HL Deb 18 December 1947 vol 153 cc363-431

3.44 p.m.

Order of the Day for the Second Reading read.

The CHANCELLOR of the DUCHY of LANCASTER (Lord Pakenham)

My Lords, I rise to move the Second Reading of the Finance Bill (No. 2), 1947. I think that most members of the House are aware have arisen between the Parties. It is purely a technical point, but even if it affects very few areas, it is better to have justice done.

On Question, Whether the words "three-fifths" shall stand part of the Bill?

Their Lordships divided: Contents, 16; Not-Contents, 45.

Jowitt, V. (L. Chancellor.) Ammon, L. Marley, L.
Crook, L. Mountevans, L.
Huntingdon, E. Henderson, L. [Teller.] Pakenham, L.
Holden, L. Pethick-Lawrence, L.
Addison, V. Inman, L. Shepherd, L.
St. Davids, V. Lucas of Chilworth, L. Walkden, L. [Teller.]
Salisbury, M. Simon, V. Hutchison of Montrose, L.
Trenchard, V. Kenilworth, L.
Beatty, E. Killanin, L.
Carlisle, E. Airedale, L. Kinnaird, L.
Fortescue, E. [Teller.] Amherst of Hackney, L. Llewellin, L.
Howe, E. Balfour of Inchrye, L. Lloyd, L.
Iveagh, E. Brand, L. Mancroft, L.
Lindsay, E. Broughshane, L. O'Hagan, L.
Lucan, E. Carrington, L. Rennell, L.
Munster, E. Cawley, L. Rochdale, L.
Perth, E. Cherwell, L. Roche, L.
Fairfax of Cameron, L. St. Oswald, L.
Elibank, V. Gifford, L. Stanmore, L.
Long, V. Hatherton, L. [Teller.] Teynham, L.
Mersey, V. Hawke, L. Tweedsmuir, L.
Samuel, V. Howard of Glossop, L. Waleran, L.

of the external factors which have imposed on us a rather peculiar pattern of operations this afternoon. We think that what we are doing is most convenient in the circumstances, and briefly the suggestion for procedure is this. I would ask your permission to turn away in a moment from the Finance Bill in order to make to you an important statement that is very shortly being made elsewhere by my right honourable friend, the Foreign Secretary, dealing with the recent meeting of the Council of Foreign Ministers. After that, I propose to continue to introduce to you the Finance Bill, confining myself fairly narrowly to its provisions and leaving till later in the afternoon any wider treatment of the economic position of the country. Noble Lords who follow me on the Second Reading will not, of course, be inhibited in this or in any other respect, and when they have said their say I hope and trust that the House will give the Bill a Second Reading.

I should then desire to inflict myself again on the House in moving the Third Reading of the Finance Bill, and at this point to introduce a certain amount of new matter which is being laid before another place by my right honourable friend the Chancellor of the Exchequer. Noble Lords (including, let us hope, the noble Viscount, Lord Samuel, who so kindly withdrew his Motion last week) will probably wish to offer their views on the questions raised. Finally, if a reply seems to he required, I shall crave the further indulgence of the House to address them for the fourth and last time. I can assure the House that I extend to them a liberal measure of sympathy in regard to the somewhat monotonous diet that is about to be placed before them, but I hope for a certain measure of indulgence in return.

My Lords, I will make to you, if I may, the statement that is being made elsewhere by my right honourable friend the Foreign Secretary. I will use his words so that when I avail myself of the expression "I" it refers to my right honourable friend the Foreign Minister and not to myself, although of course I entirely endorse his remarks. This is the statement:

"I very much regret to have to report to the House the failure of the Foreign Ministers' Conference to reach agreement on a German or Austrian treaty. The House will be well aware that at Potsdam, under the Potsdam Agreement, there was established the Council of Foreign Ministers, which was given definite instructions. Its specific purpose was to draft the Peace Treaties for Italy, the German Satellites and Germany and Austria. While it is true that in the making of treaties, questions of policy of a fundamental character arise, its main purpose was to be a business-like instrument for the drafting of peace treaties for submission to the Peace Conference. The exact language is as follows: As its immediate important task, the Council shall be authorized to draw up, with a view to their submission to the United Nations, treaties of peace with Italy, Rumania, Bulgaria, Hungary and Finland, and to propose settlements of territorial questions outstanding on the termination of the war in Europe. The Council shall be utilized for the preparation of a peace settlement for Germany to be accepted by the Government of Germany when a Government adequate for the purpose is established.'

"Unfortunately, ever since its existence the Council of Foreign Ministers has alternated between carrying out its original functions and being used for entirely different purposes. Our work has therefore been handicapped. This has created despondency in the world, instead of the hope that the responsible Ministers of four Great Powers would be able to get to know each other, express their views freely to one another, and thereby promote a spirit of friendship and understanding. This has not been the case. To His Majesty's Government it has been a great disappointment. In our view, negotiations for the Peace Treaties for the satellite countries took far too bag, and created a great deal of misunderstanding. In our view the Italian Treaty was delayed months longer than should have beer the case. However, in New York we did at last achieve that purpose. Thus, at last, we got to work on the Austrian and German Treaties.

"In the view of His Majesty's Government, the Austrian Peace Treaty was separate and distinct, and could have been settled quite easily when the satellite treaties were concluded had there been the will to settle. Austria, Eastern Europe, and the Balkans would now have been working hard on reconstruction and rehabilitation. The main difficulty in the case of the Austrian Treaty, as the House is well aware, was the question of German assets. At Potsdam we were given to understand that the Soviet Government would not claim reparations, but would be content with German assets. But the interpretation that has been placed by the Soviet Government on German assets has resulted in the property of United Nations nationals being taken. Austrian property has been taken, and extra-territoriality in the exploitation of these resources has also been imposed.

"In fact, it would have been better for Austria, far better, to have fixed a sum which she knew she would have to pay, and then to have left her with the control of her own economy. What was thought to be a generous act has in effect been used to get a grip on the whole of Austrian economy. To the extent that the vagueness of the wording of the Agreement gives an excuse for this, we can say nothing. But when it is carried beyond that, we have to get a definition. When in addition, you include in the term 'German assets' the whole question of what was absorbed by Hitler after the Anschluss, it was in our view carrying it too far and was never intended. This, in a few words, is what has held us up, However, at Moscow the question was discussed. We failed to reach agreement. We set up a Commission in Vienna to work on it and a concrete settlement was submitted which was adopted by three of the Governments. We offered to make a contribution to the solution of this problem in order to help to get a more definite and final proposal. However, in spite of the breakdown of the present session of the Conference, the Austrian question has now been referred to the Deputies, and I will not say a word which would embitter the situation. We can only hope that a concrete proposal for settlement will soon be forthcoming. If we get it, we will get to work at once and try to clear up this Austrian situation.

"As regards the German settlement, before I went to Moscow in March of this year, His Majesty's Government worked out a set of political and economic principles, based on the Potsdam Agreement. These principles were well thought out, and they have been circulated to the House. We tried at Moscow to make these principles a working paper in order to present in all its facets the whole problem of Germany. We made very little progress. However, I left Moscow not without hope that in November, when the Conference would meet again, a changed situation would arise. But in the meantime, from a propaganda point of view, things went from bad to worse. I will try to explain the situation in a few words.

"Europe was in chaos, impoverished, unable to find capital and other equipment for rehabilitation. Then came the Marshall speech. We tried to turn this to the advantage of Europe as a whole, but to our great grief, instead of every country taking advantage of the plan, the Soviet Union stepped in and used tremendous pressure on their immediate neighbours and, in effect, ordered them not to participate, and violated their free choice and sovereignty. A campaign was started by the Soviet Union against this attempt to help Europe as a whole. Then came the formation of the Cominform, and the resulting disruptive tendencies in Western Europe. The speeches made by the Soviet Union representative at the United Nations Assembly seemed to His Majesty's Government intended to create an atmosphere which would make settlement very difficult.

"Similar attacks were made at the Control Council in Berlin just before the Conference opened. This did not augur well for the Conference. But still we persisted and went on with the Conference, hoping that in the calmer atmosphere of discussion we should make progress. I have experienced so many of these set-backs, and I hoped that the steam having been blown off, we might at last be able to get to grips. Unfortunately the hostile propaganda showed itself through all the discussions during the three weeks the Conference lasted. It made it impossible for us to get to grips with any fundamental principle. Then when we came to the Conference, we began with an unnecessary argument about our agenda. We settled this after two days and the Austrian Treaty was referred to the Deputies after considerable difficulty. It came back to us with no result. Then we at last succeeded in getting the British paper on Germany accepted as a working paper. When we got to grips with it, however, the real issues came up and on these we could not make any progress.

"On Germany we began with the form of the German Peace Treaty. A number of propaganda speeches were made which were clearly out of place. After these we came to the question of German frontiers. We clearly must reach agreement on the frontiers of Germany, subject to confirmation at the Peace Conference. As Monsieur Bidault said, it is ridiculous to try to discuss German affairs without knowing where Germany begins or ends. The French put forward their claim for the economic integration of the Saar. As the House knows, His Majesty's Government have always supported this, provided the exact frontier is delimited and the reparations balance adjusted. There were also a number of other frontier claims put forward by our other Allies. I suggested that the Council should establish one or more frontier Commissions to go into these claims thoroughly, to hear the evidence and to report to the Council in a short time. These Commissions would cover all the frontiers of Germany. What other means could we adopt for settling these difficult questions? M. Molotov however would not agree, and we had to pass on, leaving this matter unsettled. We did manage to reach agreement on a few minor points about the German Peace Treaty, but there could be no substance in the agreements until the other urgent matters had been settled.

"The next matter we discussed was the economic principles—that is to say, the principles for securing and maintaining the treatment of Germany as an economic unit in accordance with the Potsdam Agreement Certain fundamental points were thrown up at once. There was, first, the need for a common export-import plan for Germany as a whole and the pooling of indigenous resources. If these objects are to be realized, the zonal barrier must come down and there must be complete freedom of movement for men, ideas and goods throughout the whole of Germany. M. Molotov did not reject this but made it clear that he would not agree until Central German Administrative Agencies had been set up, and this was left until we got to political principles.

"The next point was the unqualified principle that the first charge on Germany's foreign exchange resources, after Germany's essential needs had been met, should be the repayment of the sums advanced to Germany for the payment of her imports. This principle was in exact accordance with the Potsdam Agreement. We got nowhere on this and were met with a number of unjustified and false accusations. I made it clear that we had had to borrow precious dollars and deprive our own people of what those dollars could buy in order to finance the import of food into Germany. His Majesty's Government expected these advances to be repaid out of Germany's resources before any more was taken away from the German economy.

"A third fundamental question was the relinquishment by the Soviet Government of their acquisitions of German enterprises. These acquisitions amount virtually to the exercise of extra-territorial rights in Germany. We asked for an undertaking that they should stop, which is in accordance with Potsdam. In reply, we were accused quite untruthfully of removing enterprises from our own Zone; and no undertaking was given.

"We then came to the question of reparations. Let me make my position clear once again. Capital reparations have been and are being removed from the Western Zones. This is all to which His Majesty's Government are committed. We did not agree at Potsdam or at Yalta, or anywhere else, to reparations being taken from current production. Nor did we ever agree to an over-all figure, whether ten billion dollars, or any other amount, for German reparations. On the other hand, I have never closed my mind to the possibility of reparations from current production once a balance of payments has been reached in Germany. This is an intricate question and it depends upon the level of industry, the rate of German recovery, and above all upon full information as to what has already been taken out of Germany. We and the Americans gave this information in full and we asked, as we: have asked before, for information about removals from the Eastern Zone. This request was refused. We were told that we could only have the information if we agreed to the Soviet claim to reparations. Our request was just and reasonable, and we asked no more of our Allies than we had done ourselves. I could not make any blind commitment in these circumstances on behalf of His Majesty's Government. Reparations can only be paid if materials and food are found. I cannot commit this country to finding more money for Germany in order that reparations may be paid to others.

"Throughout the whole of the Conference, there was insistent pressure by the Soviet Delegation to get us to agree to the immediate establishment of a Central German Government. The view of His Majesty's Government on this is clearly set out in the political principles to which I have referred. We recognize how important it is to have a Central German Government, just as we recognize the importance of the unity of Germany. We do not want an over-centralized German Government: one that can so easily become a dictatorship. But we are in favour of a Central German Government. It is a question of its design and powers. It must he a truly representative Government, and not one which is simply a tool in the hands of the occupying powers. It would be no service to the German people, or to the world, to agree to establish in Germany an unrepresentative and bogus German Government. An attempt was made to make us appear as the opponents of German unity and the opponents of a German Government. Nothing could be further from the facts. The essential unity of the German people is something which we recognize, and sooner or later—and I hope for the sake of us all sooner—this unity must be achieved.

"Finally, a word to the German people. I realize that they are still without a Peace Treaty and that the work of preparing a Peace Treaty has hardly yet begun. I realize how disappointing this must be. It is our intention, however, to see to the best of our ability that the German people do not suffer from this state of affairs. I do not know what is going to happen in the future. We have been accused of all kinds of preparations. Perhaps it is a fair criticism to make against us, not that we have made these preparations, but that we have not made them. If it is imagined that we have entered into all sorts of commitments in the case of a breakdown of the Conference, it is untrue. All sorts of insinuations have been made, but we have stuck to our policy of German political and economic unity under Allied control and with safeguards for our security. That has been His Majesty's Government's policy throughout and we have not changed it.

I have made it clear, however, in the Conference, that if there is to be no settlement between the four Powers we cannot go on for ever with the burden of cost and with Western Europe in chaos with no means of redress. His Majesty's Government would prefer time to study the problem as it now is in all its aspects. It really means taking a grave decision in face of the world and the future: and we would prefer to meet the House after the Recess in a full debate, when we can go into this matter more fully

"We have no aim or desire to divide the world. The termination of this Conference and the manner of its ending will cause people to think. We cannot go on as we have been. We have hoped against hope that four-Power collaboration would work. Most of the world Parties can find a basis of agreement. They cannot all be wrong. We shall close no doors; we shall maintain all the contacts we can. But if we are to succeed there must be acceptance that we are a peace-loving people and desire a just settlement. We do not regard or accuse those who do not see eye to eye with us of being warmongers or dishonest.

"Meanwhile, we are going to push on with vigour to raise the German standard of life, in accordance with our promises to rehabilitate their industries, but keeping to the new level of industry and always remembering that we must not push Germany ahead of the liberated countries."

I am grateful to the House for having allowed me to make this statement.

4.7 p.m.


My Lords, I do not propose to make any comments on the very important statement the noble Lord has made. I have taken the step of tabling a Motion for a debate on foreign affairs on the first day after Recess and I hope that the Government will agree that we should have a full debate.


My Lords, it is clearly inappropriate to make any lengthy comment on this most important statement, particularly in view of the fact that the House is preparing for a weighty debate on economic affairs. I understand that we shall have an occasion for discussing international affairs as soon as we resume in the New Year, but I should, nevertheless, wish to take this opportunity of paying tribute to the very great patience which has been displayed by the Foreign Secretary in the face of provocation, and also to express appreciation of the fact that he has not yielded when questions of high principle were under discussion.

We must all deplore the failure of the Conference to reach its ends, but I hope we shall not be too despondent. In my view it is better that the Conference should stand adjourned indefinitely rather than that an uneasy and patched-up agreement should have been reached about Germany, an agreement which, unhappily, would have been interpreted, as we know by experience, differently in different countries, and possibly, again judging by precedent, ill-observed. Your Lordships will forgive me if I say one word about Austria. There is happily a distinction which we sometimes forget between Germany and Austria. I feel that a treaty about Austria may be within the bounds of political possibility. If so, that would mean real progress towards peace making. I sincerely hope that the Soviet Government will assist towards that and that the obligation assumed at the Conference in their great capital of Moscow, that a free and independent Austria shall be constituted, will at long last be fulfilled.

Viscount ADDISON

My Lords, if I may intervene for one moment. I am not sure of any particular programme, but I shall try to co-operate with the noble Marquess to have a debate as soon as it can possibly be arranged.

4.10 p.m.


My Lords, I thank the noble Lords opposite who have spoken of their desire to help us in every way, and I assure the noble Earl, Lord Perth, that I will convey what he said to the Foreign Secretary.

I now propose to turn to the Finance Bill. I hope the House will neither exaggerate nor underestimate the importance of this Bill, which, as we all know, embodies a second and supplementary Budget for the year 1947. This is not a tremendous, dramatic measure. It does not compare with Mr. Gladstone's Budget of 1853, or even his Budget of 1860; it does not compare with Sir William Harcourt's Budget of 1894, or with Mr. Lloyd George's Budget of 1909. Nor does it compare with any Budget introduced by the noble Viscount opposite, Lord Simon, or by Mr. Hugh Dalton, the late Chancellor of the Exchequer. It is strictly limited in its objective, but that does not mean that it is not an extremely useful and serviceable measure; indeed, it is necessary and indispensable.

Put quite simply, the object of this Budget is to help to counteract the inflation which would otherwise emerge as a by-product of the special measures being taken by the Government to improve the trade balance. As we all know, inflation arises when too much money chases too few goods, and although an improvement in the trade balance is altogether good and desirable and vital, such an improvement has one unfortunate by-product. It means that, compared with what was happening previously, more goods go out and fewer come in, so that there is less here for us to buy; and unless the amount of money is reduced accordingly, inflation inevitably results. It is with this special problem, and not with any emergency arising from our internal budgetary position, which contains many reassuring features, that the Bill before the House seeks to deal.

As regards the expenditure side of the Budget, I would refer the House, if I may, to what was said by the late Chancellor of the Exchequer in introducing these proposals on November 12. He pointed out that this is the season when the Estimates of the various Departments are being prepared for submission to and discussion with the Treasury—the Estimates, that is, for the year 1948-49. We are all at one in this House in desiring to see the total level of national expenditure reduced. On the strength of our debates, in practically all of which I have participated during the last two-and-a-half years, I venture to say that we all find it equally hard to point to substantial economies that should be made.

While, therefore, I would like the House to realize that we are re-doubling our efforts to see how expenditure can be reduced during the year 1948-49, and while various measures now being taken—such as the capital cuts, which will be referred to later this afternoon—will assist us in that direction, if we are looking for immediate steps to increase the Budget surplus this year we must seek them in the field of increased taxes. The House knows by now of the changes in revenue proposed. The extra sum to be raised is £196,000,000 in a full year, and £48,000,000 by the end of the present financial year. It is proposed to raise it as follows, putting the increases under four broad heads: £78,000,000 extra is to come from an increase of Purchase Tax, £56,000,000 from increased duties on beers, wines and spirits, £47,000,000 extra from doubling the Profits Tax, and £15,000,000 from a new duty on pool betting.

As all these taxes have been discussed so fully elsewhere, perhaps the House will allow me to confine myself to one or two words about each of them. As regards the increases in the Purchase Tax, these are greater on the lower rates than on the higher. What are called the reduced rates are increased from 16⅔ per cent. to 33⅓ per cent.—that is to say, they are doubled—while the higher rates are only increased from 100 per cent. to 125 per cent., that is, by a quarter. The reason is, of course, that if you increased the higher rates much more they would tend to become prohibitive, and you would lose in total revenue.

As regard the Profits Tax, the second of my four broad heads, the increase on distributed profits is from 12½ per cent. to 25 per cent., and from 5 per cent. to 10 per cent. in the case of undistributed profits. The profits of companies generally are at present running at a very high level, as everyone who is fortunate enough to possess any shares is aware. Whatever the arguments in the abstract for and against a Profits Tax in normal times, it is clearly appropriate that a Budget directed to reducing inflationary pressure by increased taxation should pay special attention to them. I am aware that there has been some unhappiness among good men and true in certain quarters about the increase of tax on undistributed profits, but the real point there is that the increase in the rate on undistributed profits should tend to reduce expenditure in the capital goods market, which I understand is desired by all of us.

The increases on beers, wines and spirits proved quite uncontroversial in another place, so I will take leave to pass them over. The Pool Betting Duty imposes a tax on all forms of pool betting other than betting on totalizators set up on an approved horse racecourse by or under the authority of the Racecourse Betting Control Hoard. It imposes, of course, no tax on bookmakers as such, or on bets other than pool bets—for example, bets with racecourse bookmakers. A pool bet, speaking broadly—I am no expert—is one where the gambler and the gambling agency are part of the same co-operative society, and the gambling agency is simply paid for performing a managerial function. In practice the new duty will affect mainly dog-racing totalizators and football pools. The only criticisms that have been seriously made of these proposals is not that they are wrong, but that they do not go far enough—the net is not cast sufficiently wide. In particular, it is asked why bookmakers are not brought under the harrow, and why horse-racing and totalizators are excluded.

As regards "bookies"—if I may call them that, though I have no special intimacy with that elegant community—no one wants to exclude them, but they are infernally elusive gentlemen who have always proved too smart for even the most astute of Chancellors. I am not, of course, reflecting on their private characters, of which I know nothing; I am simply referring to them as an occupational class. The reason for the exclusion of horse-racing totalizators is that the Racecourse Betting Control Board is a non-profit making body which makes an important contribution to the development of horse breeding and other allied activities. When we appreciate that this industry has earned for this country no less than £3,000,000 in the first nine months of this calendar year, we find it easy to draw a sharp distinction between greyhound racing and horse racing in this connexion, and to decide without many qualms that the one should be taken, and the other left. I do not plead guilty to any partiality in the matter. I only once partook in a point-to-point horse race, in which I sustained concussion and finished up the wrong way round.

I do not think that anyone could call our positive measures controversial. A doubt exists in certain reputable minds as to whether they go far enough towards dealing with the addition to the inflationary gap which an improvement in the trade balance involves. As to that, I would just say two things. First, I would suggest, with great respect, that considerable responsibility does fall on those who make this criticism for indicating, not, of course, in detail—one could not expect that—but in outline, what important reductions of expenditure, or substantial increases of taxation, from which we have shrunk, they themselves would have embarked upon in our place. The arrangements which the House have kindly accepted for our work this afternoon enable me to hold my fire until I have drawn that of any adversaries who may present themselves, so I will leave matters where they are for the moment, without putting into the fertile minds—sometimes, if I may say so, the over-fertile minds—of noble Lords opposite any ideas of a whimsical character which do not lurk there already.

The other thing I would say in conclusion is this. Even if we confine ourselves, as I have done in these remarks, to studying the best way to tackle any new inflation likely to arise from an improvement in the trade balance, we must not delude ourselves—I speak in all seriousness—into supposing that the present Bill is, or is intended to be, sufficient for that purpose. It is one prong of a three-pronged attack. The other two prongs are a decision by our people to spend less and a determination on their part to work still harder and in directions still more calculated to serve the national interest. In both these last two fields—the field of spending less or, to put it the other way round, of saving more, and the field of harder and more useful work—the Government carry their own heavy responsibility of assisting our people by their own example, by any inspiration which it is in our power to provide and by sensible organization and planning., There is much that the House can do and may well do this afternoon to assist us and, what is infinitely more important, to assist the country.

In the meantime I commend to your Lordships this practical instalment of anti-inflationary measures consisting, as I believe it does, of taxes not calculated of course to arouse any special enthusiasm—taxes very seldom do—but carefully conceived to cause hardship to as few people as possible and to play a useful part, I submit to the House, in helping us to travel along the straight and narrow road to recovery. I beg to move..

Moved, That the Rill be now read 2a.—(Lord Pakenham.)

4.23 p.m.

Viscount SIMON

My Lords, the noble Lord who has just sat clown has shown, not for the first time, his infinite versatility. On the Second Reading of the Finance Bill being called, he began by making that most grave and important statement on foreign affairs. Fortunately, the rules of our House find no objection to what, on the face of it, might seem a slight departure from the relevant. He then justified the immediate purpose of his rising by turning to the Finance (No. 2) Bill, and made a speech which we have just heard—and for which we are grateful—and gave a short explanation of the taxes. This House has nothing to do with the imposing of taxes—it may happen that some members of your Lordships' House have to pay them—but we are entitled to use this occasion to look briefly at the general financial situation. Indeed, I think it more useful to do that than to discuss taxes which we have not the slightest intention of altering. I shall be very brief about it, but I shall take advantage of the noble Lord's suggestion —which indeed in the circumstances it would be very curmudgeonly of me to refuse—that I should deal not so much with additional taxes as with the economic situation as it stands at this moment. That is a vast subject. Others are going to speak, and I will endeavour to put what I have to say into moderate compass.

It seems to me that there are two features about this Finance (No. 2) Bill which are very unusual. Of course, the Finance Bill is an immense instrument for all sorts of purposes. It may greatly promote the public good in many things besides extracting money. It is unusual to have a Finance Bill such as this, which is not really introduced for the purpose of balancing revenue against expenditure, but has the one object—and I think I am quoting correctly the words of the Financial Secretary in another placd—of reducing inflationary pressure. As the noble Lord has said, and as was pointed out in another place, that is the object of this Bill. In other words, its purpose is not to strengthen the financial position of the Treasury; it is to weaken the purchasing power of the people, because there is an excess of purchasing power which creates, if it does not define, the inflationary pressure. It is obvious that I am right about that because your Lordships will recall that the former Chancel or of the Exchequer, in his regular Budget in April, claimed that he had balanced the Budget and indeed that he had a great surplus. Of course, in that situation we should not have new taxes for the sake of new taxes.


May I interrupt the noble, and learned Viscount for a moment? It may be obvious to him that that is the object of the Bill, but I am afraid his exposition of it would give a very misleading impression of the intention behind this measure. The use of the words "purchasing power" in that connexion would throw more darkness than light.

Viscount SIMON

Then let us leave that out. But I am sure I am right in repeating what has been said by Mr. Glenvil Hall—I am quoting the exact words—that it is "the one object and the one object only." Perhaps that is not quite so grammatical, but he means that the one and only object of the Budget is to reduce inflationary pressure.


If I may explain why I intervened, I will not interrupt again unless the noble Viscount forces me. The noble Viscount has sent it out from his place, with his great reputation, that the object of the Bill is to weaken the purchasing power of the people. I should say that the object was precisely the opposite: it is to enable the people to purchase more in the long run, and certainly in the short run to purchase no less.

Viscount SIMON

I am grateful for the explanation. I was just observing that of course it should not be the object of this Finance Bill to effect any great change in our revenue. Various figures might be given, and whether the sum involved is £30,000,000 or £40,000,000 this year, it is, of course, a very small percentage of the amount at which the Budget in April was alleged to be balanced. The expenditure budgeted for was £3,000,000,000, and it was claimed that we had not only raised that money—thanks to Dr. Dalton's methods—but got a surplus into the bargain. Of course, nobody wants to raise more taxes—looking at it simply from the finance point of view—if that is the situation. Therefore, I think I am right in saying that these new taxes are really—I think my noble friend opposite said as much—designed to have a good effect upon our general economic difficulties. Therefore, I will not spend time in discussing them.

I might observe in passing that this happened before. When a new Chancellor of the Exchequer takes over from a previous Chancellor—it even happened to me—he says he is going to support every proposal of his predecessor. It is very right and loyal that he should, but it does sometimes happen that he drops one of them. I am glad myself that the allowance for advertisement expenditure is still to be regarded as a legitimate deduction in arriving at trading profit. On that matter it seems to me that Sir Stafford Cripps is perfectly right. As for the other matter to which my noble friend referred, which is the doubling of the Profits Tax, I do not think his account of the reasons for the increase is quite adequate. The real history is that last year businesses and companies were most strongly urged by the then Chancellor of the Exchequer to avoid distributing more than a moderate profit and to plough back their profits into the business. This was, I think rightly, regarded as the wise thing to do and a great many people have done it. Now you have a doubling of the Profits Tax, including the Profits Tax on what was reserved. It is to be a retrospective provision. I must say I think it is not unnatural that a great many people regard that as not a very happy feature of the present proposals.

That is the first observation I would make as to the unusual character of this Finance Bill. I will say at once that in my view, and I think in the view of a great many people, a far better way of endeavouring to get back to a more satisfactory position is not to increase the taxes, which are most frightfully heavy, but to reduce expenditure. It was not until very recently that the Government have shown, publicly at any rate, any consciousness of the fact that large capital expenditure was a very grave part of our present difficulties, and made proposals to reduce it. I do not think they had ever publicly stated this principle until August—more than two years after this Government had come into office. I was very glad to hear the noble Lord say, with all the weight of his and the Government's authority, that he was in favour of the view that it is really immensely important to try to reduce the amount of the expenditure. I ventured to say to your Lordships when we discussed the main Finance Bill earlier in the year, that I did not believe that this country could justify or tolerate a Budget which was balanced at the figure of £3,000,000,000, which, after all, is one-third of the total national income of the country. Therefore, reduction of expenditure is a more fruitful way of getting back than the imposition of more taxes.

But what I want to call your Lordships' special attention to is the second peculiarity of this Budget. It certainly is well worth inquiring about, and I am very glad that my noble friend will have an opportunity of speaking again. Why is there this year a second Finance Bill? What is it that requires there to be a second Finance Bill? What is the explanation of that? It cannot of course be, as it was in September, 1939, that we have been put into the actual presence of war, where every single day's expenditure is enormously increased and we must have an emergency Budget as we had within weeks of the outbreak of war, in which taxes were increased in ways which inflicted sores hardly yet healed on the backs of some of your Lordships. It is not that. Whatever else has happened to us we have not got into another war. What, then, is the explanation? The noble Lord in his speech just now pointed out that efforts to improve the trade balance might in certain circumstances operate so as to promote further inflation. That is not a new discovery. I hope that it is the intention of the Government to apply their minds to this problem and that it has not been necessary for them to be in office for over two years to discover it.

What is the explanation of why there should be Finance Bill No. 2 this year? If you look at the thing first of all in an abstract way it seems to me capable of only one of two possible explanations. One is that there has occurred in the interval since last April some totally unexpected event which His Majesty's Government's present advisers could not be expected to calculate or estimate. If so, I should like to know what it is. What has happened? I do not see anything that can be fairly classed as a "totally unexpected event." There remains one more explanation, which I advance in all humility because it is not flattering, and it is that there has been a most unhappy failure to estimate or calculate what was bound to happen because the original Budget and the original Finance Bill were, as I ventured to submit at the time, quite inadequate to meet the coming situation. A famous passage of a Victorian poet says of the Light Brigade: Their's not to make reply, Someone had blundered. I do not think the noble Lord when he comes to answer will be able to say it is not for him to reply; but I venture respectfully to submit that someone has blundered—very, very badly; and I will shortly show where I think that failure rests. It is a prodigious blunder, and not one that has got to be laid on the back of Dr. Dalton alone. As Sir Stafford Cripps has said, these great financial decisions are matters for the whole Government.

Here is a quotation from Dr. Dalton's speech on April 15 when he was introducing his Budget earlier in the year. I invite your Lordships' attention to this declaration made at a very important moment. To me at least it is rather surprising. This is what the then Chancellor of the Exchequer said: To-day there is plenty of purchasing power. That has been our aim. We have sought; to lubricate the economic system with a sufficiency of purchasing power much more evenly than before the war That has been our aim and we have achieved it. I think that by common consent the fundamental difficulty which arises from the threat of inflation was not that people had a deficiency in purchasing power but that their purchasing power was so great that it did not correspond to he diminished supplies that were available. And here is the former Chancellor of the Exchequer explaining chat he regards his conduct of our financial policy as "lubricating the machine." Why, he so deluged the machine with oil that the thing chokes and will not work, and we are now getting the results of that miscalculation in the most stalwart efforts made by Sir Stafford Cripps to try to reverse the consequences of that policy.

I think it is true to say that it is the amount of this present purchasing power which is the cause of inflationary pressure. I see opposite the noble Lord, Lord Brand, who knows this subject of course so much better than I do and than most of us; but I submit to him that that is a correct proposition. It is a fact that the purchasing power at present in this country is so great that it is the cause of this inflationary pressure. It was the noble Lord, Lord Cherwell, I think, who in the debate in July here made a very witty remark which unfortunately did not catch the ear of the newspapers. I address myself to your Lordships in the hope that this gem may not be lost in a necessarily abbreviated report. The noble Lord, Lord Cherwell, observed that in another branch of science, not economics but another branch, "Daltonism" was the name given to that distressing defect which affects some colour-blind people who cannot distinguish red from green. Surely that was a really pointed observation.

Of course, the former Chancellor's advisers knew perfectly well where the real danger lay, but that did not deter Dr. Dalton from telling the Labour Party Conference this, I think, in the summer of 1946. I have his words here: The fear of inflation is diminishing; it has largely passed away. Can it really be that the advisers of this distinguished man gave him that advice? Let us test it by just considering what has happened in the present year. Let us test it by putting together four or five figures in the lamentable story of the use of the American Loan. Perhaps the noble Lord opposite would be good enough to note these figures and he might be able to tell me whether any of them are wrong. I state what I believe them to be. The total Loan, American and Canadian together, amounted, I think, to dollars equivalent to £1,250,000,000, and in February of this year His Majesty's Government circulated a White Paper entitled Economic Survey for 1947, which was a very carefully written document presented to Parliament. That document was issued to show that the Government were very good planners.

If your Lordships will look at page 18 and just work out the figures, your Lordships will see that what the Government said was that they intended to draw on these Loans during this present year, 1947, at the rate of £30,000,000 sterling in dollars per month. To be precisely correct in my arithmetic, the figure for the year was £350,000,000 sterling in dollars, which is, therefore, rather less than £30,000,000 sterling per month. That would leave the Government at the end of this calender year (as was here stated, and, no doubt, that would be right) with about £600,000,000 sterling in dollars with which to start the year 1948. If they went on in this cautious way, they were well justified in believing that they would still be living on this happy relief well into 1949. Indeed, I think that one of the supporters of the Government in another place, who has since become Economic Under-Secretary to the Treasury, said as much, and Mr. Dalton approved. If that is so, how does it come about that, if you take the first half of this present year, the actual average expenditure for the six months was, I think, £68,000,000? How does it come about that, when we got to the August just past, we found ourselves left with only £100,000,000 of the American Loan?

To give two more figures which I believe are right, in July we drew in that single month £125,000,000 from the Loan; in August we drew £150,000,000 from the Loan. How does all this come about? Of course, we all understand that July was a critical month because on July 15 the terms of our Agreement with the United States required that we should convert sterling sums due on current account into dollars if so desired. We were not required to convert sterling deposits; it was sums due on current account. Even so, the danger of this stipulation was obvious. I do not claim that people of my poor knowledge of these things necessarily saw it all so clearly at the time, but I am quite certain that some people did. As we drew nearer to this date, everybody was alive to that fact.

I do not know whether any communications passed between His Majesty's Government and the United States Government about the difficulties we might be in if this stipulation was strictly observed; I do not know. It is difficult to think that, if that had been done the United States Government would not have considered the matter, as indeed they have considered a great many matters, with much sympathy towards our difficulties. But what was the attitude of the then Chancellor of the Exchequer? That is what amazes me so much. On July 8, just a week before this stipulation came into force, he was asked about this in another place by Mr. Eden, representing a body of anxious opinion, and this was his reply: I think that in a large measure July 15 has already been discounted and the additional burden of assuming these new obligations under the Anglo-American Loan Agreement will be noticeably less than many people may suppose. Of course, we are all of us liable to make miscalculations and to regret that we have not been wiser prophets, but is there any instance in modern financial history where there has been a more appallingly unfortunate view expressed on behalf of His Majesty's Government than that?

The result was, your Lordships know, that, instead of this being a matter of small importance—July 15 had "already been discounted," whatever that means—it did, in fact, result in this appalling drain of dollars. So far from the plan of this White Paper being fulfilled, there is not the slightest prospect of our having any part of this Loan to take advantage of, above the £100,000,000—whether it has already been drawn or not I do not know—and all the plans for 1948-49 have just gone down the drain. I think it is legitimate to ask whether that is an accurate record? If it is, can it sincerely be justified?

There is the further question which has been put prominently by an Oxford economist, Mr. Roy Harrod, to which I do not profess to know the answer. But it is interesting to ask also: How did we come to spend out of this loan in the two months July and August, the equivalent of £283,000,000? How did we do it? What people got it? What, if anything, did we get in return? Mr. Harrod has pointed out that the adverse trade balance in those two months was far less than that figure, and it seems to me that we are simply left in mystery as to what happened to this enormous sum. It is greatly to be wished that we may have a White Paper showing us plainly to what creditors and on what account these prodigious amounts were poured out in the summer, because until that happens we cannot really understand how such a frightful consequence occurred.

I wish to speak with moderation but I hold a clear view, and I feel I ought to express it. It seems to me that the whole story shows that His Majesty's Government failed to recognize what was coming, listened to no warning and indeed refused to recognize uncomfortable truths for as long as they could. Language is used—and I am sure I join in it sincerely—complimenting Sir Stafford Cripps because in recent statements he has been so candid and has declared to the people the unpleasant truth. No doubt that may be supplemented by what we shall hear later on to-day. But a compliment to a Chancellor of the Exchequer to-day because he has been candid and has told the people the truth, has a certain reflection upon His Majesty's Government before he became Chancellor of the Exchequer. I am afraid it is the fact that a hopeful view was taken, I am sure very honestly, by His Majesty's Government, who, like other people, try to do their best. But Governments have to be judged not by their motives and intentions but by the skill with which they carry on their business, and I do not see how these simple facts are quite consistent with a proper carrying on of the Government's business.

With regard to the reduction of capital expenditure, we welcome the recognition—as it is—that unlimited Government expenditure of a capital kind, even on objects which are extremely good objects and ones with which I warmly sympathize, is quite unjustified by our financial position. It was only on August 6 of this year that the Prime Minister said: I would agree that it might have been better if we had had a greater concentration of effort. It may be we have tried to do too much in a short time. That is an exercise in what I think the Greeks would call μ ε[...]ωα [...], an understatement, and is a very proper admission by the Prime Minister that he is gravely anxious lest his Government have not in these measures been going too far.

There is another question which I think it is useful to put now, and then I will stop. We are asked to observe and be grateful for the figures in regard to our exports. Nobody, I suppose, doubts that to increase our exports is really essential to preserve or to restore the country from terrible danger. But what is this figure which is called in the returns "exports"? I asked a question two days ago (and it was kindly answered by Lord Chorley), as to whether tobacco which was sent to the Channel Islands was subject to any sort of restriction, whether it was not being bought with dollars, and whether it was not the fact that in the Channel Islands it is to be got both cheaply and in the most abundant supply. I naturally made inquiries first, and that is so. The noble Lord who answered me said that no restrictions are placed on the export of tobacco goods from this country. He said he could not give us the figure of dollars involved; but it must be very considerable. Of course, it is not export to the Channel Islands, because it starts from a British port and it goes to the Channel Islands, which themselves happen to be British islands. But what conceivable relevance has it got to the question as to whether our exports, regarded as a way of getting out of our terrible difficulties, have grown? I have no doubt the figures are statistically right. I presume the office of Customs and Excise have carefully valued each thing that is pat on the ship. It is exported because it goes out of a port, but it obviously has no more to do with the improvement of our export position in any relevant sense than if you sent the stuff to the Isle of Wight.

Again, in relation to these figures of exports given us month by month, I hope the noble Lord will be able to tell me this: Do they include everything which goes from this country by way of export, whether it is sold or not? It is perfectly true there has been a great drive for exports. Anybody who has taken part in that has to be much congratulated. But for the purpose of improving our position and our dollar balance it does not help us to send goods abroad at whatever figure you may value them at the British port, unless they are sold. Am I wrong in thinking that there is quite a large quantity of so-called exported goods which have not in fact been sold at all? Is it wrong in fact to suggest that some of them are being stored in warehouses, and nobody can be found to buy them?

I do not take any pleasure, of course, in asking these questions, but I think we should know, because it is a great mistake that we should be willing to accept these figures without knowing where we are. I therefore submit to the House that in this most difficult matter, which I do not think any Government would have found it possible to handle without making some mistakes, most dreadful mistakes have been made. What is the explanation? My Lords, the explanation is not, of course, that His Majesty's Ministers are not striving with all their might and with the greatest diligence to master the subject. I am afraid I think that the explanation partly is that the present Government contain people who do not understand this subject at all. Some of them do, of course, but the others do not at all. Let me quote to you three simple extracts from the year 1944, all coming from men who were just going to be Ministers of the Crown, by which you can measure the extent of their knowledge on these subjects. Mr. Aneurin Bevan in an election booklet—and this was in 1945—said this: We are told by some people who ought to know better that we shall need to increase our exports after the war by fifty per cent. Expanding exports are the will-o'-the-wisp private enterprise is compelled to pursue. I wonder what contribution the Minister of Health has made to these economic discussions in the Cabinet during the last few months.

Next, here is Mr. Emanuel Shinwell, speaking in the House of Commons. Of course one does not for a moment suggest that he did not believe what he said. The question is whether or not he said something which was perfectly silly. Speaking on June 22,1944, Mr. Shinwell said: Increased exports are demanded. There never was a greater fallacy uttered in this or any other assembly. You might imagine that if you fail to increase exports this country's standard of living will diminish. There is a valuable contribution for you. I am not altogether surprised that it has taken the Prime Minister, poor man, two years to drive these people into the right frame of mind. Here is another quotation, this time from the writings of Mr. John Strachey, who illustrates the Shakespearean proposition that "One man in his time plays many parts." In a book called Why You Should be a Socialist, published in 1944 (I used to have the book; unfortunately I have lost it; but I still have the extract). Mr. Strachey wrote: Hard work will not make the workers any richer, but it will make their employers much richer. That seems to me to be a very dangerous doctrine to spread among working people but there it is. The passage goes on: You remember the old 'produce more' cry? I suppose we shall get it again after this war too. Well, we have got it again. It has been on every poster. It is a doctrine which is now being pressed upon all of us with, I am sure, the greatest sincerity and also with considerable success by His Majesty's Government.

But when we look at the surroundings of this Finance Bill, Number 2, and consider what it is for, I submit that it goes to show that the Government in this matter have not exercised the forethought which they ought to have exercised. They are not, of course, responsible for all the bad conditions which beset us, but they have undoubtedly contributed to the gravity of the situation by their want of judgment and knowledge. Now, more than two years after they came into office, we find that we are still in this slough out of which everyone has got to try to extract the country. And of course everyone is most willing and anxious to do so. But we are entitled here, in this free House, to say in con- nexion with the Bill: "Look at the record of this Government in its treatment of economics and finance, and judge if it deserves the support of the people."

5.3 p.m.


My Lords I do not know whether I recommend following an ex-Chancellor of the Exchequer in speaking on the Finance Bill. Indeed, I rather think that it is a poor role to play. I must say that we have all very much enjoyed the noble and learned Viscount's speech, and I am confident that when the noble Lord, Lord Pakenham, comes to his third or fourth speech, he will find it will give him considerable difficulty.


Give whom difficulty?


Lord Pakenham.


But who is going to experience the difficulty?


You are. But the proceedings are really very enjoyable. We start with foreign policy, and then we swing over to finance; and we are conscious the whole time that, in no circumstances, can we alter so much as a comma of the Bill. That is also very satisfactory. There is one question which the noble and learned Viscount, Lord Simon, asked that I, too, would like to hear answered. That is: Why this second Finance Bill? I can well see how much Lord Dalton—


Not yet!


Well, Doctor Dalton, or Mr. Dalton, whichever you like. If it had not been for the second Finance Bill we should still have had Doctor Dalton. So it would seem that there is some advantage in this second Finance Bill. But from the point of view of the general public one Finance Bill a year is quite enough. It is, of course, accepted that what the Chancellor of the Exchequer was trying to do was, in some way, to stop that most dangerous of ail things, inflation. I wish to raise one point in particular—it was the fourth point of Lord Pakenham's speech. I refer, of course, to the point about gambling. The Chancellor, greatly daring, has proposed to tax gambling, and I think it is only right that we should have a word about this. There is a lot of ignorance on the subject of gambling, and I would like to throw some light upon it if I can.

We human beings do not gamble only with our money; we gamble with our happiness and with our lives. Those who say that gambling is immoral must, I think, question that opinion very severely, because if we are not to gamble in our actions, in what we do from day to day, if our life is all to be regulated by some outside control, then it will be a very poor existence. After all, have not all the great actions which we have taken in our lives in fact been gambles? It is notorious that the greatest gamble in which we can indulge is marriage. That is admitted. On the very unsatisfactory basis of physical attraction we glibly choose the partner with whom we are to live in spiritual contentment for the rest of our lives. That is a terrible thought. For my part, after forty-one years, I congratulate myself on my youthful perspicacity. It is the only coup I have ever brought off. But it does not stop me from enjoying gambling.

A lot of nonsense is talked by the more important racehorse owners, who say that in running horses you do not gamble. You cannot avoid it. If you enter a horse to run in a race you enter a sweepstake, which means that you are automatically gambling. Do not let us have that sort of nonsense. It is very annoying to hear. I would like the Chancellor to think over this particular problem from the point of view of inflation, and from that point of view only. Is gambling such a bad thing? If it were all stopped, would there not be more money chasing fewer goods? It is a curious thought. I am glad that the Bishops are not here, but I think that the Treasury should view this matter dispassionately because it needs investigation. It is only right to say, when speaking on these matters, where one's personal interest lies. I am a director of a great greyhound company. It is through that that I know a certain amount about betting and its ramifications.

My noble friend confessed that he did not know a lot about it. There are two types of betting—betting on the course and betting off the course—and it has always been laid down by everyone who has studied the question that if you bet on the course you are not doing anything very wrong, because you are using money which is in your pocket and you may go back without it. But "off the course" betting is thoroughly vicious, because there you are not betting with cash, you are betting "on tick." And unless you plead the Gaming Act, you may ruin yourself. The curious thing about greyhound racing is that all betting, be it with "bookies" or with the totalizator, is "on the course" betting; there is practically no "off the course" betting. Yet this is the type of betting which is now to be taxed. The Government are going to leave alone the other vicious "off the course" type—where people queue up in clubs to watch the tape and that sort of thing—and are choosing the totalizator, of the two types of betting, to tax. And they are to do so for a very curious reason—namely, that the tax is easy to collect. That is the only reason one can possibly think of for this.

That will be very hard on the small punter because his unit is only two shillings. Few people have the moral courage to go up to a bookmaker and make a bet with two shillings. It is the poor man with a small stake on whom the Government are to clamp 16 per cent. tax. It is an enormous figure. If the Chancellor had made it 2½ per cent., he might have raised a lot of money. But do your Lordships realize that with 16 per cent., if you bet for a place at odds-on you will lose your money, even if you win! That is an Irish "bull" but it is true. Nothing more fantastic can possibly be imagined. The noble Lord, Lord Pakenham, did not seem to know much about bookmaking. Bookmakers are a charming lot of people, with a great knowledge of the world. The trouble is that most of them are rich. But one must not have an inverted snobbery against the rich.

After all, look at the purse-proud members of the Socialist Party. Do we despise them because they are rich, while Lord Woolton is collecting postal orders? There they are, grinding the faces of the poor by compulsorily extracting money from their modest pay packets. Dear, dear, dear, no! I was surprised when the noble Lord, Lord Pakenham, said that it was not proposed to tax the bookmaker because he was so sly that he could get out of it easily. It seemed to me a most dangerous reason to advance, that because somebody is crafty and going to get out of a tax that is a reason for not taxing him. What is going to happen? The very reverse of what the Chancellor expects to happen. He is going to tax totalizators at "the dogs," and betting will shift to the bookmaker. That is perfectly obvious, just as, if all motorcars were Austins and Morrises and Austins were taxed, everybody would use a Morris, and there would be no tax collected on Austins.

I was rather surprised, too, at what is said about the Control Board having done such marvels for horse breeding. I do not know if the noble Lord has looked at the accounts of the Racecourse Betting Control Board. They are rather interesting. Most of the money is spent on amenities, for transport of horses, and improvement of courses. In the end, out of £1,500,000 only £34,000 goes to the encouragement of horse breeding. So do not let us be over-impressed by that particular point of view. I would like to quote these words of Dr. Dalton last year when he considered the possibility of this tax: Most of all, the Labour Party stands for justice, and to tax 'totes' and pools alone and let the bookmaker go free would be wrong. It would be unjust, and it would be repudiated by all right thinking men and women. That is exactly what he has done.

We now have a new Chancellor of the Exchequer. I am perfectly aware of the tremendous subjects that he has to tackle in the short time before his new Budget, but I do ask him to give attention to this question: whether it is desirable to tax betting at all—first of all, from the point of view of inflation, and secondly, from the point of view, on which the Church feels so strongly, of giving a status to gambling. If he does consider it a proper way to raise money—and I agree with him that it will raise money—then I think it is only right that he should invent some equitable system of making all pay, whatever the medium through which they may indulge their betting. I know the difficulties that he has inherited, but I am perfectly certain that he would not like to introduce a Budget which makes and leaves injustice rampant and indefensible.

5.13 p.m.


My Lords, I am afraid you will find what I have to say very plebian after the two brilliant speeches of very contrasted type to which you have just listened. I wish to make a few observations on the general financial situation before I come to some comments on the Finance Bill itself. I believe it is desirable that we should refresh our memories as to the exact position of the country in certain respects, before we come to consider questions of taxation or inflation. I am going to quote a few figures, which will show your Lordships how the position stands. Before the August import cuts, we were importing at a rate of £1,700,000,000 a year and the overall deficit of our balance of payments was then estimated at £600,000,000 a year. I think it was the Prime Minister who in August proposed cuts of £228,000,000, of which £200,000,000 came from the dollar areas. That reduced the deficit to £372,000,000. Sir Stafford Cripps, as Minister for Economic Affairs, made further cuts of dollar imports of £121,000,000. The two cuts in dollar imports together amounted to £321,000,000, while the total import cuts, including that figure, came to £349,000,000.

I think your Lordships will agree that these are tremendous figures. We are proposing to cut £1,000,000 a day in our imports from the dollar areas and something added from the non-dollar areas. We have not yet felt their effect, but it must be very great in reducing the goods available for purchase. The cuts are justified, because we are living in a great and extreme crisis. As a result of all this, and if our exports are increased, as the present Chancellor of the Exchequer hopes, to 164 per cent. of what they were before the war, then our dollar deficit, which is in fact our deficit with the whole Western hemisphere, will, at the end of 1948, still be running at £250,000,000, or a billion dollars per annum, while during the actual year 1948 it is estimated, I believe, to amount to £300,000,000. Our reserves, Sir Stafford Cripps estimated, would at the end of 1948 amount to only £270,000,000. What our over-all deficit is estimated to be I do not think anybody has told us, but from something Sir Stafford Cripps said I imagine that it may have been expected that we should have a surplus with the non-dollar countries equal to something like our deficit with the dollar countries, so that the over-all deficit would then be nil. I must say, if we do arrive at that situation, that I consider the country will have made a tremendous effort.

I have two comments to make, however, on the figures that I have just given. While it was estimated that our reserves will be £270,000,000 at the end of 1948, they are now still flowing out at a rate which would, I think, reduce that figure a very great deal. During the last three months we have been selling gold and dollars at the rate of £800,000,000 a year—a rate described, I think, by the late Chancellor of the Exchequer as "a ruinous rate," and certainly a rate that could not possibly be allowed to continue. Our import cuts, of course, are not yet effective, nor have we felt the beneficial result of any great increase in exports. Nevertheless, it is quite clear that steps have to be taken to reduce to a much smaller figure the flow of our reserves. We might perhaps have considered whether it would not be well to join France and Italy in getting some interim aid, if we could, from the United States, because we have to remember that once these gold and dollar reserves diminish, the losses, so far as we can see, are irrecoverable by cur own efforts. Before we can add to them at all, we must have a surplus on cur balance of payments, and that seems to me to be a long way off.

The second comment I would make is that the present Chancellor of the Exchequer's figures give the appearance of a large surplus with the non-dollar countries, and, therefore, it seems to me (although I may be wrong) that we shall have to limit the amount of unrequited exports we make—that is, exports in return for which we receive only unconvertible currency. They are a dead loss to us for the time being, and it may be that the labour and the materials put into unrequited exports could be much better used in this country towards supplying some of our own requirements. I realize the difficulty of the Chancellor of the Exchequer in deciding between doing too much and doing too little. Such exports would no doubt be very valuable to the countries to which they go, and it is extremely important to us that those countries should become more prosperous. But, if there should be many of them, it would strain us too greatly.

That being the general situation, I should like to draw certain conclusions. The first conclusion I chaw is that the dollar deficit is by far the most fundamental of our difficulties. Whatever Government were in power, no early or complete solution is possible. We cannot, in fact, solve that particular problem by our own efforts alone. Like other European countries, we are inevitably dependent at present on the Western hemisphere, for the reasons given so admirably in the Paris Report of the Committee presided over by Sir Oliver Franks. Those reasons, which no doubt your Lordships know, are, broadly, that while before the war Europe had a big deficit with the United States and the whole Western hemisphere she filled that gap by multilateral or triangular trade, through large exports to other countries, who in turn exported to the United States. That is now impossible. Europe does not possess the goods. Other European countries besides ourselves have lost great amounts of invisible exports. Moreover, the Far East does not now send enough dollar-producing goods to the United States, and that particular triangular trade is impossible. For the time being, therefore, there seems to be no means of filling the dollar gap.

The second conclusion at which I arrive (though here I do not intend to follow my noble and learned friend Viscount Simon at too great a length in criticism of the Government) is that if there had been less delay in putting into force the measures that are now being put into force we should be better off than we are, and our reserves might not be in so great a danger. I believe that if many members of the Government would try to recapture the frame of mind in which they were living eighteen months ago, they would be surprised at the difference it would show from what they are thinking now. It is perfectly true that a great many things have happened since which have brought the true position more vividly before people's minds. It is true, as the noble and learned Viscount, Lord Simon, pointed out, that the American Loan—for whatever reasons—has lasted a shorter time than was anticipated; the international situation is worse; prices have greatly increased; and the dollar scarcity has now revealed itself much more clearly. Nevertheless, my own view is that, even eighteen months or two years ago, everyone could and should have seen that we were floating down to Niagara Falls—as we are still doing.

In my opinion, the trouble was that the American Loan made the water seem so smooth, and the scenery so beautiful, that some members of the Government—perhaps it is not going too far to say this—thought it more pleasant to row us towards the Falls rather than away from them. I am referring particularly to what I think was a serious mistake, the very cheap money policy, and the fact that in 1946, at a time when, as we now see, it was vitally important to stop inflation, the deposits of our big joint stock banks were allowed to increase by over £800,000,000, adding greatly to the inflationary danger before the country. However, I do not wish to dwell on that side of the question. I am confident myself that the present Chancellor of the Exchequer is pursuing, and will pursue with energy, all means of remedying our present situation.

My third conclusion is that, even if we get Marshall aid, we must not relax any of our efforts to solve our problems, and particularly our dollar problem. This is vital if we are ever to be independent of other countries. But that depends, as I have said, not only upon our own efforts, but on the general recovery of production in the rest of the world, and particularly in Europe and the Far East. Unfortunately, too, it depends more than anything else on the return of peace and confidence in the world, and it is quite possible that Russia might render impossible everything we want to do. But we can still do much ourselves. We can substitute other trade for our dollar trade; we can increase our exports to the dollar area—particularly, for instance, to Canada and the Argentine—and we can produce more ourselves. Our trouble is that so many countries, not having confidence in sterling, demand dollars. If they had more confidence in sterling, or if we could send them more exports, they would not demand dollars, and we should not have so great a dependence upon the help from the United States as we now have.

We should also support the European organization which the United States Government are anxious that we should create in response to aid under the Marshall Plan. The Americans, to my mind, are too optimistic in what they think we can do in the direction of a United Europe or a Customs Union. But there is much to be done, I feel sure, in co-operation with the European countries; and possibly much to be done, particularly, in the development of cooperative measures in connexion with the production of steel, fertilizers and other industrial products. No doubt we should be able to take such measures without raising from the United States criticism that we are forming European cartels or monopolies. As your Lordships know, no word creates more hostile feelings in the American mind than the word "cartel." Still more important is it, of course, that we should not relax our own internal measures. We forget, perhaps, that all we have now in the way of resources—except for quite a small income from abroad—are our own labour, our own skill and our own plant and materials. The right use of them is vital, and we cannot afford to squander any of them upon unessential uses.

It is this question of the right use of our resources which brings me to the Finance Bill. As I understand it—and I hope my noble friend Lord Pakenham will agree—the purpose of the Finance Bill is to see that our resources are rightly used, following the closing of the inflationary gap, which is being so greatly enlarged by our import outs and by our export increases. For, of course, both the export increases and the import cuts reduce the amount of goods in this country. Purchasing power, if left as it is, will then produce inflation to a greater extent than before, and my understanding clearly was that the Government considered it desirable, and did intend, to mop up purchasing power in this country, so far as they could, in order to prevent inflationary results ensuing. The measures which the Government have taken are, in the main, the taxation of roughly £200,000,000 proposed by Dr. Dalton and the capital expenditure cuts of £180,000,000 proposed by Sir Stafford Cripps. Personally, I can only approve these plans, although I greatly regret the necessity. They are necessary because our capital expenditure and our consumption expenditure are together much too large for our resources. Nevertheless, until we know more about the Marshall Plan, and whether we are actually going to receive aid, we can hardly determine whether all these plans will be satisfactory; many of them, it seems to me, will have to be reconsidered—certainly the capital expenditure cuts, or some of them—according to how we propose to use any Marshall aid we may obtain.

I would like to repeat what I think I said in this House on the last occasion I spoke. I regard capital expenditure on the modernization of our industry as having an A1 priority, because in my view the standard of life of our people depends upon the efficiency of our plants compared with the efficiency of plants of other nations. We have to remember that Western Germany, for instance, is in exactly the same economic position as we are. If her standard of life is to be allowed to go up, she will be an immense competitor of ours in the future, and we have to see that we are as efficient as our competitors.

Finally, I would say a few words on the vexed question of food subsidies, to which the noble Lord, Lord Pakenham, did not refer, and which both Chancellors of the Exchequer, past and present, have deeded against. If I advocate a reduction of the food subsidies, it is for the reason which actuates those who oppose such a reduction—namely, with the object of improving the general welfare of the community and increasing production, out of which alone can come a higher standard for the wage earners. I realize to the full the importance of stable prices in order to keep stable wages, and that too much of an immediate reduction might bring dangers. Nevertheless, this enormous burden of the food subsidies must be reduced some day. It is a burden which amounts to as much as four-fifths of the service of the total National Debt.


Would the noble Lord allow me to ask one question, which seems to me rather important? If the noble Lord uses the argument that the reduction of food subsidies is necessary because of their proportionate amount, why should we not use the same argument with regard, say. to education, where the State takes the whole of the responsibility, and not to nutrition?


That raises big questions. Of course, you can decide to run vour economy by subsidizing the consumer in every direction so that in the end the consumer pays nothing and the taxpayer pays everything.


They are the same person.


That may be a desirable thing to do, but I think it would be a monstrous form of economy and quite unworkable. I was going on to another objection which I have to the food subsidies. They hide from us our real position. Nobody knows what are our real costs in this country. We cannot tell what is the real cost of exports because we do not know. One of our main costs is subsidized. We introduced subsidies during the war for the purpose of maintaining, in a highly critical moment, the stability of our economy and stability of wages. But nobody had any idea that food subsidies would ever reach anything like the figure they have now reached. Even the late Chancellor of the Exchequer, who obviously greatly dislikes the thought of reducing food subsidies, came to the conclusion that they could not possibly be increased. He came to that conclusion in his Budget speech. Therefore, there is no principle in question. The question is how far we can go.

My own view is that, the sooner we begin to reduce food subsidies, the better it will be for all classes of the community. Those who oppose that idea, I think, are animated by the feeling that it is the State or the well-to-do part of the population who are subsidizing the wage earner. But that is not so. The taxpayers as a whole are subsidizing the wage earners; thus the wage earner is partly subsidizing himself. When the Chancellor of the Exchequer proposes an increase in the Purchase Tax amounting to a very large sum, probably half of which, and possibly more, is paid by the wage earners, nobody objects—at least, nobody objects in principle. We know that in the circumstances that increased taxation is necessary. But there is some sort of complex about food subsidies. There is a feeling, perhaps, that it is not the wage earners who are paying, partly at any rate, for themselves; it is that the State is paying for them; and that the State is something to which they do not have to contribute.


If the noble Lord will allow me, may I ask whether he would care to indicate the order of magnitude of the cuts in the food subsidies which he proposes?


I should find it very difficult to do. The Government would have had to increase food subsidies this year, because of prices, but for the pledge which the Chancellor of the Exchequer gave that they would not be increased. What you could start with I could not say— £50,000,000 perhaps in the first year; I am making a shot in the dark. I do not know, for instance, what is the figure that, had it not been decided not to increase the food subsidies, the Government would have added to them this year. But the Government have decided not to increase the food subsidies because, as the Chancellor of the Exchequer said, one can have too much of a good thing—


You count that to us for righteousness?


Yes. If we had a normal economy working, without food subsidies—which we have never had before this war; we may have had in the last war; I forget—the Government would never think of introducing food subsidies. They would try to see that the wage earner received the highest rate of wage he could get in relation to the economy of the country and the necessities of production and so on—


Why not apply that to both education and medicine?


One difference is that one comes into the cost of production and everything that is produced, and the other does not. If one were to follow that argument it would lead one to ask: Why not subsidize everything? When a man buys a suit of clothes, why not subsidize that? Perhaps they do in some countries. An American friend of mine told me recently that he went into a chemist's shop in New Zealand and bought some tooth paste. The man behind the counter said, "Why do you pay for it? You have only to go to a doctor and he will give you a certificate and you can get the tooth paste free." Apparently, anything to do with health—and tooth paste is so regarded—can be obtained free. You may develop that kind of economy if you like; but I think you will find that the taxation will be such that enterprise and initiative will be greatly damaged. You would not be able to compete with other countries, because the charges upon your industry would be so great that you would be out of the running.

My own view is that, in meeting the inflation problem, you can adopt various methods. You can use the taxation method, or you can employ the method of a forced loan, as the Russians have just done, to reduce purchasing power; or you can reduce food subsidies so as to mop up a certain amount of purchasing power. I was much struck by the figures which Mr. Robert Boothby quoted the other day showing that while there were certain main foodstuffs on which the consumer's expenditure was £500,000,000, the expenditure on alcohol, tobacco and entertainment was £1,500,000,000. My own view is that not a single pound's worth less of food would be bought if the food subsidies were reduced. Allowances would certainly have to be made for hard cases, as has been proposed. That we must reach a time when we have a normal economy and can do away with food subsidies, I have no doubt whatever.

I consider that the reduction of food subsidies is necessary if we are to return to a normal working economy. That we should do so is, to my mind, of the greatest importance. So long as we have great shortages of materials, so long as we have an unfavourable balance of payments, we are bound to have many controls and all sorts of interferences with enterprise. That cannot be avoided. But I would appeal to the Chancellor of the Exchequer to allow as much of a free working economy as is possible in the circumstances. To move in that direction will be not only to the advantage of industry but greatly to the advantage of the whole community, and particularly of the wage earning classes.

5.48 p.m.


My Lords, your Lordships' House is a House of great experts. We have heard in succession three of the greatest experts on their particular topics; but inevitably in the affairs of men there creeps in the inexorable law of averages! I shall not detain your Lordships for more than a few minutes. I have a certain distrust of figures. When I know how figures are prepared and compiled I usually find that their proper interpretation takes me a long way from their face value. When I see the economists purporting to tell us there is too much spending power I believe they may approach near the mark; similarly, when they tell us how many goods are available. But when they attempt to estimate the amount of services available, I must say that they strain my credulity. Whenever I go to a cinema and see empty seats, whenever I see a train thundering past with empty seats, I wonder if these have been reckoned as services. I wonder also why there are these empty seats in an economy which is supposed to be bulging with money and abounding in goods and services.

There is a school of thought which swallows the figures I have mentioned, does a subtraction sum and then says that so much extra taxation must be piled on the luckless taxpayer that he has no money left available to chase goods. Quite apart from whether if is possible to arrive at what is the surplus money (and this I question), I submit that the removal of it by taxation in this way is both futile and inhuman. First, as to its futility, I would point out that so long as some of the major needs of life are in short supply, surely money will continue to chase those major needs. Money will desert its other pursuits and chase them. If you removed so much money that; that did not take place, there would be no money left to pay for the primary expenses of life.

On the question of inhumanity, it seems to me that the aim of the theorists is to remove from everybody's pockets any money above that needed to maintain the individual taxpayer at some agreed standard of life. How this can be done by any system of taxation operated in a civilized country beats me. The only analogy that I can think of is that of the Oriental moneylender whose rapacity is tempered exactly to the circumstances of each of his clients, whose debt is always far beyond his capacity to pay. That is the only method which can exactly draw from every taxpayer the surplus money in his possession. Surely Parliament and its instrument, the Inland Revenue, cannot make such ad hoc distinctions between man and man? They must treat humanity as falling broadly into certain classes of taxpayers. Under the existing system, therefore, if you draw off from the whole body of taxpayers the amount of money which you calculate to be surplus over the whole, you are bound to be overdrawing from some and under-drawing from others. The cash of those from whom you underdraw will go on merrily chasing the goods, while those from whom you overdraw will suffer in that degree of silence appropriate to their position in the new order.

Consider some of the inevitable anomalies of direct taxation. The Inland Revenue reckon the cost of keeping a wife at nine-twentieths of £70— £31 10s. 0d.; they reckon the cost of keeping a child at nine-twentieths of £60— £27. In addition, there is a family allowance of £13. This—unkindest cut of all—is subject to tax. If I may digress for a minute, may I hope that the obvious interest of the noble Lord, Lord Pakenham, in this subject will not inhibit him from raising with his colleague, the Chancellor of the Exchequer, this matter, which rankles very much with many people. It is clear that the tax allowances for family commitments are far less than the cost of those commitments, and so even to-day purchasing power is being drawn off proportionately in a far greater ratio from the man with commitments than from the man with no commitments. When one turns to indirect taxation, the same anomaly applies. The unit of several persons, the family, requires to consume far more taxed articles than does the single person. If the views of the "mop it up by taxation" school are to prevail—I myself disagree profoundly with them—then the incidence of taxation will have to receive much consideration in order that those with commitments do not suffer grievously while those without commitments have their purchasing power left comparatively uncurbed.

Surely the proper destination for such surplus spending power as there is, is savings. Savings have been very bad this last year, for two reasons. In the first place, those who have the saving habit have not had the cash to save; and secondly, the former Chancellor's disastrous "cheaper money" campaign made goods more attractive than bonds. The Government must try to reverse those processes. They must try to produce an atmosphere of thought which believes that the purchasing power of money will increase and that the price of goods will go down. Furthermore, they must pay a rate of interest which, after deduction of tax, will encourage the formation of capital with a view to a man's saving for his ultimate retirement. Before now, I have suggested to His Majesty's Government that it seemed anomalous that two of the greatest needs of the State to-day, housing and savings, could not be linked together. I think those words fell on deaf ears at the time, but I do hope that this time some consideration may be given to them.

5.58 p.m.


My Lords, as your Lordships may be aware, I have for some time been endeavouring to ascertain what was the statutory authority which enabled Purchase Tax to be levied on goods which had been purchased and paid for before the tax was imposed, but which, for one reason or another, had not been actually collected. May I say that this is not a Party question in any sense of the word. In fact, it was suggested to me by a member of the Government that I was something of a Bolshevik in desiring to stir up a matter that had been generally accepted as right and proper by all Parties. I think that that is a very good reason why it should be stirred up, to find out whether it is right or not. I personally think that it is all wrong and that it needs looking into.

On Tuesday, I asked the Government to inform me what was their statutory authority for the levying of this tax—tax charged on goods purchased and paid for prior to the imposition of the tax and awaiting delivery to the purchasers. Naturally, I expected a short and concise reply. I had not in mind at the moment what the noble Lord, Lord Hawke, has just indicated, that figures are often misleading and confusing. An old friend of mine used to say that, with the exception of facts, nothing is so misleading as figures. If your Lordships will bear with me, I will read you the reply to a very simple question in relation to what was the statutory authority for putting Purchase Tax on goods which had been purchased and the property in which had gone to the purchaser, so that the purchaser could sue the person if he did not get the goods. This was the reply, the clarity of which perhaps your Lordships will appreciate better than I can. Lord Pakenham said in reply to my question: When Purchase Tax is imposed, or the rate of tax is altered, on any class of goods, the relative Finance Bill provides, as on the present occasion, that the new tax or the new rate of tax, as the case may be, shall apply if the goods are delivered under a chargeable purchase on or after the operative date of the change, notwithstanding that the purchase may have been made before that date. Section 20 (3) of the Finance (No. 2) Act, 1940, provides in similar terms in cases where the tax is imposed or the rate changed by Treasury Order made under that section. Well, that may be clear to your Lordships. I think you can make something out of it, but it is not the simple reply that I expected, and I am at a loss to understand why I should not have received a reply as to why Purchase Tax can be levied on goods which have ceased to belong to the vendor and have become the property of the purchaser. Your Lordships will remember that the transaction which I have indicated was at an end; the purchase had been completed before the tax was imposed. The fact that the goods may or may not have been actually collected or delivered is, I submit, quite immaterial. The purchase was completed before the tax was imposed. Possibly the goods may have been sold to a second, third or even a fourth person. Is that tax to be followed to such second, third, or fourth person? That appears to be a most improper suggestion. Altogether the argument seems to me quite fantastic. I submit to your Lordships that the only question to be decided is: Was the transfer of the ownership in the goods completed before the tax was imposed or not? If it was completed, then the person who purchased the goods clearly is not liable to a tax which was not the law when he became the owner, whether the goods were actually delivered to him or not.


Before the noble Lord sits down, could be tell us whether he is still questioning the legal validity of the present process, or is raising a moral or political issue?


I am raising both the legal and the moral aspect. I think that it is a travesty to say that you can levy Purchase Tax on goods the property in which has passed to a purchaser, so that they belong to him and if he does not get them he can sue for them.


My Lords, without further consultation I am not able to deliver legal views to the noble Lord. So far as I know, he is not learned in the law, and neither am I. On the strength of the learned advice tendered to me, I gave him a very carefully drawn up reply on the legal aspects of the matter, and I have no reason to think that the noble Lord is capable of improving on it. As he has challenged the legal validity of the answer he received, I will certainly look into the matter again, in the course of the next hour or two perhaps, and see whether I can put the legal case for the procedure that is now being followed in a way that will make sense to the noble Lord and will finally convince him.


The public are certainly greatly concerned in this matter.


Well, they are not worrying me about it yet, and that is usually a very good sign.

My Lords, I am entirely in the hands of the House, but I will try to cut short these transitional remarks and leave to the end any attempt to wind up the debate. It is important, I think, for those who wish to take part in the debate further, that certain things should be laid before them, and I suppose as a matter of correct procedure I should now move the conclusion of the Second Reading.


I can claim no greater authority, of course, than the noble Lord. I was thinking only of the hour and of the fact that there are noble Lords who want to take part in the debate, whether on the Second Reading or the Third Reading. So far as I am concerned, I am perfectly content if he wishes to take the Second Reading now, so that he may then make his Third Reading statement and add anything else he wants to say. But it is purely for the purpose of saving time.


I understood the suggestion was that we should deal with the important points raised by my noble friend, Lord Simon, and other speeches that have been made, on the Second Reading debate, and that the Government spokesman would reply on those points, and on those points only; then that the House should pass the Second Reading formally without a Division, and immediately afterwards we should pass over the Committee and Report stages and the noble Lord should deliver his other speech, beginning with the statement from Sir Stafford Cripps which has been made to the other place and with such elaboration as he thinks it requires. My noble friend, Lord Rennell, and others will follow, and the debate to-day will, therefore, divide itself into two parts, one dealing with matters that have been reached already, and the other relating to the speech of the Chancellor of the Exchequer.


The only difficulty about that is that I shall inflict myself on the House on three more occasions. I think, if I may say so, that I would be right in asking the House to allow me to reply to the debate later. Would it be permissible to ask that the Bill be now read a Second time and go through Committee, and then to offer some observations in reply to the noble Lords who have spoken and to bring forward certain matters that are being dealt with by Sir Stafford Cripps?

Viscount SIMON

I think that would be all right.

On Question, Bill read 2a; Committee negatived.

Then, Standing Order No. XXXIX having been suspended (pursuant to the Resolution of December 16):

6.9 p.m.


My Lords, I rise to move that this Bill be now read a third time. I would like to lay before you without more ado certain information, not of a very sensational kind, which is being placed before the other place by the Chancellor of the Exchequer this afternoon. First of all, a word about our reserves which, of course, are not only the reserves of the United Kingdom but the final reserves of the sterling area. At the end of this year we expect that they will stand at about the figure of £500,000,000. (I hope noble Lords will stop me if I tend to go too fast.) This is after bringing into account the first 100,000,000 dollars (the first £25,000,000) of the remaining United States credit, and the remainder of the gold we shall obtain from South Africa under the existing gold contract.

At the beginning of 1948 we shall have available to us in addition £75,000,000 representing the rest of the United States credit, and £70,000,000 being the approximate amount of the undrawn part of the Canadian credit. We also hope to receive in January, £80,000,000 of gold—the gold loan from South Africa. These items amount together to £225,000,000 which will come to be added to the £500,000,000. We cannot expect any other accruals to these reserves for at least the first part of 1948, though when Marshall aid becomes effective, as we hope it will, we shall hope to have a reduction in the drain on us for dollars. Against this we have external liabilities of £5,300,000,000, out of which £3,550,000,000 represents the sterling balances accumulated by our creditors during the war and as a direct result of the war. Another £855,000,000 represents existing liabilities in respect of the United States credit and £235,000,000 the liabilities on the Canadian credit.

Noble Lords may further be interested to have a few figures about the rate of the drain on our reserves since the suspension of convertibility on August 20. In the four weeks ended September 20, the weekly drain averaged more than 90,000,000 dollars. In the following four weeks, ended October 15, it fell to a figure of about 65,000,000 dollars. Since then it has run at the rate of rather less than 55,000,000 dollars a week. There has been a drop, therefore, from 90,000,000 dollars a week in the period ended September 20 to 55,000,000 dollars a week at the present time. That can be compared roughly, but not quite exactly—I expect the purists will know what I have in mind—with the figure of 77,000,000 dollars a week for the period from January 1 to June 30 of this year, with the figure of 115,000,000 dollars a week from July 1 to the middle of August, and of 237,000,000 dollars in the last week before the suspension of convertibility. At that time 237,000,000 dollars ran away from us, while in the present weeks the drain has been at the rate of 55,000,000 dollars.

Viscount SIMON

In the figures which you are giving you speak of so many million dollars a week. I take it that they are really dollars which are equivalent to that amount of sterling.


No, it is the drain in dollars. It is measured in dollars and it represents the loss of ultimate reserves.


May I ask if that is the drain for all purposes—for domestic purposes and for sterling area countries?


Yes, I was coming to that: Perhaps you will allow me to put it in the way in which I have it drawn up, but the answer is "Yes" There is, as I said, a small difference in the basis of comparison as between the later period since we moved away from convertibility and the period before that. The two outstanding points are that the rate of drain has diminished sharply during the last few weeks, but that it is still far too high. At the present rate, which, of course, cannot be allowed to continue, the total drain would be over £700,000,000 a year, of which about two-thirds would come from United Kingdom requirements and about one-third from the rest of the sterling area.

My right honourable friend, the Chancellor of the Exchequer, is dealing in another place at considerable length with the various efforts we are making and with the various fronts on which we are attacking the problem. I will, in order to try to put the effort of the country in some perspective to this House, refer only to the productive effort which is being made by the British people. The House will have read the pretty full statement which was made yesterday by the Minister of Fuel and Power. He said that an export of 10,000,000 tons of coal next year is already envisaged, and we hope that when the winter difficulties are over we shall be able to improve on that figure. The rise in the output of coal so far is almost entirely the result of the efforts of the miners themselves. We have in mind, as is well known, a very big programme of reconstruction and mechanization, the effects of which have scarcely begun to show as yet. It is necessary that many cautionary words should be said, but the solid facts at this moment drawn from the coal industry are distinctly encouraging. During the last few weeks extra hours of work have been almost universally in operation.

Taking coal output as a whole—and I would like to stress these figures among other;; which, though interesting, are not quite so cardinal—we have produced over 2,000,000 tons more coal in the first six weeks of this winter than we did during the corresponding period of last year. Noble Lords who are experts in the coal industry know that in that industry the winter begins on November 1. As I say, during the first six weeks of this winter we have produced 2,000,000 tons more coal than in the same period last year. Last week's output (they call it a "bull week" output, if I may use that term in your Lordships' House) of 4,366,000 tons was the highest since the week ended August 17,1940. So at last we are getting somewhere in the coal industry, and all credit is due to the miners for it.

In paying our tribute to the miners, however, we should certainly not forget the splendid efforts which have been made to speed up the turn round of railway wagons. I know that the records which have been achieved in this connexion will appeal very strongly to the noble Lord, Lord Walkden, and other noble Lords who are keenly interested in railways. The amount of coal production lost last week through wagon shortage was negligible. In the corresponding week of 1946 it was 103,470 tons. And this is despite the fact that more coal has had to be lifted and the total number of wagons available have been less. In steel, too, we have been doing exceedingly well, and I have no doubt that we shall continue to do so provided that we can keep up the necessary flow of scrap and pig iron. In both of these materials we are running on a very narrow margin, and I cannot emphasize too strongly the most urgent necessity that exists for every factory and workshop to mobilize its scrap without delay.

In textiles—and I know that this will interest the House particularly, because in earlier debates allusion has been made on many occasions to the textile industry and the need for a big effort there—we can report a really encouraging increase. For a long time output remained almost stationary, but now at last we have a quickening response to our situation, as the figures show. The number of persons employed in the textile industry at the end of June this year was 756,900. By November the figure had risen to 784,800, an increase of 28,000. The weekly average output of cotton yarns was 12,560,000 pounds at the end of June, but it had risen to 14,730,000 by November. That was the position with regard to cotton yarn. The output of woven wool fabrics was 20,000,000 yards in June and had risen to 23,870,000 by November. Members will wish to study these figures in HANSARD, but I think that, given quite rapidly, they enable the general trend to be seen.


Do the figures of operatives include part-time workers on a basis of two workers to one in the statistics?


I will deal with that in one of my later speeches.

In engineering we have had an ever-rising output, checked from time to time by material shortages, but a revision of the investment programme will bring relief here. I would illustrate this with some further figures. In June of this year we turned out 56 main line locomotives; by October this number had risen to 76. The output of railway wagons, which stood at 2,962, rose to 4,119 by October. The value of the June production of internal combustion engines was £1,618,000; by October it had risen to £2,177,000. The corresponding figures for hosiery machinery show an increase from £235,000 to £363,000, a particularly good step forward. Agricultural machinery also, in which we have the foundations of an important new export industry, is being turned out in increasing quantities. To take agricultural tractors as an example, 8,308 were produced in the first quarter of this year and by the third quarter this had risen to 14,318. I would ask you not to express an opinion on those figures without study and reflection. But Britain is looking up and moving forward, and I do feel that we are entitled to go away for Christmas happier in many ways when we survey the economic situation than we were when we went away, or tried to get away, or failed to get away, for our summer holidays.

I turn to some of the points raised by previous speakers. The noble and learned Viscount, Lord Simon, has been so kind to me in many ways since I became a member of this House that I hesitate to reply to him as violently as my passions incline me to do. He once gave me an excellent piece of advice about how to conduct myself in this House. Among other things, be laid down that I should try and proceed with minimum irritation to all concerned, and I hope he will not be unduly irritated if I tell him straight out that his speech was a terrible speech. It shocked me—shocked me profoundly. It was so unhelpful, so unlike the noble Viscount. It dealt with the past, which has already been threshed out several times in this House, and I can only beg him next time we return to this matter to bring his formidable talents to bear on the situation now confronting us and give us the advantage of constructive advice for the future. The noble Lord, Lord Brand, joined with the noble Viscount in passing strictures on the manner in which the finances of this country have been administered in the past, but, if I understood him aright, he passed a fairly complete and wholehearted vote of confidence on the way in which they are now being handled by Sir Stafford Cripps. I am grateful to him for what he said. I hope the noble Viscount joins with him in his vote of confidence.

Viscount SIMON

I shall want to know about it.


I had felt sure that the noble Viscount, in embarking on this question of great moment and speaking with all the authority of the Opposition, would have instructed himself fully on the existing situation, and I am sorry to think that he did not feel able to pass any vote of confidence or offer any comment on the way in which the finances are being administered.

Viscount SIMON

Is there a great change?


I was not aware of a great change, but the noble Lord, Lord Brand, detected one. Those who think there is a change and draw encouragement from that, may draw encouragement.


May I interrupt for a moment? I do not know whether you limit finance to its narrower sense. I was talking about the general economic programme which the present Chancellor of the Exchequer intends to put into force. I do not know if he has so much as adumbrated the financial side. I hope that, in addition to the physical measures, he will use the financial weapon more than it has been used in the past. But I am in full agreement with his general economic efforts to get the country out of its troubles, and I think he deserves the help from the community which I feel sure he will get.


After that very handsome tribute I am sure he will get help not only from Lord Brand but from the noble Viscount, who, at an earlier stage, informed us, if I do not exaggerate, that he was as a child in these matters compared with the noble Lord, Lord Brand. So I am sure he will be prepared to follow Lord Brand in what he has just said. We can go forward without worrying too much about the past, secure in the knowledge that the noble Lord, Lord Brand, who is regarded by the Opposition (and it is not for me to deny the claim) as the leading financial pundit in this House, is confident that we shall manage the affairs of the country well, at any rate in the financial and economic fields.

The Marquess of SALISBURY

He said he would give his good will.


I think that when the words are studied they will be found to be the words the Chancellor of the Exchequer would like to read. If a Division were to be taken now on the economic and financial administration of this country, we should expect to have the noble Lord with us in the Lobby—and, of course, the noble Viscount, Lord Simon. There was perhaps one point on which the noble Lord did not carry all of us with him so completely—the point on food subsidies—but even there I do not think we have much to disagree with him about except when he suggested that there should be a cut of the order of £50,000,000 in the year ahead. He seemed to feel we had taken the right step in freezing subsidies where they are, and he hoped that some cut would come in 1948. As to that, I cannot make any promises. I am not in a position to do so, and if I were I should not be able to say everything that would be in my mind.


I did not go quite so far as that. I did not say you were right in not reducing the subsidies this year. I pointed out that you have accepted the principle that the subsidies should not be allowed to increase in the same way as before. I should have liked to see them reduced, but we shall do better to hold them where they are than to increase them.


The noble Lord has not gone quite so far in giving his confidence in that matter as in some others, but I do not see anything violently to object to in what he has said. On subsidies, I rather hope I may draw the noble and learned Viscount along with us. I suggest that this is the kind of reasoning which would very much appeal to him. "We all know that if subsidies were withdrawn there would be a serious danger of a substantial rise in food prices, and that might well induce further wage demands. Very few would feel that the remedy of compulsory wages was desirable or practicable, and by raising food prices it is intended that the main mass of the people should have less money to spend on less necessary articles. Then there is the question of whether it is right or necessary at this juncture to oppress the consumer still further. The consumer has had much to bear during the last eight years. It is all very well to be scornful of his amusements as trumpery, but some relaxation is needed. We talk of incentive, but what incentive would be available if there was nothing to buy with the extra wages?" All this reasoning should commend itself to the noble Viscount. If I am asked why that is so, I would say that it flows from that great economist—a friend of many of us—who is quoted with much deference in your Lordships' House, and who has been referred to eulogistically this afternoon. I refer, of course, to Mr. Harrod. Mr. Harrod is a gentleman who is frequently invoked in this House, but if he is, invoked in one direction he should certainly be invoked in other directions, and he is against the suggested cuts in food subsidies.

Viscount SIMON

I hesitate to interrupt the noble Lord, but I referred to Mr. Harrod because he had asked a very pertinent question. I was hoping—not necessarily now, but at some time—that the question might be answered. The question was: Where did all the American Loan go to in the months of July and August?


I am coming to that point in a moment. Meanwhile, I will just point out to the noble Viscount, and to other noble Lords on the Benches opposite, that Mr. Harrod, who is, as I say, a very old friend of many of us, and who has been deified by noble Lords on the Liberal Benches in this debate, gives it as his opinion that it would be a great mistake to cut down the food subsidies.

I come now to the question raised by the noble Viscount: Where has the Loan gone? I take leave not to say very much about that to-day for the simple reason that I said a great deal about it in our last debate. I talked about it almost interminably, though not at such great length as some speakers in another place. One Government speaker held the attention of the other place for two hours on this very subject. Therefore, unless the noble Viscount asks me to go into the matter in detail again, I would refer him to the volumes of Hansard. I will not say more at this stage, except to throw myself open once again to any ether points that may be raised. If it is felt that things that have been said already have been cursorily treated—obviously one cannot deal with these great issues in so short a time—I will gladly return to them. Meanwhile, I formally move that this Bill be read a third time.

Moved, that the Bill be now read 3a.—(Lord Pakenham.)


May I ask the noble Lord whether he will give some undertaking to bring before his colleague the Chancellor of the Exchequer my two points: first, as to taxation of family allowances, and, secondly, the linking of savings with housing?


I will certainly bring both those points to the notice of my right honourable friend. I am sorry not to have mentioned the very interesting speech of the noble Lord. I need hardly say that he pointed out with gentle humour that no one will benefit more than myself from any increase in the family allowances.

6.33 p.m.


My Lords, I thought when I was, as it were, billed to speak in this debate that it was going to be a very difficult debate in which to participate, but the way in which it has developed has made it almost impossible. I have tried to get down a few of the figures which the noble Lord was good enough to give just now. I think I have them down accurately, but if not perhaps the noble Lord will correct me as I go along. Let me start by saying that I do not wish to rake up what has happened in the past, except to this extent. I think it is common property in fact, whatever the noble Lord in his good-humoured and pleasant manner may suggest, that there has been a change of policy, and that that change of policy was overdue. There has been a recognition of inflation. In your Lordships' House we have discussed this situation on more than one occasion, and, indeed, the point made by the noble Lord, Lord Brand, about the direct connexion between internal financial policy and our external exchange situation is one which was raised in considerable detail in the earlier part of this year. Those two elements in our financial and economic situation—namely, the internal policy pursued hitherto, which now frankly appears to be undergoing a change, whatever the noble Lord, Lord Pakenham, may say, and the external exchange position in which we find ourselves—are inseparable. That, I think, has come to receive recognition on all sides of the House, and generally in the country, and more especially in quarters which hitherto had not accepted that connexion.

I think it is perhaps germane in this far-flung debate—at least, I hope it is; certainly I think it may be of interest to your Lordships—to refer to a document which came into my hands a little while ago. It is a report on the economic situation in Sweden, where, as your Lordships will recollect, a Socialist Government has been in power, I think, since 1920. There a truth—the recognition of which I think has been accepted by all economists but not politically in this country until now—has been stated which I hope His Majesty's Government will accept as being the inevitable consequences of the situation in which we find ourselves. In this report, addressed by the Central Bank of Sweden to the Swedish Government, the opening sentences refer to the acuteness of the foreign exchange difficulties in that country caused by the increase in domestic purchasing power. In that country that question has received wide political attention. Speaking of the remedies for this situation in restricting imports from dollar countries—and I believe it is as true there as it is here to-day—the report says: This limitation of imports"— that is of dollar imports— cannot be compensated by imports of corresponding commodities from Europe"— that is from other sources— and must therefore result in an appreciably lower standard of living as compared to what would have been possible under a multilateral trade system. That is precisely the situation in which we find ourselves.

Unless a multilateral trade system can be restored, a lower standard of living here is inevitable; and pending the restoration of that multilateral trade system, a lower standard of living must come upon us. That will take, as I am sure the noble Lord will agree, one or two perfectly obvious forms. One is the reduction which we suffer in the foodstuffs available for consumption. The other is a reduction in the amenities, the services and general standard, due to the cuts in capital expenditure which the Chancellor of the Exchequer has announced and which, for my part, I think are probably only the first instalment, because more will have to come. Those cuts in themselves, I may say in parenthesis, are the overt recognition, in spite of anything which the noble Lord may have said or insinuated, of the fact that capital expenditure has been excessive.. In other words, too much has been done, and we are now quite rightly back-pedalling. But let us face the fact that a lower standard of living, as a result of what has happened here in the last two or three years, is quite inevitable in this country until such time as we can get back to a multilateral trade basis. It is no good blinking the fact.

There is one point in this connexion to which I think it is inevitable that I should refer. For many months in the course of this year, while our foreign exchange situation was deteriorating, and while the inflationary tendency was obvious to everybody concerned, a series of statements was put out that in no circumstances could the standard of feeding in this county be cut down. The only substantial economy which can be made, apart from economy in the administration and feeding of Germany, is in the purchases from dollar countries. That has been obvious. It is so obvious that it really is not worth wasting your Lordships' time referring to it. It has been obvious to everybody in your Lordships' House since the beginning of the year, and I think the noble Lord himself, in the course of our many economic debates, has referred constantly to the difficulties involved in getting dollars to buy imports, including imports of food. It has been commonly accepted.

Nevertheless, I find—and this is the disquieting thing—that reported in the Press on as late a date as December 5, the Minister of Food is reported as having said that the dollar factor was a new one governing our supplies. He said: I think it may not have been completely realized that the character of our food problem has not entirely but has, to a very considerable extent, changed …. as a result of a dollar shortage. If it has taken from the beginning of this year to December 5 for the Minister of Food to realize that, it is that attitude of mind, that lack of apprehension of the situation which creates in our minds on this side of the House a far greater and graver sense of disquiet than the actual difficult situation in which we find ourselves. I do not want: to go back over similar instances—the noble and learned Viscount, Lord Simon, has quoted a number of them—but this is one so recent and so glaring that I cannot refrain from alluding to it.

The figures which the noble Lord has been good enough to give us, and which have been announced by the Chancellor of the Exchequer in another place, are frankly much more reassuring—I am speaking of the exchange situations—than I had expected them to be. I am sure all your Lordships are profoundly thankful that the situation is not worse but rather better than some of us may have thought. The diminution in volume of the drain in itself is satisfactory, although perhaps nothing like so big as we would have hoped, and probably not as big as the Government would have hoped. But when we have said that, what have we said? We have said that the situation is better because it looks as if our total foreign exchange reserves—including this additional and very grateful contribution from South Africa—produce a sum which at the present rate of outflow will last us in this country, and in the sterling areas as a whole, about one year. I think that is the figure the noble Lord himself mentioned. The present rate of drain is about £700,000,000 a year. The total figures he gave, if I took them down correctly, amounted to £500,000,000 of the surviving reserves, plus £75,000,000 from the United States Loan, plus £70,000,000 from the Canadian Loan and £80,000,000 from South Africa, making £225,000,000, or £725,000,000 altogether.


I would not like the noble Lord to push that conclusion too hard and too far, because there are contingent possibilities.


On the figures we have been given the rate of drain is of such size as to enable us to see ahead for one year to the point of exhaustion. I am frankly much more reassured than I was, because I expected the figures to be considerably lower than that. That, at any rate, gives a few months' breathing space in which to continue the obvious satisfactory developments to which the noble Lord also referred—notably, the increase in coal production, the increase in the production of textiles and so on. For those favourable developments I am sure we are all profoundly thankful, and the greatest credit must be given to all those concerned in producing that improvement. But that does not really get us out of the problem in which we are. The appalling figure is that we have enough left on capital account to balance our income and expenditure in foreign exchange for a year, and we have nothing left on capital account to repay anything with. That is the proven fact. What are the remedies for that, or what remedies can be conceived of that situation? It is a situation in which we shall be owing on foreign account— £5,300,000,000?




And with foreign assets to pay for that at the end of next year, nil.


May I interrupt the noble Lord? Of course, there will be remaining overseas investments. I hesitate to mention them because it might give the impression that I thought they would be used for this purpose. But the House should not forget that we have substantial foreign investments.


I appreciate that. If the noble Lord is referring to the reviving dollar investments, the amount is negligible in the face of figures of that size. I do not want to go into details of figures. I do want if possible to ask the noble Lord, when he makes his next speech, if he can give your Lordships any idea of what we do next. He has shown that we can survive. He has shown that we can increase our production, and have increased our production, by so many millions of tons of coal and by so many millions of pounds of textiles and yarn. But unless the Chancellor in another place has given it without our knowledge, as yet we have no sort of indication of what the plan is by which we are going to get out of our present situation.

I want to suggest with great diffidence that the plan in that context must be this. We can never get out of this situation on a basis of purely bilateral trade and bilateral agreements between two sets of countries at a time. That way, and the way of controls and tightening up and rationing, ultimately lead down to zero. Everybody is to some extent in this situation in Western Europe, and therefore everybody must be doing very much what we are trying to do. That is very clear from the report to which I have referred. If we all try to do that we all get to a standstill at varying intervals. The policy of restricting bilateral trading must be broken, and must be broken soon, or within a measurable space of time, within a measurable space of months, we shall be inevitably brought to a standstill in which we cannot even get enough food into the country, because we have nothing to send out and other people cannot buy what we have.

The one obvious answer which prima facie seems a fantastic one to put forward is that dollars and sterling have to become interchangeable. Without free interchangeability and freedom to exchange we must be reduced to a standstill. How and on what basis can that be achieved? It is not for me at this late hour to develop that question in detail; but there are, there must be, certain circumstances in which an investment of foreign money in the British Empire is worth while. I do not myself doubt that there is in America more confidence in the ultimate solution to the problems here than many people in this country to-day are prepared to admit. That is a question of ratio. At what point will the United States of America and the people over there consider that an investment in the British Empire is worth while? That turns on two main and major factors. The first one is on the confidence of these people in us as a whole and in the Government of this country. The second thing is perhaps more an economic issue which I do not wish at this late hour to develop. It depends upon the rate and the freedom of transaction.

There has been put forward in connexion with the Marshall aid plans a number of different methods of approaching this particular problem. It is not for us to discuss what those methods are, because the initiative there lies on the other side of the Atlantic. But I am quite sure that the one main sine qua non in all those schemes is and must be that should British currency, sterling, come into the possession of the United States in one form or another, either through private individuals or publicly, that sterling must be usable by them and not blocked. That is the first step, as I see it, which must precede the breakdown of this crystallization, this icing up of exchanges of goods, people and things that we are witnessing all over Western Europe at the present moment. I wonder whether we are not entitled to expect from His Majesty's Government now or soon some statement or plan, some view which is going to look a little further forward than the few months that are left in 1948 during which we still have enough cash in the till to be able to pay for an ever-diminishing quantity of imports.

6.55 p.m.


My Lords, I do not propose to deal with the items in the Finance Bill but I do propose to take advantage of the fact that it is a Finance Bill, which allows one to range somewhat far afield. What I desire to do is to deal with some of the broad topics of the situation in which this country now finds itself. In some respects I should almost like to respond to the invitation of the noble Lord, Lord Rennell, who has suggested that the question to be answered is "What do we do next?"; but I am afraid that the Government would prefer to answer that for themselves. At the same time I should be delighted if they would adopt the suggestions that I wish to put to them.

Broadly, the position we are in has been indicated by the statement that at July last there was a deficit in our annual balance of payments of about £600,000,000. That gap has got to be filled; that is obvious. Ways have been discussed. We are told in effect "Reduce your imports and expand your exports." The Government, who are the only people who know, have said that we can reduce imports to a point where if we increase our exports by 60 per cent. we shall fill that gap and balance our payments. I do not want to address myself to the question whether we can get the production necessary for that, nor do I want to go into any of the methods by which we might get it. But I want to refer to what I imagine some noble Lords will begin to think is my "King Charles's head", and that is the question: If you did get that production and you could export that amount, where are you going to sell it? While I have dealt with this subject before and do not wish to weary noble Lords by going over the ground again, I should like to remind your Lordships of one or two facts.

Before the war the markets of the world were not sufficient to absorb the products that it was desired to sell in them. The result was that countries adopted quotas, prohibitions, increased tariffs, currency controls—every device they could think of, to protect their own economies. The position cannot be described as very much better to-day. One country after another is adopting a policy of restricting imports, and of course no country more than this country, which was the greatest importer before the war. In face of that situation, you have got a tremendously increased production in the world. In the United States industrial production is up by 100 per cent. in volume of industry since before the war; and the goods that it is desired to place upon the world's markets have tremendously increased. Prior to the war America's average exports were about four billion dollars. This year, 1947, they will probably be something in the region of sixteen billion dollars; and that is not going to disappear. I should like to read to your Lordships what was said by Mr, Dean Acheson in a very wise and illuminating speech two or three months ago: When the process of reconversion at home is completed we are going to find ourselves far more dependent upon exports than before the war to maintain levels of business activity to which our economy has become accustomed. We have got that from America.

Great Britain was one of the biggest exporters before the war. She wants an extra 60 per cent. and personally I believe you must increase that very considerably if you are to maintain the standard of living of the people of this country. And that brings us up against some hard facts. There are not the markets in the world for the world's present production. Unless we do something very drastic about it the world is heading inevitably to something considerably worse than the economic and financial crisis of 1929–32.

The first encouraging sign we have had that the necessity for action is recognized, is the very wise, statesmanlike and wide-visioned speech which Mr. Marshall made at Harvard in June of this year, when he put forward his proposals which are now known as the Marshall Plan. That Plan, to my mind, is the first great encouraging sign in the world. I agree that it has not yet passed Congress, but I am absolutely convinced that it is going through Congress, even though it may be modified or altered. If that is going to happen, it would be well if we did a little forward thinking. I do not know whether I misunderstood the noble Lord, Lord Rennell, but I thought he rather implied that it was not our business to say what was to be done under the Marshall Plan. I venture to say, with the limitations which I will indicate in a moment, that it is entirely our business, and it is for us to produce the plans which will convince the American people that we are really getting on with the job of putting ourselves on our feet and getting out of our present troubles.


It has not been suggested that it was not our business to consider the Marshall Plan. What I meant to imply was that I did not think it became us to consider the ways and means of administering the Marshall Plan in so far as sterling was concerned.


I am very pleased if I did misunderstand the noble Lord, and I apologize if in any way I misrepresented him. As I have said, the Marshall Plan, to me, seems the first really hopeful sign. I have rather gained the impression that what the Marshall Plan means and what its repercussions might be have not yet been even dimly realized. For a few minutes, if I may, I should like to examine exactly what it does mean. The basis of the Marshall Plan, of course, is that generous. aid should be extended to the sixteen European nations that have accepted the Plan, with a view to the rehabilitation of their whole economies and the expansion of their production, so that all those countries can play a significant part in the restoration and expansion of the total world economy. That is the object, and everybody has subscribed to that. But I think you have to go a little further and examine exactly how it will work and what the operation of the credits will be.

In order to examine that, it is desirable to take the example of an individual country. The one that I would take would be the United Kingdom, which has subscribed to the Plan. The first point that we must get clear in our minds is that any aid extended under the Marshall Plan is a gift and not a loan. That is fundamentally important because it makes all the difference in the way you handle the dollar credits which you will receive. In order to appreciate the difference, I should like to take a specific example. I will assume that Britain wanted £20,000,000 worth of timber by way of imports for a great housing programme. If the timber were available in America and were shipped here, or if it were purchased with dollars provided out of the Marshall credit, that timber would come into this country and a debit would merely be placed against our account for aid under the Marshall Plan. When the timber comes to this country, we have to remember, that timber is sold to contractors, the individual citizen pays for the timber in the house that is built for him, and then payments in sterling flow back. If the money was part of the Loan, it would flow into the coffers of the Government and the Government would use it for the ordinary purposes of the Government's financing of the country as a whole. But when it is money under the Marshall Plan, it will have to be placed in a special fund and it will have to be employed for the purposes (probably agreed in broad outline with the Americans) of the rehabilitation and the expansion of the internal economy of this country.

That immediately visualizes a vast sterling fund but, in addition, you have also a dollar fund. Now try to consider what the volume of that dollar fund would be. There was a suggestion that twenty-two billion dollars were needed for rehabilitation under the Marshall Plan. Assume for a moment that that is cut down to fifteen billion dollars when it goes through Congress. I have not the shadow of a doubt that Britain's share of that fifteen billion dollars, as she is one of the participating countries, would be not less than £400,000,000. I personally believe it would probably be considerably more. Therefore, the position with which we are faced is that we have this vast dollar sum for the purchase of whatever we might need in the nature of raw materials and equipment for the development of this country, without drawing upon our current dollar resources to the extent of even one dollar.

In addition, there is this great sterling fund, that would be built up as the result of payments for these imports when they were put into houses or were sold in any other way, which would be available for capital investment in the sterling area. That, I venture to suggest, opens up a tremendous possibility. With the resources of the dollar credit and the resources of the sterling fund for capital investments, we must have lost our imagination, our powers of construction and our initiative if we cannot from that change the whole economy and financial position of this country and, what is even more important, change the whole outlook of the people towards the future.

May I indicate how I see it working? I have stressed one thing, and that is that the expenditures out of our dollar credit should be in respect of materials. I have purposely omitted mention of food. I consider that the purchases of food under that credit should comprise only such as are necessary to meet our absolutely urgent, vital and inescapable requirements. But, for our eventual salvation, I think we have to follow the hard road. We have got to put up for a further time with austerity; we have got to put up with these unpleasant controls and restrictions which make the daily lives of our people so extraordinarily difficult. We have to do that for a time. Food, however, is the vital requirement and so we have to see how we can get increasing supplies of food. We have got, not directly but indirectly, to use the credits which we are going to obtain for the purpose of expanding food production. I suggest that if the Marshall Plan goes through, the first thing we must do is to get the representatives of British agriculture together. We must ask them what is the maximum which they can produce over, say, five years, and we must tell them to set their target high. Then, I suggest, we have got to rake the whole British Empire and Commonwealth to try and see where we can really get a large expansion of food production. That means that we have got to think big and conceive something really worth while. We must get in touch with the Dominions and try to get their fullest co-operation in such plans.

I would that the machinery for Dominions or any British Government consultation was better than it is. As I have a Motion which is just going on the Notice; Paper relating to this subject, I will reserve anything I have to say upon it till later. But on the Colonial side I would suggest that you have got to use this new board, the Colonial Development Board, that you have created. You have got to tell them to give you both short-term and long-term projects, that they must think very big in what they propose, and that they are not to be confined to the financial side of it at all—the reason I will give you in a moment. Out of those plans you will get a pretty tremendous picture, but for heaven's sake do not be frightened of it. You will find that you have to build roads, railways, bridges and accommodation, and must clear vast tracts of land. Innumerable bull-dozers and every type of machinery in such measure as at first blush might frighten anybody, will be required. I say "Do not be frightened," because I believe there is an answer to it all.

Then, when you have got that picture, there is obviously going to be a tremendous task. How do you really set about accomplishing that task? As I have said, talk to the farmers, and ask them for a plan. But, in relation to British agriculture, you have to go a little further than that. You have also got: to get the picture, when they put up a maximum plan of production, of what they will need to accomplish it—how many more houses, what tractors, what spare parts, what farm implements, everything that is necessary. The Colonial Development Board must also be pressed to give its picture, and what it also will require.

When you have ail the requirements to the scheme, you have to send for the representatives of British industry, tell them that they may have to make great expansions, and point out to them that, in respect to any future plans to meet the supplies that are required, they will have the first priority on the dollar resources of the Marshall Fund, so that they can import into this country the things needed to carry out those plans. When you think that the dollar resources that you have available are about 1,600,000,000 dollars, there is some scope for doing something. You must also tell them that they will have the first priority on the Sterling Fund that will be created, and for capital expenditure—expenditures where the finance cannot be provided through the ordinary sources because the amount is too great, or the money is tied up too long—you must be prepared to finance it through those funds that will be available. I would have liked to add this advice: Do not make the loans direct from the fund, but employ the machinery that has been created for this purpose; but as I am the chairman of the biggest corporation that has been created to mobilize the finances of the City of London for the restoration and expansion of British industry, I am, perhaps, precluded from doing so.

When this whole picture is drawn, I suggest it is going to be a fascinating one and one that will pass far beyond anything that we have so far had in our minds. I believe that it will be a food production such as we have never visualized. I believe that it will be an equipment production such as would surpass anything we have previously envisaged. But I do not believe that any of it is impossible. I believe that it can be done; and it is the task of this country to undertake it, with the new hope that has come from this conception of the Marshall Plan, the significance of which I do not think everybody has yet realized.

The things I have been dealing with are the material and the practical problems which may be found in this matter. But there is something far more important than that; and that is the human factor. To-day our people in Britain are undaunted, they are patient, good-tempered and dogged, and they are carrying on. But I believe they are doing it without inspiration and with extraordinarily little hope for the future. If only we could change that! They are appalled, too, by the political and ideological brawling that goes on at every international conference. They have also a feeling of frustration that the new and better world that was to come from their sacrifices in the war now seems to be all an unrealizable dream. If only we could provide the inspiration—if only we could restore the people's hopes—the whole atmosphere would change, and we should again restore the same spirit that we had in this country in the dark days of Dunkirk.

I believe that this Marshall Plan gives us an opportunity to do those things. I believe that it opens again an opportunity to the British peoples throughout the whole world to give the leadership we have given in the past. We can, I believe, save ourselves by our own efforts and, in doing it, I believe we can give a lead to the world. We can give a lead in the direction which, to my mind, is most vital—that is, in bringing about international co-operation in the economic field. That, so far as I can see, is the only conceivable way in which we can get over the difficulties that exist in the political field. And unless those difficulties are overcome, they will make any idea of world peace, security and prosperity, quite hopeless.

7.18 p.m.


My Lords, I hope the House will not take it amiss if I reply in a couple of sentences. I just rise to say that everything that has been said will be studied with very great care by myself and by my right honourable friends; and that applies to any words of praise or words of criticism. I will make sure that my right honourable friends read what has been said, and I, in turn, will communicate with the noble Lords concerned. I would like to say with what interest I have listened to the last two speeches. Obviously, one cannot begin to try to cover the territory that they traversed, and I would like only to refer noble Lords once more to the important and far-reaching speech which has been made by the Chancellor of the Exchequer this afternoon. If I may do so, too, I would call their attention to what was said yesterday by the Secretary of State for Foreign Affairs on the subject of the Marshall Plan.

It was suggested in another place that perhaps this country was not sufficiently interested in the Marshall Plan and was not taking sufficient steps to give a lead to Europe. While the subject is too vast to deal with at this moment, I feel that if noble Lords will refer to what my right honourable friend the Foreign Secretary said yesterday, they will see that there is absolutely nothing in that allegation. We attach tremendous importance to all that has been suggested in connexion with the Marshall Plan, and look forward to what is to come of it. I would like to say, on behalf of the Government, how valuable I feel debates of this kind are. This one, I think, has been even more valuable than usual. I feel that we have every reason to be thankful to the House of Lords. With those words I hope that this Bill will now be read a third time.

7.22 p.m.


My Lords, I would like to say one word before the question is put, and I hope the noble Lord, Lord Pakenham, will take it in the spirit in which it is meant. I feel that it may be very unfair to criticize the replies of a Government spokesman who, after all, is immensely overburdened with work, and the noble Lord has to-day had to accomplish what in the cinema world would be called a continuous performance. But I must say that I have never heard an important debate answered with less respect for the House. Very pertinent arguments and questions of great importance have been raised by some of the greatest experts on their subjects in this country at the present time, and they have had no answer of any kind on any single point. I think that that will be borne out by other noble Lords. There was for example, Lord Brabazon—nothing has been said about his speech. The noble Viscount, Lord Bruce, spoke at a very late hour, and therefore I can well understand the difficulty of dealing with what he said.

In the case of the noble and learned Viscount, Lord Simon, who produced a powerful indictment of Government policy in the past, all that was said to him was—and I thought it was a little disrespectful to an ex-Foreign Secretary and an ex-Chancellor of the Exchequer—that it was somewhat regrettable that he had delved into the past and a pity that he had not been rather more constructive about the future. That was all that was said in answer to his long speech, except for some reference to a report in Hansard of a speech previously made by the noble Lord, Lord Pakenham, himself. Then there was the contribution of the noble Lord, Lord Brand. I thought that his speech was obviously not intended as an attack on the Government but was a completely objective speech, although it contained, quite legitimately, certain very severe criticisms. All that was said to him by the noble Lord, Lord Pakenham, in reply, was that, so far as he could understand, he thought Lord Brand largely agreed with the Government. That was not true at all. Lord Brand said very clearly—at least it seemed very clear to all of us—that he thought food subsidies ought to be reduced. That, of course, is a matter of opinion. It is a matter on which people may hold differing views. It was not true in the least that Lord Brand agreed with the policy which the Government had adopted. Lord Pakenham said that it might have been worse; the Government might have put subsidies up. That is the sort of argument I might have expected in a debate in the Oxford Union, but not in a debate in such a serious and distinguished assembly as this House.

We all like and respect the noble Lord, Lord Pakenham, and we are fully conscious of the difficulties under which he works. I consider that the Government give him far too much work at the present time. It is very hard on him that he should be put up to speak for the Government in a debate of this kind, but I do beg of him, when speeches of the weight and substance that have been made to-day have formed part of a debate, to recognize that an answer must be given if the reputations of both the noble Lord and of this House are to be preserved. In my view the reply given was the most deplorable the Government have given at any time that I can remember since I have been in this House.


My Lords, may I, with the permission of your Lordships, express my deepest regret to all noble Lords to whom it may have seemed that I have treated any subject with levi[...]y? If I had had any idea that it was desired that I should make a full reply now, I should, of course, have been only too glad to do so. I was simply acting in a manner which I thought would best meet with the convenience of your Lordships' House. I have come here equipped with an enormous mass of information which I could have given to your Lordships. If it had crossed my mind for a moment that the right course for me to pursue was to detain your Lordships further in order to do so at this late hour—and the attendance in the House is now somewhat thin—I would most certainly have done so. I hope that your Lordships will accept what I have said in the spirit in which it is offered.

On Question, Bill read 3a, and passed.

House adjourned during pleasure. House resumed.