FINANCE BILL.

HL Deb 24 July 1947 vol 151 cc362-402

4.34 p.m.

Order of the Day for the Second Reading read.

THE MINISTER OF CIVIL AVIATION (LORD NATHAN)

My Lords, the Finance Bill, the Second Reading of which I now have to move, is designed to crystallize in legislative form, as far as may be necessary, the provisions of the Budget: introduced by the Chancellor of the Exchequer last April. This is the first occasion since 1939 that it has been possible for the Chancellor to aim at a balanced Budget. The reason for this is, of course, the obvious one that the national expenditure which, in the previous year, reached £3,910,000,000, is estimated for 1947–48, the current year, at £3,181,000,000. That is a reduction of £729,000,000, or about 19 per cent. It is worth noticing, I think, that all this reduction, and indeed somewhat more, is expected in the expenditure on defence. That is the source from which the reduction is derived. On the other hand, more money will be spent in the present year than last year on education, housing, family allowances, and a number of other items which benefit great sections of the community. The Budget will not, therefore, be balanced at the expense of social services.

The position, then, is that the Government have to meet a reduced. bill of £3,181,000,000, but I should make clear that, although they aim at balancing tie Budget this year, it is not the purpose of this Government to aim at a balanced Budget year by year. It is felt by His is Majesty's Government that Budgets ought to be balanced over a period A years, but that in any particular year the economic situation of the country in the wider sense must be studied and taken into account, and the Budget planned on the long-term view. This year, with all its inflationary possibilities, is a good year to budget for a surplus. And the revenue for 1947–48, on the basis of the proposals embodied in the Budget and, as far as may be, in this Bill, is estimated at £3,451,000,000, or £269,000,000 more than the estimated expenditure. The surplus, therefore, in round figures would be £270,000,000. It has been suggested in some quarters that this surplus is unreal, that it is a "phoney" surplus, because, as is indeed the fact, it is largely derived from non-recurring items, such as the recovery from paymasters and quartermasters all over the world of moneys representing unspent balances of votes of credit voted in previous years. That is true, but such items have always been sent to revenue account and, although much money is coming back in that way, the surplus is none the less real for that.

The taxation proposals of the Government offer a modest measure of relief to large numbers of the population. Included amongst the reliefs proposed this year are the abolition of the duty on artificial silk, and on fuel oil and gas oil, and the reduction of purchase tax on such varied articles as sports gear, linoleum and other floor coverings, toothpicks, mirrors, and hot water bottles. In the field of Income Tax, the earned income relief is to be increased from one-eighth to one-sixth, with the maximum relief under this heading increased from £150 to £250. This will benefit millions of our people. The child allowance is to be increased from £50 to £60, and additional relief is also proposed in respect of the dependent relative allowance.

There is one particular provision in Clause 27 of this Bill which will, I know, give especial satisfaction to some noble Lords who, like myself, have been taking a particular interest in the recruitment of the Territorial Army and other forces akin to that force, because Clause 27 provides for exemption from Income Tax of the training expenses allowances and the annual efficiency bounty for the Territorial Army and kindred services. It is a small matter, and I mention it because I know that a number of your Lordships have taken an interest in it as having an important and indirect effect on matters lying outside the field of finance.

Your Lordships will recollect that some months ago my noble friend Lord Lucas initiated in your Lordships' House a debate on the subject of the taxation of motor cars, and I promised, speaking for those Ministers who sit upon these Benches, that I would represent to the Chancellor of the Exchequer what had been stated by my noble friend and what had indeed been spoken on by members of your Lordships' House in all quarters of the House. I am sure that it must be a matter of satisfaction to my noble friend to find incorporated in the Bill the provision that the mechanically propelled vehicles duty on all motor cars licensed after January 1947, will be reduced to the flat rate of £10.

Now as to increases in taxation. Increases are proposed as regards legacy and succession duties and on stamp duties. A profits tax is to be introduced, or rather a new version given to an existing profits tax whereby, in effect, undistributed profits will bear a 5 per cent. tax, and distributed profits will bear a 12½ per cent. tax. There is also to be a taxation of bonus issues, whether a bonus be a pure bonus, or whether there be a bonus element, or whether it be just a variation of bonus. A purchase tax is to be imposed on such things as immersion water heaters and instantaneous water heaters, which can be prodigal in their use of fuel. They are to be taxed at 66⅔ per cent. and motor cars costing more than £1,000, retail, exclusive of tax, will also be taxed at the 66⅔ rate. This latter charge is to balance out the loss of revenue on the adoption of the flat rate motor vehicle duty. There is also provision to deal with certain devices which have been carried into practice under which sums that really represent remuneration appear in the form of capital sums not liable for tax, and steps are taken in this Bill to safeguard the revenue.

From some points of view, perhaps the most important increase in taxation introduced by the Chancellor of the Exchequer is the increase in the duty on tobacco by 50 per cent. The whole country realizes that this increase is aimed solely at producing, not an increase in revenue but a reduction in consumption, with a consequential saving of dollars. Much has been said in another place about the effect of this increase on old age pensioners and the Bill contains a clause empowering the Treasury to make regulations to provide old people with two ounces of tobacco a week, or its equivalent in cigarettes or snuff, at pre-Budget prices. Every effort will be made to produce the regulations and to bring them into force at the earliest possible moment. Then there is another clause in this Bill which aims at saving dollars. That is the clause which enables an ad valorem duty to be imposed on imported films in substitution for the present duty of 5d. a foot. The clause provides for films to be valued for this purpose in relation to their earnings in this country. This is only an enabling clause, and will only be used if circumstances demand it. But, if an increase in duty is imposed, steps will be taken by the Board of Trade to see that the increase is not passed on to the cinema proprietors or to the cinema-going public. The increased duty will, in effect, be a tax on the foreign owners of imported films, and will thus save foreign exchange and dollars in particular.

The Bill contains the usual items in regard to the management of the National Debt. The only other item to which I think I need make special reference is that which provides that any income deficiencies that may be incurred on the Post Office Savings Bank Fund and the Trustee Savings Bank Fund, should be met out of the Consolidated Fund. Thus, despite the Government's cheap money policy, which restricts the earning power of these funds, investors in the Post Office Savings Bank and the Trustee Savings Bank will get their 2½ per cent. interest.

In a word, the Bill implements the policy of the Government in securing a balanced Budget, cushioned by a handsome surplus. It gives relief in taxation to a limited extent to practically every home in the country. It increases taxation in a limited field, except where tobacco is concerned, and here it is hoped that consumption will be reduced, so that no one will spend more on tobacco than he did last year. The Bill aims, generally, at putting the country on the road to prosperity which it so richly deserves to travel. I have dealt with the whole question of the broad economic issues which provide a background for this Budget and for this Bill, or which require to be taken into account in the deliberations of your Lordships' House in considering the state of the nation. I know that my noble friend Lord Brand is proposing to address your Lordships upon the broader economic issues to-clay, because he will be unable to be here on the occasion which has been set apart in your Lordships' House for a. debate upon this particular subject. I know that he will appreciate that an answer to his observations will be given, en not upon this occasion, but on that. I have confined myself to-day to the pedestrian process of bringing this Bill to your Lordships' notice, so that in broad outline the provisions of this Bill may be before you. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2^a.—(Lord Nathan.)

4.46 p.m.

VISCOUNT SIMON

My Lords, the House will be grateful to the noble Lord, Lord Nathan, for his exposition of the contents of this Finance Bill. He has very justly observed in his closing sentences that the has confined himself to that, and has not entered upon the larger economic issues which I think not only lie behind, but which ought to be the governing consideration in dealing with the finances of this country at this time. I do not say that he is not justified in taking so limited a view of his duty, for, of course, your Lordships are not entitled to take part in framing a Money Bill. I may further note that you are not entitled to cast a vote in determining who shall be the members of the other place who do frame and carry a Money Bill. Our function is a limited, but, I hope, useful one. Our privilege is to pay the taxes thus impose d so far as they apply to us. But we have one other privilege which I, at any rate, hope we value and shall maintain—namely, to take the opportunity afforded by the Second Reading of the Bill to take a rather wider view of the situation which really governs our judgment on the whole of the financial processes of the Government.

I appreciate that there is going to be a further debate on this later, but I hope that I shall be forgiven if I say something about those wider issues now. Up to this moment, we, of course, have hear nothing from the noble Lord which suggests that we are passing through extremely anxious times, anxious enough if you confine yourselves to our domestic finance, but doubly anxious if you consider the still more serious situation of our financial position internationally and abroad. In what we have heard, if I may say so with respect, the voice is the voice of Nathan but, of course, the hand is the hand of the Chancellor of the Exchequer, and one is not, therefore, very much surprised that the tone that is set is one of complacency, whereas I hold that the prevailing feeling when we receive the Finance Bill ought to be one of most intense, anxiety.

I propose, if you will permit me, to make a brief survey of the financial situation both internal and external, for I agree at once with what the Chancellor of the Exchequer has emphasized in another place, that our overseas deficit is the thing which is still a greater cause for anxiety than the situation, which I think is anxious, in our domestic finances. And I will endeavour to show that in fact the treatment of our internal finance actually tends to aggravate our external difficulties. First then, as to our internal financial situation. The noble Lord very agreeably put before us the view that we should rejoice together because we are not only having a balanced Budget but we have a large surplus. He qualified that claim by what I think was a very just observation—that it was made up largely of nonrecurring items—and that their inclusion is not peculiar to any particular Government but goes back in practice for a very long period.

The truth is, of course, that the annual accounts of the nation are not drawn up on commercial principles at all. We put non-recurring items, sometimes the proceeds of the sale of capital assets, into the revenue side of our national accounts and, if we are so disposed, we can be exceedingly happy by subtracting one side from another and finding our surplus. Of course, if any commercial firm treated as receipts of the year the proceeds of the sale of capital assets, as is done in this very Budget, no chartered accountant would ever be prepared to certify that the statement showed a correct conclusion as to the company's position and indeed a commercial firm that keeps its accounts in that way is very likely to find in the end that its directors would be in the Old Bailey.

This is no criticism of the present Government. It has been done by every Government even in the days of the greatest of our Chancellors of the Exchequer. The truth is, we keep our national accounts on quite a different principle and in this present Budget, and for the purpose of putting out this fortunate balance and happy surplus, there are things which cannot possibly and strictly be regarded as revenue at all. What has happened, and it has happened many times before—I am not criticizing one holder of the office of Chancellor of the Exchequer in contrast with others—is that by a series of financial devices and what I think almost amounts to juggling with items above and below the line, you get the figures which the noble Lord opposite has just called to our attention.

I give two instances. In this surplus the Chancellor of the Exchequer includes the proceeds of capital assets left over from the war, even though they were bought with borrowed money. Of course, no commercial firm would dare to do that for a moment. I give an instance even more surprising when you consider the way in which our accounts are set up. This is not a criticism of Dr. Dalton but of the general system, which has its good points as well as its bad points. Take Excess Profits Tax. Your Lordships know it often produces very large amounts but by the rules of working it out there are also very often most substantial returns of tax, because it depends on future working and averages. It is a remarkable chance that in this very Budget, so far as there is money received from the taxpayer under the head of Excess Profits Tax, it is included in the revenue of the year; but so far as there has been a paying back of the amounts which have been found to have been charged redundantly and therefore have to be returned to the taxpayer, they are put below the line and are treated as amounts which are quite properly borrowed and not regarded as a liability here at all. Such is some of the ingenious mystery of our methods of stating the public finance and it has been so for a long time.

I must say that during the period I was Chancellor of the Exchequer I wondered if everybody understood the basis on which these accounts were made up and therefore I cannot really honestly rejoice in this ballyhoo about the Budget being balanced and having a large surplus until the matter is a little more closely examined. But much more important than that is this figure which was mentioned by the noble Lord. It is really essential to study at what figure is the Budget balanced. It is balanced at a figure of £3,200,000,000. That is to say, two years after the end of the war, the amount being raised by taxation in this country is over £3,000,000,000. In the year before the war, though we were putting on immense increases of taxation to prepare for what might be the terrible time that was coming, the figure had not quite reached £1,000,000,000. I do ask your Lordships for a moment to consider seriously what is meant by maintaining a total of taxation amounting to over £3,000,000,000 in a year.

I find it very difficult two years after the war ceased to throw up my hat and be contented with these results when that is the figure which stares me in the face. What is the total national income? A figure which is commonly taken to-day is £9,000,000,000. Taking that, it means that one-third of the whole national income of the country is taken, this year at any rate, by the taxgatherer and paid into the national fund. An income tax of 9s., rising with Sur-tax in the top slice—it is only the top slice, that is often mistaken—of biggest incomes to 19s. 6d. in the pound, is not the way to promote recovery of trade. Surely anyone who reflects on it, without being a technical expert, can see that it really is a terrible obstacle and drag to enterprise.

Let me give one or two illustrations which must be known to your Lordships. Here you have the Government carrying through these immense schemes of nationalization. Whatever else they are doing, they are calling for the most expert, experienced, and competent management. Nobody suggests that the Ministers in this or any other Government are capable of managing such things. Of course not. They have got to do everything they can to get the very best people to undertake these extremely responsible jobs. What is the experience? Anybody who has looked into it will confirm this. During the war, when we had the one common purpose of beating the enemy, whatever it cost, the very best commercial brains in this country were willingly offered and freely used for the purpose (and it was really much simpler than the present task) of organizing the whole economic, commercial energy of the country so that it was directed to that single purpose. What makes it much more difficult now is that there are a hundred purposes to be served, instead of only one. Whereas in the war we had to do the best we could without an export trade, we now have the most pressing necessity of increasing in every possible way our export trade.

What is happening is that a great number of these people, who would not hesitate to give their services, whatever it cost, for the united purpose of trying to beat the Germans, when they are asked to undertake this terrific job involving enormous responsibility and great risk to their reputations—with very doubtful consequences, as many of them think, to the ultimate benefit of the country—will not take it. And the reason why they will not take it is as plain as it could possibly be. What is the good of offering a man £10,000 a year salary if, after you have paid it, practically all of it is taken back by the present system of taxation? Exactly the same thing is happening in the case of filling new directorships. Many a capable man is being asked to undertake a new directorship, which in ordinary times he would be willing to accept; he would feel happy to be thus employed, and to be paid for it. But what is the good of undertaking such a position if what looks like a large remuneration dwindles to nothing at all?

Even in the profession I used to know best—the Bar—there is now happening what I may say never happened in my time. In this my noble and learned friend opposite will bear me out. To-day if a solicitor takes a big brief to a counsel who is already making a reasonable income (I am assuming a first-class firm of solicitors, and a counsel who feels fully capable of doing the job) that counsel looks twice at the figure marked on the brief. He says: "Why should I sit up all night with a wet towel round my head learning all these details, nine-tenths of which are of no interest to me or anyone else once the case is over, if the tax gatherer is to come in when it is finished and say: How much Income Tax on that brief?" In the professions, as well as in business, there is a strong tendency to say that this is not good enough.

It has the result, amongst other things, I fear, that there is great difficulty in the commercial world in arranging the payment for the higher executives—the men who are, after all, some of the principal and most important parts of the machinery. This is operating all through our commercial life to-day, and it is caused directly by maintaining, two years after the war is over, a rate of Income Tax—and Sur-tax if you reach it—which is intolerable and, what is more, which is quite inconsistent with promoting those efforts of energy and spurring on everybody to do their best. So many people feel themselves completely excluded from any useful effort into which they can throw themselves, inasmuch as in the end Income Tax will take its toll of the salary. So high a rate of tax as exists to-day, I submit to the House, is a discouragement to the use of brains and initiative just where it is needed most; that is, in enterprise connected with the export trade. That is one consideration.

Let me put another consideration, if your Lordships will be kind enough to attend to me about this for a moment or two. Our friends, the enthusiastic crusaders of Socialism, may say what they will to please the mob, but the fact is that more money is not to be obtained by "soaking" the rich. The social services to which the noble Lord, Lord Nathan, referred (and I know he will be the first to confirm me on this) did not begin with the Socialist Party. They began with Parties of another sort, and they have since been gradually improved and extended. But, in fact, social services today are not provided free to the poorer classes. If they think so they are under a delusion. The services are really financed to an ever-increasing extent out of the pockets of the people who receive them.

I have here the latest White Paper on the National Income and Expenditure of the United Kingdom. It is well worth a moment's examination because, while I do not think figures prove everything, none the less they do sometimes correct our ideas and illuminate our comprehension. If your Lordships look at the last page of this document (Command Paper 7099) you will see that out of the whole population of this country 825,000 people alone have an income of £500 a year after paying Income Tax. Our population is between 40,000,000 and 50,000,000 and only 825,000 people, once Income Tax is paid, have as much as £500 a year. Those 825,000 individuals who, after taxation, have £500 a year income or over, represent only 2 per cent. of the population. It can be shown, by looking at other figures in this Command Paper, that they already account for between one-third and one-half of the whole expenditure of the £3,000,000,000. The whole of the rest has to be borne by the poorer classes because, however you try, you will find that you cannot obtain substantially more from the higher income earners.

It may be that the Government consider that they can spend the money of the working classes and the wage-earning classes better than the workers can spend it themselves; but what is quite certain is that the Government are not financing these social services without making the working classes pay for them. What happens is that wages buy less; that there is a demand, quite natural in itself, that wages should be increased. We know that that demand is going right through the country. The demand is often enforced, sometimes by agreement, sometimes by strike, and the result is that prices rise. There you have this vicious circle of inflation in incipient operation. And there is a further circumstance which your Lordships may not have noticed, but which is quite plain if one looks at the figures: it is that this rise in prices and this enormous expenditure are accompanied by decreased savings. No one has been more determined than the present Chancellor of the Exchequer to insist upon the immense importance of a high rate of saving. Indeed, I recall that in his Budget speech he said that we must set as a target a saving of £1,000,000 a day, £366,000,000 in the year—I forget whether it was leap year, but anyhow call it £1,000,000 a day. That was his target. What has happened? In the twelve weeks since Budget day, which was April 15, savings have come nowhere near up to that target. In fact, since the middle of May last there has been what may be called, and is technically called, a net dis-saving; that is to say, people are taking more money out of the Post Office Savings Bank, or realizing other small forms of saving, than they are putting in. That is one of the reasons why I submit to your Lordships that really we cannot regard the situation disclosed by this Budget with any sort of complacency. In fact a most dangerous situation is revealed, and the inflationary pressure from various quarters is going on all the time.

Take this fact. Dr. Dalton really added to this inflationary pressure himself last year by a deliberate policy of credit creation on a large scale in order to force down rates of interest unnaturally rapidly. The proof of it is as simple as possible. He issued 2½ per cent. irredeemable Savings Bonds, and many a trustee and many a patriotic man invested in them. What do they stand at now? They stand at 90. Dr. Dalton is hack where he started. His attempt to get money at so cheap a rate is failing, and at this moment he is putting vast numbers of people—trustees and others—in the unhappy position which is equivalent really to losing four years of interest, and there is no reason that I know of to suppose that that particular issue at 90 is likely to rise again to par. Therefore, I venture to say that we must look even at our internal financial position with a great deal of anxiety. The index of wholesale prices is a good indication of how inflation is going. The index of wholesale prices, issued monthly by the Board of Trade, is rising Recent wage increases are not in the least linked with increased output or production, and unless output is increased proportionately with an increase of wages this may set off a further trail of inflationary consequences.

Let me make quite plain what is my complaint about the Government in this matter. It would be quite unfair to treat them as responsible for the position with which they had to deal when they came into office at the end of the war. That situation would have arisen anyhow, and it does not matter what Government were in power these difficulties would undoubtedly have faced us. That is not the point at all. My respectful criticism, in respect of this internal financial problem, is that they are boasting about their management of finance, and generally giving the impression among all their supporters that, thanks to the magnificent work of His Majesty's Ministers, there is no particular reason why anybody should feel that unless he works much harder he may suffer a terrible time. They have not explained to the people—not even to their own followers—the danger of spending at the present rate: £3,200,000,000 of taxes in a year. They have not pointed out the danger of taking from the people of this country a total of taxation which is one-third of the whole national income. What they should do, I suggest, is to make it their main effort to get the majority of electors to realize that large social benefits must come out of their wages, with the result that unless there is a corresponding increase in output they have less purchasing power in their pockets.

Instead of this we have orations every Sunday or Saturday—I read them in the Sunday papers, so they must be made on Saturday—on a whole variety of topics, widely different from one another, except that in every case the Minister lets you know that at any rate his Department is going perfectly splendidly, and even the others are not too bad. We have Mr. Aneurin Bevan, of all people in the world, delivering a week-end lecture on what should be the proper behaviour of your Lordships' House! The thought of Mr. Aneurin Bevan as the master of deportment, as the Mr. Turveydrop of this administration, is one which has is comical side. But I cannot say that it is limited to gentlemen whose charge is not finance. If you want a good example—some of your Lordships may remember it—take the jaunty speech which was made by Dr. Dalton in the broadcast from the B.B.C. on the evening of the day when he produced his Budget. I am glad that I have obtained a copy of that moving pronouncement, and I will read one or two sentences to your Lordships' House in order that we may see how much the people of this country were exhorted to realize that they were in a most perilous position and must work very, very hand to get out of it.

This is not Dr. Dalton in his pontifical style, you understand; it is Dr. Dalton, one might say, in his "matey" style, his condescending style. Listen to this: This time, I am glad to say, I was able to show a surplus; and that, I am sure yen will all feel, is a sign that we have been managing our financial affairs pretty well. Et is one up to the Labour Government, don't you think? That is the way in which the successor of Mr. Gladstone and of Sir Robert Peel addressed the largest audience which can be collected in the world. I would observe, on the chance that Dr. Dalton. does not play the game on which he based his analogy, that it is a dangerous thing for a golfer to pride himself because the is "one up." It is what happens at the end that matters. Many a man has come to grief because he has been a little too happy about a temporary success.

Here is a further extract from Dr. Dalton's address: And yet in spite of this expenditure I"— there are a lot of I's in this address— am looking forward to a surplus of £270,000,000. Not too bad, is it? There is one passage which is so surprising that I hope I may be excused for reading it. It is about the proposed taxation of bonus shares. I listened with much attention to what the noble Lord, Lord Nathan, said on this subject, because I believe he knows what a bonus share really is. But does the Chancellor of the Exchequer? Listen to this: I have imposed a special new stamp duty of 10 per cent. on bonus shares. I wonder if you know what those are? Those of you who don't know will, I expect, feel like me, a bit suspicious about them; and those of you who do know won't really object to sharing with the long-suffering taxpayer some of the gay advantages of this game which they play, I am told, in the City. When I listened to that I wondered whether the Chancellor of the Exchequer knew what a bonus share is. I was unwilling to think that he did not. But since then I am afraid my suspicions have been confirmed, because I notice that he made this remark about bonus shares, in another place, on June 12: Take the cotton industry… . I would much prefer to find companies in the cotton industry with up-to-date plant. Surely it would be much better to have a firm in the cotton industry that had spent money on getting good up-to-date plant, rather than putting a lot of money into reserve and distributing bonuses to shareholders? I really think he must have confused the bonuses of the Co-operative Society with bonus shares. The noble Lord opposite will agree with me, I am sure, that bonus shares arise if the company has made a profit; and only then. The profit, of course, is subject to Income Tax, whether it is distributed or not. If it is distributed by way of dividend to the shareholders the shareholders have it to spend, and they can do what they like with it. If on the other hand the profit is struck, as the company in general meeting may strike it, with the character of capital, it is ploughed into the business; it is not reserved at all. It is used for the very purpose of buying new machinery or whatever it may be; and the capital being increased the shareholders hold shares in proportion to their respective holdings. When the company is wound up it does not make any difference, for their proportions remain exactly the same.

I want to pass very briefly to what I think is a much more serious matter than our internal position: and that is our external financial position. It is only right and just to say that Dr. Dalton himself recognizes that. I have here part of a sentence from his Budget speech with which I am sure we shall all agree: Our internal finance presents difficult problems, but they are all easy, relatively speaking, compared to the external problem of our balance of payments on overseas trading account. Of course, he is quite right; and here it seems to me that His Majesty's Government are exposed to an even more serious charge. Again, it would be quite unfair to treat the matter as though these troubles have come upon us simply because a Socialist Government are in power. I do not suggest anything of the kind. But what I do say is that though the situation would be there anyhow, everything depends on how it is handled and how much the attention of the country, as well as of the Government, is concentrated upon it. To inform the public of the real nature of this trouble is, in a democracy, half the battle. You cannot expect people to realize the terrible situation which is threatening if you do not explain to them what it is, although I agree that it is not easy.

Consider for a moment what is the fundamental cause of our financial difficulties overseas. It is this. There was a time, in the youth of some of us, when a large part of our purchases of food and raw material from abroad, a good deal of which had to be paid for in dollars, was met out of our invisible exports: that is to say, out of the payments which foreigners made for our services in shipping, in banking, in insurance, and by what we earned from British investments abroad. The situation in that respect, unhappily, has fundamentally changed in the last generation. Let me give three figures to illustrate the point. I may say that they are most admirably expanded and explained in a broadcast made recently by the noble Lord, Lord Brand, and published in The Listener. I am glad to know that Lord Brand is going to take this matter up and deal with it with greater knowlege and in more detail than I can.

In 1913, the last year before the 1914 war, our imports, which of course we had to pay for, amounted to about £770,000,000. Our invisible exports, earned as I have explained, were no less than £340,000,000, which is nearly half; so that nearly half our imports of goods and raw material could be paid for out of our invisible exports without our actually manufacturing and exporting anything at all. That was a wonderful position. But just pass on and take the last year before the last war, 1938. In 1938 our imports were over £900,000,000. What were our invisible exports? They had dropped and were something over £300,000,000. In other words, only one-third of our imports were paid for by these invisible exports, and we depended more than ever on actual manufactures, and on coal, which we were able to sell overseas.

Take the third figure. In 1946 our imports cost us, I think, £1,300,000,000. Prices rose. The figures I am giving are figures which include c.i.f. Our invisible exports had sunk to between £200,000,000 and £250,000,000 and they paid for only one-sixth of our imports. As I understand it, that is the fundamental reason why there is such an overwhelming need for exports from this country to-day and as yet—I wish to speak fairly of all men—I do not see any sign that what we are exporting will fill, or promise soon to fill, anything like the gap which has to be filled. There is one thing quite certain, and that is that you will not be able to import what you must import from foreign countries unless in one way or another you are able to pay for it. Meanwhile; we have the American loan of dollars, the equivalent in sterling of something like £937,000,000, and to that you must add that greatly valued and most treasured loan and contribution made by Canada. We have spent one half of the loan already. The current rate of expenditure of these credits is about £800,000,000 per annum, and that means that they will be exhausted by the end of the year.

It seems to me, my Lords, that two questions then arise which I really think the Government should consider. First of all, have the Government made plans for the situation that would arise if no further dollar assistance were forthcoming, or are we to have the situation of the coal muddle over again, when it was quite obvious the t the Government made no plans at all and merely hoped for the best until the trouble was upon us? Have they made any plats as to how they mean to deal with this? Have they devoted themselves with any more foresight than they did before to preparing for a possible dollar crisis? Even if we are successful, as we all hope we may be, in obtaining further dollar assistance, what will happen if that dollar assistance is delayed?—for the Americans Constitution is a very elaborate piece of mechanism. Have the Government mad: plans as to the situation which we might have to face if that delay, apart from ultimate promises, exposes us to these dangers before relief comes?

I know that the Government are attaching great importance to the Marshall offer. May I make one observation on it? I need hardly say I am not doubting the value of the offer, but I say this in order that we may be careful as to who: is the nature of the bargain that we make Surely we must be very careful what arrangements are made under the play. that is now being discussed. The supplies, to Europe, including to ourselves, should be adjusted to real, proved needs and not just to stated requirements. This is a point that my noble friend Lord Cherwell has made more than once, and it is profoundly true. If there is going to be a series of claims made on a fund by a series of countries, there is always a natural temptation to put one's individual claim rather high. After all, there is only so much to go round, and if you say that your need is so much maybe you will get a percentage at least of what you ask. That has not been our habit and the Government are to be congratulated upon it. They have not tried to put our needs higher than what we know them to be in stating what our real situation is. I am all for honesty, but the honest and unexaggerated statement is a very poor form of claim if it is grouped up with a lot of other claims by other countries which in fact are exaggerated. Therefore, I do most earnestly beg, in no carping spirit, that when the Government come to negotiate more closely in connexion with this great offer, they should bear this in mind.

There is one other point about it, perhaps even more important. Above all, we must be sure that we do not undertake to supply large amounts of goods to various countries in return for soft currencies or promises to pay, while we have to borrow dollars to meet our own necessities. That is what happened at the end of the last war. We cannot afford, as we did to a certain extent after the First World War, to have all debts to us written down or repudiated while we are left owing vast sums in dollars to the United States. I hope I have made this plain. This is not in the least said in a carping or grudging spirit. It merely seems to me, and to the Government I trust, that those are two considerations of the greatest importance, and we must not allow ourselves to be involved in arrangements which do not satisfy those two conditions.

I have occupied longer than I meant. I have finished what I wanted to say but perhaps I may add this much in conclusion. It is a very difficult thing to explain to the ordinary man and woman what is the real gravity of our international financial position. It is not at all an easy thing—you are sometimes tempted to do it in elementary terms—to explain what invisible exports are or why they have such a fundamental effect upon our financial position abroad, but I do most respectfully say that the Government are failing in their duty unless they really devote themselves to explaining this to the people of the country. One or two trade union leaders, as I think, have played a very manful part in this and have demanded that explanations should be given in order that the real gravity of our position may be understood. I am inclined to think in all honesty—I ought to except Sir Stafford Cripps—that it is not true as yet that any sustained effort is being made by the Government or its supporters to show the country what is the nature of the danger which is impending but which we all hope we can overcome. It is not easy to see what will happen to us if we do not.

My criticism is not, of course, that the Government have caused these troubles. They have not caused them at all; the troubles were the outcome of war conditions. My criticism is that the Government have exhausted themselves in preparing and carrying through a series of ill-prepared nationalizing proposals which have nothing to do with the real problem that is facing us—nothing at all. Transport monopoly cannot produce dollars. Coal nationalization, up to date at any rate, has produced less coal than in 1941; indeed, the British people at the moment are under the humiliation that, instead of exporting coal, the one really valuable natural product which we have in this island, we are importing it from foreign countries. The only way in which this recovery may be secured is by promoting a great increase in exports and by realizing that nationalization is of no assistance in attaining this objective, whatever may be the other arguments in favour of that particular course. It seems to me really that nationalization discourages enterprise and effort. I do not see any real indication that the Government realize the danger that is threatening us or, at any rate, if they do realize it, that they are prepared to tell the people the truth about it—which is extremely alarming—and to prepare them to recognize it and to face it, as Britain has always faced danger when she has been wisely and courageously led.

5.40 p.m.

LORD RENNELL

My Lords, we probably all want to hear what my noble friend Lord Brand has to say, and we regret that he will not be able to take part in the debate after Bank Holiday. I therefore propose to confine myself entirely to the Finance Bill and, in particular, to two groups of clauses—namely, Clauses 19 to 23, dealing with retirement pensions, and Clauses 60 to 62, dealing with bonus issues of securities, and so on. I take these two groups of clauses, not so much for the purpose of criticizing their contents or the methods behind them as to draw attention to the fact that the existence of these two sets of clauses appears to me to be opposed to the policy which has been advocated by His Majesty's Government in other connexions, and to draw attention to what I have already referred to on another occasion—namely, a significant discordance in policy between various Departments of His Majesty's Government.

The pension clauses are Clauses 19 to 23, and they make certain modifications in the assessment and provision of what are known as ex gratia pensions, or pensions which are not derived from an approved fund. I have no doubt that the Chancellor of the Exchequer had very good reason for inserting those clauses, and I dare say the possibility of the improper use of facilities extended to other Bills was gone into. But the effect of these clauses is to make the granting of ex gratia pensions to officials of corporations, and also directors and officials of companies, extremely difficult and onerous, both in regard to the companies and the individuals themselves. The effect can be only to discourage the retirement of officers of corporations, and of directors of companies, and must have the effect of their being kept on, out of kindness or out of gratitude for their services, beyond the ages at which they normally ought to retire. It is no retort to say that they ought to have participated in an approved fund, because there are a great many cases where there would be no possibility of making an approved fund and, in cases of small corporations, the burden would be far too onerous.

We regard this group of clauses, therefore, as being opposed in their effect to the principles which were accepted when we discussed the Companies Bill—namely, that retirement ages should be fixed at sixty-five, seventy or whatever the age group may be, so as to allow younger people to take over. The clauses will have the opposite effect, in my opinion and that of a great many others with whom I have discussed the matter. I have consequently come to the conclusion that the provisions of the Finance Bill in this respect do not accord with the policy which was advocated by spokesmen of His Majesty's Government, both here and in another place, speaking for the Board of Trade.

In regard to the second group of clauses I have mentioned, I do not propose to criticize the tax which is imposed in them. It may be a good tax or a bad tax. I do not wish to take up your Lordships' time in expressing any views about that. I have very definite views, but they arc: not germane to what I am going to say. It has been common ground, not only in your Lordships' House but generally in all accepted practice in the management and direction of corporations, that those persons who are entitled to benefit in the first instance by the issue of additional securities are the shareholders and the corporations themselves, and not the general public. I am quite sure that the noble Lord who moved the Second Reading will be the first to agree that that is a principle which every corporation would advocate. It is certainly a principle which was strongly advocated by the noble and learned Viscount in the course of the Companies Bill. It is implicit in that group of clauses in the Companies Bill, and on all sides of the House we tried to make that as much obligation as it was practicable to do.

The effect of this set of clauses is very remarkable. Where a company issues shares to its shareholders on what may be described as bonus terms, it has to pay a tax; but where the company issues new shares to persons other than its own shareholders, it escapes tax. Can there be any other conclusion than that here after every incentive will be given to companies to issue shares to the general public, and not to the companies shareholders? I ask again if that is consistent with what was said in your Lordships' House by the Lord Chancellor, and what must have been, to his knowledge, the practice of all well conducted corporations for many years past.

I have, however, one small point in connexion with that which I would like to raise, and it is in regard to Clause 61, on page 58. I draw his attention in particular to subsection (3) of that clause which purports to provide, and which, I am advised, does not provide, for the method of assessing how much the bonus is, and, therefore, what the tax shall be. I will not take up your Lordships' time by going into the clause in detail, but in my view, and if I am properly advise on the wording, owing to a misconception of what a letter of right is it will not be possible to collect this tax at all. If the noble Lord should wish to ascertain my reasons for making that statement, I shall be very glad to give them to him. It suggests to me, if I am right—and I stand open to correction—that the conception of what is a bonus is one which has, perhaps, been not entirely realized by the Chancellor of the Exchequer. I am inclined to concur with the noble and learned Viscount who has just sat down that the Chancellor of the Exchequer doe; not realize what a bonus is.

However, whether I am right in that or not, I wish to repeat that here we have examples where the policy followed is an variance with the policy which has been attempted to be followed in other Bills, and is completely at variance with statements that have been made by various members of His Majesty's Government. I do not intend to go into the implications of this Bill, because I do not wish to keep your Lordships from hearing what the noble Lord, Lord Brand, has to say. I cannot, however, refrain from commenting on the somewhat, shall we say, Bohemian manner in which the Chancellor of the Exchequer has arrived at a surplus. Perhaps "Bohemian" is an understatement. It is not a method which would commend itself in the best commercial practice.

5.49 p.m.

LORD BRAND

My Lords, for the reasons that the noble Lord, Lord Nathan, has given, I am asking the indulgence of your Lordships to make a few remarks on this occasion, and not in the economic debate as I should have preferred, because by that time I shall be in the United States. I am going to devote my main attention to what is the most immediate and by far the gravest problem before the country, which is our balance of payments. There are, of course, other very serious problems, one being our external indebtedness. As your Lordships know, in 1951 we have to begin the service of our American and Canadian loans, and we also have sterling debts amounting still to about £3,500,000,000. These latter, from our point of view, are war debts, and perhaps might be regarded as war debts by those nations who, so to speak, own them, if they really feel themselves members of the United Nations, and are glad that we won the war. I have always held, and still hold, the view that war debts and reparations should not be paid and cannot properly be paid without doing a great deal of damage to the world. Nevertheless, I should like to say that, while I still take that view, I am entirely against unilateral repudiation of these sterling debts. At present, by far the most important question, so far as they are concerned, is what is the annual payment we make in connexion with them. These payments must be very modest while we are in our present condition and, in my opinion, we can well wait as regards the main question of the total capital amount of these debts till a later period when, no doubt, they will have to be adjusted.

I now come back to the question of our balance of payments. The latest figures, I think, are those given by the Lord President in another place. He said that the deficit for the year 1947–48 was estimated at £450,000,000. This was on the supposition that exports had reached 140 per cent. of the 1938 total by the middle of 1948. That figure is, therefore, based on the expectation of a very large increase in exports. At the present export rate, the deficit is running, I think, at about £600,000,000 to £700,000,000 a year. Of course, the deficit in dollars may be greater than £450,000,000 because we earn a great many inconvertible currencies which we cannot convert, and we have to pay for most of our imports from North America in dollars without exports to North America, to help us to pay for them.

One cannot understand the position unless one knows why it is that this great deficit exists. Therefore, I will venture to give your Lordships some figures which will not contradict at all the figures which have been given by the noble and learned Viscount, Lord Simon, but which are put in a slightly different way. In volume, our imports are now only from 80 to 85 per cent. of what they were in 1938. In volume, our exports are now 100 per cent. of 1938. Therefore, as regards volume of imports and exports, we are better off than in 1938, and if everything else were equal one would think that we would be all right. But this is far from being so, although I think that what I have just said indicates a very considerable achievement on our part. The main difficulties, and the main differences from 1938, are that our invisible exports are down by about £100,000,000; our Government expenditure is up by £175,000,000, making £275,000,000 in all; and, still more important, there has been, particularly recently, an enormous rise in the prices of imports and exports, but particularly of imports.

In 1946, our imports on an f.o.b. basis (the noble and learned Viscount, Lord Simon, quoted them on a c.i.f. basis) cost £1,100,000,000. The imports for 1947–48 on the same basis are estimated to cost £1,700,000.000 for only 15 per cent. more volume. Therefore, between 1946 and the year 1947–48 there has been an increase in the cost of imports by £600,000,000 for 15 per cent. more volume. Of course, there has been a great increase in export prices, too—how much I cannot say, but perhaps in the last six months the net increase in our total deficit owing to these price rises may be as much as £150,000,000 to £200,000,000. Probably, for the whole year 1947–48 it may be considerably more. The Chancellor of the Exchequer gave some indication of this the other day, when he stated that the United States loan had really been reduced in value by 28 per cent. because of these rises in prices. Therefore, I think that the Lord President's balance sheet for 1947–48 may read something like this. On the debit side: imports, £1,700,000,000; Government expenditure abroad, £175,000,000, making a total of £1,875,000,000. On the credit side: exports, £1,300,000,000; invisible exports, £125,000,000. This leaves a deficit of £450,000,000.

I apologize to your Lordships for giving so many figures, but I think they are necessary in order to be clear about the position and to see what can be done. It follows, from the figures that I have given, that we can improve our position in the following ways. We can reduce Government expenditure abroad from £175,000.000 down to a lower figure. We cannot, on financial grounds, afford any of this expenditure. Nevertheless, I, personally, am not in favour of scuttle, and I am not sufficiently acquainted with what can and what cannot be done to suggest what actual reduction should be made or is possible. We can increase, or try to increase, our invisible exports, particularly by increasing shipping freights. Unfortunately, investments abroad we cannot increase at present because we have no surplus, and we shall have to increase very slowly in later years. But beyond these two courses we are left simply with visible exports and imports.

It is here that the rise in prices is so important. I do not think that we can possibly be expected immediately to increase our exports by the hundreds of millions of pounds on the wrong side caused by the extra prices in imports. The terms of trade have been very greatly against us in the last year. For this reason, I think that there are good grounds for asking for some relief from the supplying nations who themselves of course, get the advantage of the increased prices. But we have to remember what our views would be if the boot were on the other leg and if the prices of food and raw materials fell very heavily. We should not, I think, feel very strongly that we had to go to the succour of other nations who would then be suffering as we are suffering now. In any case, apart from this question of prices there is bound to remain a very serious deficit, and therefore, apart from that question, we shall have to make every conceivable effort that we can to close the gap.

If we are to be left alone to deal with the deficit, if we get no help from abroad, we shall be faced with making very large cuts of all imports not absolutely essential. Our whole life will be very seriously affected. We must not forget that we are obliged to pay for imports day by thy, either with our own money or with money we have borrowed. If we have no money of our own and are not able to borrow, we shall not get the imports. Day by day they have to be paid for. I think in these circumstances that we could not possibly avoid a very serious crisis. That is true also of other European nations, particularly, I think, France. We must recognize—and here I speak from knowledge of American conditions—that Congress probably may not be in time before the critical moment arrives for us. We ought, therefore, to prepare now, since the main burden in any case must fall on us. We cannot afford to run down either stocks of food or raw materials or our general reserves of dollars or gold below the danger point, so that the time may come when we are absolutely defenceless and simply rest on the succour of other nations without any means whatever of helping ourselves.

This means, in my opinion, that we must restrict imports now, particularly of food, to a minimum required for life and production; but in the long run what is more important is that we must increase output as much as possible both to take the place of imports and to increase exports. All this involves both a negative and a positive policy on the part of the Government. It involves in the first place the negative policy of preventing inflation, as the noble Viscount, Lord Simon, said, by every possible means. It involves also positive steps to increase output. I should like to consider these two aspects shortly in turn.

One danger is that this country does not understand what real inflation is like. The continental countries do. I saw a great deal of it after the last war and in my opinion very serious inflation is the worst of plagues, not only from the financial point of view but because it destroys all the most stable classes in the population and leaves the whole community open to attack, as we have seen in Germany, from men like Hitler or some other would-be dictator, without there being any class that can stand up against him because all the classes that might do so are discontented, embittered and ruined. I do not think we shall suffer from that completely uncontrolled inflation here, but even inflation controlled as ours is may be very damaging. Despite all controls, prices will certainly rise. This, of course, immediately acts in hampering exports. It puts up the cost of exports so long as our exchange is held stable and prevents selling abroad in competition with other nations. It also makes all imports more profitable and the pressure of imports therefore would become greater even than now.

On the other hand, if prices are kept down, for instance by subsidies, and purchasing power continues to increase then this purchasing power spreads itself out in undesirable and wasteful ways. If subsidies are diminished, as I think the Chancellor of the Exchequer wishes, then the cost of living goes up and immediately there comes into play the necessity, under contracts under which millions of people work, to raise wages. Therefore you have a very rigid economic system. Wherever you turn you are almost obliged to do the wrong thing.

There are serious dangers of more inflation, in my opinion, for various reasons. The amount of money in the hands of the public in relation to our consumption is, I calculate, about double what it was before the war. In 1946 bank deposits went up by the astonishing figure of £800,000,000. Recently they have been stationary, but yesterday I saw in the papers that in June they increased again by £59,000,000. Therefore, purchasing power in the hands of the public is still increasing and in my view, this must be stopped. The second serious danger is the rise of wages and shortening of hours. Under the conditions of full employment that we have now, to raise wages is wholly inflationary. It does not increase output. It simply adds to prices. What is the good of talking about scientific planning if the control of this very central problem is left entirely in the hands of interested parties the employers and the employed, without the Government taking a hand to represent the community?

Another great danger is that we have far greater demands on our capital and labour for capital purposes than we can possibly fulfil. Besides the enormous demands of home consumption and exports, we have the huge depreciation of our capital assets due to the war. We have the necessity to modernize our plant, which I myself should put as the first priority. We have the necessity to extend industrial plant in many directions; for instance, power stations. We propose to spend huge sums of money on our Colonies. And we ought to remember, too, that some time or other we have the service on our external debt to pay. There is nothing like enough savings or enough materials or labour to carry out all these projects at the same time. If, therefore, we do not continue the control of our capital investments, which I much regret, we should have a very great rise of prices and additional inflation.

Lastly, there is the question of the Budget. It is necessary to balance the Budget and if possible to have a surplus. The Chancellor of the Exchequer, I know, fully supports this view, but he seems to me by temperament somewhat too buoyant and optimistic for these sad days. He appears to me to be always wanting to do a record. He did a record with his 2½ per cent, irredeemable stock. But the record has faded. He said, too, at that time that the British Government's credit was at its record height. I am a banter and I am not accustomed, when a customer comes to see me, to think his credit is very high if he is overwhelmed with debt, and if his expenditure is twice that of his income. Therefore, I think that the Chancellor of the Exchequer was putting that record a little high. I fear it may be the same shortly with the record revenue, which is due, as other noble Lords have said, partly to our inordinate taxation and inordinate expenditure, partly to inflation, and partly, of course, to the fact that we are borrowing from other countries at the rate of £800,000,000 a year. When our loans are through, and we face great unemployment and difficulties of all kinds, then I fear the Budget surplus, if it exists, will disappear very quickly like snow upon the desert's dusty face.

I now come to the question of positive action for greater output. Many of your Lordships know much more than I do about industrial output, and, therefore, I shall make only a few general remarks. If we as a nation are working very hard we are certainly not doing ourselves justice before the world. We are clearly not doing our best in the coal and building industries. Moreover, shortening of hours is at this moment, in the face of the world, paradoxical, and not the best prelude to borrowing because we say we are too poor. We have to remember that the outside world often sees us more clearly than we see ourselves. I remember that after the last war the French were always blaming the British for appreciating the pound. They did not see that it was the franc that was depreciated, because the franc was something that did not change, so far as they were concerned. Now foreign nations watch us with extreme interest all the time. They watch the pace at which we are expending our loans. They realize that we are like a building held up by scaffolding—controls of all kinds—and they are wondering whether we are really going make the effort ourselves to restore the building before the scaffolding shows signs of weakening.

Apart from controls, our troubles appear to me to come from two causes. The first is the one I have already mentioned, that most people here have too much purchasing power in their pockets in relation to the amount of goods to be purchased. The second is that they have expected too much from the Labour Government. It is a serious defect, to my mind (I speak not as a Party politician, which I am not) that Socialist teaching has always been in favour of the distribution and not of the production of wealth. The distribution of wealth has been taught for many years as the cure and end-all. Now, as the noble and learned Viscount, Lord Simon said, we have come to the end of the distribution of wealth; and we find that the mere distribution of wealth, which is desirable if it goes not beyond the point where it destroys initiative, is in itself no cure at all. The cure is in greater production; and there Socialism has hitherto failed, whether in this country, in France or in other countries, either as against capitalism or, even, I think, Communism with its big stick.

Anyone who has lived for some time in the United States realizes with what greater speed they do many things than we do here. Their output of agricultural production, I believe, is about the same per man-hour; their output of industrial production is double or treble. I should like to read to your Lordships a short quotation from the Manchester Guardian from an article written recently by a correspondent in America: The British Labour view that the working class can get a fair deal only in a Socialist system is utterly strange to the vast majority of American workers. On the whole they are interested in making the free enterprise system work well and getting the best out of it. That is everywhere recognized by intelligent employers, who are making great efforts to confirm the workers in their co-operative altitude. It sounds to me almost like a paradise. It would he unfair, however, not to say that our lesser output in this country is due also to the lack of modernization, and possibly to restrictive measures among considerable circles in British industry. But to which side the lack of modernization can be put down—whether to the employers only, or to the employed as well—I would not like to say. I think that there was a combination of both before the war, and that we were seriously at fault so far as the welfare of our country was concerned. The Government, of course, have long been aware of the vital importance of output, but nothing much happens. If nationalization were the answer, I would be in favour of it; but experience proves that it is not. We have plenty of examples already of nationalized industries; we know how good they are, and. how bad they are, compared with private enterprize—some are good, and some are bad.

We know that the Prussian railways were well run, but that the American telephone system is vastly superior to the British telephone system. There is really nothing to show that any nationalization scheme will greatly increase the output of wealth, and I take the view which the noble and learned Viscount, Lord Simon, took, that nationalization has nothing whatever to do with the problems that face us so seriously in this country. I remember the dictum of the late Lord Keynes, that, so far as the welfare of the country was concerned, there could be nothing more unimportant than the nationalization of railways. That was said before the war.

I have a short extract here which I would like to read to your Lordships, because it bears on one aspect of this problem. It is taken from the Report of the Bank of International Settlements, the annual reports of which give, in my opinion, a better description of the economic conditions of the world than anything found anywhere else. This passage is from the latest Report: The Nationalizations which have taken place in many countries since the war cannot as yet be judged by results, partly because complete data regarding the operation of the national enterprizes are still lacking for the most part. But it is known that in many cases operating losses are being sustained which have to be covered by grants from the public treasuries. When that is the case, the nationalized enterprises not only do not contribute their fair share to the current upkeep of public services, but actually appropriate a part of the nation's savings to cover current costs, and thus slow down progress all round. I hope it will not prove the case that the nationalized industries here will come on the Budget for any of their expenditure. I would like to express my opinion, however, that if nationalization goes beyond public utilities and extends into the exporting and competitive industries, the result will be very damaging to the country for several reasons, of which I will mention only one. The only way in which we can really build up our invisible exports in the future is by extending our investments in other countries. I do not believe, with the world as it is, that Governments are going to be allowed by ether Governments to invest large sums of money in industries in their countries. I believe, therefore, that our only chance of building up our investments abroad is to do it as we did it in years past, by the enterprise and energy of our private corporations and companies, which would have a great deal more chance of doing so than any Government.

I naturally support the Marshall Plan as much as anyone who has spoken. It is very desirable from every point of view, particularly from the point of view of increasing international trade (which is essential to us) but we cannot rely upon it. I do not think we shall ever get a loan of the character we got before, which was a very special and exceptional loan given to no other country. We are now, as the Economist said quite rightly the other day, in the queue. In Washington it was our object always during the war—when we succeeded—and even after the war, to maintain that we were not in the queue; that we were one of the chief belligerents and we would not be in the queue and would not stand in with all other nations but required special treatment. The American loan was an example of special treatment, but we are now in the queue. I do not think myself that we could have avoided it. We are in the queue, and we shall have to join up with other European nations; we shall make our case with them and our case must be as good as any of their cases if we are to get the same treatment.

It is obvious that we are in an exceedingly difficult position, partly because of the part we played in the war, and partly because conditions have turned out very unfavourably for us. We shall be called upon for the greatest efforts. We shall solve our problem in time, because every nation has to solve its problems; it cannot live on other nations. In my view we shall not balance without, first, a fall in the price of imports relatively to those of exports; secondly, without a considerable increase in international trade, which we hope the Marshall Plan will help to produce; and thirdly, without much greater efforts and, I fear, much greater sacrifices on our part. We cannot tell how this very difficult position is going to develop in the coming months. I hope myself, if it were clear that conditions were becoming so serious that we must, as in war time, act as a united nation, that we should find the means of doing so.

6.25 p.m.

LORD LUCAS OF CHILWORTH

My Lords, it is indeed a privilege to follow in this debate the noble Lord, Lord Brand, who has once again demonstrated to your Lordships his mastery of this great and complex subject. The noble Lord said that he addressed your Lordships as a banker, and I intend, if I may have the indulgence of your Lordships' House, to make some comments upon what the noble Lord has said from the point of view of a working industrialist. Before I do so, I would like to say what a happy circumstance it is for me that my noble friend Lord Nathan is replying to this debate, because it was my noble friend who replied to the Motion which I had the honour to lay before your Lordships' House upon the question of motor vehicle taxation.

When the noble Lord, Lord Llewellin, spoke earlier this afternoon, he said that your Lordships' House had lately gained quite an amount of publicity. I will not do anything to add to that publicity, because if I claimed that it was through the unanimity of your Lordships' House in pressing upon my noble friend the dire need for a change in motor vehicle taxation that the change was made, that might excite jealous comment elsewhere. But I would like to extend to the noble Lord my grateful thanks for the efforts that he made with the Chancellor of the Exchequer. May I also convey my thanks to the noble Lord, Lord Teynham, and his colleagues opposite for the unanimity of the support which they gave me upon that occasion?

Now we have freed one of the greatest industries we have in this country from one of the biggest obstacles it has suffered for twenty-five years, perhaps at last in these dire days we may learn to realize what a great instrument for economic advancement we have in the motor industry. It is at the present time supplying one-third of our exports. It can do even more in future, for at last the British designer is going to be given a free hand to compete in the world's markets. Already it is quite apparent that he is going to do so; the new system of taxation is going to bring that measure of rationalization into this industry which we so sadly need. Already one of our most prominent manufacturers has declared that he will in future build only one model. Another very prominent manufacturer has declared it to be his policy to build only two models. That is the effect of the flat-rate system of taxation, now that we have got away from all the bogies of the past.

But there is one point which my noble friend mentioned in the proposals in this Bill relative to motor vehicle taxation which I think deserves some comment; that is, the extent of the increase in the purchase tax on motor cars of over £1,000 in value. There has been adverse comment upon this, and some of it has taken a line which I think is worthy of a reply. The comment is that it will destroy that quality craftsmanship which has been built up in the automobile industry for so many years and which stood us in such good stead during the war. I dissent from that view.

I would like to give your Lordship; one or two facts to show why I think that the criticism is ill-founded. Let us take away the exaggeration that we should never have won the Battle of Britain if it had not been for the existence of one specific make of motor car, and ask ourselves what was the real development of the automobile and internal combustion engine during this war. There is no harm in my mentioning a name which has been mentioned so many times already. It has been said that this increase in purchase tax will kill such firms as Rolls-Royce. It will do nothing of the kind. The production of the Rolls-Royce company before the war never exceeded 1,000 motor cars a year, and about 10 per cent. of those were exported. The production of the Rolls-Royce company to-day is approximately the same, and 45 per cent. are exported. Nobody is really going to argue that the future engineering quality of this country is going to be affected by whether 200 or 300 motor cars of that class are sold or not. But the point I want to impress upon your Lordships is this: that during the war, owing to the rapid advance in production technique, the Rolls-Royce Merlin engine was produced at the Ford plant at Old Trafford with 80 per cent. of unskilled labour. That is an example of the advance in the technique of automobile production which underlines what the noble Lord, Lord Brand, has said. We cannot rely in future upon what is erroneously called our "quality production." There is a fallacy which r Ins right through some sections of British industry that high price and quality go hand in hand. That has been the biggest fallacy in British industry over this last twenty to twenty-five years.

The point, however, is not whether we shall be able to buy £2,000 or £3,000 motor cars in the next two or three years. The point is whether we shall be able to buy a motor car at all. I am going to suggest to your Lordships that if increasing the purchase tax to 66⅔ per cent. upon what must be called luxury motor cars is going to increase our exports, then it is more than justified. If it is going to decrease the production of luxury motor cars for the home market it is again more than justified, because we cannot afford to waste our assets, whether in man-power or in material, in building this type of motor car. That may sound a sad thing for the builders of these motor cars; but as the noble Lord, Lord Brand, has said—perhaps I may put it more colloquially—you cannot make omelettes without breaking eggs; and we have some very dire priorities facing us.

I want to return to the question of the mechanism of the purchase tax, because after listening to Lord Brand I addressed to myself a remark which I habitually do in such circumstances. The noble Lord gave a masterly exposition of the present position. What are we going to do about it? One of the things we are suffering from to-day in this country is chronic maldistribution of labour. And one of the paradoxes is that those industries where labour is shortest have a more abundant supply of raw material, and where raw material is shortest there is an abundant supply of labour. Take the light engineering industry; through the incidence of war it has attracted far too much labour, and what has happened? It is utilizing that labour, it is utilizing material to produce things of no real value; hence the fact that you can walk into any large London store to-day and see what, without any exaggeration, may be described as a lot of unnecessary junk and trash at very high prices.

When I addressed your Lordships on a similar subject a little time ago I said we were faced with the urgent necessity of suppressing unnecessary industries in this country; and to get labour distribution right that is what we have to do. The noble Lord spoke of a positive and a negative approach. I do not agree with the positive direction of labour; I do not think that in this country we shall ever satisfactorily work conscription of labour in times of peace. What we must have is a negative direction of labour, and I would do it through the mechanism of the purchase tax. I would increase the purchase tax on these unnecessary manufactures until it reached the point that, with all their surplus purchasing power, the public could not purchase. I cannot see any other way by which you can do it. If raw material supply and raw material control is being used at the present time to the greatest degree of efficiency I believe there is only one way to achieve the object in view, and that is by the purchase tax mechanism. We have to increase those industries which can contribute most to exports, and if we cannot export these commodities they should not be permitted to be made.

The noble Lord, Lord Brand, also mentioned our imports. It is useless restricting our imports of raw material to stop manufactures for export. It makes for a vicious circle. I think the noble Lord was quite right when he pointed to many luxuries, luxury foods and so on, that could be stopped; but it is no good thinking that we can possibly increase our exports if we decrease our raw material imports and our basic food imports, because if we decrease those our exports would drop. The noble Lord, Lord Brand, also made some comment on the productive power of American industry and our own. As he rightly said, the secret is the horse-power available to the hand of the American worker, which is much greater than the horse-power available to the hand of the British worker. It is useless to deny that we are suffering from those locust years between the wars when we lived, in a fool's paradise, when our productive efficiency and our industrial efficiency went gradually down and down, when we were losing our place as a first-class industrial nation, and it was camouflaged by the dividends we were receiving from our overseas investments—which have now gone. We started after this war with plant in a number of our industries which in America would have found its way to the scrap heap twenty-five years ago. This cannot be put right in five minutes.

If I might make these my concluding remarks, I would attempt to cross swords with the noble Viscount, Lord Simon, if he would give me his attention for one moment. Viscount Simon—and the remark was echoed by Lord Brand—had to repeat what has been repeated from those Benches so many times, that of course nationalization "will not earn a dollar"—I think those were the noble Viscount's exact words—and that these nationalization schemes are not necessary. That is where we, on these Benches, fundamentally disagree with him. I will repeat the words of the noble and learned Viscount on the Woolsack when he introduced the Coal Industry Nationalisation Bill into this House. He said: The nationalization of the coal mines will never produce another ton of coal, but it is a ore-requisite of any coal being produced at all. The nationalization of transport in this country is a pre-requisite to making the transport of this country a proper adjunct to industry. The nationalization of the electricity supply of this country is the only way whereby you will increase the horse power at the hands of every worker. I join with the noble Lord if he means that, other than the basic industries, nationalization should be stayed. But, until we do bring the basic industries under public control and take the private profit scramble out of them, we shall never put the economy of this country upon that plane which will allow us to come back as a great industrial nation, because it is owing to that very private profit scramble that our basic industries have fallen to the depths which they have. We cannot do those things that we want to do. We have not the tools.

That is all I wanted to say as a working industrialist as opposed to Lord Brand as a self-confessed banker, and I would repeat what I have said before. It is industry's experience that forces us to see that light, heat, power and transport, the basic industries of Britain's economy, must be brought under public control and used for the good of the public as a whole and not for any particular section of the public. Until that is done we shall never get our economy back again on the lines that the noble Lord desires.

6.43 p.m.

VISCOUNT BRIDGEMAN

My Lords, the noble Lord who moved the Second Reading of this Bill referred to Clause 27—I apologise for not being in the House at the time—that is to say, the clause which exempts from Income Tax training expenses, allowances, and bounties to members of reserve and auxiliary forces. I do not think it would be right that that clause should pass without one word of appreciation from those on these Benches who have pressed this course upon His Majesty's Government. We are very glad to see that this concession has been made. What I do want to add is that I hope that this concession will be given the widest publicity in the proper way, so that the news will get down to those quarters from which it has been represented that this concession is necessary.

I would like to add a further word., and that is that this concession is, I think, a new departure in several ways. We shall watch it with very great interest from the point of view of its success in attracting people into the reserve forces. I suggest that we should also watch it from the point of view of seeing whether this experiment in exempting what one might call works of supererogation from Income Tax is not a step to be followed in other places where additional effort is wanted. With those words I give a hearty welcome to this clause.

6.45 p.m.

LORD NATHAN

My Lords, in ray opening observations, I indicated that the representative of the Government standing at this Box to move the Second Reading was confronted with the choice of two courses of action. He might either make a short speech in explanation of the Bill, or he might embark upon a considered statement on the economic situation past, present and prospective, and, indeed, initiate a debate on the state of the nation. I should have thought it discourteous to your Lordships and wrong in our present situation to have confined myself strictly to the Bill as I did, had it not been for the fact that by arrangement a debate en the general economic situation is to lake place in the course of the next ten days or so. I think it would have been superfluous, and perhaps it would have been inconvenient, that I should have attempted to open a discussion on a large scale, when such a discussion is to be initiated in a few days' time for the express purpose of dealing with a larger field. I am anxious that you should not think me either discourteous to your Lordships on this occasion or insensitive of the situation in which we as a nation find ourselves.

Indeed, the discussion to-day has to but a very slight extent dealt with the actual provisions of the Bill itself. Except for a commendatory observation from Lord Lucas, I think that scarcely any reference was made to the contents of the Bill save by the noble Lord, Lord Rennell.

VISCOUNT SIMON

On Income Tax?

LORD NATHAN

I have great regard for the noble Lord, and for his great practical experience; he will not, I am sure, think that I am trying to score any debating point, because that is very far from my intention, if I deal with a little criticism he made as to the provision of the Bill, not on the virtues of the taxation, in relation to directors' pensions or compensation on the one hand—

LORD RENNELL

And bonuses.

LORD NATHAN

—and bonuses on the other. I would not dissent from the view that there was substance in what the noble Lord said by way of criticism of the actual provision, but the noble Lord had, I think, been studying an earlier text of the Bill and not the Bill which is now actually before your Lordships' House.

LORD RENNELL

Indeed it is; it is the latest version.

LORD NATHAN

If that is so, I must modify a compliment which I was intending to pay to the noble Lord, because the provision of the Bill as it now stands, so far as it relates to pensions and compensation for directors, employees and others, is expressly intended to provide for the payment of those very ex gratia payments which the noble Lord thought were excluded.

LORD RENNELL

I did not suggest that they were excluded; I said the possibility of making these payments was made unduly onerous.

LORD NATHAN

I think that is an altogether undue pessimism. If it becomes bona fide desirable for an ex gratia payment to be made, means will no doubt be found; that is part of the object of the revision of the Bill. On the other point, there comes the question of rights to which the noble Lord referred in relation to the stamp duty upon bonuses. I think, perhaps, that there was some justified criticism at one point, but I understand that, as a document, the Bill that is now in your Lordships' hands has been agreed and approved by the Committee of the Stock Exchange as being aptly devised to carry out the intention which is there indicated and that the difficulty to which the noble Lord refers has been dealt with. I am so advised.

Now I indicated in my earlier observations that I should not be able to answer the speech which I knew—for he had been good enough to inform me—was about to be made by the noble Lord, Lord Brand. But I am sure that I shall be reflecting the views of noble Lords in general when I say that that was a speech which contained the fruits of much experience and wisdom, to which respectful attention must, and of course will, be given; and the noble Lord may accept that it will be taken into consideration for the purposes of the debate which is to be held in about a fortnight's time.

The noble and learned Viscount, Lord Simon, made a speech which, if he will allow me to say so, I thought was both interesting and important. He will not expect me to say—and he would not believe me if I did—that I find myself in agreement with every point that he made, or perhaps with some of the decorations with which he adorned his propositions, but I recognize the importance of the speech which he made, and the spirit of serving the public interest with which it was inspired. I will not deal with one or two points which he made in criticism of the Budget arrangements, but I can say this to him: that I do not think too much emphasis can be laid on the urgent necessity and the importance of explaining fully, and getting it understood by the people of this country, what is the state of the nation. We are at one that it is of the first importance that that should be widely and thoroughly understood and its implications appreciated. It is not a simple matter, but the noble Viscount may rest assured that the importance of that is well in the minds of His Majesty's Government, who have devised, and are in the course of devising, methods whereby the situation may become clear to the people of this country, so that they may know the difficulties and dangers that confront us and, at the same time, be prepared to face the remedies to which we shall have to direct our minds and our energies.

Perhaps, in regard to the wider field that was opened, I might remark that the dollars available under the American and Canadian lines of credit have, of course, proved insufficient to meet our dollar burden. This is not our fault, since we have maintained a standard of austerity in our import policy whereby imports, particularly dollar imports, have been allowed only on a scale required to keep the population reasonably well nourished, and to provide raw materials and machinery to enable them to live and work. But, unfortunately, we have been hampered by the rising price of many of the corn-modifies we must import, and this rise in price amounted, on calculations based on the United States wholesale price indices, to no less than 28 per cent., and has reduced the American credit by about a billion dollars in value since it was negotiated. At the same time, recovery in other parts of the world has been terribly slow, and we are still dependent to an abnormal degree upon the American continents for food supplies and other goods which we might have expected by now to be receiving from other sources.

Our own dollar problem must not be viewed in isolation. All over the world there is a growing shortage of dollars which has become acute in many of the countries of Europe and elsewhere. These include, besides Western Europe in general, such strong economic entities as Sweden, Canada, and the Argentine. This shortage of dollars is the other side of the United States' favourable balance of payments, which is at present running at something like twelve billion dollars a year. My Lords, if the Government have not sought to put the country forthwith on the basis of a siege economy, it is because of the growing realization that the problem must be tackled on a far wider scale. This realization has found expression in the speech of Mr. Marshall at Harvard University, and His Majesty's Government are bending every effort to secure prompt and comprehensive action to respond to that speech. I think I might add this, that the genius and energy of the Foreign Secretary have already advanced matters in a way which is an earnest of the determination of the Government as a whole to achieve success, if it is humanly possible to do so.

On Question, Bill read 2^a; Committee negatived.

[The Sitting was suspended at seen o'clock and resumed at half past eight.]