittered away on a thousand and one objects, the main purpose of which was to make the British people think they were better off than in fact they were.

The second device which was adopted by the Government was to divert the attention of their supporters to the distribution rather than the creation of wealth. Again, my Lords, it is not my purpose today to discuss the ethics of this. I think it is quite possible to argue that some people in the past have been too rich, and that other people have been too poor. But even so it must be remembered that to overload the burden of taxation on any section of the community, whatever it may be, must reduce the incentive they have to create new wealth. Lawyers, doctors and business men, just as miners, will not do the job if their reward is given to them with one hand and taken away with the other. That is a fact of human nature which we must all recognize.

But what we should realize in considering our present problem is that the mere redistribution of existing wealth will not in any way increase our capacity to buy in the world markets. That is a fact too often forgotten. If I may use a simple analogy, the national income is like a great cake divided into innumerable slices, some big, some very small. By merely altering the size of the slices, you do not increase the size of the cake. It remains exactly the same size as before. What the Government have done, and to that extent they are blameworthy, is that they have made the working man think that by the very act of redistribution not only he but the country will be better off. That is a very dangerous delusion, because he gets the impression—and many have this impression—that to make the country more prosperous he has only to ask for an increase of wages, whereas in fact unless that increase is accompanied by an increase of production, all that has been achieved is to decrease the buying value of the pound, and neither the country nor the individual working man is any better off. It also has the effect of making him regard his employer—the private employer and not the State—as an enemy, whereas both employer and employee, are in fact limbs of the same body, essential to each other.

Now Nemesis has come. The American Loan is running out and the Government and the country have to face up to realities. As the noble Lord, Lord Brand, has said, there is a gap of £450,000,000 a year between the cost of our imports and the yield of our exports—a gap which has got to be filled by some manner of means. It will be very clear to your Lordships that I am not an economist like the noble Viscount, Lord Samuel. I am what is popularly known nowadays as the common man. But I hope, unlike some common men and perhaps unlike some members of the Government, that I am not too proud to learn, and I have therefore read with very great care the speech of Lord Brand in the debate on the Finance Bill, to which I referred, and I found several things. The first thing that was clear was that there is no quick cure for our ills, no short cut back to prosperity. But there are certain points which were made by him and by other noble Lords, and certain courses that they did recommend.

Though they recognized that it may be necessary, as a temporary measure to restrict imports and to cut down consumption, they stressed, as Lord Samuel did to-day, that it is far more important in the long run to increase exports. That means that we must divert all the manpower we can from unproductive occupations, however desirable they may be in themselves, to productive enterprise for foreign consumption and encourage that manpower to produce as much as possible. That seems a simple and platitudinous observation. But it is clearly very much more difficult to put into practice than to enumerate in theory, for in order to encourage the worker to produce, as we are finding out now rather painfully, he must be given an incentive; he will never produce for the mere pleasure of producing. And this means not only giving him wages, but something to spend those wages on. I remember during the war, when I was at the Colonial Office, we had exactly the same trouble in Central Africa in inducing the natives to 'produce essential raw materials. They would not do it unless we gave them cotton piece goods, which were then very difficult to obtain. That was the necessary incentive.

Although we are not natives in Central Africa, the same thing is true of people in this country. In fact, increased purchasing power, about which there is a great deal of talk in the Government White Paper, really must mean, strange though it may appear, ability to purchase more. That means there must be more to buy in the shops, if the term "purchasing power" is not to appear to the ordinary working man to be a mere hollow sham. Personally, I consider that it would have paid us temporarily during the past year or two to release more consumption goods for the home market. I believe that by doing that we should have stimulated the appetite for buying. Then, in order to satisfy that appetite, the working man would have had to speed up his work and the general rate of production would automatically have been increased. There would have been a general starting up of the industrial machine, as we knew it before the war. The present situation, where higher wages means that the working man buys exactly the same am mint and pays more for it, provides no incentive but only an increased sense of irritation and frustration.

The second point to be remembered, as I understand from the speeches in the Finance Bill debate, is that we should decrease the number of purely unproductive labourers. We are told in the Press—I do not know if it is true—that the Government are contemplating a reduction in the Armed Forces. I believe that that would be deplorable, if it were in any way possible to avoid it. This is the only matter in which I found myself in strong disagreement with the noble Viscount, Lord Samuel. We must all recognize the force of what the noble Viscount said this afternoon; but our Armed Forces are by no means too large now, and they play an essential part in maintaining our prestige in the world. Unless we have some backing of armed force, the Foreign Secretary will be fatally hampered in the conduct of foreign affairs. In fact, it will be almost impossible for him to have a foreign policy at all. In that sense I do not regard the Armed Forces as unproductively employed. I beg the Government, however great the need—and we are all anxious to help them to put the country on its feet again—not to give way to panic measures in this respect. It is really essential, not merely to release so many bodies and hope that they will be re-absorbed somewhere else, but to see that the men released will be useful for the purposes for which they are needed. Otherwise the only result would be to gain a very small advantage which is not in the least comparable with the injury which will be caused to our authority in the world.

But what about the civil servants and the employees, both of the Central Government and the local authorities? There have been all sorts of intelligent anticipations of what the Government propose to do. I do not know how accurate they are. We shall know in a very few minutes. But one thing I have never seen mentioned is any interference with the great army of civil servants; it is not mentioned in any paper—in the Daily Herald or any other. We were told some months ago that this vast army already amounted at that time in one form or another to about 2,000,000 persons. That is a colossal proportion of our population of about 50,000,000, men, women and children.

These civil servants, if I may say so respectfully, buzz round the head of ordinary citizens nowadays like a swarm of mosquitoes. In our view, a considerable proportion of them are not producing any valuable results at all, and the numbers are going up every day. I read in the Press only two days ago of the large number that will be needed to operate the Town and Country Planning Bill. That is in addition to those which already exist. There is no mention in any Government pronouncement up to now that there is to be any reduction of these 2,000,000 civil servants, and yet they propose to reduce the Armed Forces. Could they not look at these 2,000,000, first, before they begin to tinker with these soldiers, sailors and airmen who are maintaining our position in every part of the world?

Thirdly, as I understand it, there is one further action which the Government could take, which has already been referred to this afternoon, I think, by the noble Viscount, Lord Samuel. They could scrap ruthlessly any schemes, however good in themselves, which are not calculated to produce an immediate return. I would not include housing in those schemes. First, because the Government have not made much progress in housing up to now; and, secondly because you cannot expect the working man to produce anything like as much as he should if he is not decently housed. But schemes like the Severn Bridge, which has already been referred to, certainly come into the category of "unnecessary." The noble Lord, Lord Pakenham, may have read the letter of Mr. Roy Harrod in The Times; I have no doubt many people drew his attention to it. Mr. Roy Harrod said there, rightly or wrongly, that the steel to be used meant the abandonment of the manufacture of 100,000 cars which might have been sold on the foreign market. If that is accurate—which I feel sure it is, knowing Mr. Harrod's reputation to divert that steel from the export markets in our present situation seems to me almost insane.

There are, no doubt, many other examples of economies which noble Lords could give. The noble Viscount, Lord Samuel, referred to factories. I think, also, that the Government might well reconsider schemes of local authorities for public buildings of various characters, to ensure that if they have to be built at the present time they should be built with the utmost economy. My experience has always been that local authorities, if they do build, will build as extravagantly as they are allowed to. One cannot blame them, because they are all proud of their locality, and they want to have better buildings than anyone else, whether they be schools, or public buildings of other character. But, unhappily, we are not in a position where we can have the best of everything. That is the sort of economies which the Government might well examine. And it is incumbent on them to examine them now, if we are to get through our troubles at all.

Finally, I do hope that the Government, instead of slanging and damning the employers as a class, will encourage a more co-operative attitude between them and their workmen. What is needed to-day—and this, I think, is common to all Parties alike; we are all agreed about this—is a new spirit in industry. Your Lordships have heard me refer on numerous occasions to the subject of copartnership. I think my noble relative, Lord Cecil of Chelwood, is going to say a word on this subject to your Lordships later on in this debate, and I do not propose to anticipate him. But that is one method by which a new spirit might be stimulated. I recognize that it is not applicable to all industries, especially in the limited and technical meaning which the word has now acquired. But what does seem to be essential—I am sure noble Lords opposite will agree—is that we should stimulate the spirit of partnership (I use that word in the very widest sense) between the various sections that make up industry.

We must recognize—and I hope the Government will recognize this, and will ram it home to their supporters, some of whom, if I may say so, seem to be lamentably misinformed on the subject—that the capitalist, the manager and the labourer are not essentially hostile elements. They are all members of one body, and are as valuable to each other as the stomach is to the brain, or the hand to the mouth. If the body of industry flourishes, they will all benefit: it the body languishes from lack of co-operation, they will all suffer. If profits increase, there is more to be distributed to everyone; if profits decrease, there is only ruin and unemployment for all concerned. That may seem to be crude, simple and puerile; but it is a truth not realized by nine-tenths of the people of this country at the present time, and I think the Government must shoulder a certain responsibility for that. If one reads the speeches of men like Mr. Shin-well and Mr. Bevan, they are full of attacks on the boss, and there are many other members in the other place, on the Labour side, who take the same attitude. Therefore, when I stress this, I beg noble Lords to believe that I am not saying something which does not need saying. It does need saying, and it needs to be said far more by the Government themselves than by me. If we cannot get co-operation, not only will individuals suffer, but the wealth which is the lifeblood of the country will gradually and steadily be drained away.

The great danger of the present Government's policy of discrediting employers is, it seems to me, that it takes away tie relationship which did exist before—whether it was a perfect or imperfect relationship—and replaces it by nothing else. I have been told by people in touch with the coal industry that there is already considerable disillusionment among the miners at the results of nationalization. They expected a new heaven and a new earth, and they find that they have only exchanged one employer for another, yet more remote and unapproachable than the one they had before. By all means, let us encourage joint works councils, and every possible device to humanize industry. Let us bring the employees into closer contact with the management, and make it possible for them to be certain that they are receiving a fair share in the profits. But do not let us fall into the illusion—do not let the Government fall into the illusion, or the workmen or anyone else—that merely to alter the ownership of shares automatically increases the incentive of the workmen. That is not true. The figures of absenteeism in the coal industry show that it is not true.

So far as State ownership has any effect—I may be prejudiced—I think that there is a danger that it creates the illusion in those who work under it that it will be possible to obtain, by political pressure, higher wages for less work. There is that danger, arid noble Lords opposite would be wrong to neglect it; and it is, of course, contrary to the most elementary principles of economics. If that illusion exists, I would say to the Government, even if they do not feel that they should abandon a policy to which they quite honestly attach importance, let them go rather slow with it until times improve, when greater risks can be taken. Let them remember the sad fate of little Johnny Head-in-the-Air, who pursued rather the same policy as that adopted by His Majesty's Government. Do let them eschew, during this emergency, anything in the nature of purely doctrinaire schemes; and let them concentrate rather on the practical task of creating a situation where the more a man or woman earns the more he or she is able to buy with those earnings and the better life he or she is able to give to the rest of his family.

I do not know what the Government propose to recommend as the solution of the present crisis—we shall hear in due course—but if the gist of their proposals is only further restrictions, further controls, heavier taxation, and further discouragement to private initiative, I am afraid the result will be disastrous, both to themselves and for the country. They will be discredited at home and abroad. Unless, before it is too late, a truly expansionist policy is firmly established, that rickety scaffolding to which the noble Lord, Lord Brand, referred in his speech, which is at present supporting our economic. structure, will begin to creak and crack and finally collapse, and the fall of this country will be very great.

I cannot say that a first view of the Supplies and Services (Transitional Powers) Bill, which was published yesterday, is very encouraging. It seems to envisage new controls, possibly of an extremely far-reaching character. One can only hope—and this is all I wish to say about it, because we shall have a further opportunity of speaking on it—that the discussions in Parliament will remove that impression. At any rate, I hope that the Government will make every effort to limit these new controls so far as is possible.

My Lords, this is a time for wisdom; it is a time for greatness. If the Government continue to pursue a purely sectional policy they will receive only sectional support, and they can expect to receive no more. That will mean in effect that, in a great crisis in our history, the country will be split from top to bottom. But if they will pursue a national policy, I can assure them that they will receive the support—and I am quite certain I speak for all who sit on these Benches—of all of us who hold the future of this country dear.

4.42 p.m.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (LORD PAKENHAM)

My Lords, one would have to be very thin-skinned and pusillanimous and unfitted to public life to object to the tone of either of the two speeches to which we have just listened. There were many statements made by the noble Marquess to which I and those of us who sit on these Benches take strong exception, as will appear during this debate. But no one could question his desire to play a most patriotic part and to give the most patriotic lead in the difficult circumstances in which we find ourselves. I hope that he and the noble Viscount, whose speech won such acceptance in all quarters—although there were one or two things he said which I would like to take up with him later—will forgive me if I do not reply to their points this afternoon as closely as would normally be the custom in this House. Statements such as the suggestion that the Loan was frittered away, and the suggestion that all civil servants were unproductive and other statements or implications of that kind, I would like to challenge very forcibly, but I think the House will be looking this afternoon for a clear indication from me of the Government's policy in these difficult times.

I say at once to my noble friends behind me that I have never been more proud than I am this afternoon to be a member of the Labour Party, but I know that they will be the first to express the hope that this policy which it is my duty to unfold will be one which will appeal to the whole nation. The noble Marquess has told us that he found himself in somewhat of a difficulty (which I could well appreciate) owing to the fact that I was to follow him, and that until I had spoken he would not be aware of the measures we were proposing. I should ask the indulgence of the House to make what is in effect another man's speech this afternoon. Not only the whole of this country, but a great part of the world, is listening to hear what the Prime Minister is saying at this moment in another place, and for the purposes of this debate I should imagine that the House would regard it as quite essential that at any rate the main lines of the Prime Minister's speech—that which is most substantial and operative in it—should be placed before your Lordships. Therefore I ask your Lordships' indulgence to adhere very closely to the form of speech that the Prime Minister has chosen. I should hasten to say that if I depart from his ideas he must in no way be held responsible, and he should be able to take suitable reprisals himself, but I think I shall best serve the purposes of this debate by following the course I have suggested.

I shall perhaps be excused from travelling over the main course of our economic fortunes since the end of the war in view of the fact that we had such a thorough debate on the economic situation in March. Many points were made on both sides, and I myself thought that everything was most satisfactory about that debate except the Division. That, of course, is the one weakness of the debates in your Lordships' House the discussion is incomparable but it is not always rounded off in quite the same satisfactory way. In that debate your Lordships will recall that the economic life of the nation was very thoroughly studied from all angles, and I would only add to what emerged on that occasion a very short review of events during the first part of this year.

By the end of last year there were already many satisfactory features about our recovery, but certain adverse developments were showing themselves. They sprang from various causes and one of the most striking, and of course one of the nearest home, was the failure of European production in industry and agriculture to recover as we had expected. That caused not only ourselves but Europe, and indeed many other parts of the world, to enter upon a position of dependence upon the Western hemisphere for which there was no previous precedent. This was already beginning to show itself some, months ago, but the tendency has become much more marked since. The result of that was that we in this country—to speak only of ourselves for the moment—have been increasingly compelled to buy from dollar sources, and another result has been that dollar prices have risen very sharply. Prices of our exports have risen, but prices of imports have risen considerably more. At the end of last year—and it is still more obvious now—we had to buy a larger proportion of our imports from dollar sources and we have had to pay much higher price, than we anticipated. As a result of these developments, which became 'more and more marked, the balance of payments position deteriorated sharply during the first half of 1947.

At the end of last year we were really doing quite well in respect of our balance of payments, if you think of all the losses we suffered during the war. We were paying for about 80 per cent. of our visible imports out of visible exports; this compared very favourably with the 60 per cent. of our imports for which we were able to pay before the war with our visible exports, when of course we had very large invisible exports which came to our assistance. But during the last few months the position has steadily deteriorated. I will not trouble your Lordships with the over-all position, because what concerns us most this afternoon is the increase in the dollar deficit, and I propose to confine myself to that. I should warn the House that I intend to ask their permission to speak at the end of the debate, just before the noble Viscount, Lord Samuel, exercises his right of reply, so that if I fail to touch upon some aspects of the matter which seem crucial there will be every opportunity of asking me to do so more fully in my reply. I might mention, what I know will be of very special interest to the House, that on all that concerns coal the noble Viscount, Lord Hall, will speak to-morrow with special authority. He will deal with many other points as well.

For the year 1946 our total dollar deficit was under £350,000,000, even if we include the Canadian dollar outgoings. In the first six months of 1947 our U.S. dollar deficit was £405,000,000; that is, it was more for the first six months of this year than for the whole of last year, and represents an annual rate, if it be sustained over the whole year, of £810,000,000. If we take this figure of £405,000,000, which is the dollar, deficit for the first six months of this year, £176,000,000 represents our own trading deficit with the U.S. In addition we spent in dollars £29,000,000 on purchases from the United States for Germany. Those two figures taken together come to rather more than half the total deficit. Further, we had to provide £l18,000,000 in collars as part of the payment for our own purchases from the rest of the Western hemisphere, including Canada, Argentina, and Brazil. All these figures are in pounds, but they represent the dollar deficit. I hope that Lord Cherwell will not find it difficult to make the necessary adjustments!

LORD WOOLTON

Was the 350,000,000 first mentioned in pounds or in dollars?

LORD PAKENHAM

All the figures are in pounds. We had also to provide in U.S. dollars £58,000,000 net for purchases by sterling area countries in the United States, £10,000,000 for purchases by sterling area countries in the rest of the Western hemisphere, and £14,000,000 net for similar purchases by European countries. The big items are £176,000,000 for our own trade deficit with America, £29,000,000 for Germany, £118,000,000 as part of the payment for our own purchases from the rest of the Western hemisphere, and £58,000,000 for purchases by sterling area countries in the United States.

The most serious aspect of this situation from the immediate point of view has been the acceleration in this dollar drain during recent months, and of course this is clearly reflected in the rate of our drawings on the United States credit. Of the total credit of £937,500,000 we have to date drawn £687,500,000, leaving £250,000,000 undrawn. By the end of 1946 we had drawn £150,000,000. If the House wishes to have these figures I will give them month by month. From the beginning of January to the end of March we drew £125,000,000; in April and May £162,500,000; in June £75,000,000, but in July we drew no less than £175,000,000. I have no desire whatever to conceal that figure—indeed, it would be most improper to hide it from your Lordships—but it would also be wrong to paint too alarmist a picture. Our view is that this very high rate of the drain upon us in July was exceptional. Further, we should also, in order to fortify ourselves for the discussion, observe that in addition to the £250,000,000 still outstanding of the U.S. credit there remain to us £125,000,000 of Canadian credit and our ultimate reserves of nearly £600,000,000. That makes nearly £1,000,000,000.

LORD WOOLTON

That is a gold reserve?

LORD PAKENHAM

Our ultimate reserve in gold or similar assets. Of course, as the noble Lord will be the first to point out, these ultimate reserves represent the reserves of the sterling area as well as our own, and they cannot be allowed to fall below a certain point. It is quite clear that the drain cannot be allowed to go on, even at the rate at which it was running before July.

I come now to this debated question of convertibility, and here I am taking particular care to choose my words. It is sometimes assumed that all our difficulties have arisen because of the Loan Agreement with the United States and in particular its provisions concerning convertibility and non-discrimination. I should like, therefore, to explain to the House how we view these matters. Convertibility is not merely or perhaps primarily a matter of our Loan Agreement with the United States. It is, in fact, a necessity of many of our commercial deals with other countries, as the noble Lord, Lord Woolton, knows very well. These countries owing to the world shortage of dollars, are as sellers demanding either convertible sterling or dollars. In a seller's market buyers cannot be choosers, and so we have been driven to pay dollars or convertible sterling for supplies from some of our main suppliers.

The problem of convertibility is thus a problem of the world shortage of dollars more than a problem arising out of one particular Loan Agreement with America. It is most important to lay stress on that fact. We should look round the world and realize that the whole world, with the exception of only one or two countries, is suffering from an acute dollar shortage. Before the war sterling in London could be transferred into any other currency for current use anywhere. A return to this position has always been an objective of the Government. The American Loan was designed to help us to return to that position at the earliest possible date, and on this policy, whether in our own selfish interest or in the wider interest of world economy, we have no intention of turning our back. But it is clear that in the world shortage of dollars the formal obligation under the Loan Agreement puts an increasing strain upon us.

So far as non-discrimination is concerned, the provisions of the Loan Agreement have hardly been operative at all, because we have in fact bought practically all the available supplies from outside the hard currency countries. In other words it is the low production in other countries that has driven us to buy so largely in the Western hemisphere. That position, however, is now changing, and with the cuts in imports now proposed, the question of discriminating purchases becomes of much more importance, and will be a very real factor in our future food and raw material purchases.

The House will wish to know what steps have been taken with regard to the points I have just been discussing. The matter, of course, has been under constant discussion between His Majesty's Government and the United States Government for some time. There was a way open to us to give notice under Clause 12 of the Loan Agreement, but this would not cover the whole field, and therefore we proceeded to seek a further consultation on the whole of the implications of the Loan Agreement and the other difficulties with which we are faced, and against the background of the present facts of our position and its developments. I am sure your Lordships will not underestimate the importance of what I have just said. We suggested to the United States Government that as a first step there should be official discussions on these matters, and I am glad to be able to tell your Lordships that Mr. Marshall immediately replied agreeing to these discussions, which will therefore take place as soon as they can be arranged. I should make it clear that these discussions will not, of course, cut across the proceedings of the Paris Conference, but I would repeat, even while stressing the importance of these discussions, that the ultimate solution of a general recovery of productivity all over the world, and not only as as hitherto been the case, in the Western hemisphere, is to spare no effort to remedy our own immediate position, and to make sure that we can play our part in world recovery.

I now come to what may be called the more concrete measures, and I hope your Lordships will forgive me for approaching them first analytically, in the abstract. I will be concrete enough in a moment. First, we shall apply ourselves to a further redevelopment of our resources at home. We must concentrate as much of those resources as can be most effectively used for the reconstruction and development of the basic industries. Secondly, we must increase our total output so that we can stand on our own legs as soon as possible; it is a question of concentration. And thirdly, we shall press on with our pans for the expansion of production in the Colonial Empire. But none of these plans, however rapidly we press on with them, can have an immediate effect; therefore we must turn to what we may call the negative side of the problem, and I hope that the noble Marquess, when. he has studied what I am telling your Lordships to-day, will agree that some negative side is essential—that it would be quite impossible not to introduce anything that he would regard as a new control

THE MARQUESS OF SALISBURY

I did not say that. I said I hoped it would not consist only of that.

LORD PAKENHAM

I am very pleased to give the noble Marquess that assurance. If we take first the details of the positive side of the programme, let us ask what is the position of the basic industries. I make no apology for beginning with coal, and I will unfold the broad outlook of the Government and the immediate proposals, leaving the n able Viscount, Lord Hall, to discuss the whole matter with infinitely greater personal authority. Since the beginning of the year the numbers of wage earners on the colliery books has shown a substantial net increase of 27,000. There is every prospect that we shah reach the target of 730,000 by the end of the year, particularly if the Poles who are willing and available are accepted in the industry. So that, while I cannot inform the noble Marquess that that target has already been reached, I can give him an assurance that there is a target, and perhaps the most important one, which we certainly hope will be reached by the end of the allotted period. It is going very well. I do not feel that the noble Marquess, who is at heart an optimist, though he sometimes conceals it, will quarrel with these figures. We have put before the mineworkers' leaders a proposal that while preserving the five-day week and the general regulation of hours of labour, there should be, as an emergency measure for a limited period, an extra half-hour's work per day. I know that the leaders of the miners are doing their utmost to reduce absenteeism to its lowest possible level. The aim is an average weekly output of at least four million tons of deep-mined coal, plus some open-cast coal, from September 1, 1947, to April 30, 1948. But we must push on beyond that to increase our output as rapidly as we can.

Second, and second in importance only to coal, comes steel. During the winter months production should be running at an annual rate of about 13.5 million ingot tons, and production over 1947 as a whole should reach 12.5 million ingot tons—about the amount forecast in the Economic Survey. So there again I can hold out considerable hope to the noble Viscount, Lord Samuel, that the target will be realized. But this is not enough, this 12.5 million tons; and shortage of steel has recently been acting increasingly as a brake both on production in the manufacturing industries and on construction. Our target for 1948 therefore is 14 million ingot tons.

As for transport, increased production will throw an additional strain on our transport system, handicapped as it already is by depleted rolling stock and by lack of repair and maintenance during the war years. In applying the general measures which I have outlined, the Government have in the forefront of their minds the need to provide the transport industry with the resources needed to enable it to overtake arrears and meet this additional strain. Many of these matters will be dealt with more fully by the Prime Minister in his speech.

I turn to agriculture—perhaps the most fundamental of all our industries, and incidentally the greatest potential saver of dollars, which has to produce so much for us in these days. The Government are setting a high target before agriculture: nothing less than an extra £100,000,000 worth of food by 1951 to 1952; that is to say a 20 per cent. increase on present output. This is a stupendous task, and I feel it is one to which the agricultural leaders in your Lordships' House will address themselves with special enthusiasm. I am sure the noble Earl, Lord De La Warr, will agree that nothing less would have been worthy of the occasion. It will involve immense effort, not only on the part of the agricul- tural community, but on the part of the Government themselves. More labour will be needed on the land, and in order to obtain labour, many houses and hostels will he needed. The production of special agricultural machinery and other equipment must be speeded up. The maximum supply of feeding stuffs must be obtained so that our production of beef, bacon and eggs can be expanded as rapidly as possible. The whole weight of the Government will be thrown into supplying these necessities and into removing any possible hindrances to production.

To get these results we must have sufficient manpower, and the Government have already suspended the call-up of young men needed in agriculture. We shall need 100,000 more workers. All this will involve substantial capital outlay and heavy commitments on the part of the agricultural producers. The Government will take account of this and the Minister of Agriculture will announce this month new scales of prices for future production. These, I believe, will give the farmers confidence to embark again on expanding production and will provide them with the additional resources which will inevitably be required. Once again, county and district agricultural committees will be asked to take a lead, and I know that I can appeal with complete confidence to all the members of the House, so many of whom command great influence in the countryside, to play their part in this particular enterprise. I could, of course, refer to many other industries, for instance, the engineering and textile industries, but I think I had better pass over them since the House will wish me to pass on to exports—with which, of course, those two industries in particular are very closely connected.

If there were more time and if he would like me to, I should like to take up rather strongly the cudgels with the noble Marquess on this subject of the export trade. I do not want to misrepresent him and I will wait to hear what other speakers on his side of the House say, but I think he thought we had laid too much emphasis on the export trade or had devoted too large a proportion of our resources to export trade since the war; I should strongly disagree with him if that indeed is his view. In the Economic Survey, the export target was put at 140 per cent. in volume of 1938 to be reached by the end of 1947. Here I am bound to concede to the noble Viscount, Lord Samuel, that this is a target which will not be reached, owing to the fuel and weather crises at the beginning of the year. That target of 140 per cent. cannot be reached, but various measures which the Government are intending to take for the re-deployment of our resources will have as one of their principal aims to get as near to that target as may be, and certainly we intend to reach and pass it during 1948. Our target will be 140 per cent., using 1938 as a basis, to be reached by the end of the first half of 1948, and it will be 160 per cent, by the end of the year 1948, so that, if we are having a similar debate in rather happier circumstances next year, I hope to be able to assure the noble Viscount that not 140 per cent., but 160 per cent. is well on its way to realization.

This target is, of course, very difficult of achievement but we are determined to concentrate our resources in such a way as to make sure that we do reach it. But how are we going to attain these targets? Looking at the matter once more analytically, there are two points to be borne in mind: first, we must increase productivity and, secondly, we must direct our efforts into the channels where production will be most fruitful. If we may take for the moment this direction of effort into the most fruitful channels, this may, and in fact will, involve some sacrifice of individual liberty, though as little as possible, on the part of the employers and workers. I am anxious to be extremely frank with the House in all this, and I say boldly that some sacrifice of individual liberty, the right to do exactly what one likes in the choice of one's job, is quite inevitable if we are to secure the results which we all have in mind. We shall have to ask or issue directions to firms to ensure that their capacity is not used to produce those goods which will bring in the largest profit, but those goods which are most needed and which are in the interests of national economy. It will be much more agreeable if we can secure that result without exerting forcible pressure; but the power to give directions will have to be there.

On the other side, we shall have to take some measure of control over employment of labour. During the war, as the House will recall, we had to use full powers of direction of labour. It has been the desire of the Government and indeed of the whole country, including, I am sure, this House, to move as quickly as possible towards complete freedom of the individual in these respects. I am not sure that we have not moved too fast, as things have turned out, but I do not think anybody of substance or standing in any Party protested at the removal of the controls when this was effected. We propose, therefore, to re-impose control over the engagement of labour, which was almost universal during the war but which has since been removed from all industries except coalmining, building, and agriculture. This will enable all workers leaving one job and seek rig another to be guided into that class of work in which they can best assist the country in overcoming its economic difficulties.

Of course, control of engagement only controls the movements of those falling out of employment. To find the necessary manpower for essential employment it may be necessary to take steps to limit employment in less essential work. I have no precise advice to offer the House with regard to "pools," but I must say that to me "pools" are at the very bottom of the list of non-essential work. That is a personal view, if you like. In addition, in order to avoid workers remaining unemployed or taking up non-essential instead of essential employment, it will be necessary to resume, to a limited extent, the use of powers of direction of labour. This is not a resumption of the general powers of direction, but an essential supporting measure to enable the control of engagement to be effectively exercised. I should like to add this, that my right honourable friend the Minister of Labour is at this moment discussing the details of measures to be adopted with the National Joint Advisory Council, that is to say with the employers and the employed. So much for the attempt to direct our resources into channels where they can be most fruitfully used.

LORD ALTRINCHAM

Would the noble Lord forgive me for interrupting, but is it intended to direct women as well as men?

LORD PAKENHAM

Perhaps the noble Lord, Lord Altrincham, will allow me on this particular matter to confine myself to the rather careful statement made, in view of what I have just told the House about the discussions that are going on between the Minister of Labour and the representatives of the employers and the workers.

LORD WOOLTON

I thought the word "labour" did include men and women.

LORD PAKENHAM

The discussions are going on this afternoon.

I will come next to the question of increasing total production. The Government have decided that as an emergency measure we must work for longer hours to contribute to increased production. In order to increase production, we have decided that, as a temporary measure, we must ask for that. What is needed first is a lengthening of the hours of work in those industries which have adequate supplies of raw materials, and whose output provides exports or savings in imports, or is essential to the expansion of other industries. As I have said already, the Prime Minister has put to the coal-mining industry the proposal that an extra half an hour a day should be worked for a specific period, and the Government will have to make similar proposals to other industries in this category. The increase of production will also require some increase of hours in transport to enable the additional production to be moved, and to prevent wagons from being left loaded at weekends. I will only add to this part of my speech the clear proviso that there is no intention of interfering with the negotiating machinery of the industries concerned. I would like to repeat that all these proposals are to be regarded as of an emergency character, to operate only until we can begin to see our way clear on the economic front.

I should just say one word about management. We are most anxious, of course, as will be everyone in your Lordships' House, that management shall play its full part, and shall be given every encouragement. I say that specifically in view of the questions which have been put to me. But, where management shows inefficiency or a lack of will to serve the nation's best interests, steps will have to be taken, just as was done on occasion during the war. I do not want to strike too gloomy a note on that matter, because it will be the last resort. What we all hope for, and I believe will see, is the closest good will and co- operation between capital and labour in this very difficult period.

I should say a word about what we intend to do overseas. The House will, I know, have noted with approval recently the far-reaching plans, which the Colonial Secretary has initiated, for making available to the world the potential wealth of our African Colonies. These schemes, however, will take time to mature, and so, of course, will the schemes which I have mentioned for increasing production. We must turn, therefore, to certain measures which can be put into operation more rapidly, or whose effects, shall I say, will show themselves more rapidly. I turn, first of all, to the proposals which we are making for the reduction of our expenditure. There is first of all the very large sum which we are expending in Germany for the feeding of the German people. My right honourable friend the Foreign Secretary stated very clearly in another place on Monday that when the present scheme runs out, we cannot spend any more dollars for this particular purpose. Therefore, discussions and a review must be undertaken, in order to devise other plans. I do not think I will add any more, except to emphasize my own conviction, having a personal responsibility in that field, of the imperative necessity for such a review and such discussions at the earliest possible date.

I come next to our Defence Forces. Here we can find some succour in two ways: by reducing numbers and, therefore, expenditure overseas, or by reducing the total size of the Forces at home and overseas. Of course, by doing that we do, in addition to saving money, provide more labour for work at home. I may say, without subscribing to all the implications which might or might not be drawn from what the noble Marquess said—he did not press the argument very far—that I entirely share the spirit in which he approached this particular subject. As one who was until recently, in a junior Ministerial capacity, responsible for the Army, I certainly should strongly deplore anything which left us unable to defend ourselves in time of emergency.

At present we have some 500,000 men and women in the Forces overseas. The Defence White Paper, prepared in February of this year, was based on the assumption that during 1947-48 it would be possible to make substantial reductions in the level of our Forces overseas, but emphasized that it would not be such as to endanger our commitments, and that the numbers required for those commitments would not be affected unduly by these successive decreases. Now we expect to withdraw some 133,000 men from overseas by the end of December, 1947, and to raise the total withdrawal overseas to over 200,000 men by the end of March, 1948. In addition to the 200,000 British troops withdrawn, we are now planning to return to their homes before the end of this year some 34,000 non-United Kingdom troops, the cost of whose work is being borne by the British Exchequer, and this will yield a further saving. I would emphasize this point, that despite this acceleration in the rate of withdrawal from overseas stations, and although calculated risks which have been carefully studied are being accepted thereby, there is no change in our foreign policy, or in the defence policy which underlies or supports that foreign policy. I entirely accept what the noble Marquess said in regard to there being no sound foreign policy without adequate defence.

Now I turn to the second question of the total strength of the Armed Forces. In the Defence White Paper it was estimated that between January 1, 1947, and March 31, 1948, the numbers in the Forces would be reduced from 1,427,000 to 1,087,000. This estimate of the reduction to 1,087,000 by March 31 of next year was based on certain assumptions about withdrawals from overseas, and assumed the fulfilment of a large part but not the whole of the programme. But, after careful review, we now consider that the number of men and women likely to be in the Forces on March 31, 1948, can be reduced to 1,007,000, that is a reduction of 80,000 from the figure of 1,087,000 which was previously planned.

I now come to the import programme. Information was given in another place on July 3 of the provisional import programme for the year mid-1947 to mid-1948, amounting in all to £1,700,000,000. That took account of certain classes of goods which were described in another place, and with which I will not therefore detain the House to-day, but if members of this House will consult the records of another place they will find that both my right honourable friend the Chancellor of the Exchequer and the Lord President, in his speech on July 8, made it plain that this import programme was provisional, and that further cuts might well be necessary. The Government have now decided that the following further cuts must be made. My right honourable friend the Chancellor of the Exchequer was recently authorized to levy an import duty on films, and it is now proposed to limit remittances on foreign films to 25 per cent. of the earnings of those films. In the statement of June 30, my right honourable friend the Chancellor of the Exchequer said that we might reduce our imports of petrol. A reduction of 500,000 tons will save approximately £4,000,000. This I am afraid will necessitate the reduction of the basic allowance to private motorists by one-third, and a reduction of 10 per cent. in supplementary allowances. We are most anxious not to impede the movement of merchandise by road, but some reduction in the allowance for the use of commercial vehicles will be necessary, and the issue for commercial road transport will be cut by 10 per cent. All this will come into operation on October 1. The maximum economies will also be made in the use of petrol by the Fighting Services.

My right honourable friend, the Chancellor of the Exchequer, proposes as from October 1 to reduce the foreign travel allowance from £75 for twelve months to £35 for fourteen months, with a corresponding reduction of allowances for children to £20. Allowances for business men travelling abroad will also be more strictly limited. I am afraid our business men must make it quite plain that they are spending all the money for business purposes. That has not been universal. There will be a reduction amounting in value to £5,000,000 in the import of miscellaneous goods of luxury types. It is necessary to apportion this cut with great care so as to avoid the risk of damaging the economies of other countries. The field for saving in imports of raw materials is very small if damage is not to be done to our productive effort, but some saving must be achieved. There will be a cut in the imports of timber amounting to £10,000,000.

A NOBLE LORD: Timber!

LORD PAKENHAM

The House will realize that this represents a cut not in the very low level of supplies which we have been able to import recently, but in the considerably higher level we have been hoping to reach. I hope it may be possible to make some saving by postponing part of our cotton purchases.

THE MARQUESS OF SALISBURY

I am not quite clear about timber. Is this a reduction of the target we hope to attain or of what we have obtained?

LORD PAKENHAM

A reduction in the programme of supplies which we hope to bring in.

A NOBLE LORD: Can the noble Lord give us the figures of that target?

LORD PAKENHAM

They will certainly be supplied before the end of the debate, since, with the permission of the House, I shall be speaking again.

Finally we come, as the House has been eagerly expecting, to the programme of the Ministry of Food. From what I have already said about home food production, the House will have realized there will be no cut in the import of feeding stuffs, which will rather have to be expanded as increased supplies become available. We have decided that we must make an immediate and substantial reduction in the purchase of food from hard currency sources. We have no other option in the situation in which we are placed. We have, therefore, given instructions which will bring about a reduction in regard to all these purchases of the order of £12,000,000 a month. The buying of essential foods from these areas will not be interfered with, but we must largely confine ourselves to these purchases.

The House will wish to know what effect this decision is likely to have on our level of distribution of food stuffs in the coming months. That will depend, as the noble Lord who is so uniquely learned in these, matters will be the first to recognize, on a number of factors. It will depend on the degree to which we are able to buy food-stuffs from soft currency sources. In so far as they can be regarded as more favourable from the commercial point of view, the question of discrimination under Article 9 of the Loan Agreement will not arise. So far as we can see, these sources are more favourable from a commercial point of view, but where such purchases cannot be justified under the terms of the agreement we shall be exploring the situation with the United States Government to see what steps can be taken to obtain supplies from soft currency areas. The second factor which will determine the effect on our ration-scales of these cuts is how long this policy will be continued. It will be necessary at once to increase the points value of a number of basic foods largely distributed under the points scheme. As to basic rations, we shall do everything in our power to maintain them, and we shall not take risks with our stocks. If rations have to be reduced as a result of the policy I have outlined, the Government will introduce a differential ration scheme designed to give preference to heavy manual workers. Preparations will be made forthwith against this contingency coming to pass. Restrictions on consumption in restaurants and hotels will, in any case, be enforced forthwith.

I am nearing the end, but before 1 close I must say a few words about the measures intended to counter inflation. Obviously some of the measures I have outlined will restrict the amount of goods and services available for home consumption, without any corresponding reduction in purchasing power, and thus inflationary pressure may at first be increased. We shall, therefore, have to take such action as may prove necessary to prevent unstable purchasing power creating an unbalanced situation. I learnt my economics at the feet of Mr. Harrod and I am not going back on the old master now. I cannot claim that the proposals are inspired by his principles, but it seems to me that they are in accord with them. We must concentrate on projects which will give quick returns. Projects in themselves desirable will have to be postponed, and such schemes as the re-equipment of agriculture and mines must take precedence over them. There must be a re-deployment and re-timing, including a postponement of the general building programme, but this must be done to give first place, to building houses for miners, agricultural workers, and other kinds of workers.

I should say, because I think it would be neglectful of my duty if I did not say it in this place, that in this uphill struggle we do not stand alone in this country. Quite apart from the sympathetic interest of the United States, we have kept our great partners in the Commonwealth fully informed and, as is well known to your Lordships, every one of them has done, and is doing, all they can to help us. I would humbly recommend to the House that they read the speech which the Prime Minister is delivering elsewhere. He will be ending it with an appeal, whose authority I cannot begin to emulate. I would simply ask that, having heard this statement, your Lordships consider it very carefully. I am sure that everyone here will recognize it as an honest attempt to meet a grave national emergency, honestly presented. Be that as it may, I am quite certain that it will be honestly considered by all your Lordships, and I leave it to the judgment of the House, quite content in the thought that for two days your Lordships will discuss what His Majesty's Government are proposing to do to remedy the present very difficult state of affairs.

LORD AMWELL

Might I ask the noble Lord a question before he sits down? He spoke about the direction of labour. Has he anything to say about the direction of idleness?

LORD PAKENHAM

Yes, I have a lot I could say about the direction of idleness, but I have detained the House for a considerable period. If the noble Lord is thinking of the gentlemen who are nowadays known as "spivs," I would agree that we must wage unceasing war on them.

LORD AMWELL

My definition would be pretty wide, I can assure the noble Lord.

LORD PAKENHAM

I would join with the noble Lord, however wide his definition, in saying that we have no use for slackers at this time. But I do not believe that when this appeal goes out to the country there will be much slackness to be found in Britain.

5.41 p.m.

VISCOUNT PORTAL

My Lords, the noble Marquess who spoke before Lord Pakenham was at a great disadvantage, because he spoke before he heard what the noble Lord had to say. Until I arrived here to-day I thought I was going to speak before the noble Lord, Lord Pakenham, and my comments are comments prepared before he spoke. judging by the notes which were taken of Lord Pakenham's speech by members on the Government Front Bench, it would take a man of my mentality some time to get ready to question the noble Lord on the figures and facts which he gave us during his speech. The noble Lord took us rack to a debate on the Government White Paper in which both he and I took part in March of this year. At that time I had the privilege of following the noble Lord, Lord Pethick-Lawrence, who stated in his speech that the Government had made a most courageous effort in producing this great plan. My retort to the noble Lord then was that it was an analysis that was produced, and the plan was to come. The same remark on the White Paper was made by the noble Viscount who opened this debate. Since that time practically five months have elapsed, and to-day we have heard the plan of His Majesty's Government, which has been unfolded by the Prime Minister in another place.

I propose in my speech to deal with a few important aspects with which I have been intimately connected. I spoke at some length in March on the question of coal, on which the noble Viscount, Lord Hall, is going to speak later. Therefore, I will not deal with that at any length to-day. I spoke on the last occasion on the importance of the production of coal in this country as being the one raw material on which the future of the country depends. I think I am right in stating that with approximately 718,000 men employed in the coal industry to-day (whether that figure be right or wrong, it is one for comparison, and makes no difference), based on the pre-war figures of output per man—namely, the figures for 1939—they should produce 208,000,000 tons. One should therefore expect that at least this figure of 208,000,000 tons a year would be reached, without the additional figure for open-cast coal which the noble Lord, Lord Pakenham, mentioned. I think the target for open-cast coal is 10,000,000 tons, but it is difficult to keep to that target because it depends on excavators and things which have to be obtained from America. If you put the figure for open-cast coal at 8,000,000 tons, that would bring the total to 216,000,000 tons a year. The Foreign Secretary himself made an appeal in Durham that we should get back to the 1938 figures of coal production.

One of the main points of my speech is in regard to the question of the allocations and priorities of raw materials. I want to deal with this question as a whole but I will take steel as an example of one of the raw materials to which the noble Lord alluded. That is a product which affects nearly every industry in this country, and it is one of which, as the noble Lord stated, we are in short supply at the present time. I am sure your Lordships will agree that I am entitled to speak on this question of raw materials allocations and priorities, as during the war I had a lot to do with it for His Majesty's Government, both at the Ministry of Supply and at the Ministry of Production. I want to say, here and now, to be fair to the Government, that I know the difficulties which they are up against. One of the difficulties which they are up against to-day is that during the war there was only one customer—the Government—and now you have thousands of customers. Quite early in the war, before I was responsible for allocations (it was when the noble Lord, Lord Llewellin, and Sir Arnold Plant were going into this question of allocations) a scheme was thought out which prevented priorities from absorbing all the raw materials. The point about that is that if during the war priorities had run riot, there would have been nothing at all left for the civilian population of the country. The noble Viscount, Lord Hall, now that he has become a sailor once again, will know better than I do that if the Admiralty particularly want something, especially during a war, they are not backward in asking for it. That applies to the Army and the Air Force as well.

A NOBLE LORD: Or backward in getting it.

VISCOUNT PORTAL

If that scheme had not been propounded by the people who were there before me, there would have been nothing left for the Board of Trade or the civilian population of the country. To emphasize my point, I would mention that two years after the scheme had been in force in this country the Americans, who had come up against exactly the same difficulty, asked us to send a mission to America, and three experts went out under Sir Arnold Plant to explain our scheme of allocations. I think it will be found that the Americans thought it worked very satisfactorily.

I have taken the question of priorities as a whole, before coming to the question of steel itself. After the fuel crisis in the early part of this year the Government laid down six first priorities for the allocation of steel. Those priorities were:

1. (1) Electricity generating plant required by electrical undertakings.
2. (2) Machinery and equipment for deep-mined and open-cast coal production.
3. (3) Plant and equipment required by gas undertakings.
4. (4) Equipment for coal to oil conversion.
5. (5) Freight locomotives, railway wagons for transport of coal, and steel rails for the essential maintenance of the permanent way.
6. (6) Atomic energy projects.

I agree that these are all highly important, four of them being for the Ministry of Fuel. But what I should like to know is, what is the effect of these if you balance up the requirements of steel for the exporting firms of this country, who are going to be asked to step up production? I was discussing this position with the head of one of the largest concerns producing motor cars in this country, a man whose name is a household word, and who employs a very large number of men in the motor car business, and he told me that the motor car industry is at the present time utilizing a bare 60 per cent. of the man hours that its equipment and the demands for its products warrant, both at home and overseas. This state of affairs is almost wholly due to lack of material, and predominantly to the lack of steel.

With substantially less than its present factory capacity and equipment, however, the motor car industry before the war was producing nearly 400,000 cars a year. In 1945 requisitions were made and accepted for material to produce a similar quantity. In actual fact, because the materials were lot forthcoming, the output of 1946 was only 219,000 cars. Towards the end of 1946 the rate of production in the factories did reach something approaching pre-war level. Since then the allocation of steel to the industry has been progressively cut. To people in industry to-day this is difficult to understand, as the output of steel to-day has an annual target of approximately 12,000,000 ingot tons. If I may, I will correct the noble Lord, Lord Pakenham, because I obtained that figure this morning. At the present time it is not quite reaching 12,000,000 ingot tons; it is running closer to 11,000,000 than 12,000,000 tons. I wanted it to be 12,000,000 to make my point, and that is why I took infinite trouble to verify it.

The target is 12,000,000 ingot tons per annum, as against 10,000,000 tons in 1939. I am only taking this as an illustration of what we are up against. Before the war, motor manufacturing utilized about 8 per cent. of the total steel production, and to-day the allocation to this great industry represents only 4 per cent. Therefore, the steel that is being produced in Britain is being diverted into other channels. Do these channels represent the high conversion factor of foreign exchange that is represented by a fabricated motor car when it is shipped overseas, and do these channels represent our industries or specialities that can also claim a high conversion factor of foreign exchange? It is from this point of view that one has to look at the six priorities fixed by the Government—and this is the point to which I wish to draw the attention of the Government—to see if the balance is fairly maintained for our export trade.

If we have to step up our production for exports, how can you ask the motor industry to produce more, when at the present time they can utilize only a bare 60 per cent. of their man hours? There is nothing worse, if you understand factory management, than to have your men working at 60 per cent. There are other exporting industries who are in exactly similar plight. One must remember, too, as the President of the Board of Trade has told us, that the sellers' market is on the decline, and the extra cost of working short time in these industries will make it very difficult for us to export in competition with other countries. What we should do—and this is my own view upon it—instead of starting with priorities, is to see, first of all, what we can do without, and having cut out all the non-essential requirements then see what remains to be provided for.

Before I finish on this question of allocations and licences I wish to put one point which I think is most important. I alluded in my speech on the White Paper to the enormous number of forms to be filled up and the time that one has to wait before one can get requirements through. The machinery is, to say the least, overtaxed. Your Lordships have heard that point raised again to-day. Not only in the Civil Service, but in every industry to-day, you are losing all the extra labour which has to be taken on to cope with these forms. It is so easy to talk about football pools. I have never taken part in football pools of any sort, but if you got me on other subjects of sport I could not speak so impartially. I am putting forward a suggestion which I think may be accepted. If to-day you go to a main contractor for new pl ant and try to get him a licence, you will find that he has twelve or fourteen subcontractors all trying to get their licences separately; that is to say, you get four-fifths of your job ready and then one of your sub-contractors cannot get a licence for some pipe.

I think a great number of forms would be saved to-day if the main contractor acted as agent for the sub-contractors, and took out an omnibus licence for the lot. I assure your Lordships that I know about this subject, and I think the Ministry of Supply are always ready to listen to one's views. This will mean a lot of extra controls and more officials, so, for goodness sake, where we can, let us see if we can quicken a machine which is getting slower and slower, and get it back to the regulated pace which we knew. It will be necessary to try to get the essential industries working at their maxima m output, and this means that their manpower must be made up to full strength. I asked the noble Lord, Lord Pakenham, when I was speaking on the Government White Paper in March, whether in view of the fuel crisis it would not be more logical to stop building new factories until we were certain that the existing factories had enough fuel, power and materials to run at full time. My reason for suggesting this was that if men could not work full time, either through lack of fuel or other raw materials, the cost of production would work out at such a high figure that when the sellers' market was on the decline it would be difficult to find markets for our goods.

I consider that this question becomes much more urgent in the present crisis. Most of these factories are being built in the designated areas, which were the distressed or special areas before the war. In those days we helped to start up many industries in these areas where large numbers of unemployed, who were not wanted for the mines, lived. Now the position is reversed. The first priority for people in the mines to-day should be houses. Many more men are wanted for the mines, and these new factories must draw to them men who are required for work in the mines. The noble Lord knows my views about the diversity of employment. The question of the number of men who are required for production must be looked at, together with the great number who are having to be employed by the Government in administrative jobs, which also adds to the number of men employed in administration in the various industries themselves. Production must come first, and with the various controls that it may be necessary to institute for the time being, the number of men required for production must be carefully watched.

We in this country have fought two great world wars, and the last one, which for a year we had to carry on alone, overstretched our national resources. In both these wars we found ourselves unprepared; and we suffered accordingly. Now we have a very grave economic crisis, and although force of circumstances has brought this upon us we cannot escape responsibility for our part of it. We have, to my mind, been living too much in a world of illusion. We have won our two World Wars because at the last moment we faced up to the situation. I am sure that in the same way we must face up to our present crisis, and in that way we shall pull through once again.

6.0 p.m.

LORD TREFGARNE

My Lords, as this is the first time that I have ventured to speak in this House I ask for that indulgence which your Lordships are so generously inclined to give at such a time. May I begin by saying how much I appreciated the fairness which, it seemed to me, animated the speeches made by the noble Marquess, Lord Salisbury, and the noble Viscount, Lord Samuel, and also that of the noble Viscount who has just sat down. As Viscount Samuel truly said, there was a very great temptation to make use of this momentous occasion in order to launch a political attack on the Government of the day. I am very glad to feel that, in this House at any rate, the temptation was resisted of blaming the Government in whose time these maladies have come to the surface rather than of assessing those irresistible events which are the true cause of our trouble.

I want to say a word at once about the tremendous announcement which came to us out of the mouth of the noble Lord (Lord Pakenham), about the measures which the Government are taking. I am not a strong Party man, like a great many members of your Lordships' House, but I felt that Lord Pakenham had good cause to say that he was proud of the measures which this Government have brought forward. Not only did he, as I thought, demonstrate that these troubles had come upon us very largely from circumstances entirely outside our control, but the figures he gave, which I am sure your Lordships will read more attentively in the morning, illustrate that many immense factors which were entirely beyond anything that could possibly have been foreseen have brought about the predicament in which we temporarily find ourselves. I do not know whether your Lordships will think it out of place for me to say a word Of praise, even in the middle of the struggle, but everybody who has had any part in the business of government—I have had only a very small part myself—knows how thankless a task it is. I hope, therefore, that your Lordships will not feel it out of place if I pay a tribute of respectful admiration to members of the Government, particularly those who have, through lean and dangerous years, borne the tremendous fret and fatigue of public affairs. When they are faced, as they are at this momentous crisis, with the bringing in of far-reaching and drastic and courageous measures, it would be a very unfair man indeed who abstained from paying them personally and politically some tribute for what they have done.

If any of us had any doubt before the noble Lord, Lord Pakenham, spoke, that this was primarily a dollar crisis, such doubt must have been removed by what he said. Although those measures which have been announced here and in another place to-day go a very great deal of the way to meet our immediate situation, I am still not entirely satisfied that the long-term causes of the economic disequilibrium between ourselves and the United States have been fully faced by this Government or by any of their predecessors. I want, quite plainly, to suggest to the Government that they should address themselves resolutely—I do not know what has happened in the last few weeks—to regaining a greater liberty of action in relation to that fundamental matter known as discriminatory arrangements. The relative agreements which bind us to those arrangements beginning, I believe, with the Mutual Aid Agreement of 1942, are couched in extremely obscure terms. As an ancient English philosopher put it, they are full of patent and latent ambiguities. They have also some very obvious loopholes.

When we read through them—I am beginning with the Unilateral Declaration of 1941, the Mutual Aid Agreement, and the Loan Agreement which your Lordships debated in March of last year—it is obvious in almost every clause that our negotiators have had to build bridges across almost unbridgeable disparities of opinion. I want to suggest that perhaps one of the greatest needs as a foundation for our future economic relationships with the United States is that there should be some dual machinery which will enable us more effectively to explain our difficulties to the United States, and will enable the United States to explain their difficulties to us. We always have the negotiators' reports after these agreements, and your Lordships will recall hearing the late Lord Keynes tell us that he felt, after only two days in Washington, that the distance between us and the United States was wider than the wintry waste of the North Atlantic.

Then again, we hear that in the actual terms of the agreements themselves, they are not only far from satisfactory to the United States but, as we know in this country, far from satisfactory to us. Whenever we attempt to gain some greater measure of agreement with the United States, we are always told that there is either a Presidential election or a Congressional election, or some other political reason why it is impossible for the United States leaders to go further to meet us in the direction that we desire. At the same time as Lord Portal was engaged in the Ministry of Production, I had a very humble Ministerial role there and had something to do with the administration of these arrangements in relation to the United States, and I must say I was immensely impressed during those years with the extreme disparity of opinion between us and that great country on questions affecting the Productive capacity and the export trade of the United States.

In The Times of last Monday a statement was made which bears out what I have attempted to say. It was by the very able Washington Correspondent of The Times. He said: According to Mallory Browne, of the New York Times, what Mr. Attlee must say concerning Britain's economic situation— and, of course, what the noble Lord, Lord Pakenham has said to-day— 'will be the gravest pronouncement since the declaration of war in 1939.' If this should .prove to be measurably true, it is a fair assumption that no more than a few hundreds of Americans will fully understand how such a point of urgency has been reached or comprehend the complexity of causes whereby a loan of 3,750,000,000 dollars, which was theoretically to last until 1951, should in 1947 be near to exhaustion. The part which developments in the United States have played in accelerating the speed at which the crisis has approached will for the average American be secondary. It is upon failings in administration of affairs by the British Government that he will concentrate, and in particular upon their alleged inability to see how less than adequate was their firmness in dealing with conditions within their control. Admittedly this will not he entirely fair. It tales no account of the tact that next to the United States the United Kingdom has made greater progress in peace-time production than any other country. I should like this suggestion put forward to the Chancellor of the Exchequer and also to Mr. Bevin: that it may be that their long and patient efforts in these fields are not being as efficiently and skilfully backed by our information agencies in the United States as they might be, end that if we are to walk hand in hand together as two nations—as I believe we ire bound to do—we must surely pay some attention to these extraordinary differences that arise between us.

I want to say one word about the question of the discriminatory arrangements, and particularly about the parallel obligation which rests on the United States to reduce tariffs, contemporaneously with the abandonment by ourselves of preferential arrangements. I am hound to say that I have grave doubts whether it is possible for any Government in the United States to make any substantial reduction in the United States tariff at all. We have watched the course of events there, how they have firmly resisted any rise, or any adequate rises, in the imports of raw materials and other imports; and how at the same time they have permitted, by the abandonment of price controls, a rise in their own prices amounting to 50 per cent. since the date of the loan to us in the case of those goods which are the subject of our purchases from them. They have invented, or if not invented, at least revived the ingenious protective practice of requiring a percentage of home-produced raw material, rubber, to be included in all manufactured goods. They have established large preferences, I believe, in the case of imports from the Philippine Islands and other dependencies. It was only very narrowly that an entirely new tariff on wool and woollen goods into the United States was avoided, and it may yet be revived.

Therefore, I say it is quite clear that the present policy of the United States, which will be pushed to its uttermost limits, is a policy of high exports and low imports, with tardy and reluctant balancing of the account by overseas loans and investments. I am not putting that forward as any complaint against the attitude of the United States, but I say that our policy must be founded upon an understanding of what is possible for them. Some people say that this policy is due to the attitude of the pressure groups in the United States, but I think that is not entirely a correct appreciation of the position. It is a fundamental part of the national outlook in the United States.

But apart from the national outlook, and the Government machinery as such, the National Advisory Council, which would have to approve any such reductions, is an inter-departmental body in which many voices are heard. Anyone who has had any experience of inter-departmental bodies on which many departments are represented will know what a tremendous task those who form one group on the committee can effectively play in getting through policies to oppose which a large amount of influence can be mustered. And it is not only in the international attitude of the United States but in the inter-State relationships also that this outlook is to be seen. I believe it is correct to say that in ten States there are ports of entry, with all kinds of restrictions. In twenty-eight other States there are considerable preferences for the goods and products of those States. Then, in the United States generally, the Press, publicity hoardings, and so on are always lurid with appeals of a. protective character of the "Trade at Home," "Buy Minnesota" type.

I would like to summarize the matter in a short way. Nowhere in the world have restrictive and protective practices been so variously and ingeniously expounded as in the United States. This, of course, is not due to any excessive parochialism in that country. It has a very material and substantial foundation. It is founded upon the enormous, steady acceleration of their productive capacity which has been going on, at a rate which economists know about, for a great many years, and it took a tremendous lurch forward during the war. Though I am not proposing to give your Lordships a great number of figures, I have three figures here which indicate, first the gross national product of the United States in 1939, the gross national product in 1943, and the gross national product today. There are some noble Lords present who like to watch these things and who know the figures already, but perhaps I may be permitted to remind others.

The gross national product in 1939 was 106,000,000,000 dollars; in 1943 it was 187,000,000,000 dollars. That was with 10,000,000 of her best producers absent on military service. That was a rise from 106,000,000,000 dollars to. 187,000,000,000 dollars, and to-day, with the return of her Armed Forces and certain other adjustments which have to be allowed for, the current gross national product is 225,000,000,000 dollars. Therefore, between 1939 and 1947 the gross national product of the United States has more than doubled, a phenomenon in international economics which must be taken account of throughout the world and in particular by Britain in formulating her trade relationships with that country. I think that it is highly probable that there may be some measure of inflated value in that. I have taken these figures from an extremely authoritative source and, as we all know, figures are liable to a certain amount of annotation and explanation in statistics, but I think that is a fair generalization because the figures prove that the gross national product of the United States is to-day double what it was in 1939.

Therefore, how can they begin to consider admitting large quantities of foreign goods into their markets if they can possibly avoid it? Remember that the penalty ever present in the minds of United States statesmen is the peak unemployment figure which reached twelve millions between the wars, and even in 1939 was eight millions. I am not pretending that they have to find exports for the whole lot, but unless they can find some substantial outlet for this enormously increased productive capacity, they are faced with devastating problems of unemployment. So far as Britain is concerned, we received in the first quarter of this year only 332,000,000 dollars' worth, whereas we exported to the United States exports to the value of 47,000,000 dollars, of which the largest single item was old brass. Therefore, even with that small marginal outlet to Britain of her export trade, there is an enormous adverse balance of trade between ourselves and the United States. So I want to ask the noble Lord, Lord Pakenham, if I am not adding to his many distractions at the moment, what substantial grounds have the Government got to expect that there is possible any material reduction in the United States protective system? I notice that it appears to have been dropped out of the financial agreement of 1945: it was always tagged on to all previous agreements. This time it was not even tagged on, and I think there must be some very frank facing up to this question in our current negotiations with the United States.

It may be asked—and it would be a perfectly fair question—what good purpose is served by emphasizing these differences? I answer that, unless in this country we gain a full understanding of what it is possible for the United States to do in its trade relations with us, and unless they gain an equal understanding of what it is possible for us to do, which they have not yet succeeded in accomplishing, then we can never arrive at a satisfactory common trade policy. I want to say that I regard myself as second to no man in my desire for friendship with the United States. Nothing that I have said must he taken as being critical of the United States. I say with sincerity that in Britain there is a great affection for the United States, and we are bound together by a common ultimate aim and outlook. I think there are greater dangers in the world than the American export surplus. We are bound together by so many common factors. I say that people who are bound together in that way might just as well get into the habit of giving each other those ordinary indications of approval or disapproval which will enable them to travel along the same road together, or they are going to have a very uncomfortable time. I do not think that any mealy-mouthed excessive refinement of diplomacy is a very effective method, and no one wants anything in the shape of rudeness. Sometimes I think that the old methods of wrapping it up, if I may use a colloquial expression, have been employed far too much in our commercial negotiations with the United States.

I am certain that your Lordships will feel that the chief duty of any who ask for the ear of your Lordships in this debate is not to recriminate but to make plain what course of action they propose. I have excluded from my remarks Any question of moral incentives. I did not hear anything in the speech of Lord Pakenham on that subject, but I am not proposing to enlarge upon that because I feel that it might come more becomingly from one of longer standing in your Lordships' House. I feel that without that many Of the other steps will Ix in vain.

So that the main proposal which I want to submit—I know others will submit it as well—is that we must regain liberty of action to reconstruct the whole pattern of our trade, and in particular that we should reject the interpretation placed upon Article 9 which prevents us from making discriminating arrangements with our Dominions and Colonic. It is really a monstrous proposition that, if we have the sterling to buy food from our Dominions and Colonies but have not the dollars to buy it from the United States in equal proportions and price, then we must sap our strength and vigour by declining to buy it at all. I cannot understand why, whatever might have been our plight, we have so confused the minds of the American public, who are not too easy to put these things across to, by allowing an interpretation of that to be possible in any Agreement that we might have entered into with them.

These raw materials and foods form an infinitely larger proportion of our mutual trade than any manufactured goods. I have a figure of the 1947 import programme of £1,450,000,000 of which £1,240,000,000 consisted of food and raw materials. Quite clearly, if we tackle those enormous spheres of imports, we shall do a great deal more than we can possibly do by nibbling at manufacturers and so on, although I do not say that manufacturers should also be excluded. I further say that we ought to be free in certain cases to enter into bilateral trading arrangements. I accept fully—although I do not claim any knowledge; I only listen to the experts themselves, and I have listened to them for a great many years—the proposition that multilateral trade is the grand ultimate aim looked upon as a possibility of achievement over the course of the next twenty or thirty years. I think it is a thing to which we should harness ourselves. But as an aim to be looked upon as a practical proposition in the next five years, I feel it is nothing more nor less than a Utopian international theory. It is true there is some machinery in the International Monetary Fund for making provisions for these emergencies, and I should like to ask what the Government think of those safeguards which make it possible for the International Monetary Fund to declare dollars a scarce currency, and to relieve us from all those obligations. I should have thought that it was pretty plain that the dollar has been a scarce currency for a long time now, and nothing has happened on the part of the International Monetary Fund.

My Lords, I am going to conclude with these words: that I have no doubt whatever that Britain will overcome the present economic embarrassment. It was necessary to get worse, and now we are in a position to say, in the words of the poet whom we share with the United States: The worst is not, so long as we can say 'This is the worst'. Of course, we know that in the United States there is still a considerable amount of misgiving about Britain and the British future, but I think the United States have always been a little prone prematurely to write off the strength and power of Britain, and, at the same time, they have not altogether burned the boats of co-operation, just in case. They have still held our hand, and they have proved to be justified in doing so in the past. My Lords, as often before, the world needs the strength and influence of Britain, and I believe, as often before, that Britain will save herself by her exertions and the world by her example.

6.32 p.m.

VISCOUNT BRUCE OF MELBOURNE

My Lords, it is my privilege to offer congratulations to the noble Lord who has just sat down upon his maiden speech in this House. I understand that he is not altogether unfamiliar with a deliberative assembly, but your Lordships' House differs in some respects from any other deliberative assembly in the world. It has the reputation, I believe, of being a most difficult place in which to speak, and I can confirm that from my own experience. But I congratulate the noble Lord upon having so triumphantly overcome those difficulties.

This debate is concerned with the economic position of this country, and I venture to suggest that it is concerned with it not only from the short-term, but also from the long-term view. There has been a tremendous marshalling of facts, and a great deal of information supplied, although by no means all that we ought to have if we are to judge the situation. I think from that it emerges quite clearly that our position is that, at the moment, and for some period ahead as far as can be seen, unless we can take very drastic action we shall be purchasing more than we shall receive from our sales abroad. Unless we can cure that situation this country is running towards bankruptcy, with the destruction of the standard of living which we have built up over generations. That is a situation which is serious beyond words, and to-day we have all waited with great expectation to hear the statement of the Prime Minister as to the action which the Government contemplate taking.

We have heard a summary of that statement in this House. It is somewhat difficult to judge, from a first hearing of so important a statement, as to whether it does meet the circumstances, and whether it is likely to achieve the result we all want to see. But I would say, for my part, that I would be prepared to accept that statement if, on a close examination of it, one found that it does not contain any word which implies anything of a sectional nature, that it is the statement of a leader in a national crisis, calling for national unity; and if it is of a character likely to restore that national unity which we had during the war, which is just as essential to-day—a unity which enabled us to accomplish the seemingly impossible in those critical years. That, I think, should be the fundamental feature to such a statement. We do not know whether it has that in it or not, but I pray to God that it has, and that it will rally this nation, because it is vital that we should again become a united people.

On the acid tests of the things that it may contain, it seems to me that it is relatively simple to get down to the fundamentals. As I see it, it is fundamental that at this time we should take whatever steps are necessary to try and bring about an equilibrium between our exports and imports. That means that we must take drastic action internally. We have most certainly at this stage got to ensure that we do get the best utilization of our available materials, and the best use of the labour force that is at our disposal. If we are going to do that, it seems to me we have got to abandon many projects that may be eminently desirable in themselves but which, at this particular moment, we just cannot afford. One has been referred to to-day, the Severn Bridge. It is almost inconceivable that we should go on with that, and employ material and labour upon it at this time. Equally, we have got the question of the electrification of the railway system, and we have got the planning of great new satellite towns. All these things will be desirable at some time, but I cannot believe that any one of them ought to be gone on with to-day. What we have to concentrate on with regard to our imports is that we should only bring in the foodstuffs that are essential for maintaining the standard of living and the morale of our people, and the raw materials which are going to contribute to, and which are necessary for, an increase in our export production. Those tests, I think, have got to be applied to what the Government are doing, and, if they are doing those things, then it seems to me those are the things that are essential.

But again, we have got to have leadership from the Government in this crisis, in saying, with regard to the question of its being necessary, as it probably is, ..hat in respect of labour there may have to be some alteration in hours or in conditions and in things for which the Labour movement has fought for years. You can only achieve those things by the Government's determined leadership, by the Government assuming the responsibility, and, if you will, the unpopularity. It seems to me grossly unfair always to be seeing trade union leaders and negotiating with them, because it is inevitable in those circ am-stances that you are forcing the unfortunate trade union leader, more or less, to take the responsibility for the things he is asking his people to do. That is not his responsibility, it is the responsibility of the Government. In that respect it seems to me. we must have real leadership from the Government. Those are some of the things concerned with the short-term policy that we are pursuing, and must pursue if we are going to keep out of trouble. If we find on examination that the Prime Minister's appeal is an appeal to the nation, if it has no sectional flavour in it at all, if we are of the opinion that the action the Government are taking is wise and necessary, then we are all going to respond to it. We must recognize that it is going to mean the imposition of discipline and sacrifice on this country—discipline and sacrifice which the country will have to impose to a great extent on itself, for there is a limit to what the Government can do.

One thing which worries me very much is the statement we have had to-day that there is only £250,000,000 left of the great American Loan, and that the outgoing from that credit in the month of July was £170,000,000—admittedly an inflated figure, as has been pointed out. But £250,000,000 is a very short distance from the absolute crisis, and it is only at this eleventh hour that the Government come forward with definite proposals. In view of the calls on this loan, I suggest that we ought to have foreseen a year or eighteen months ago that this crisis was coming, and taken steps to meet it. I do not accept the explanation that has been given, that the non-recovery of Europe as rapidly as we hoped and the consequent rise in all dollar prices was the cause of the present crisis. If neither of those things had happened, the amount at our disposal, in the light of the difficulties we were up against and the task we had to reconstitute our industry and economy, should have caused to be taken months ago such prudent steps as are being taken to-day.

LORD AMMON

My Lords, I am very sorry to interrupt the noble Viscount, but may I point out that there is a Royal Commission at a quarter to seven.

House adjourned during pleasure.

House resumed.