THE ECONOMIC SITUATION.

HL Deb 29 October 1947 vol 152 cc261-348

2.56 p.m.

LORD CHERWELL rose to call attention to the economic situation and the further steps proposed by His Majesty's Government to meet that situation; and to move for Papers. The noble Lord said: My Lords, we have had a number of debates on the economic situation since this Government came into power. On each of these occasions the circumstances have been more sombre than before. But, even so, I do not think that a year ago anybody would have believed it possible that the Government would allow conditions to deteriorate to the point which they have reached to-day. We are meeting under the shadow of a crisis in our balance of payments unexampled in our history. In the circumstances I will concentrate my remarks on this topic rather than weary the House by discussing all the broader aspects of general economic policy; for in a country like ours, dependent for more than half its food on imports from abroad, the question of whether we can balance our trade must overshadow all others.

We are all in this trouble together and we must all do our best to help one another to get out of it. For this reason, if for no other, we on this side of the House shall of course do all we can to help to increase production and exports and generally to assist the Minister for Economic Affairs in his very difficult task. But that does not mean that we are debarred from criticizing Ministers in the past or present performance of their duties. The King's Speech proved that the Government, far from desiring a truce to Party politics, were willing to exacerbate Party feeling. In these circumstances; I am sure nobody would object to my analyzing the cause of our economic troubles even though it may throw discredit on the Government's handling of our affairs.

I do not propose to consider in any detail the arguments for and against a planned economy. These were stated and debated with great eloquence and force in another place only yesterday. Conservatives on the one hand deplore the extra restrictions it places on the freedom of the citizen and the interference with industry and trade which it involves. The Socialist Party on the other hand claim that good planning will enable us to make better use of the nation's resources than is possible under a system of private enterprise. Whatever our opinions on this broad aspect may be, we shall all be in agreement that bad planning makes the worst of every possible world. The citizen loses his liberty and the nation's resources are wasted. It is from bad planning that this country is suffering. It is to bad planning that: the economic crisis is largely due.

I have observed in many quarters a tendency to make out that the lamentable circumstances in which we find ourselves to-day are not the fault of the Government, but are due to world conditions which would have engulfed a Conservative administration just as they have proved too much for the present Government. I deny ab initio this comfortable misrepresentation and I therefore propose to devote the first part of my speech to exposing the major errors of which the Government have been guilty and which have contributed so greatly to our present deplorable state. I do not intend to-day to devote much time to the general collapse of the will to work brought about by fifty years of Socialist propaganda; to the false belief inculcated in the manual workers by the Socialist slogan that such a large proportion of the national income went to the bosses that it would be quite easy, by depriving them of their profits, to cut down hours of work and effort and yet have as much as ever to share out amongst the poorer classes.

LORD PAKENHAM

May I interrupt, to be clear about what the noble Lord is saying? Does he assert that there is in fact a collapse of the will to work in this country?

LORD CHERWELL

I have not asserted that. I asserted that there is a general lack of the intense activity to which we were accustomed before the war. Whether it is failure of the will to work or whether it is failure to work, I believe myself it is largely due to these years of Socialist propaganda that there would be no need to work very hard.

LORD CALVERLEY

That might be said in Oxford but nowhere else.

LORD CHERWELL

I am afraid I did not catch the intervention. As I showed a year and a half ago, if every penny above £750 were taken away, and nobody had more than £750, it would only make a difference of sixpence in the pound that would be available for sharing out amongst the poorer people. I will not detain the House by repeating the accusation that the Government wasted much of their time with legislation instead of getting on with administration. Reasonable Socialists, I believe, now agree that their nationalization schemes could not possibly increase output in the first few years: on the contrary. In the conditions obviously facing the country at the end of the war, they are, I think, beginning to realize that concentration on the immediate task rather than on doctrinaire law making would have been more useful. I will also omit recrimination about our vast expenditure in Palestine and elsewhere. These things have been exposed and debated on many occasions, and I need not reiterate them to-day. Rather, I propose to enumerate and examine six vital—perhaps I should say fatal—errors of omission and commission of which the Government have been guilty, and which I claim a Conservative Government would certainly have avoided.

In the first place, the Government made very little effort to guide people who were demobilized or who became redundant into export industry, into agriculture, and into textiles, etcetera, where they would be very much wanted. Secondly, the Government embarked on a vast capital programme which was bound to tie up huge numbers of men and vast quantities of material, without considering whether this would hamper the export industries and would mean cutting civilian consumption to the bone. Thirdly, the Government, as the Foreign Secretary has told us, spent abroad either by way of grant or loan, £740,000,000 up to May 1, 1947—for all I know it may have been more since—a total very nearly equal to our drawings from the American Loan. Fourthly, instead of seeing that our exports brought in equivalent imports or hard currency, the Government until this year allowed 86 per cent. of our exports to go to soft currency areas or worse, while buying 44 per cent. of our imports from dollar areas. Fifthly, being short of only 5,000,000 tons of coal, a mere 2½ per cent. of an annual output of 200,000,000 tons, the Government used up what they had and allowed a sudden "fuel crisis," so-called, to burst upon the country in the last six weeks of the coal year, which has cost us about £200,000,000 worth of exports. Sixthly, by some weird arrangement which at present I do not attempt to understand, the Government allowed many scores, if not hundreds, of millions of pounds sterling to be converted to dollars over and above the quantity we had undertaken to convert under the American Loan Agreement.

Here are six definite major errors which between them are enough to account for our financial collapse. We shall, of course, be told not to cry over spilt milk; to look to the future and not to the past, and so on. But when one observes the terrifying complacency of the Chancellor of the Exchequer, and of other Ministers—ever ready to take credit for any small bright spots, few and far between though they be, and equally prompt in repudiating responsibility for the dark and gloomy situation as a whole—it does seem time to point out that our miseries are not due to some act of God or of the King's enemies but are very largely due to the acts of the King's Ministers.

May I examine these points a little more closely one by one? In the first year after the war roughly 3,000,000 people were demobilized from the Services of whom about 10 per cent. were women. In addition, nearly 3,000,000 more who had been making munitions became available; yet in the first year after the war the numbers in the textile industry, which used to employ something like 1,000,000 people and which had dropped by nearly 370,000, only rose by about 80,000 workers. The numbers employed in agriculture went up by only about 2,000, and the numbers in coal mining showed an actual decline. These, of course, are net figures; they show only the difference between the men joining and the men leaving the industry. Thus for instance, some 30,000 ex-miners from the Forces did return to the mines in that period. But, surely, making every allowance, these figures present a deplorable picture. I am not suggesting for one moment that these ex-Service men or women should have been subjected to any form of direction of labour; that was quite unnecessary. But surely, by advice and guidance rather more could have been done to steer some of them into the trades which were most important from the national point of view.

Is it conceivable that, at a time when 3,000,000 people were demobilized from the Forces and were looking for jobs, it would not have been possible, by adequate guidance and advice, if they had been given, to get a greater proportion placed in the trades where their work would have been of most value to the community? Everybody knew we were going to be hard put to it to build up our imports and that to balance our trade, a high output of coal, textiles, and so on, would have been only less vital perhaps, than it would be to grow a large amount of food in the country. Is an increase of 2,000 men in agriculture the most one could hope to get when 3,000,000 young people used to an open air life were seeking tasks in the civilian field? Instead of steering them into the right channels, the Government allowed all these people to find jobs and house:; and to settle down at random, and now they are desperately trying to make them switch their jobs and perhaps even to leave their homes. Surely this is the very negation of planning. Instead of getting people into the right trade at the start, which would have been no hardship at that time, they have been allowed to settle down and now have to be uprooted by reimposing controls and compulsions which we hoped had vanished for ever two years ago.

Now consider the second error—I almost said blunder—the vast capital programme the Government have undertaken and encouraged without considering its implications. It is not easy to discover exactly how great this is, but in the White Paper issued in February we were told that the plan was to spend 20 per cent. of the national income on capital goods this year; that is, some £1,700,000,000. It is always very easy to make out a case for any individual item of capital expenditure. There are always very good arguments to show that new factories, new railways, new schools and so on are desirable. But the more labour we divert to this purpose the less will be available for producing the goods we need for day-to-day consumption, or producing the exports which can be sold abroad and which will give us in return the imports we need for day-to-day consumption. It is no use offering people new schools if their children are to be starved before they reach school age. Nor is it any use building a new railway, which will not yield one ton of exports for five years or more, and will only absorb millions of pounds worth of labour and material in the interval, if there are not enough workers on the land to lift the potato crop and if too few agricultural machines are being produced to harvest our grain. It is not much good building wonderful new factories additional to those we built during the war and which managed to house our 5,000,000 munition workers, if the result is that we cannot export enough to acquire the raw materials to be used in the factories.

Surely a Government of planners might have been expected to consider this. Yet everywhere one goes roads are being widened, kerbs added and by-passes made; railways are being electrified, although we are short of electricity; grandiose schemes like the Severn Bridge have been started, £50,000,000 is to be spent on new schools this year; and so on and so forth. What should we think of a family whose income had dwindled, which started putting in extra bathrooms, installing lifts, buying a new set of carpets and so on, when it had not even enough to pay for the family's food and clothing? We are not arguing the point—the Government have conceded it. The Minister of Economic Affairs told us last week that as a first installment he plans to reduce the capital investment in 1948 by £300,000,000. It is a pity that he did not see the light earlier.

I now come to the third error, the vast amount of money given or loaned abroad by the Government to the liberated countries. On April 30, in reply to a question, Mr. Bevin told the House of Commons that this country had contributed by way of grant or loan no less than £740,000,000 to the recovery of the world. Now I am all in favour of helping the recovery of the world, as I am sure we all are, but this country, which fought and struggled for six long years—and has emerged from the war the greatest debtor nation in the world—in order to preserve the freedom of humanity, has surely some right to consider its own position before indulging in this sort of gargantuan generosity. I see among the bigger items £100,000,000 to France, £60,000,000 to Holland, £140,000,000 to Germany, and so on, not to mention £5,000,000 to Czechoslovakia. Now we are told that we are to forgo £15,000,000 from Burma, which is shaking the dust of the Commonwealth from its feet. Why should the British people be burdened with such sacrifices when they have indeed given so much to free those countries from the Nazi or the Japanese yoke? So far as I can make out, these sums are additional to the vast quantities of money—some £3,500,000,000—which our various Allies claim that we should pay them for having helped in the war. Surely, in view of our impoverished circumstances, we should have been very slow in undertaking these gigantic new commitments. I pointed out this very fact in your Lordships' House about eighteen months ago.

Let us now consider the Government's fourth fiasco, our export-import policy. This is linked up with what I have just been talking about—namely, claims from all sorts of countries abroad for having assisted us in fighting the war. Why this country should be the paymaster of these others I have never been able to make out. Yet £3,500,000,000 are claimed for the assistance they gave; and as I explained on a previous occasion, the greater part of this is inflated beyond all measure and does not represent value received, even if we were morally bound to compensate them for their efforts. It appears that a considerable part of our exports has gone to countries with such claims, and that many of them have been allowed to strike off certain amounts from what I can only describe as these "phoney" balances in payment therefor. This is absolutely intolerable. These balances should have been blocked until suitable arrangements could be made about either writing them off or scaling them down. To send out, as the Chancellor admitted we did, £210,000,000-worth of manufactures without receiving in return goods or currency with which we could buy goods was a blunder of the first magnitude. This country cannot afford to send out unrequited exports. Whatever we can make must be exchanged to-day for something we need or for currency which will buy something we need, otherwise it is just effort thrown away. It would be very much better to put any goods for which we do not receive a fair return into our own shops for home consumption.

The Government have been licensing the export of millions of pounds worth of goods and receiving in return either nothing or soft currency with which we could buy at best luxuries and often nothing we really needed. In the first one and a half years of this Government's tenure of office, according to the last official White Paper, only 14 per cent. of our exports went into the dollar area, whilst we were buying 44 per cent. of our imports from dollar areas. Surely, a Government of planners with all the controls, restrictions and licences upon which they set such store, might have arranged a more balanced form of external trade. Only last year, as the House knows, the Government spent something like 120,000,000 dollars on dried eggs, when they could have obtained the equivalent amount of fresh eggs by spending less than a quarter of this sum on maize. This would have been enough to buy us 1,000,000,000 gallons of petrol which would give a million cars a basic ration of twelve gallons a month for nearly six years. This predilection for dried eggs is really very difficult to understand. It is quite true, of course, that a shortage of shell eggs may diminish the occupational risks of politicians in another place, but nowadays no one would waste even the humblest shell egg on the most deserving of Ministers.

When one recalls the pride the Government took in having persuaded industry to turn over from sterling coal to dollar oil, a matter of tens of millions of pounds a year, not to mention luxury purchases like the scores of millions of grapefruit bought from the United States, it is very hard to credit them with the most rudimentary comprehension of our economic plight. At last these points which we on this side have been pressing for years, as is stated in the speech of the Minister of Economic Affairs, have been perceived by the Government and will be incorporated in their policy.

Now I come to the most spectacular Government fiasco of all—namely, the so-called fuel crisis. By the whim of Providence—it must seem to the Government by the mercy of Providence—we had a cold spell in February and March which enabled them in the opinion of the uninstructed public to ride off on the excuse that the breakdown in fuel supplies was due to the weather. Of course, anyone who has looked at the figures realizes what rubbish this is. It has been known for generations that the fuel available in this country should not be allowed to drop below a distributional minimum of about 10,000,000 tons; and as we use roughly 6,000,000 tons more in winter than in summer, it has. always been regarded as essential to start the fuel year in October with over 16,000,000 tons in hand. Thanks to a very mild winter in 1945-46, the Minister of Fuel and Power managed to escape serious catastrophe in the first winter of the peace, although he had started the coal year with only about 14,000,000 tons of distributed stocks.

When it became plain in the autumn of 1946 that our reserves were unlikely to reach 11,000,000 tons, it was obvious to anyone with the intelligence quotient of a boy of twelve, that there was bound to be a breakdown in February and March whatever the weather. I think everybody except the Minister knew this, as he himself said. Many authorities had warned him of the dangerous situation. Yet nothing was done and the crash came. When we recall that it was merely a shortage of 5,000,000 tons of output in something like 200,000,000 tons which caused this catastrophic collapse of our export trade, it seems almost incredible that any Government should have allowed such a thing to occur. After all, if our income drops 2½ per cent., 6d. in the pound, we do not spend it all in the first 356 days and then starve to death in the last nine. Yet this was done to the country by the planning of the Ministry of Fuel End Power. £200,000,000 worth of exports were lost by this failure to foresee and forestall an event which could be foretold and was foretold by anyone who had a grain of sense.

Now I come to the sixth Government blunder, if I may say so, which led us directly into the morass in which we are now floundering. It is difficult in these matters to be certain of the figures since Government statements are so conflicting. According to the Economic Survey issued in February of this year, we had spent in 1946 out of the American and Canadian Loans of £1,250,000,000, £150,000,000 of the American Loan and about £130,000,000 of the Canadian Loan, so that we should have had at the beginning of 1947 a total of £970,000,000 in the kitty. The Chancellor, on the other hand, said explicitly that in the third and fourth quarters of 1946 we had only drawn 579,000,000 American and Canadian dollars, equal to about £145,000,000. This would mean that we started the year 1947 with £1,105,000,000 to our credit in American and Canadian dollars. It is difficult to know which to believe. It seems scarcely credible that the Chancellor of the Exchequer, however lighthearted, should have forgotten our Canadian drawings amounting, according to the Survey, to £130,000,000. It seems even more unlikely that the Government should have issued a Survey in which such a sum was inserted in error. Whatever the truth, we must have started the year with a credit balance of at least £970,000,000, equivalent to 3,880,000,000 dollars and possibly it might be put at something like 4,400,000,000 dollars if the Chancellor's figures are to be trusted.

The Economic Survey of last February forecast an expenditure in dollars in the year of £350,000,000, rather less than £30,000,000 a month, which would have left us with £620,000,000 on January 1, 1948. What actually happened? In the first six months of this year—I omit for the moment what we must hope were the abnormal months of July and August—we drew out our dollar credits at an average rate of £68,000,000 a month, more than two and a quarter times the forecast of £30,000,000 a month. A business man who miscalculated his outgoings by ten per cent. would find himself in the Bankruptcy Court before long; yet the Government, with access to all information, made a forecast which proved to be wrong by 125 per cent. within less than six months. As from July 15 we had undertaken to convert sums due on current account into dollars if desired. For some reason this ominous requirement was treated very lightly by those concerned. In fact, it appears that we were compelled to draw £128,000,000 worth of dollars in July and £150,000,000 worth in the first four weeks of August.

No clear explanation has been given about how the money went and who got it. Why should our dollar needs have risen to nearly twice the pre-July average—which itself was two and a quarter times the forecast sum—in the month of July and to two and a quarter times the pre-July average in August? In other words, how did we come to spend £283,000,000 worth of dollars in those two months as against the average of £136,000,000? As Mr. Roy Harrod has shown in a number of articles and in a most interesting book, the trade balance only accounts for a fraction of this huge expenditure. It is true that a malevolent interpretation of our obligations under the Loan Agreement might hold that what we sold should not be set off against what we bought and that the value of gross purchases rather than net negative balances in each month must be convertible. But there was no need for us to adopt such an interpretation; nor indeed would it account for the discrepancy. Whatever may be the explanation there seems little doubt that scores and perhaps hundreds of millions of pounds sterling have been converted into dollars over and above the amounts due for conversion according to the Loan Agreement. How much of this was attributable to unwise undertakings given to holders of genuine or "phoney" balances will, I hope, he explained. That it should have been simply leakage would reflect so gravely upon the administration of our finances that I find it very difficult to believe.

Anyhow, the fact remains that instead of drawing £240,000,000 in the first eight months as forecast by the Government in February, we used up £680,000,000 worth of dollars— £440,000,000 worth more. I would suggest to His Majesty's Government that it would be to everyone's convenience if they would publish a White Paper giving in tabular form an exact balance sheet showing in detail where the loans went and especially how many pounds were converted into dollars by the various countries. Whatever be the explanation, there is no doubt that this facility given to foreigners to convert pounds to dollars on this vast scale over and above what we had undertaken to allow has been the immediate cause of our financial disaster, and as such deserves the severest censure.

It is clear that the financial consequences of these six major Government failures in the economic field—amounting probably to well over £1,000,000,000—are more than enough to account for the economic crisis. Scarcely one of them but has been debated in the House; on almost every point I think the Government have been warned by the Opposition. But they seem to be the victims of what is known in medical circles as Daltonism, which is defined as the inability to distinguish red light from green. I often wonder whether Ministers really think they have diagnosed our troubles when they say that they are all due to a world dollar shortage. Really this is one of those phrases that must be regarded rather as a device for creating a comfortable state of mind than for communicating thought. Far from there being a world dollar shortage there are more dollars in the world to-day than there ever have been in history.

LORD PAKENHAM

Is the noble Lord suggesting seriously that there is not a world dollar shortage?

LORD CHERWELL

If the noble Lord will define a world dollar shortage in his own way he can explain anything he likes.

The fact is that the Americans, handicapped though they may be from the Socialist viewpoint by their system of private enterprise, are able to produce so much food and so many manufactured goods at such a low price that they are able to live themselves on the highest standard in the whole of history and still have plenty over which the rest of the world would like to buy. If they were offered anything they could use, the Americans would be ready enough to hand out dollars in exchange with which the world could buy all it wanted in the American market. It is not a dollar shortage from which the world is suffering. It is the ability of the Americans to produce a plethora of desirable goods whilst Europe and Asia are unable to make or offer anything that the Americans want. I know this triumph of "anarchic capitalism," as I believe it is called, must be a bitter pill for Socialists to swallow; but: nobody can deny that it is a fact.

At long last, however, the gravity of the situation seems to have pierced the armour of Ministerial complacency which has been the despair of Conservative critics for nearly two years. During the Recess we were told that the Prime Minister was in labour and that a new Government was about to be born. There was the usual flutter amongst the dovecotes. Ministers on the transfer list made speeches up and down the country saying they must not be moved, and that their failures were anybody's fault but their own. That reminded me of a phenomenon that has been so well advertised recently in the Press about babies crying before they were born. Now the pre-natal wailings have died away, the infant Government is facing the light of day. What can we say about it? At any rate, the child has a head and a brain. Nobody who has had the pleasure of working with the new Minister for Economic Affairs can deny him intelligence of the highest order; and we all admire his patent sincerity and honesty of purpose. If he can shed the doctrinaire approach engendered by the lawyer's habit of taking his brief for gospel and arguing on that, I am sure we can hope that at last the various departmental plans will be co-ordinated and that economic matters will be considered logically and as a whole. At any rate, I am sure that this Minister is likely to do it better than any of the others. He has certainly entered upon an appalling inheritance. Post-war difficulties which were considerable but by no means insurmountable, have been aggravated to an almost unbearable degree by the Government's dilatoriness and by the errors which I have enumerated. The new Minister obviously has No 1llusions about this. Indeed, almost every one of them was implicitly condemned as I have shown, in his brilliant and forcible speech last Thursday.

What is the Government's plan to get us out of the trouble into which they have plunged us? It has a negative and a positive side. By the August cuts, they hoped to save about £228,000,000 a year, or about £20,000,000 a month, of our dollar needs by reducing imports, foreign travel and so on, though, unfortunately, these savings would not become fully effective until later on in the year. By the new cuts another £70,000,000 is apparently to be saved on food—mainly sugar—and another £100,000,000 on raw materials and tobacco. To reduce our rations still further is a very serious matter. As the House knows, the yield of our present rations is only 1,600 calories a clay, and if, as the Minister for Economic Affairs predicts, we are to lose another 170 calories as well, we shall be pretty well down to the subsistence level. I have, as your Lordships may recollect, frequently emphasized the hardships which people compelled to live upon their rations suffer. I will not go into this question further to-day except to say that I am sure the Government would find far more understanding if they would tell people how sorry they are that they are so badly fed and explain why they cannot afford to buy more, instead of insulting their intelligence by insisting that they are better fed than before the war. The cut in raw materials is also most disquieting. Much delay is caused in manufacture because our stocks have been run down in the last year to such a degree that bottlenecks develop and production is held up. I hope particular attention will be paid to this aspect.

On the positive side, the Government plan promises assistance to agriculture—

LORD PAKENHAM

I will try to make this my last interruption, as it will be unless the noble Lord becomes immensely provocative. I want to know, is he prepared to support these cuts or not?

LORD CHERWELL

As we are not in full knowledge of the exact position, I do not know whether that is necessary or not. Having got us into this mess, it may be necessary. Without knowing the exact stocks or facts or figures, it is impossible for anybody on this side of the House to give an answer.

On the positive side, the Government plan promises assistance to agriculture which we on these Benches have been demanding at regular intervals for the last two years. They are also endeavouring to facilitate multilateral trade and entry into dollar markets, in themselves laudable objectives. But until the terms which they have accepted are disclosed, we shall not know whether they have dropped the substance of Preference for the sake of the shadow of multilaterism. Again, they are at last reconciled to harnessing once more the wicked profit-motive to the national effort—at any rate, in the lower income groups—disguised, it is true, under the euphemism "relating wages to output," and are desperately trying to induce the trade unions to accept some form of payment by results. This step also has, of course, been advocated from these Benches for a long time. But the main hope seems to be centred on distributing a whole set of fresh detailed export targets to reach which individual firms are to be allotted the necessary fuel and power and steel. This, of course, means a whole horde of officials negotiating with each individual firm and haggling over individual quotas. It means less than ever for the home consumer, and thus a continual rise in prices.

By far the most promising facet of the Government's plan is the proposed cut of £200,000,000 in our capital programme, corresponding, so the Minister tells us, to £300,000,000 in our investment programme. This is a real step in the right direction. For this gross misdirection of effort, which should never have been permitted, still less encouraged, lies at the root of many of our difficulties. How is it that we are short of steel to-day when we are producing more than pre-war? It is because we have launched out upon this bloated programme of capital construction which consumes such vast quantities of steel. This year alone the Government planned to spend £100,000,000 on new factories, £150,000,000 on gas, electricity and the Post Office, £70,000,000 on roads, bridges, docks, canals, etc., and £250,000,000 on railways, commercial road vehicles, shipping, civil aviation and so forth. Can we wonder that motor manufacturers have been kept short of steel which might have been turned into cars and exchanged for food? If only the Minister would make a really adequate cut in our capital programme, there would be steel to spare for all. His army of officials would not have to negotiate with a heap of individual firms, a free market in steel could he resumed and manufacturers could get on with the job of producing instead of having to spend half their time pleading for increased amounts of their basic materials and having their output reduced because allocations are out of balance or out of phase.

It is fashionable, I know, to put down our shortages to shorter hours in the shops and lack of keenness generally. It is of course obvious that if the hours worked are reduced from forty-eight to forty a week there will be a drop in output of one-sixth unless the men work harder. Again if the goods traffic on the railways stands idle two days out of seven, it is equivalent to reducing our railway equipment by nearly 30 per cent. corresponding to 300,000 wagons, which is a huge handicap when we consider that we can only hope to produce 30,000 wagons this year. But it is a great mistake to think that low output is caused entirely by short hours, restrictive practices amongst the workers or slackness and absenteeism. Very frequently it is due, as I have said, to the fact that manufacturers who use a number of different raw materials or components receive much smaller allocations of one item than of the others; and for lack of this the goods cannot be finished. As long as general shortages persist and these detailed allocations have to be made, this is absolutely bound to happen. For nobody can expect the officials in the various departments in the Board of Trade to know and co-ordinate the needs of all the various users so that allocations are exactly balanced and the various materials and components all arrive at precisely the right time. If only the Minister would take his courage in both hands and make a much greater cut in the capital pro- gramme so that we had enough steel to reopen the free market in it, the benefits, I believe, would spread far beyond the immediate users of raw steel to the whole of industry.

We should gain a second most important advantage if we could proceed along these lines. If exports are to be increased, as we all hope, by something like £500,000,000, this can only be clone at the expense of the home consumer. This means that the inflationary gap will be raised in something like the same proportion, unless means can be found to check it. One way, of course, is to raise a corresponding amount of extra taxation. But at the stage we have now reached this would be a most dangerous expedient. Already there are ominous rumblings, like those which preceded the German runaway inflation, that it is better to have some sound, solid object which may be of use even though you have to pay a high price for it, than to save up your money in the hope that prices may drop, and to refrain from buying anything except your most urgent needs.

Last year we saved, I believe, something like £700,000,000. If taxation were increased very considerably it is more than likely that the nation's saving would decrease, and obviously nothing is gained in checking inflation if an increase in taxation is balanced by a decrease in savings. We must, of course, await the Chancellor's interim Budget before discussing this any further, and it does seem clear that the prospects of closing the inflationary gap by increasing taxation are not very rosy. On the other hand, every saving that can be made in Government capital expenditure is immediately effective—perhaps even doubly effective. Not only does it prevent the money being put into circulation, with the resultant call for consumer goods, it releases manpower for the production of consumer goods or exports as the case may be. And in addition to the men immediately producing the capital goods, all the officials supervising them would be set free and thus able to increase the nation's output.

The Minister told members in another place that all his plans were, in effect, an endeavour to buy time whilst working out longer-term plans to release us from our dollar deficits. This, no doubt, is inevitable; but it is really a little late in the day to begin. Surely that was what the American Loan was for. What possible excuse can there be for a Government with every source of information at its disposal, which has been warned year in and year out by the Opposition of the impending catastrophe, delaying so long before putting the necessary measures into effect? We shall be told, of course, that the Government expected the Loan to last much longer, but that owing to the rise in dollar prices it had run out much sooner than was expected. This is sheer nonsense. American export prices in dollars have risen barely 30 per cent. since the end of the war, and during the period July, 1946, to July, 1947, they rose by less than 20 per cent. With proper management the Loan should have lasted at least five-sixths of the calculated time. If it was expected to last four years the rise in prices might have reduced the period to three and a quarter years; it cannot possibly account for the Loan running out in one and a quarter years.

Another stereotyped answer used in the tied Press which some of the lesser lights on the Government Benches, if there be lesser lights amongst noble Lords opposite, may be tempted to trot out—and I am sure my noble friend Lord Pakenham will not be guilty of so gross a failure to understand the facts of the case—is that the Opposition have always been opposed to cuts and austerities which would have saved dollars. This is entirely beside the point. Our complaint is not that the Government imported too much, but that they made such slight and unsuccessful efforts to increase dollar-earning exports Whilst allowing our manufactures and our dollars to flow into all sorts of channels all over the world from which we got ho returns. It is the positive measures to increase exports and to stop unrequited exports and gifts and loans all over the World which should have been put into effect earlier, not the negative ones of cuts and restrictions at home, which may or may not be necessary now that we have got into this mess.

Even now the problem has not been faced in full, and the position is indeed lamentable. Although convertibility has been given up we apparently are still Using up dollars at the rate of £75,000,000 a month. This figure has very little relation to the trade balance, and I would be very grateful if my noble friend would explain how it comes about. At best the Government hope, if all goes according to plan and the most optimistic forecasts of the Ministry for Economic Affairs are fulfilled, to reduce this to a deficit of between £20,000,000 and £25,000,000 a month at the beginning of 1949. But where do we go from there? Even after scraping up all available outside resources, as the Chancellor told us, this will involve selling something like £330,000,000 of our gold reserves, so that we shall be down to about £270,000,000 by the end of 1948. How can we go on paying out £20,000,000 a month after this?

Whatever we may think about the Government's plan, nobody can pretend that it offers a solution. It may be a move towards solvency; it is little more. Unless they are reckoning upon a loan or gift from the capitalist United States, the Government will have to impose much more severe cuts as time goes on. In the meanwhile the seller's market is slipping away, and we shall find it very much harder to dispose of our exports, even if we manage to produce them. This difficulty will be accentuated if we cannot check the continual rise in prices which inflation carries in its train. Already unfortunate comparisons between our prices and those of other exporting nations are being made. We certainly cannot afford to allow this discrepancy to increase further.

I have spoken too long to weary the House to-day with a dissertation on inflation. My views were expressed at, no doubt, over-copious length when I opened a debate on the economic situation last year. The vicious circle of rising prices and wages unhappily remains unbroken. Unless production for the home market expands the outlook is indeed gloomy, for disaster would stare us in the face if people at home as well as abroad were to lose faith in the pound. This we must avoid at all costs, for we have seen to what it leads in other countries. In many respects the crisis in Europe is far more a monetary crisis than a crisis of production. If the farmers in Western Europe trusted their currency, vastly greater supplies of food would flow to the towns, even though there might, for the moment, be nothing to buy with the money the farmer had been paid for it. For generations proverbially the French peasant has hoarded vast quantities of gold 20-franc pieces in a sock in some safe hiding place; but to-day he thinks it much better to feed his grain to his cattle and have some well-fed beasts on the hoof rather than packets of franc notes in his cellar. And who shall blame him? There are traces of this outlook in Great Britain to-day. If it takes hold and we cannot get the food off the farms the outlook in the cities will be grim indeed. Inflation hits not only the capitalist, or the man who has insured his future privately or in Government insurance schemes. If it gets out of hand it will wreck our very existence as an organized society.

Last year I was reproached on all hands for my gloomy outlook. I only wish it had been proved unduly pessimistic. But it is our duty to describe facts and events as we see them, and I cannot to-day pretend an optimism which I do not feel. To sum up, I think it is clear that since the peace the Government have played fast and loose with the nation's resources. They have failed to get man-power into the right industries; they have embarked on a vast capital programme far in excess of our resources; they have spent vast sums of money abroad; they have allowed exports to go out unrequited or insufficiently requited; they have permitted a fuel crisis to develop quite unnecessarily; and they allowed vast sums in sterling, far in excess of anything we had undertaken to convert, to be converted into dollars.

The first efforts of the Minister for Economic Affairs are directed, I am glad to see, to reversing these acts so far as possible. But it is very late in the day and this plan, on his own admission, will not solve our problems. If he will make still further cuts in Government expenditure on capital goods it may be possible to set free such quantities of steel and other materials that many restrictions and controls can be removed and industry may enter into an expanding spiral of production instead of being condemned to the contracting spiral which threatens it. Until this is achieved we cannot face the future with equanimity. I am sure that the whole House will wish the new Minister for Economic Affairs well in his cyclopean task. There is no reason, with a sensible policy which equates programmes to possibilities, if we make a united effort and put aside class feeling and outworn restrictions, why we should not achieve an upsurge of production which will allow this country once more to face the future with confidence and hope. My Lords, I beg to move.

Moved, That there be laid before this House Papers relating to the economic situation and the further steps proposed by His Majesty's Government to meet that situation.—(Lord Cherwell.)

3.52 p.m.

LORD RENNELL

My Lords, before addressing your Lordships I would like to apologize because it is possible that you may have difficulty in hearing me. That, of course, may be no loss to you. But I happen to have been in bed with a complete absence of voice during the past week. I shall probably end my remarks croaking like a fifth-form choirboy whose voice is breaking.

I think that, before embarking on a debate of this sort at this time there are certain elements in the situation which require clarification, if only in order to narrow down the field. The noble Lord who has just spoken has, as a matter of fact, only in part touched on a subject which has loomed very large in public debate on the economic crisis—namely, the use, or if you wish the misuse, of the American Loan. I suppose it is because of the fact that our drawings have been so large and convertibility has been suspended that perhaps more attention than is really deserved has been drawn in public controversy to the rights and wrongs of the American Loan. But as this controversy has taken place in the course of the last two months and has been referred to by the noble Lord, Lord Cherwell, I would like to make clear my own position and my own views on that issue.

Looking back over the year and a half which have elapsed since the subject was debated in your Lordships' House, I can find no reason whatsoever for differing from the views then expressed by the late Lord Keynes and other speakers in support of the Loan. I regard the Loan as having been absolutely necessary. I am glad that the Loan was taken, and I am abundantly clear in my own mind that any Government in power at that time, of whatever political complexion, would have accepted that Loan and, in default of any different conditions, would have accepted it on those conditions. Admittedly, there were two conditions attached to it which, in the light of after events, may have seemed unhappy. They perhaps may even now seem unhappy to our American friends. But I would like to say this in defence of those two conditions—I am referring, of course, to discrimination, or rather non-discrimination, and to convertibility—that very vexed question on which there has been so much discussion in the last few weeks. I am bound to say that from the American point of view, and in the opinion of many of us, too, these conditions were reasonable and right. I know that a great many of your Lordships will differ from me profoundly on that point, but I think it is. only right to say it it I think so.

I also consider it right to say why I think so. It is very easy to criticize the non-discrimination clauses, especially if one does not understand precisely what is meant by discrimination and non-discrimination. There are two ways of discriminating, according to the point of view of the person speaking. What I think we all—especially my noble friends on these Benches—would wish is that there should be complete freedom for everyone to trade anywhere he wished, but without advantaging one market, by private agreements or treaties or imposed quotas, as against another market. That, I think, is what our friends in America intended. There is a point of view which is not very foreign to our own point of view. We, in the course of our history, built up our foreign trade and our prosperity on precisely that doctrine. We were the first to preach to the world that there should be no discrimination against anyone's trade, and it ill becomes us, with, our past history, to criticize the Americans for having taken that point of view. It may have worked hardly with us ill the situation in which we were placed, but that it was imposed, or stipulated for, by the Americans in good faith I have not the slightest doubt. And I can see exactly how good a case can be made from their point of view, and how easily that case could have been made by us in precisely the same circumstances had we been in the shoes of the United States instead of in the shoes in which we stand.

The second condition which was attached to the Loan was that of convertibility. It may be, in the light of after-events—I think it probably is so—that the date fixed for that was premature. But has it not always been our own doctrine, too, that sterling should be freely convertible or be made freely convertible as soon as ever it was possible to do so? It is not we who have wanted to keep sterling inconvertible, Why, therefore, do we complain, except on a matter of date, that the Americans should have desired us to use the immense fund which was placed at our disposal to achieve precisely what we ourselves wanted to achieve, so that sterling should be restored to the position it has always occupied in the world? It ill becomes critics in this country to criticize those two conditions so severely, when they are conditions which we ourselves, in the course of generations that have passed, have always preached to everyone in the world.

Another point that arises out of that is one that I also wish to enlarge upon briefly, and it is the absolute necessity—In my view—of that Loan. A number of noble Lords on these Benches, I myself and many of your Lordships opposite but not all the noble Lords on the Conservative Benches, voted in favour of that Loan. Given the unexpectedly sudden termination of hostilities and the conditions in which they were terminated, I believe the Loan to have been absolutely a sine qua non, I for one, as I hope your Lordships are to-day, in spite of the fact that the Loan has been exhausted in a shorter space of time than we anticipated, am and will remain profoundly grateful for that Loan and for the good which has come of it. Let us not run away with the idea so frequently ventilated in the Press in the last few weeks that the granting and use of that Loan have been vain and that it went like smoke or fog on a summer's day. Let us count the benefits we had out of it. During that period the present Government were engaged on demobilizing 3,000,000 out of the Armed Forces and re-establishing 3,000,000 other workers in different occupations. Even with a continuation of Lease-Lend under what were bound to be the restricted conditions applicable to peace, could that ever have been done without the assistance which America gave us? It does not bear a moment's thought.

Where did the raw materials and food come from from autumn 1945 onwards?

Where could we have raised any assets to keep us going for more than a few weeks without that Loan? We have lived a year and a half since then. We have lived on that Loan. The capital expenditure which has become possible in this country, whether derived from dollar purchases or from savings and borrowings in this country, directly or indirectly all came under that Loan. Have all the factories converted from war-time to peace-time uses which we see all round us, that modicum of progress which has undoubtedly been made in spite of all critics, escaped the attention of the people who say that the Loan should never have been taken? It does not bear thinking about in these terms for more than five minutes before the absurdity is apparent to everyone. But to go from there and say the Loan has been utilized as well as might be is quite a different role. Let us be clear in our minds what we are really or ought to be talking about. We are talking about the internal economic situation in this country which, bad as it is, I claim, and I believe there is no one of your Lordships who would dispute this for a moment, would have been immeasurably worse without the assistance that Loan gave us. Let us be clear that what we are talking about is the policy of the Government in conducting the economic affairs of this country and not the taking of the American Loan or even those conditions which attach to it. On that point I must enlarge a little, because one of the main subjects of accusation about economic policy has been the convertibility factor in its alleged misapplication.

It is probably true that there has been some leakage of sterling into dollars for improper purposes. It is quite possible there has been some leakage in this country. Those of us near enough to these things know there are, or have been, certain loopholes which unscrupulous people have used. Let us also admit that in other sterling area countries where controls are not so effective as here there have also been leakages. That is all very deplorable, but how much do they really amount to? Let us take some of the rather incomplete figures which the Chancellor of the Exchequer has produced in another place and see what convertibility has meant in terms of money since the date on which it was supposed to become operative—namely, July 15.

Let us also consider at the same time the factor of which a great deal has been made—namely, the rise in the price of dollar commodities during last year, which is one of the factors alleged to have created difficulties and alleged to have caused this Loan to run out as quickly as it has. I think we must accept for what they are worth the figures under the convertibility arrangements given by the Chancellor of the Exchequer—and we can check these figures by other figures he quoted—a round sum of 200,000,000 dollars or, say, £50,000,000. There were £40,000,000 in India, £10,000,000 in Egypt, and if you like to add to that the modicum which is applicable to improper leakages. Let us double that figure and say it was 400,000,000 dollars, or £100,000,000. I dare say most of your Lordships would accept that as being a reasonable figure to work on. That is, convertibility drawings of one form or another amounting to 400,000,000 dollars out of 3,350,000,000 dollars drawn up to the date of the suspension of convertibility, or about 11 or 12 per cent. Would your Lordships bear that figure in mind for a moment while I come on to the other one, which is the rise in prices of dollar materials?

In the figures given, it was stated the gross spending by this country in the United States was 1,800,000,000 dollars in the period in question, that is, gross dollar purchases. The net purchases were 1,350,000,000 dollars, the difference being accounted for by the provision of dollars from our own resources. The 1,800,000,000 dollars were divided thus: 23 per cent. food, 28 per cent. raw materials including oil, 15 per cent. machines, 7 per cent. ships, 10 per cent. tobacco, 4 per cent. films, and 13 per cent. maintenance of Germany. If you will take the trouble to convert these percentages into actual figures, you will find that the 10 per cent. for tobacco and 4 per cent. for films amount to 180,000,000 dollars and 72,000,000 dollars, and the total amount spent on food, raw materials and machinery by this country in the United States was 1,188,000,000 dollars, or 1,200,000,000 dollars in round figures.

It is accepted that there has been a very considerable rise in prices in the United States, about 25 per cent. I think—your Lordships will not quarrel with me if I say it is 25 per cent. It is not, however, fair to take 25 per cent. as the economy which would have been effected if the rise in prices had not taken place, because the rise was progressive ever the whole of the year. I will therefore take 15 per cent. as being the average for the whole year. If that rise in prices had not taken place, our own expenditure in America on food, raw materials and machinery would have been less than about 1,200,000,000 by, say, 178,000,000 dollars. Assuming that we had purchased no tobacco, and had had no American films imported in the course of this period, we would have made a total saving of 178,000,000, plus 180,000,000 plus 72,000,000 dollars, which, if my arithmetic is correct, adds up to 430,000,000 dollars, or roughly, say, £100,000,000. I go back to the figure of what I might call the convertibility element, which was another £100,100,000. If things had turned out differently we should, therefore, to-day have been £200,000,000 better off in foreign exchange than we are.

Now, drawings prior to convertibility were running at the rate of 75,000,000 dollars a week, or £75,00,000 a month. They are now running at the rate of 70,000,000 dollars a week, or £70,000,000 a month. If you will divide £200,000,000 by £70,000,000 the answer is approximately three; and the crisis which came at the end of August would at the same rate of progress have therefore come at the end of November; we should have had three months more grace. The gravamen of criticism against His Majesty's Government: is not on the use or misuse of the Loan. The difference, if things had turned out differently from what they have, would, thus, in my estimation, have been a matter of three months. That I consider to be a rotten line of attack on His Majesty's Government.

LORD PAKENHAM

Hear hear.

LORD RENNELL

I think one can take a very much better line of attack. I am glad the noble Lord agrees with me.

LORD PAKENHAM

Only about the first part.

LORD RENNELL

I will come on to the second part. The real difficulty is not about how the dollars were used or misused; the difficulty is not whether the Treasury or the Bank of England—if I may say so in the presence of the Governor—did, or did not, do their job well. The criticism against the Chancellor of the Exchequer is not whether he was competent or incompetent in that particular respect. Anybody may miscalculate within a margin of three months without incurring too much blame. The charge is not that at all. The charge is that the rate of drawings has been throughout the last year at the rate at which it has been—namely £70,000,000 a month. If we are going to attack His Majesty's Government, as I have every intention of doing if my voice lasts, let it be on that issue and not on the basis of the American Loan; and least of all on the basis of the conditions imposed and agreed to by us with lenders in the United States, because that is not fair, reasonable, or polite.

The point at issue is really quite a different one. The point at issue between us on this side of the House and your Lordships on that side of the House is, I believe, whether the administration, and above all the financial administration, in this country has been reasonable or not, given the circumstances in which we were placed. Here I am bound to say that I find myself very much in agreement with what the noble Lord, Lord Cherwell, has said. I do not wish to go over the ground which he has already covered, but, if I may, to add one or two points to what he has said. In the first place, the Government came in and preached that because you can spend £3,000,000,000, £4,000,000,000 or £5,000,000,000 a year on waging war, you can spend something of the same order, or half as much at any rate, in peace. So you can if you have the resources. Anybody can have a party five nights a week, or seven nights a week; they can have a party every night for a month, so long as they have the assets with which to pay the bill. But, having had the party for a month, and there being no more assets, it is wrong and improper then to go and have a party on what friends will lend you.

That, I think, is the gravamen of the accusation I would wish to bring against His Majesty's Government; that is to say, the failure to realize when they came into office that the country had been impoverished by six years of war, the second war in a generation, and that they had not the assets to do what they wished to do any more than any other Government would have had those assets. Nevertheless, they proceeded to spend as if they had. They have spent in every direction, and instead of balancing their Budget in the first year of office, they deliberately and with pride produced an unbalanced Budget. In their second annual Budget they worked ostensibly to a balance. I say ostensibly, because it is a Budget that is in balance in precisely the same way as your or my budget is in balance when we spend more than our income and derive the rest from capital assets.

If your Lordships will think of the Budget that we heard at the beginning of this year, you will remember that a large part of the revenue receipts—indeed, all the surplus, I think, and a little more—was derived from miscellaneous receipts, which is a euphemism for the sale of Service stores and stocks. It is a euphemism to describe the sale for current budgetary purchases of something that has been acquired by borrowing on capital account in the past. The sale of Service war stores is not a revenue item. It is an item which is just as much borrowed as if you had an unbalanced Budget and went into the market and borrowed £200,000,000 or £300,000,000. The only difference is that the Government went into the market and borrowed that money to buy these stores three or four years ago, during the war, and not this year. It is not a balanced Budget, but it has been balanced by selling stock.

LORD STRABOLGI

Would not any other Government have done the same? Did not they do the same after the First World War?

LORD RENNELL

They did, and the result is perhaps obvious to the noble Lord. I do not think it is a very good example to take, because it has been the subject of a great deal of criticism by noble Lords on the Benches opposite. The point is that it was not a balanced Budget, and it is not a balanced Budget. What is more, the Chancellor of the Exchequer in doing this is doing precisely what he has asked private individuals not to do. The Chancellor of the Exchequer, and all other spokesmen of His Majesty's Government have asked people not only to live within their income, but to save and invest. It is common knowledge to your Lordships that a great many people to-day are not living within their incomes. but are selling capital assets on which to have their party. They are selling a piece of china, a cow or a house and living on the proceeds of that sale of capital. His Majesty's Government are doing precisely the same thing. What is sauce for the goose is sauce for the gander. If it is right for the private individual, it should be right for the Chancellor of the Exchequer. But no, he is doing the opposite. The trouble, which has been clear to some of us, lies in the financial and economic administration of this country inside, and not with our policy abroad.

I agree with everything that the noble Lord, Lord Cherwell, has said about the misuse of labour in a manufacturing capacity. He will, I hope, agree with me that had the financial administration inside the country been different the situation in which we find ourselves would also have been different. At the beginning of this year, when I had the honour to move a Motion before your Lordships' House which went to a Division, I said that I thought I had detected—and I am glad to have found support among others since then—that the decline in productivity, which has been the object of criticism abroad of this country, began as a matter of fact before the fuel crisis, in the autumn of last year when labour was being diverted to unproductive channels, stocks were being run down and, above all, the output per man not only in the coal industry—and I particularly did not mention the coal industry—was declining. No steps at that time were taken by His Majesty's Government to remedy that situation, and although the noble Lord who replied to that debate replied in his usual good humour, he was at great pains to make no reference to those remarks of mine. I think he, in common with others, thought that I was wrong in having seen a decline start as early as that. But I think, if he will look back, he will agree that it did. That was accentuated, as we all know, by the fuel crisis, a crisis which is commonly accepted now as one of mismanagement and not of bad weather. But all this has a direct bearing upon our situation which is perhaps only apparent to-day.

There is in the Chancellor of the Exchequer's figures one rather interesting statement and perhaps one rather serious gap. He refers to the sterling balances in this country and the drawing down of the sterling balances as a result of the operation of the convertibility clauses and certain agreements we have entered into. He states that the sterling balances—that is, balances held by foreigners in this country at the time convertibility was suspended on August 20 of this year—were greater than they were in July of the previous year by a figure of £70,000,000. The reference is column 408 of Commons Hansard. If my information is correct there was a steady growth of sterling balances of European and other countries here in England throughout 1946 which culminated in a high point, to the best of my knowledge and belief, at the end of 1946. I should be very glad to hear from the noble Lord—not to-day, because he will not have them with him, but tomorrow if I am able to attend your Lordships' House—what the sterling balances at the end of 1946 were as compared with those in August of last year, and I think it will be found that they were lower in August this year than they were in December.

Now there is a very clear explanation of that. As the world outside England saw productivity declining and culminating in a complete cessation of productivity for a short time during, the fuel crisis, confidence in this country, or rather let us say, more especially confidence in His Majesty's Government, declined very rapidly. All those people who had and were able to withdraw balances—I am not speaking of war-time accumulated balances, but: balances on current account, which they had been quite prepared to leave here—took them away. Not only had they lost the confidence that they had had in this country, but they were also encouraged by the financial policy of the Chancellor of the Exchequer to remove them. I do not say encouraged deliberately, but they were certainly discouraged from keeping them here because we deliberately made the rate of remuneration on those balances so derisory as to be not worth having. Part of the consequences of a cheap money policy was; to make sterling and sterling balances singularly unattractive, not only to your Lordship; and others in this country, but to everybody in the world in general. The flight from this county of foreign-owned sterling into goods and into such other currencies as they were able to convert into, is paralleled by the flight in this country of private sterling balances into goods. Why? Because neither the public in this country nor the public abroad had any confidence in the financial administration of His Majesty's Government. It is not that they have no confidence in this country; it is that they have no confidence in the Chancellor of the Exchequer's administration.

That is what I think is the real explanation of what happened in the first six months of this year, and if your Lordships will think of what happened over fifteen years ago you will realize that the experience this year is singularly like what happened when the first Labour Government fell as a result of lack of confidence in the financial administration of that Government. History has repeated itself again, and will as long as the Labour Government are in power. It is much more on those grounds, on the grounds of inept and very often mischievous administration, that there are grounds for attack. That those are not perhaps entirely lost or unknown to certain members of His Majesty's Government themselves is borne out by one or two remarks that they have recently let drop. Why otherwise would the Chancellor of the Exchequer in another place—if your Lordships will allow me to read one sentence only—have said in column 409 of Hansard: In this last period there was a rapid reduction of working sterling balances"— that is not war-time accumulation but working sterling balances which people normally get here— not war-time sterling acquisitions, but working balances, arising from current receipts. These balances were rapidly drawn down in the last weeks, whereas, in the preceding months, some of the countries, including some with whom we had reached separate bilateral convertibility agreements, had actually increased their sterling holdings. But in the last six weeks of convertibility there was a very sudden acceleration"— —mark that, my Lords, acceleration of conversion, not due to the convertibility clauses, but acceleration that is progressive, growing from something that had taken place before. The Chancellor says this sudden acceleration was due to two factors. It was due first of all, to the ever-growing dollar famine throughout the world, the fact that they wanted dollars badly; and, in the second place, it was due very naturally to the doubt as to how much longer we could sustain the convertibility obligation. I agree. We were running out of exchange. We were running out of exchange among other reasons because people have been drawing largely what they were able to get away before the convertability clauses started operating. Why the lack of confidence? For exactly the same reason as that for which we went off the gold standard fifteen years before.

There is also another point which is, I think, very near this one, contained, oddly enough, in the same speech, I doubt very much whether the thing could have been put in but for a slight qualm of conscience. The Chancellor of the Exchequer says (in column 416): I want now to say one word on the economic and financial policy. It has become common among critics of the Government, particularly on the Opposition Benches, to say that our economic and financial policies are not working in accord one with another. … I say at once that, of course, the economic and financial policies should work together and supplement one another. … Would anybody have said that if he had been satisfied that they did? I do not want to continue in this vein.

I have already detained your Lordships too long and I shall shortly start squeaking as if my voice were breaking. So in conclusion I will only say this: The solution proposed by the Minister for Economic Affairs is at best a palliative. He agrees with that. He says so in his speech; that is not new ground. If he succeeds in doing all that he hopes—all, I am sure, that we all hope—he will have the support of every one in your Lordships' House and throughout the country generally. But we shall still have a deficit in our balance of payments of something over £200,000,000. We shall still be running into deficit at the rate of £20,000,000 a month. Yet if we can achieve that we shall have achieved a great deal. It is for us all to support him in doing that. On that I have no doubts whatsoever. But on this side of your Lordships' House, it is legitimate for me also to beg that the policies of His Majesty's Ministers shall be directed to the same objective, that they shall not be discordant, as has been so frequently the case in the past; that it shall not be necessary, as one of my colleagues said, for His Majesty's Ministers to have to be introduced to each other as if they did not know one another at all. It is necessary for them also to work in the spirit that they are asking from the rest of the country. If they will do so, the rest of the country will, I am sure, play their part now as they have in the past.

I can say nothing more fitting than this, if your Lordships will allow me to read one single passage in conclusion: We are not asking the impossible, though we do not under-emphasize the troublous times through which we must pass. We shall find our way through to a brighter and more prosperous future all the quicker if we devote ourselves single-mindedly to our country's interests … I wish that to-day our country could refresh its heart and mind with a deep draught of that Christian faith which has come down to us over 2,000 years and has over those centuries inspired the peoples of Europe to fresh efforts and new hopes. That was said by Sir Stafford Cripps, and can scarcely be bettered. It seems fitting that words which come so sincerely from that responsible quarter should find their echo in other quarters in His Majesty's Government instead of the polemical and controversial matters we have recently heard.

4.36 p.m.

LORD PAKENHAM

My Lords, I know that the whole House responded to the spirit expressed in the speech of the noble Lord, Lord Rennell, when with a generosity not always evident in public life he read us the words of Sir Stafford Cripps. Certainly all of us in your Lordships' House have followed with the closest attention the speeches of both the noble Lords who have addressed us this afternoon. I am sure also that the whole House will sympathize with Lord Rennell on his affliction of the throat. In that condition, which some of us have suffered from occasionally, the only remedy is to avoid all strain on the nerves; and I do not intend, therefore, to impose too great a strain on him this afternoon by taking him up point by point, the more so as he raised a number of very detailed statistical points of which he had not been able to give us any notice. He will appreciate, therefore, that I would prefer to reply tomorrow. The first part of his speech was very much to my taste, because he dealt with Lord Cherwell's speech with that admirable gusto in destroying a Conservative argument which we all expect from noble Lords in that quarter! It was an attitude which the noble Lord, Lord Layton, also exhibited at the expense of Lord Cherwell last time we debated these matters.

Now for the speech of Lord Cherwell. There is no one in this House to whom I myself would rather listen on a subject where my sympathies were not deeply engaged, and where I was relatively ignorant of the matter under discussion. If at times the noble Lord appears to emulate Jeremiah, one of my favourite prophets of the Old Testament, he livens it up with many touches worthy of the late Oscar Wilde. Whether the latter gentleman is altogether a sound model for those embarking oil public life, I must leave to others to decide; he started well and then was snuffed out, like so many people. I hope no such fate will overtake the noble Lord.

I feel bound to explain, in the most friendly way, a matter which I do not think we have always made sufficiently plain. Noble Lords opposite labour, I believe, under the impression that we are a very bad Government; it would be difficult to draw any other conclusion from these repeated and obviously sincere and carefully rehearsed speeches. But they also carry within their bosoms an illusion that we regard them as a pretty good Opposition. That is where I would like to disillusion them. There is nothing too bad for them to say about us, and equally there is nothing they say about us which we do not heartily and in the most friendly spirit reciprocate. So much of our time is devoted to exposition, and occasionally to defence, that we do not get quite sufficient scope for counterattack. But if I am asked to say quite briefly why noble Lords opposite seem to me to constitute such a particularly unhelpful Opposition at the present time, it is that they never seem to be able to make up their minds on the crucial issues of the day or, if they do make up their minds, they refuse to reveal their priceless secret to the House and to the country; they insist on keeping it within the family party.

I asked the noble Lord; whether he was, in fact, in favour of these cuts, and he gave me the answer that without the detailed information he could not say. I am not asking for a detailed reply; I am asking broadly whether the noble Lord does in fact regard a programme of cuts of that kind as absolutely necessary at the present time. I am glad to think that the noble Viscount—who is usually candid, if nothing else—will perhaps, in consultation with what I believe is commonly called the "Shadow Cabinet," be able to provide the answer to this crucial issue before the two days are over. The country have a right to know whether the official Opposition can make up their minds as to whether cuts of that order are necessary or not. I do not ask for details.

Again, the noble Lord, Lord Cherwell, has talked in a general kind of way about reductions of capital expenditure. Listening to him, one would imagine that it had all been plain to everybody, and that for some time it was quite obvious to the meanest intelligence that very large cuts in capital expenditure were necessary. I do not often equip myself with Party literature, cither of my Party or of anybody else's but I have brought one quotation to-day to your Lordships House which I think should be fairly and squarely placed before you. This document, which contains many most progressive features, is entitled The Industrial Charier. I should say that it was published in May of this year—not so very long ago, although I know that printing takes a little time. We read on page 8: The more we concentrate on re-equipment and modernization now, the sooner we can raise our standard of life. The estimate of £1,700 millions on capital goods given in the Economic Survey for 1947 is inadequate as a total and gives No 1ndication of how this sum is to be divided— This document has received, I am glad to say, the official sanction of the Conservative Party, under the benign despotism of the noble Lord, Lord Woolton, after a most successful Conference at Brighton, so I am told. The document, published in May, 1947, denounces the Government for not going far enough in capital expenditure. Now the noble Lord, Lord Cherwell, is asking why on earth we did not cut down capital expenditure much earlier. The noble Viscount will perhaps have thought out the answer when he comes to reply, but I am bound to say that it will tax all the ingenuity of the noble Viscount, Lord Swinton, to get away from this one.

I do not want to spend too long on these Party matters, because I do seriously understand that, while we all enjoy a certain amount of what might colloquially be called "fun and games," we do realize that our country is passing through a crisis of unparalleled economic gravity, and we want the task tackled in this House, as elsewhere, in a spirit that makes co-operation easier and not more difficult.

There are a number of general subjects to deal with, although I am mercifully spared, I think, from attempting to cover the whole ground, as I once did on a previous occasion, to the distress of the weaker brethren in this House, by the fact that last week, by common consent generously expressed, another place listened to one of the great speeches of the time from the Minister for Economic Affairs. With the permission of the House, before I come to the main burden of my speech, I have a statement to make, which is of great importance. I will ask the House to allow me to make it, bearing in mind that it has just been made in another place by the right honourable gentleman, the President of the Board of Trade. I am quoting this statement in his own words, and, when I use the first person, that does not mean myself; it means the President of the Board of Trade. May I take it that your Lordships House wish this statement to be made, although I think it is rather long and will detain your Lordships some little time? The statement is as follows: "I should like to make a statement about the negotiations which have been continuing at Geneva on the subject of tariffs and preferences. Before the Conference began, my right honourable and learned friend, the Minister for Economic Affairs, then President of the Board of Trade, following the lines of the statement made by my right honourable friend, the Prime Minister, on 6th December, 1945, said that we should not agree to any tariff concessions or reductions or eliminations of margins of preference, except in return for tariff concessions, which we regard as giving us fully compensating advantages. We have followed that principle in all our dealings with every country with whom we have been in negotiation, and I am glad to state that, subject to the clearing up of one or two details, agreement has been reached between ourselves and fifteen other countries. The resulting agreements, together with the results of some ninety other negotiations between the countries represented at Geneva, will be included in an agreement, the text of which will be authenticated by the signature of a Final Act to-morrow at Geneva.

Much as I should like to do so, I regret that it is not possible at this present time to give the House details of what are included in the schedules to this Agreement, since it has been agreed by all the countries at Geneva that the Governments represented there will not publish the details of their own tariff changes until all details can be published simultaneously. I am sure the House will agree that very great difficulties might arise if one country were to publish unilaterally the results of its negotiations with the other countries. It is intended that all the details will be published simultaneously in about three weeks time, and they will, of course, be available to honourable members"— and, of course, to noble Lords.

"The House will be particularly interested in the results of the negotiations between the United States and various Commonwealth countries. In these negotiations we have followed the principles stated to this House last March. In particular, we have agreed to reductions in our own tariff, or to reductions or eliminations of the preferences we enjoy in other Commonwealth countries, only in return for concessions which we consider equivalent in terms of the trade thereby opened up to us. We have been particularly concerned to secure reductions in the tariffs of other countries, including the United States, which would provide an immediate opportunity of increasing our dollar exports. We have, moreover, given special attention to the need for the easier access of Colonial products to the United States market, and where concessions have been made in the margins of preference affecting our trade with the Colonies it has only been in return for equivalent, corresponding, and indeed immediate advantages for the benefit of Colonial trade. We have further proceeded on the principle laid down at the London Session of the Preparatory Committee that the binding of a low tariff is equivalent to a reduction in a high tariff. Since, of course, our own tariff is made up predominantly of low rates, the agreement consequently includes a number of such bindings of low tariffs in exchange for reductions in some of the high rates in overseas tariffs.

Throughout the Conference we have kept in the closest touch with other Commonwealth countries. As the House knows, for nearly a month before the Conference began these matters were discussed between ourselves and representatives of the Commonwealth countries here in London, and at every stage in the negotiations we have proceeded in full consultation with them. In every case where any change is being made in the preferences enjoyed by ourselves in some other Commonwealth market, that change has, of course, only been decided upon with the agreement of the country concerned. Similarly, changes in our own tariff affecting bound margins of preference enjoyed by other Commonwealth countries are being made only where the Commonwealth country concerned is willing to make it as part of the bilateral tariff negotiations which they have been engaged in with a third country. In the later stages of the Conference when the question of tariffs and preferences was in the forefront of the negotiations, a series of meetings of Commonwealth delegates under my chairmanship was held, not only to discuss the broad questions of policy involved but also where necessary to reach agreement on the individual items entering into the negotiations.

I should like to repudiate, here and now, the suggestions made in certain quarters that we have at any time been putting pressure on other Commonwealth countries either to break up the preference system in general, or to agree to any concessions on preferences to which Commonwealth countries are contractually entitled, other than changes which those countries would have regarded as being made worth while by the concessions they received in return. The suggestion has, moreover, been made in certain quarters that we have agreed to an overall reduction by some general formula of all Imperial preferences including preferential margins which we enjoy either in our Colonial or Dominion markets. This suggestion is quite inaccurate and misleading, as will become clear when the details are published. It is certainly untrue to suggest that the progress: of these negotiations has in any way weakened the economic co-operation of the Commonwealth and, indeed, from my experience I can certainly confirm that the negotiations have strengthened this co-operation and that the Conference has provided a continuing forum for Commonwealth discussions on economic questions going considerably wider than the problems immediately under discussion at the Conference."

Well, my Lords, no words of mine are needed to emphasize the importance of the statement which I have, with your consent, read to your Lordships this afternoon—

VISCOUNT SWINTON

I am sure the whole House will be grateful to my noble friend for having made this communication at the earliest possible moment. I would merely ask this: Are those tariff agreements to which he has referred, and which are to be published in three weeks, binding upon all the countries from the moment of signature to-morrow, or are they subject to ratification and approval?

LORD PAKENHAM

Before giving a reply to a question which is, of course, significant, I would like to consult my right honourable friend, but I can certainly let the noble Viscount know before he makes the main part of his speech tomorrow—as I understand he will.

LORD ALTRINCHAM

Would the noble Lord answer one other question? Some of those agreements bind us not to change our tariffs, not to raise our tariffs. Can the noble Lord say for how long those agreements are being made?

LORD PAKENHAM

I must ask the House to forgive me for not answering further questions on this very important statement, which will of course be fully debated in this House in the course of the next two days, when your Lordships have had time to study it. In so far as noble Lords who intend to speak in this debate wish to raise questions in advance of speaking, it may well be that I shall be able to obtain information. I have to be frank in fact, and say that I have just had this placed in my hands. I should add what I think I ought to have mentioned earlier in the debate, and what I know will be of special pleasure to the House in the circumstances, or indeed in any circumstances, and that is that the noble Viscount who leads the House is going to speak to-morrow in the course of the debate, and will deal particularly with Imperial matters. Of course, as you know, he has been away. I am not going to promise that he will deal in tremendous detail with these particular agreements but he will cover the economic field with special reference to Imperial matters, and I know that the House will give him a great welcome on his return.

Again, I must ask leave of the House to spend some while on one particular matter that has been raised in more than one debate since the issue became acute and, of course, has been referred to at considerable length to-day. That is the way in which the Loan has been spent. Various detailed points were raised this afternoon by the noble Lord, Lord Cherwell, and by the noble Lord, Lord Rennell. I was glad to find that the noble Lord, Lord Rennell, was not worried by the way in which the Loan has been spent, and I hope that when he recovers his voice he will impregnate the noble Lord, Lord Cherwell, with those views. Even now I think he emitted cooing noises which might restore the noble Lords equilibrium.

LORD RENNELL

I would not say that I said I was not worried in regard to the way in which the Loan has been spent. However, perhaps the noble Lord would read what I said in my speech.

LORD PAKENHAM

If I may say so, the noble Lord did say, early in his speech, that he was not one of those who would raise a cry that a large part of the Loan had gone down the drain. I will, of course, read the speeches made by the two noble Lords with special care before to-morrow. Where the statement which I have carefully prepared on this subject does not answer all their points I will attempt to improve on it to-morrow, though I should not give the House the impression that it is likely that new figures, which have not been previously issued, are likely to be available in the next two days. Of course, the House is aware that this matter was gone into at considerable length by the right honourable gentleman, the Chancellor of the Exchequer, in another place last Friday, and no doubt those who intend to speak have studied that statement in detail.

If I may summarize what the Chancellor of the Exchequer said, it came to this: The American Loan amounted to 3,750,000,000 dollars. Of that 400,000,000 dollars is still undrawn; so that the amount we have actually drawn is 3,350,000,000 dollars. Of this sum 235,000,000 dollars were spent after the suspension of convertibility, so that the amount we have to analyze as spent before convertibility was suspended was 3,115,000,000 dollars. That was the figure on which he himself concentrated attention in another place. Of this amount, 2,310,000,000 dollars, or nearly three-quarters of the whole, were spent by the United Kingdom itself on goods and services in the Western Hemisphere. The House will recollect that 1,350,000,000 was spent on purchases from the United States and 960,000,000 dollars from other parts of the Western Hemisphere.

Of the remaining 805,000,000 dollars, 620,000,000 dollars were spent in the Western Hemisphere by the rest of the sterling area: that is, the sterling area other than the United Kingdom—India, Egypt and Australia, for example. May I remind the House that it was a basic conception of the Loan that it should not only be used for our own needs, but for those of the sterling area as a whole? That, I think, is a point which is sometimes forgotten. 150,000,000 dollars were spent by the whole of the sterling area—including ourselves—outside the sterling area and outside the Western Hemisphere in third countries, mainly in Europe. In other words, as regards this fourth item, once sterling became convertible any adverse balance with a European country could be converted, and would lead us, directly or indirectly but always in accordance with our convertibility obligations, to a loss of dollars. Finally, the subscription to the International Bank on behalf of ourselves and other sterling area countries, amounted to 35,000,000 dollars.

Subject to one small item—I know how hard it is to follow these figures when they are read out, I have had some experience of listening to such speeches—but, subject to this last small item and to one small qualification which I shall mention in a moment, the whole point—and it is the point with which I am detaining the House—is that the whole of the Loan was spent on goods and services which flowed directly or indirectly into the United Kingdom. The House may say: "Oh no, 620,000,000 and possibly some of the 150,000,000 dollars were obtained by the other members of the sterling area. But of all those sums, again with a qualification that I shall mention in a moment, those countries were able to obtain those sums only because they had supplied us in the United Kingdom with the requisite goods; So that, in one way or another, we, in the United Kingdom, obtained full value for the whole of the money. The one qualification which I will now mention is this: that a sum not exceeding 200,000,000 dollars or £50,000,000 was drawn by India and Egypt out of the Loan from their war-time sterling balances. It must not be assumed, however, that even this 200,000,000 dollars represented any kind of flight of capital, when we observe that India was responsible for four-fifths of this amount and we recall her desperate need during this period.

Noble Lords may ask—and it seems to me a pertinent kind of question—how it was that the using up of dollars occurred so much faster towards the end. The answer is this—and it is one that perhaps would not readily occur to the layman—that it was necessary under the Loan plan to make bilateral arrangements with each country in order to ensure that dollars were demanded only in relation to current transactions. All such agreements had to allow certain elbow room for working balances, and these working balances moved against us, once confidence had disappeared, much faster than we had hoped, though not beyond the letter of the law under our arrangements. I would like to stress that it was not a question of leakage, in the sense that money moved out against the rules laid down. It was a question of money moving out faster than we hoped that it would, but not faster than was, strictly speaking, permitted under the letter of the law. I hope that will throw some further light on the subject but if it is desired by the House I will certainly reply to-morrow in greater detail, on the points that have been raised this afternoon.

I do not wish to detain your Lordships too long but obviously there are various things which must be said this afternoon, and said firmly and clearly, on behalf of the Government. We all agree that we are passing through a period of prolonged crisis, but what kind of a crisis is it? Is in a dollar crisis, or a balance of payments crisis, or a production crisis? I should say that all these things are true, but the question is, which kind of crisis is it most valuable for a particular person to think it is? I think it is most valuable for the United States to regard it as a dollar crisis, so that they will play their part in the most enlightened way possible in helping Europe on to its feet. And, I may say, I am sure that in that case they will do everything that seems proper to them. From the point of view of the ordinary man with his coat off, or who is now intending to take his coat off, it is probably best to think of it as a production crisis, and it is the duty of the Government to see that he does so. In this connexion, I am glad to note that noble Lords, such as Lord Woolton, have been at pains to emphasize this very important point throughout the country. The noble Viscount, Lord Swinton, also stressed the fact that it was a production crisis the last time we discussed these matters in this House.

While not unmindful of all these aspects, it is probably very important for the Government to realize that it is a balance of payments crisis, and unless the balance of payments position can be set right—and there, obviously, the Government have a tremendous part to play—we shall never pull through in any tolerable form. I would stress one thing about our present plight. Although I do not for a moment wish to belittle the necessity for emphasizing that it is most important that we should all, in our different walks of life, produce more goods or services than we have hitherto done, nevertheless, we are not in this critical position because production in this country is lower than it was before the war. It might be slightly lower, it might be about the same, and it might be slightly higher. Many competent people have been employed in considering this and have brought powerful and distinguished intelligences to bear upon it, but they are unable at the moment to give any clear guidance as to whether, as a nation, we are producing more or less than before the war. Certainly the difference is not of the kind to produce a crisis. If we look at the position in July, 1947, we find that the total number employed in manufacturing industries was 18,395,000 against 17,920,000 in June, 1939—that is a few thousands higher. There is, therefore, a slightly greater number of people em- ployed in industry now, a fact for which the Government are entitled to take their share of credit, though, Heaven knows, not all the credit. But, after all, those who get most of the blame for what goes wrong, are entitled, and perhaps under an obligation, to take a slice of the credit when employment is high, and there is thus one encouraging feature about the national economy.

It might be asked how does productivity stand to-day compared with prewar times. The matter has been investigated at considerable length, but no clear answer is possible. The best answer that I can give, speaking, if I may be allowed so to put it, as man to man, is that there is not much in it either way. That is the best answer I have been able to obtain. I have been shown provisional estimates which suggest that in half a dozen industries production is lower, that in another half dozen it is almost exactly the same, and that in yet a third half dozen it appears somewhat higher. I am not pressing this point; I am only anxious to show that we are not in our present jam—if I may be allowed to use such a colloquialism—because production is either much lower than before the war, or in fact very much different. That is not the explanation of why we are where we are. But for Heavens sake let us all agree on the importance of production to get us out of our plight in which we find ourselves. What has changed since 1939 is our international trading position. Our economy before the war was more vulnerable than that of any other country in the world. Some other members of this House have perhaps given lectures pointing to the beautifully balanced and delightful mechanism by which before the war, although we did not export quite as much as we had to import, yet everything worked out perfectly. That has all gone by the board.

LORD WOOLTON

For academic consumption.

LORD PAKENHAM

For academic consumption, yes. I am glad to find so many members of that fraternity on the Front Benches of this House. In the old days when one lectured on the subject of the Second Chamber one described a man resembling a University Professor; now we have them with us on all sides! Since the days before the war the position has changed calamitously. When the war ended all the well-known factors referred to were present—the loss of a large part of our invisible exports and the temporary disappearance of a very large portion of our export trade—and it was realized that it was necessary to increase our visible exports by 75 per cent. above the pre-war level. That certainly was a colossal task. But it was not then, and is not now, an impossible task. One million men—to quote an economist who has found acceptance in this House, Mr. Harrod, 1,250,000, but the lower figure must be taken for the purpose—were being wasted before the war by unemployment; and some would put it higher. There seemed no cause for undue alarm and despondency because we had to find 1,000,000 extra men for the export trade. But that was roughly the position in which this country found itself after the war. We had to find 1,000,000 men and in this respect we have succeeded. We had to secure full employment and be able to employ 1,000,000 men wasted before the war in a most appalling way.

Two sombre developments on a scale unforeseen, so far as I know, at the end of the war by the leaders of any Party, have cast a shadow over the world since that time. We have not heard very much about them this afternoon but they are in the minds of everybody who considers this question. The first was the failure of the victorious Allies to achieve a Peace Treaty and, more recently, the division of Europe into two halves. That should not be regarded merely as a very sad political fact. It has, of course, introduced economic strains of a very trying character. The second factor is the rise in the price of foodstuffs leading to a change in the terms of trade against us. But there again, one wants to go behind, that and ask what is the explanation. The real explanation is the world food shortage. These two sombre developments, as I have called them, were certainly not foreseen in their entirety by anybody in this House two years ago. No one, I am sure, will quarrel with me when I say that it has been impossible to do more than, the Foreign Secretary has done and is doing to secure international agreement among the Allies. The failure is owing, I am bound to say, almost entirety to the attitude taken up by the Government of the Soviet Union. I would say only that the Foreign Secretary is girding himself for the Council of Foreign Ministers in November. He refuses to be pessimistic, and I am sure we are all going to back him up to the full to bring off agreement this time.

As to the rise in the price of food-stuffs and the remedy for that, we must not expect anything sensational. May I be forgiven for introducing a personal note at this stage? When one is examining a problem from the British angle, one is conscious mainly of the impact upon British Government policy of the outside factors. As one who is responsible under the Foreign Secretary for Germany I have seen that kind of question as it impinges on a large part of Europe in the same way that it impinges on this country, and I have been made all the more conscious that this is a world difficulty. I would ask the noble Lord, Lord Cherwell, to turn this over in his mind before he says his final word to-morrow and see whether he will not agree that these difficulties through which our own country is passing are not unique, but are certainty shared to a much harsher degree by almost all the countries in Europe, which suggests that there is some common cause.

The actual position in which we find our balance of payments was very clearly explained by Sir Stafford Cripps last week and I will not detain your Lordships too long with this now. The main point is that if we do not introduce a programme of the magnitude of that which Sir Stafford Cripps has propounded to the country on behalf of the Government the dollar drain next year will be £475,000,000. Even if, after a programme of this kind has been put into operation, we find ourselves still unable to balance our accounts, the position will be far better than the one I have mentioned. That leads to the question of whether the programme is a good one or a bad one. I entirely appreciate the spirit in which the noble Lord, Lord Cherwell, spoke on this subject, and in which the noble Lord, Lord Rennell, spoke. They say that, as patriotic citizens, they are prepared to do everything in their power to back us up, but with respect, may I ask noble Lords on the Benches opposite for some greater indication during the debate as to where the Conservative Opposition and the Liberal Opposition stand in regard to this programme? This has been stated in broad outline but, as has been explained from the opposite side on earlier occasions in this House, it is very difficult to check up on details, and we are entitled to know whether or not noble Lords there agree with the programme, and if not, where they feel it would be improved. That is something to which I urgently ask an answer.

What does the programme amount to? Put very briefly, and of course I am not doing it justice, it may be schematically placed under four headings: (1) Increase of home production; above all, increase of our own agricultural production; (2) development of our Colonial Empire. I am not going to say anything on these two subjects. I dare say that we shall hear about them during the debate, and by and large our proposals seem to have secured general acceptance in this House. I will turn to the two remaining heads—(3) reduction of imports and (4) increase of exports. Reduction of imports is a very painful measure for any Government to introduce to the country. It is open to people to say, but it is not open to noble Lords on the Front Benches opposite to say, that a measure of this kind should have been introduced earlier. I do not want to recriminate about the past. If they will tell us now that they will be behind us in the necessary measures of austerity, I do not think anyone need jump backwards and argue about who introduced this and when.

LORD WOOLTON

The noble Lord is inviting us to consider whether we are in favour of measures of austerity regarding the import programme?

LORD PAKENHAM

I am asking, and I hope that it will be replied to during the debate, whether the general kind of import needs and the general scale have the support of the Opposition.

LORD WOOLTON

I thought you told us we had no alternative.

LORD PAKENHAM

That is perfectly true. There is no alternative before the country, and if that is to be taken as an answer "Yes," even if given in an elliptical form, I give it a hearty welcome.

I now come to the question of exports. Here again we begin by involving ourselves in new measures of austerity. It does mean that certain consumer goods which would otherwise be provided for the home market must be sent abroad. Here again I would like to know—because it is very useful from the point of view of the country—if we can have the support of the Opposition to an increased diversion of goods from the home market to the export market. We have been told on various occasions that we were indulging in too much austerity. Sir Stafford Cripps was derided; he was called "Austerity Cripps," and was given the further nickname "Strength through Misery." Noble Lords tell us that there is misery at the present time. I think they rather exaggerate it, but I am glad, and I am sure your Lordships will be glad, that even if that is the case, we have the strength. I do not think there is much laughing at Sir Stafford Cripps now, and there is not much use of that nickname by anybody, because people throughout the country, and men of all Parties, realize that he was far more right than anyone else of importance in public life. I think the whole country respects him for it. An increase of austerity on the home market in order to promote the export trade is undoubtedly necessary.

Without going into all the other details of the export trade explained by Sir Stafford Cripps, I would just indicate the general trend. The general trend is to bring about an adjustment to secure that a larger proportion of our resources, human and material, is devoted to the task of producing exports than has hitherto been devoted. Though there are, of course, very difficult problems connected with foreign markets, I will not touch on them this afternoon. That is the simple task. That is what we as a country have to do. We have got to turn over a larger proportion of our effort to the export trade. It is not at all an easy matter to secure that by methods which are popular and agreeable to the whole community. I give full credit to the noble Lord, Lord Cherwell, for raising this question of the redistribution of our resources at a comparatively early date in our discussions. I well remember a debate in the early summer of last year when he asked us what we were doing about it. If I may offer a personal opinion—which I hope will not get me into any trouble—I do not think that we have moved fast enough in that direction hitherto. I think that would be a very reasonable view. But I am bound to stress the fact that, although the noble Lord, Lord Cherwell, raised this in the early summer of last year, he never offered any solution. To-day the noble Lord is filled with the idea of guidance. He suggests that after the war we ought to have thought of some way of persuading people to go into these export trades. The noble Lord will stop me if I am misrepresenting him, but I do not remember that even that degree of guidance was encouraged by the noble Lord in that debate, or in any subsequent debate. He simply posed the question, and left us to find the answer.

I am sure of one thing, and it is that there is no simple answer to this problem. It has been suggested, in a powerful speech by the noble Marquess, Lord Salisbury, on, I think, the 6th August—a speech which contained many things with which the whole House agreed, although others from which we on these Benches dissented—that we should use incentives to attract people into essential occupations. We are using incentives. If your Lordships take the two most essential of all industries, coal mining and agriculture, you all know that the conditions in those occupations, including wages, have been considerably improved, and a great deal has been done to make them more attractive. Certainly we do not renounce or reject the policy of incentives. What we do say is that incentives will not do the trick fast enough; that we have got to bring other forms of pressure to bear. I agree with the noble Lord, Lord Cherwell, that some form of guidance is necessary. What kind of guidance would the noble Lord apply? If we simply wait for everybody to come to the labour exchanges we shall not get everybody to embark on that process. But, in effect, under the Control of Engagements Order, with certain wide exceptions which are perhaps familiar to noble Lords, we have made it compulsory for those who desire to obtain new work to obtain it through the labour exchanges. At that point this process of guidance is brought into operation.

LORD CHERWELL

I am sorry to interrupt the noble Lord, but the guidance I had in mind was guidance which could have been given when people were leaving the Services. Most young men, when they left the Services, talked to their officers and said: "What shall I go into?", and so on. I do not think that at that time there was very much guidance into the particular industries.

LORD PAKENHAM

I do not know whether the noble Lord would have teen ready for the Control of Engagement Order.

LORD CHERWELL

Before a man left the Services he nearly always went and talked to the welfare officer about his future. Surely it ought to have been possible to get a few more into these industries.

LORD PAKENHAM

I am not saying that if we could play the whole game over again there would not be something in the suggestion of the noble Lord, but the trouble is that he did not come forward with this suggestion of guidance at that time. He has only thought of it just when we are introducing it. That is the simple fact, and we have taken part in many debates in this House on the subject. He has suggested it now that we think it is most essential, but now I think he is running away from it. The noble Lord shakes his head He is supporting the Control of Engagement Order. The noble Lord is not running away from it, and he is not supporting it! I leave it to him to say clearly what he is doing about it. The noble Lord will have the last word in this debate, and I shall look forward to hearing what is his attitude to the Control of Engagement Order. In particular I would like to know, if he is not prepared to support it now, how he believes this policy of guidance could in fact have operated.

I think I have given him some homework for to-night which will tax him as much as that before the noble Viscount, Lord Swinton. The truth is that it is a very difficult thing. We would all much rather rely on incentives. We are, however, satisfied that some further forms of pressure are necessary. What, in fact, will happen will be that: if you want a new job—subject to certain exceptions—you will be offered several jobs—three or four, we hope—and it is only then, if you will not take any of those essential jobs that are offered, that direction to do the essential work will be given. Frankly, I support that heartily. As a matter of fact, I am sure that if noble Lords opposite were in power they would do the same thing themselves, because they could not allow the country to be destroyed for any lack of men in the essential occupations. Assuming that every possible precaution had been taken to do everything gently and humanely, and to make sure that women with family responsibilities were particularly looked after, and all the other welfare steps were taken, I am sure noble Lords opposite, men of distinction, probity and courage as they are, would do exactly as we are doing in the matter. That, at any rate, is the opinion that I offer to the House.

I will not detain your Lordships very much longer. There are, however, just one or two points which have come up so often in these debates to which a reply has not always been given. Very hard things have been said about the numbers in the Civil Service. I am sorry that we have not the noble Marquess, Lord Salisbury, with us this afternoon. I know he has an important engagement, but I did tell him I was looking through his speeches to see what he had said on some of these great matters, and that I had collected various things from his speeches which, in my opinion, went much too far on this subject. To mention only one, he said, perhaps without premeditation, that the numbers of the Civil Service were going up every day. That certainly is not the position at the moment. In the first nine months of this year, according to the provisional estimates, there has been a reduction of some 32,000 civil servants, and the number now is lower than at the end of the war. It is rather different from a picture of the numbers going up. We have been told we have increased the number—

VISCOUNT SWINTON

Does the noble Lord seriously assert that the standard to apply of how many civil servants you have in peace is how many you had to have in war, when the whole country and the whole national effort was being directed?

LORD PAKENHAM

I am saying no such thing. I was merely referring to misstatements, made no doubt in good faith but very wide of the mark, which have flowed from the members of the Opposition Bench on this subject in recent times. I am not quite sure whether this point has been placed before your Lordships' House, but a body of Ministers, charged with a review of Civil Service staffs with a view to reducing the total numbers employed, was recently re-convened and is tackling the matter once again. It should be appreciated by the House that this mattter is not being allowed to slide; it has not even been allowed to remain under the very effective scrutiny—sometimes regarded as insufficient—of the Treasury, but has been specially tackled by this body of Ministers.

LORD WOOLTON

The noble Lord told us that in August, and I was impressed. Could he tell us what the result of the scrutiny has been?

LORD PAKENHAM

As the noble Lord knows with his great experience, it is not usual to publish in detail the results of Ministerial committees.

VISCOUNT SWINTON

As the noble Lord is replying to a question and a constructive suggestion, may I ask a question or would he rather I left it until later?

LORD PAKENHAM

No, I would much rather the noble Viscount asked the question now.

VISCOUNT SWINTON

The noble Lord will recollect that on the last two occasions I put a question. I know these committees are going round, but everything turns on what are the terms of reference. If you merely say: "Given this amount of work, have you too many typists?" you get pretty small results. The only way to reduce numbers effectively is exactly the way you are proposing to do it in the industries of less importance—namely, by shutting down this particular industry or reducing the output of that particular industry. Without asking what the Committee of Ministers has found, has that Committee of Ministers the right and, indeed, the duty to go to these Departments and say: "Here is a section of work which you should cut out entirely." Unless you can do that, you will get no effective reduction at all.

LORD PAKENHAM

The terms of reference were an instruction to review the Civil Service in order to reduce the total numbers employed; that was the overall instruction. I fully appreciate that the noble Viscount has helped us in this matter in the past, and mostly in a highly constructive spirit. But it is important to realize that in fact the numbers are somewhat lower—32,000 lower than at the beginning of the year, according to the preliminary estimates. There is one further point in this connexion where I believe the noble Viscount is under a misapprehension, and where I myself was far from fully acquainted with the facts until I went into it. I have tried to discover how many of all those civil servants could be considered to be directly concerned with controls on production. The figure I have been given, and which I am told is firm, is that 6,500 is an outside number. I offer that to the noble Lord.

VISCOUNT SWINTON

On all the controls?

LORD PAKENHAM

Yes. I offer that figure to the noble Lord as one supplied by my advisers, with full confidence that it is an outside figure. I am talking about controls on production, and I am not including rationing. I am dealing with the side of Government activity which has been most criticized from the Benches opposite. In regard to rationing and the social services and matters of that kind, we have never had any serious dispute in this House that steps of that nature were absolutely necessary in the circumstances of the times. But what has been violently criticized in this House by a number of noble Lords, many of them highly experienced, has been the kind of control exercised on production. I am told that those controls certainly do not absorb more than 6,500, and in fact considerably fewer. I feel that that figure will be of interest to the noble Viscount and many noble Lords present, because it should prevent a widespread misapprehension that there are thousands of people concerned in hamstringing industry, holding up industry, and generally wasting their own time and getting in other people's way.

LORD WOOLTON

They are very effective.

LORD PAKENHAM

I should not be surprised if some of them were trained under the noble Lord. Then we come to the whole question of controls. I am not going to say a great deal about that subject this afternoon, because it was not raised very intensively by the noble Lords who have spoken. But I am bound to say that in this matter once again the Opposition seem to speak with two voices. Yesterday, in another place, members were harangued by Mr. Churchill in a speech whose brilliance and charm carried every-one away; but how on earth that squares with the Industrial Charter I must have Mr. Churchill and Mr. Butler to argue out between them, and Lord Woolton—who, I believe, is the chairman on these occasions—to arbitrate, holding their coats, picking up the pieces and generally administering First Aid. I find myself very happy this afternoon to be putting a few questions to the Opposition—we have so many put to us.

VISCOUNT SWINTON

Would the noble Lord perhaps enlighten us further on how difficulties are solved inside the Labour Government?

LORD PAKENHAM

Always by conciliation.

THE MARQUESS OF READING

Not by resignation?

LORD PAKENHAM

That happens in all Governments, and sometimes it helps the country and sometimes it does not. On this subject of controls, we all really agree that they are strictly necessary for the purpose of allocating scarce commodities. We agree about that in relation to retail distribution and we believe it very strongly. It does not seem to me to be seriously questioned by noble Lords opposite, with their collective voice, in regard to scarce raw materials. Nevertheless, there is no doubt plenty of room for very careful consideration at all times as to how those controls could be simplified. That is the mariner in which it has been approached more recently by the noble Viscount.

I am specially authorized by my right honourable friend, the Minister for Economic Affairs, to say a word on that point. He is most anxious that the closest consultation with industry should be observed in simplifying controls and rendering them as effective as possible, from the point of view both of industry and of the country as a whole. I sincerely hope that any industrialists or representatives of industry who have ideas which they believe to be of value will be encouraged to put them forward. I can assure any members of this House who have suggestions on this subject which they believe will be helpful, whether they are publicly or privately put forward, that they will be laid before my right honourable friend, the Minister for Economic Affairs, or the Ministers working with him. I am certainly not dogmatic about the existing controls. I am not claiming that in all cases they are absolutely perfect or that they could not be simplified in certain ways. The vital thing is the closest collaboration between the Government, the industrialists and all people concerned.

I draw to a conclusion, and I hope that my last words will be such as the whole House will agree with. I want to say first of all that we in the Labour Party are not in the Labour Party by accident. Many noble Lords on the Benches opposite take what they regard as a charitable view of the reasons why we are sitting on these Benches. They put it down to all sorts of things—perhaps a fall from a horse—

VISCOUNT SWINTON

Or a fall from grace.

LORD PAKENHAM

—or a bit of a shemozzle at a Fascist meeting. They have various charitable explanations. But I beg the noble Lords opposite to believe that we do hold two principles very dear. I am not saying that in their abstract expression they would be resisted by noble Lords opposite, but they do not think they can be easily translated into politics, or translated into politics at all. The first proposition is that every human being in this world is equal in importance. The second proposition is that it is the responsibility of Government to see that national resources are disposed of to the best advantage. I do not know that this will be questioned from the Benches opposite, but at any rate I state these principles as lying at the roots of our Labour Party faith. I do suggest to noble Lords opposite that in the position, the plight, in which the country finds itself, there really need be no quarrel between us. There is so little to go round that everyone is agreed that the question must be one of sharing out in the fairest possible way. The Government have a clear responsibility for that. Even the noble Lord, Lord Cherwell, conceded it. We look forward to receiving noble Lords' assistance in the difficult times that lie ahead.

There is a tremendous opportunity now to give help on many matters, all the more so because we in your Lordships' House are not the servants of any constituency.

It is a fine thing to be a Member of the House of Commons. In common with Lord Cherwell, I once attempted something in that line myself, but the gods thought fit to arrange matters differently. But while we are denied the opportunity of expressing certain things in that capacity, we have, it seems, a special opportunity here. We are not directly responsible to any group of individuals. We cannot—I am not speaking of Ministers—immediately be called to account. In a sense we possess an appalling sense of security. There is no one who can take us away, who can withdraw us from our public life, short of a revolution, which is certainly not in contemplation at the moment. I beg noble Lords on all sides of the House to see, in these times ahead, which may get better or may get worse but which we are certainly going to pull through, what we can do to help our country. I know that is the desire of every noble Lord in the House this afternoon, as indeed it always is.

5.45 p.m.

LORD SALTOUN

My Lords, I seem to remember in the debates we had last year on the Services that we laid considerable stress on the care of the soldier when he left the Forces and on assisting him into employment. I do not think it is in the least necessary that the noble Lord, Lord Cherwell, in drawing attention to that, should have attracted the reproach of the noble Lord, Lord Pakenham. I cannot possibly hope to vie with Lord Cherwell and the noble Lord, Lord Rennell, in what they have said this afternoon; but there is another side, with which I hope to deal briefly. When talking over the present situation with people in various parts of the country, I have been astonished to find how many of them have said that they feel that this crisis is a psychological one. They have not always used that word, but I am using it because it is an innocuous word. They say that there was enormous pent-up energy in every section of the community at the close of hostilities, which was panting to be liberated, to flame out in every possible kind of useful work; but that they had to overcome difficulties and shortages which damped and smothered them until to-day that urge is absolutely dead.

You will find no spark of that energy—at least I do not wherever I go. People say that they cannot do anything with out going to somebody's office, and they wonder whether it is really worth doing. That is what people are feeling. And I consider, especially after what the noble Lord, Lord Pakenham, has just said about His Majesty's Government, that there is a psychological error in the way the Government are tackling this situation. They are too much obsessed with their programme and they feel that it is more important than the position in which the country is to-day.

I should like to take one instance, which is so old that I hope it will pass without giving offence. It is an extract from a speech made at the time of the beginning of the American Loan. Your Lordships will remember the very serious statements of the Prime Minister on the last day of the Sittings in August, 1945, when he announced the termination of Lease-Lend; and your Lordships will probably remember also the subsequent very wise words of Mr. Churchill when he said he hoped that no comment would be passed, and that nothing would be said in discussion, which might prejudice the happy relations between us and America and the negotiations that must obviously ensue. A very few days later there appeared in the Press a comparative list of casualties of British and American Forces, and the public was informed that the representatives of Great Britain had been instructed to hand that list to the United States of America as a preliminary to the negotiations. I am perfectly certain that His Majesty's Government did not so intend, because they, like all of us, must have felt a great admiration for the intrepidity and persistence of the fighting Forces of the United States. But an American reading that document must have regarded it as a slur upon the American Arms.

Look at it from our own point of view. Think of the people who have lost in the war everything that makes life worth living for them. Do you think any of those people would willingly see a document of that kind put forward in consideration for money? I do not want to elaborate that point, but I cannot understand how His Majesty's Government came to do it. It was a psychological error. That was two years ago, and it is past history. I will leave it at that.

To-day we have Ministers of the Crown going about the country talking as very vehement members of their Party about "social enemies" more or less in disguise. I do not see how the Government can come to us to-day and say they want the country to pull together, if all the time they are speaking in an entirely different language to their own supporters. We have had a very regrettable case of that. We have had the word "spiv," which is used to denote anybody who does not happen particularly to be liked at the moment. We had it translated into Parliamentary language in the most gracious Speech the other day, when reference was made to people who were of no value to the well-being of the country. I forget the exact words used. I am not disputing the necessity of the direction of labour, but I do think it could have been referred to in another way, because there are a very large number of people whom, for instance, the Minister of Defence makes it quite clear he does not like—people like journalists, who may be to the Minister not of very great importance to the well-being of the country and who yet are very loyal and devoted subjects of His Majesty the King and are good members of the community.

LORD PAKENHAM

Forgive my interrupting. I am not quite clear to what the noble Lord is referring.

LORD SALTOUN

I beg your pardon—to the Minister of War, with reference to journalists. You cannot have it both ways. If you want the country to be behind you, you have to make everybody realize that you are a Government that represent the whole of the country and not merely a Party; you are the Government of the country. On that point it is quite hopeless to ask noble Lords on this side of the House for a blank cheque. To the question, "Do you or do you not approve of the measures we are taking?" you get quite a different answer if you come as the Government of this country, from that which you get if you come as the Government of the Labour Party. It seems to me that the first thing to do is to make the country realize that the Government represent everybody in the country and that everybody's interests are equally concerned. That is very much what the noble Lord said, but with a slightly different emphasis.

The noble Lord asks us for suggestions. We have, after all, made a good many suggestions in the past. We made suggestions on two occasions, for example, with regard to winter ploughing and also with regard to feeding stuffs. We have also tried to impress upon the Government the importance of rural housing. I am very glad to say that they have now accepted those suggestions. That is all very well, but apparently suggestions which are not to be accepted are regarded as criticisms, and the noble Lord, Lord Pakenham, himself seems to me to be rather sensitive to criticism.

LORD PAKENHAM

Not a bit.

LORD SALTOUN

I dare say your Lordships will remember—I expect you will remember better than I do—the Prime Minister's words the other day when he said that "Opposition criticism had passed the limits that were allowable to an Opposition," or something like that. I do not remember the words clearly because they sounded in my ears like an echo. They reminded me of an occasion when Signor Mussolini met the journalists of Rome—

LORD PAKENHAM

I am sure the noble Lord will forgive me. If he is going to compare the Prime Minister with Signor Mussolini on the strength of his incoherent recollection of something he is under the impression the Prime Minister said, will not the noble Lord provide chapter and verse for what is likely to be slander?

LORD SALTOUN

Signor Mussolini went and saw the journalists of Rome. The Prime Minister said that the Opposition—I cannot give you the exact words—

LORD PAKENHAM

May I suggest that it would not be helpful to impute words to the Prime Minister which the noble Lord imperfectly recollects?

LORD SALTOUN

I do not think that is so at all, because it is a matter which the noble Lord must have seen widely commented upon in the Press. The substance of his remarks was that the criticism of the Opposition had exceeded the limits that were permissible to the Opposition, and the word "permissible" was widely commented on.

LORD PAKENHAM

Since the noble Lord raises this matter and it will go out very widely, my recollection of the words were: "In this country we allow very wide freedom to the Opposition," talking about the way the British Constitution worked. That is my recollection, and not what the noble Lord suggests.

LORD SALTOUN

Did not the Prime Minister also add that the criticism exercised by the Opposition had exceeded these limits?

LORD PAKENHAM

You are raising this matter. It is up to you to substantiate those words.

LORD SALTOUN

The words to which I am referring were to the effect: "You gentlemen belong to the freest Press in the world. Say anything you like, provided you do not criticize the Government." It seems to me that there is a parallel. If there is no parallel, then all that I say falls to the ground. It seems to me that the two attitudes to the Press seem comparable.

LORD PAKENHAM

Would the noble Lord allow me to ask: Will he be able to give me the date when this was supposed to have been said, because, if he cannot, I would suggest that a man of such very high principle would probably prefer to withdraw his remarks?

LORD SALTOUN

I will hand the noble Lord the copy of The Times in which it was reported. I do not think I feel like withdrawing what is a perfectly fair comment. Anyway, the point I am making is this. Everybody is willing to help, as long as you do not take criticism as insult. That is the real point. I do not really see how we are going to get out of this crisis until the Government—I do not want a Coalition Government—give everybody in this country an assurance that they are going to look after the interests of everybody equally. Otherwise, one crisis will lead to another. We shall have another crisis next winter, and so on.

5.57 p.m.

LORD STRABOLGI

My Lords, this has been a long and interesting debate. I have sat through the whole of it, and the only speech we have had which did not seem to trend very directly towards the formation of a Coalition Government in the next few months has been from the noble Lord who has just sat down. I am glad of his assurance that he, at any rate, does not want it.

I will, if I may, only fire a few suggestions as rapidly as I can at my noble friend. In the past, I have found that suggestions which I have made to him have often been acted upon, and I hope that I shall have similar luck to-day. The last suggestion I made was with regard to the direction of labour, at the beginning of this year. Everybody then said it was impossible and we could not have it. But we now have it and we should have had it at least a year ago.

The noble Lord, Lord Pakenham, has spoken of the dislocation of Europe from the economic and commercial point of view, due to its political division. I do not think he can be fully informed that, despite the unfortunate political division in Europe, the so-called "iron curtain" does not exist as regards trade. One of the most hopeful features of the present time is that, first of all, there has been a recovery in several countries in Eastern Europe; and, secondly, that we are beginning to do an active trade with them. We have a mission now from Yugoslavia in London discussing the sale to us of large quantities of foodstuffs in exchange for machinery. I heard yesterday that the Poles are increasing in the near future their 20,000 tons of coal a month to us; they talk of very large figures indeed. The Polish shipments of foodstuffs to this country are substantial, and in exchange we shall have to provide certain equipment and goods which they require. That is all most helpful. The balance of trade in this country with Czechoslovakia is favourable; in other words, while we are getting very useful things from Czechoslovakia, they have bought more from us than they have sold.

I therefore regret very much that there has been for many months in this House, in certain organs of the Press, in another place and on the public platform, a continuous stream of abuse and vilification of the countries which are supposed to lie behind Mr. Churchill's imaginary iron curtain. They are useful customers of ours, and, still more important perhaps in the present situation, they are very useful suppliers of things which we require. For Heaven's sake let us forget for the moment the form of Government that happens to be in power in these various countries, and whether those Governments are good or bad. They are customers of ours and we can be customers of theirs, and we should do all we can with the greatest vigour and drive to develop trade with the whole of these Eastern European countries. Lord Pakenham said that one of the causes of our trouble is the political division of Europe. The political division of Europe need not be an economic division at all, and I am very glad that His Majesty's Government are trying to re-open, through diplomatic channels, the trade negotiations with Russia. I am very glad indeed of that.

I find two opposing views held of the present situation of the country, and which is right I do not really know. I am looking now at the long-term situation. There are those with authority to speak who think that if we get through the next eighteen months—and this seems to be the view of Sir Stafford Cripps—then we shall be all right and shall begin to recover. There are others with great knowledge; who say that we shall get through the next eighteen months, but thereafter there will set in a steady period of decline; that our long-range situation has been so weakened by economic changes in the world, the upsetting of that beautiful balance of trade that we have already heard about this afternoon, that there is no way of recovery except by migrating a large portion of our present population. I do not belong to either of those schools. I think there is a middle way actually. But, whichever of them is right, I was very glad indeed to hear the remarks of my noble friend Lord Pakenham about Colonial development There I think we cannot show too much energy, or drive ourselves into it with too much foresight and vigour.

In the African Colonies and in the other tropical Colonies which are under the British flag there are immense areas of great wealth which can be developed and show tremendous returns, enriching not only the people of the countries concerned, but the people of this country and every other country. We have set up a corporation with large capital sums at its disposal for this very thing. The great ground-nuts scheme in East Africa is a case in point, and there are others. The drive and energy that is required to start: this development of our great un- developed Colonial territories should be in the nature of a war operation, or along the lines of a war operation, and this is where our Socialist faith can help us very much. This is not merely a matter of exploiting wealthy tropical territories and no doubt benefiting the natives in the process; this is a programme of bringing the natives into full partnership with us, and raising them up with us as we develop and draw out the immense wealth and resources of these tropical territories. I am inclined to the view that for a long-range policy that is the principal policy that offers at the present time a fruitful result.

I am sorry the noble Lord, Lord Cherwell, has gone out, but I do not complain, as he has sat very patiently through a long debate; but I would be very interested to hear his reply to my noble friend on one or two of the points he raised. He seems to take the view that all our troubles date from June or July, 1945, whereas I am sure every one of your Lordships here is perfectly well aware that the symptoms of our present difficulties were beginning to show themselves before 1939. There was a lack of balance beginning to appear even then. That, I think, is generally admitted. The world conditions which had enabled us to take such a tremendous commercial and financial and (manufacturing lead in the 19th Century had so altered that, even before the Second World War, our position in the world had been much weakened.

Now we find ourselves with the exhaustion of our wealth in the general destruction everywhere, but still carrying the vast overheads, if I may so call them, that we had in the heyday of our prosperity and power in the 19th Century. I do not propose to argue now what is to be done about that. That is a problem which will engage the best minds in this country, quite irrespective of Party. I do re-echo the words of my noble friend, Lord Pakenham, and hope that the best minds in this House, and outside this House, will direct themselves to a problem and a crisis of the greatest magnitude which is not going to pass with the provision of dollars, which is not going to pass by a slightly added production of coal and so on, and which is not going to pass by a reorganization and reorientation of our export trade, but which is a continuing crisis which will have to be solved by quite different methods.

I noticed recently a very remarkable speech by Field-Marshal Lord Montgomery. He is a member of your Lordships' House, though he is precluded, of course, from entering into debate here, presumably by reason of his present position. In that speech he dealt with a matter upon which I have heard him enlarge in private conversation as well. As it was given in public on this occasion I feel at liberty to quote him. His view is held by many eminent people to-day, and it is that we are approaching one of those great climacterics or periods of vast changes in the world. He compares this period to the downfall of the Roman Empire and the advance of the Barbarians, with the tremendous social and political changes that resulted. I think there were other periods in between which can be compared with this, and those periods are the Reformation and the Renaissance. There is very considerable evidence that we are approaching one of those periods of vast social and economic change which will influence the whole basis of society as we know it, and I hope we are prepared for it. I hope we have the qualities to come through it with credit, success and honour. I believe we have, but we shall have to draw on every shred of ability and leadership we have in this country. This is certainly no time for petty bickering and petty sparring across the floor of this House.

6.8 p.m.

LORD KENILWORTH

My Lords, we have heard some very interesting speeches to-day dealing with the grave economic situation of the country. Speaking generally, however, to my mind the word "economics" is used in a very slack sort of way, and frequently does not mean the same thing as economy. Economy is the aspect of control to which we should bend our minds these days. Arising from a long experience of what I should like to call honourable business, I find that when difficulties arise one investigates in an endeavour to cut out all sorts of overhead expenses and thereby to reduce the complications which grow up in business and to simplify the conduct of affairs. This naturally means reductions in staff, and that, whilst it occasions certain hardships, undoubtedly helps to preserve the business. We have heard from Lord Pakenharn, in the course of a most interesting speech, that a Committee of Ministers is looking into the subject of the Civil Service staff. After the First World War, the Geddes Committee was set up, and that Committee really did great work. But I understand that when a suggestion for the setting up of such an organization was made in another place, the suggestion met with very strong opposition. I think that an independent Committee would certainly be of more value than a Committee of Ministers. I say this with all respect, and not in any way impugning the desire of Ministers to do the right thing, but I believe that an independent. Committee would be more certain to secure its end.

When you have dealt with your overhead expenses in business, you then look at your capital outlays and you cut out all that is not absolutely essential. Having taken those steps, you are in a position to judge how the business stands. We all appreciate—I most certainly do—the efforts which the Minister for Economic Affairs is making to this same end. All that I should like to suggest is that he goes on to the bitter end with his task and reduces capital expenditure on all sides. As a business man, I am very surprised to hear that so many new factories and so much new plant is necessary in these days. Surely the country has never increased its productive plant so heavily as it did during the last war. Think of the great numbers of buildings which were put up, the machine tools which were obtained and the other plant which was bought—and bought, I believe, at very high prices. All this surely would serve to rehabilitate any old and worn out plant which might have existed.

We are to-day faced with what is called a crisis. Well, business people do not talk about a crisis. When things get difficult they try to put them right, but when it comes to a crisis, then of course it means that you are at the end of everything. How are these difficulties with which the nation is faced being dealt with? Take coal. In face of a strike which cost the country a tremendous amount, not only in coal but as the price of numerous dislocations, we find the head of the Coal Board lecturing at a summer school to people engaged in the coal industry and telling them that we are going to spend £100,000,000 by way of capital outlay, in the next few years. I do not think that that is the way to deal with a strike difficulty. Indeed, I cannot imagine anything more unpractical. All the Coal Board's efforts at the moment should be devoted to management, and not to schemes. What the country wants, of course, is more coal now and the effect of talking about future expenditure on plant and machinery, and things of that sort, is to make the operatives dissatisfied with what they have. The result is that they throw on plant and machine tools the blame for lack of output. They say "Look what we could do if only we had better tools."

Next take the matter of Colonial products. We hear the same sort of programme spread over more years. What the country wants is the very best that the Colonies can produce to-day, and all concerned in the administrative side should be devoting their efforts to that end. To my mind, if these gentlemen could be persuaded to think in thousands of pounds and not in millions, it would be to the benefit of the country, the Commonwealth and the Empire.

When we view the situation as it stands to-day, we find Europe in a completely disorganized condition. This, to my mind, is due in a large degree to the breakdown of the commercial conditions previously existing when Germany was the centre of European trade. To-day no such central point exists. On the contrary, Germany is a disintegrating factor, not only from the point of view of mutual trade but as a source of political unrest carrying with it heavy charges upon outside resources. Germany deserves to suffer heavily, but in so doing she is creating much disturbance and trouble to all around her. Incidentally, Germany, as a non-producer, has assisted to increase the demand for all types of goods she formerly produced and sold outside her own borders. This has had the effect of raising the demand for goods which has recently been experienced.

My own experience, after the First World War, went to show that the greater the size of the undertaking, the more: far-reaching was the effect of the mistakes made and the losses suffered by the investors. We cannot, therefore, be too greatly surprised when heavy losses have to be faced here, due to the same cause—mismanagement. It is certainly true that this has been in a large measure contributory to the present position. However, it is no use talking about things that are past. We must try so to arrange our affairs in the future that matters go better.

In my view, the greatest mismanagement has been in connexion with the use of the United States Loan. I ventured to criticize it at the time, and I am not surprised at what has happened. Can one imagine a greater temptation to extravagance than being told that you need not pay for what you are buying, while on the other hand, the seller demands higher prices, knowing that the buyer must draw his essential requirements from this particular vendor, the only one who can supply? The answer is obvious. The lesson to be drawn from these troubles is to encourage the supply of everything possible from the Dominions and Colonies, even if the supplies are not in every way entirely equal to those from other countries. It is better to put up with what you can get freely than to get further into debt. This would appear to be the Government's present endeavour. I wish them all success. I only hope that they will continue on the same lines.

Now I wish to turn to the immediate present. The schemes for increasing production are sound, but it has to be remembered that the product has to be Sold when made. To my mind, this will not be so easy in the near future as it has been in the past. My experience in business has gone to show that it is the home market which provides the basis for manufacturing in this country, and it is the extra production which goes abroad. And very frequently, this extra production is sold at lower prices abroad than it is at home. That undoubtedly has an effect upon everything connected with finance. I do suggest that the Minister for Economic Affairs should bear this factor in mind. Having produced the goods, it may not be so easy to dispose of them.

Another factor in the export trade is the price at which goods are sold. Here production and the cost of production are of the greatest importance. The basis of our production is undoubtedly coal and that, of course, is a most serious matter. Doubtless an opportunity of discussing the coal question will arise in the House in the near future and your Lordships will probably be hearing something more about it. Finally, I wish to emphasize that any criticism I am making is due to a keen sense of the present difficulty and I regret the necessity for doing so. Nobody would wish to injure our own country. To my mind it represents the finest and greatest undertaking in the world, using a business term, and I wish to see it carried on in a sound and not in, I am afraid, rather a wild manner.

6.21 p.m.

LORD SHEPHERD

My Lords, in 1938, when a Conservative Government were in power, there existed in this country unemployed people to the number of 1,688,000. In the view of the Party opposite no crisis existed at that time. I am afraid that we had begun to look upon figures of that kind as being normal in our lives. It was not by any means the greatest number of unemployed in the years between the wars, because at times it reached almost 3,000,000. And still no crisis existed! In 1939 the number of unemployed had dropped to 1,184,000, a reduction of 500,000. The reduction was by no means strange, because that year followed the Munich discussions and the determination of the Government of the day that huge sums of money should be spent on armaments. Parliament was called upon to vote £1,500,000,000 for the purpose. The increase in employment in 1939 was due not to the speeding up of legitimate peace-time industry, but entirely to placing the country on a war footing.

During the war years no unemployment existed in any great proportions. Indeed, at one time the number of unemployed was down to 60,000. I mention these figures because you have in them the lesson that the people of this country have learned—namely, that under capitalist industry full employment cannot be guaranteed. They therefore are standing for Government control of many industries and the placing of production on a co-operative basis. The figures also explain very largely the growth of the Labour Party and their victory in 1945. Since 1945, unemployment has been at a low level. Although in February and March of this year, due to the coal crisis, we approached the old figures, there has been a progressive decline. In June the number out of work was 272,000; in July, 255,000; and in August, 249,000—this in spite of shortages that exist in labour and materials, in dollars and in shipping, and of the war devastation.

Apart from the figures I have quoted, there are two other figures I should like to mention. They refer to the number of people actually employed. In 1939, the year when war-time production commenced, the number of people employed in industry was 17,922,000. In 1947 the figures had grown to 18,395,000. What I want to suggest to your Lordships is this. If it be necessary that we should create in the world confidence in the future of Great Britain, then we must do our best to put the achievements of Great Britain to the fore. That, I am afraid, we are not doing at this moment. The criticism that we have had to-day, like the criticism that has been uttered for some months past, has been printed in every country in the world and there is a growing belief abroad that the days of Britain are over. That is not the way to bring about prosperity once more in our land. That is not the way to produce confidence amongst our people. That is not the way to secure co-operation between Parties. That is not the way to bring about good relations between employers and employees. We have to put Great Britain on the map to show that at this moment, in a world where there are so many difficulties, Britain is as busy as she has ever been, and that Britain is prepared to do business with everybody desiring to enter into terms with her.

Of course, there are problems. We have had discussions to-day about the dollar crisis. In introducing the debate, the noble Lord, Lord Cherwell, said that there was no dollar crisis at all. It was something quite different. I am not a statistician, I am not even an economist, but this is what I see between our country and the United States. America, the greatest producing country in the world, a country able to produce almost everything that its population requires, a country willing to supply materials to every other country in the world, is also a country which steadily refuses to buy what other countries have to sell, and uses high tariff walls to achieve that purpose. It is because of those unnatural trading conditions that we are unable to buy dollars or dollar products, or are unable to pay our way. Call it a dollar crisis, if you like; or call it a crisis of production. I think I have stated the real reason why there is at this moment an inability, not merely in this country but in almost every other country in the world, to pay dollars to America for American products.

In Great Britain, on the other hand, we have a population of 50,000,000 people, or thereabouts. At this moment we are able to feed only about one-third of that number; and, indeed, if we developed the resources of our soil to their utmost extent it is questionable whether we could produce food for more than 25,000,000. What is true of food is true of a good many raw materials upon which our industry is based. There was a time when members of the Party opposite did not believe in imports at all. They started tariff reform campaigns for the purpose either of keeping the materials out of the country or alternatively of taxing the foreigner instead of the Britisher. The fact is—it seems to he apparent to our Conservative friends at this moment—that imports are essential to this country if it is to maintain its position in the world, and if it is to continue with a population of 50,000,000. The problem, therefore, is to bring these materials into the country. It is clear that the present working population is not producing enough wealth for the purpose, and it is also clear that more wealth has got to be produced. There is a labour problem, and a labour shortage, and both have got to be solved.

We heard from the noble Lord, Lord Cherwell, this afternoon that the Government should have persuaded the men who left the Forces to enter particular industries. I have some sort of recollection that the late Government, the Coalition Government, anticipated this suggestion and provided printed matter of advice for the use of the troops on entering civilian life once more. It is my information that the Ministry of Labour and the Board of Trade have been busy trying to attract people to undermanned industries and have given them guidance in that direction. But it should also be remembered that: when the men were taken into the Forces it was arranged that their employers should be under an obligation to take them back when the war ceased, and an Act of Parliament was expressly passed to ensure that. So we have this position. When the men came out of the Army there was the obligation on the employers, on the one hand, and the desire of the workmen on the other, to return. At the beginning of this year, when the Economic Survey was published, the Government indicated that they would not commit themselves to the direction of labour. It is not within my recollection that any other Party of the State demanded the direction of labour at that moment. The Government thought that they might meet the situation by importing labour from abroad, by inducing more women to remain in industry, and by creating incentives which would attract men into the less popular industries.

The Government have now reached the conclusion, however, that voluntary efforts of that kind will not meet the situation. In normal times few people would have thought of direction, but if only some of the statements that have been made from the Benches opposite to-day are true, there is such a crisis existing in this land that the direction of labour is not only inevitable but absolutely justifiable in the circumstances. Speaking for myself, I would like to see the labour problem of our country taken in hand by the trade unions as representing the organized workmen. I would like to see the trade unions become agents for the provision of labour wherever it may be required. I would prefer that method because it would leave the control of the workmen, not in the hands of the general electorate of the country but in the hands of their own organization and their own chosen officials. It would enable those chosen officials to negotiate with the Government and the employers, not merely as to the conditions of labour, but as to their allocation as well. Unfortunately, neither the trade unions nor the employers are at this moment in a position to organize labour in that way to meet the crisis with which we are confronted. Therefore, it rests with the Government to do it, and I hope that when they do it the trade unions and the employers will work very closely with the Departments concerned.

I would add something that may meet with some criticism—that all the Parties In the State, perhaps unwittingly, are committed to the direction of labour. The Parties which formed the Coalition Government during the war period issued a White Paper, as the House will remember. A central feature of the White Paper was the undertaking of an obligation on the part of that Government, and of other Governments, for the provision of full employment in this country and, in co-operation with the States in other parts of the world, in the rest of the world as well. I cannot see how full employment can be given and maintained unless there is a complete organization of labour. For instance, to how many men are we going to guarantee full employment as engine drivers? Surely, if we undertake to give full employment to engine drivers, at some stage we have to determine the number of men to be engaged for that purpose. That means that if some people want to be engine drivers, and there are no vacancies for engine drivers, then the State, the Government, or the community, whichever term you use, will have to say: "No, you cannot be an engine driver, but we will provide you with an avocation here or an avocation there." Ultimately, if that does not "click," the Government have to say: "We want miners: we want agricultural workers; we want workers of various kinds." So your Lordships will see the way my mind has recently been going—namely, that we cannot hope to have full production in our country, and we cannot hope to trade on equal terms with the rest of the world by the mere organization of machines. We have got to organize labour as well, and that labour, if possible, has to be organized, as I have suggested, in the organizations chosen by the men themselves.

I want to deal with only one other point before I sit down, and that is with reference to the change over from controls to the operation of a price mechanism. We are very largely operating under controls to-day and the price of commodities at the various stages is determined by regulation. There are amongst those who sit opposite some who would like to get rid of controls and would like to restore a price mechanism. Indeed, I believe the Chairman of the Conservative Party, the noble Lord, Lord Woolton, is not only very strongly in favour of that, but is actually pressing it forward in the country. I do not like this price mechanism at all. I think that within it there are grave dangers, not merely to the country as. a whole but to the individuals who live within it. Price mechanism means that there shall be fixed, on a sliding scale between abundance and scarcity, a daily price. If you are lucky you may sell your commodities on a day when prices are good, or if you are unlucky your commodities are sold on a day when prices are bad. We have this price mechanism at work even now in some degree in Covent Garden.

One day cauliflowers may be very scarce in the market, and buyers many. In the auctions that ensue, higher prices are paid. The farmer and the seller do well and the consumer pays. But because prices have been good on that day, sellers in the markets at Covent Garden send their telegrams round to the farmers indicating what the price has been and suggesting that they should send to the market as much of this produce as they can arrange. The result is that the farmers, without consultation with one another, and without the co-operation of their union, immediately get to work cutting cauliflowers, placing them on drays and sending them to Covent Garden. The result is that Covent Garden is glutted with cauliflowers, so that when the auctioneers get to work the prices come down. In this case the shopkeeper and the buyer reap the benefit, but the man who grew the cauliflowers suffers as a consequence. Indeed, under a price mechanism someone is bound to suffer. There can hardly be a possibility that there will be equality between buyer and seller.

Now I would like to ask this question, and with it I will close. Are the Conservative Party at this stage going to say to the farmers of this country that guaranteed prices must go? Are they going to tell the farmers that they must go back to the old higgling of the market; that they must become prey to auctioneers and to rings of buyers? It is important that farmers should be told that by the Conservative Party, because they have a right to know. If I may I will put the same question so far as labour is concerned. Are the Conservative Party going to say to the Conservative working man: "Your unions must not be permitted to negotiate in bulk the rate of wage which the workmen are to receive, and the law of supply and demand must be brought into operation. Your labour must be paid according to what it will fetch on the open market." I think we ought to have an answer to a question like that, when it has been urged from the Benches opposite that those controls which have saved us from ruin, which have saved us from almost revolt, should give way to those features of the old system which caused so much misery.

6.43 p.m.

LORD TWEEDSMUIR

My Lords, I shall be very brief indeed. I want to address myself to one point only, and that is the statement which was read by the noble Lord, Lord Pakenham, with regard to the recent agreements at Geneva. I know that he has not the necessary facts with him to give a detailed answer, but I would be extremely grateful if he would take note of some of the points I have to make, and bring them to the attention of the noble Viscount the Leader of the House, who will be speaking to-morrow. It was necessarily a very short statement and we cannot debate it fully until we receive what are called "more and better particulars."

It was said that we would receive fully compensating advantages for everything which we have given up. I will come back to that phrase in a minute or two. I was very pleased to hear that the Agreement was reached alter close touch and consultation with the Commonwealth Governments. I imagine that the Colonies were also consulted, where their vital interests were concerned. The statement repudiated what I suppose was a rumour, that pressure had been placed on the Commonwealth countries. I do not think His Majesty's Government need take to themselves too much credit for not placing pressure upon Commonwealth Governments: I think they would find it as difficult as they would find it distasteful. They repudiated the idea that this Agreement would result in any weakening of economic co-operation with the Commonwealth. What we are interested in is whether it will result in any weakening of the power to make that co-operation effective. We have the Government's assurance, and we can only hope. One must always be optimistic where latitude exists. I have an old medical book of which I am very fond. At page 76 it tells you how to revive the apparently drowned. It says: "If uncertain whether the patient is alive or dead, treat as if alive." I am prepared to accept that motto to-night, until we have fuller information. The first question I would like to put is one which was asked by the noble Lord, Lord Altrincham: Just how long are these agreements going to run? I would ask, further, if they run for a defined period, do they then come up for renewal or revision—because there is a very big difference.

Now the phrase "full compensating advantages" should be marked right well. We went into this bargaining in a bad bargaining position. War had taken a very heavy toll of the resources of the Empire countries, and ourselves not least. I have no doubt that our negotiating team did their level best—all seventy-five of them. But they found themselves, as I should imagine, in a situation where the modest Imperial Preference wall was faced with a very high American tariff wall, and under Article 16 we are not allowed either to raise the height of that wall, or to build walls in new places without the sanction of the International Trade Organization. Under Article 17 of the draft Charter at Geneva we are pledged eventually to dismantle our wall—all this in return for a substantial reduction of the height of that very high structure, the American tariffs. Tariffs are usually described as high or low, but they are, in fact, only relatively so. They are either effective for their purpose, or they are not; and a mere percentage reduction may not mean much. After all, half of infinity is still infinity.

In the making of international agreements of this kind it is not the immediate benefit which is the whole bone of the question, but what results it will have in the future. During the last century we exchanged Heligoland, which was then in our possession, for Uganda, which was in German possession. The transaction was described as "a suit of clothes for a trouser button." It was a very fine suit of clothes, but we had reason to realize, in 1914 and 1939, that it was no mean trouser button either. This Agreement aims at bringing us fruitful access to American markets. America, with her 140,000,000, with her industry undamaged by the war, and in fact vastly enlarged by it, has always been prepared to take a rather limited range of those quality goods which we had a notable tradition for making, but as for opening the door wide to British products of all kinds of non-quality goods, I simply do not see that as being likely.

In the matter of reducing tariffs, country against country, surely the only practical consideration is not percentage reductions on either side, but a careful weighing of how much extra trade will be stimulated if you undertake a reduction in certain specific lines. All this bargaining has gone on against a very strange background of opinion that has grown up among people who are quite unable to understand our Imperial family. The British Empire is scattered over the length and breadth of the world. It covers one quarter of the world. Russia and America are both vast land masses containing many different countries within their borders. We are called an economic bloc. Our right to make our own trading arrangements is often criticized. We are no more a bloc in that sense than Russia and America, and we have every bit as much right to make our own domestic regulations for our own trade as they have.

Two other strange bats flit from the same belfries now and then. One is that preference is discriminatory and therefore evil, but that customs unions are not discriminatory and are therefore to be commended; and also that preferences are excusable if they last only for a certain period. The Philippine preferences are to last until 1974, and a lot can happen by then. If the world is covered by a network of customs unions, and long-dated preferences, the dawn of universal multilateral trade is as far off as ever. No shred of evidence can be adduced that Imperial Preference has ever interfered with the course of world trade, in fact abundant proof exists of the reverse. If we sacrifice our right to trade within the Empire, there are no adequate compensating advantages.

Last of all, in the gracious Speech there was talk of development and further production in the lands of the British Commonwealth and Empire. The need for that is a matter of agreement among all Parties, but you must have two things to develop new lands, or in fact any large-scale project. You must have time; you must be able to see your path clearly through the years; and you must have the power to safeguard growing industry. You must have a period of safeguarding, until those industries can stand on their own feet. If we are pledged not to use those safeguards, in other words not to grant further preferences, not to extend the existing ones, and by Article 17 to work for the eventual abolition of all preferences, then we are making nonsense of that passage in the King's Speech. Imperial development will be shown as a mere temporary stopgap and makeshift. I ask the noble Lord specifically, are we bound, by what we have signed, to observe Article 16 and Article 17 of the Geneva Draft Charter? We have always held in this country something which we have been looked to by the countries of the Empire to provide; that is, the leadership of ideas. Let us make our stand absolutely plain on this, and let us make it plain to the United States, who esteem plain speaking highly.

The noble Viscount, Lord Swinton, asked one question which I will endorse. He asked if the Agreement is to be ratified as it stands. It sticks in my mind that we were assured that we should have a full discussion on this matter before a final decision was reached.

LORD PAKENHAM

Can the noble Lord give us a reference for that assurance?

LORD TWEEDSMUIR

I am afraid I cannot give a reference offhand. The question was asked in the debate on the King's Speech last week, and that was the answer received, at any rate by implication.

LORD PAKENHAM

If the noble Lord will allow me, I do not think that should go out. The noble Viscount did not in fact obtain that answer, either specifically or by implication.

LORD TWEEDSMUIR

That was my impression of how things stood. In fact, then, a final decision has been reached; and if it has been reached, let us have a full discussion afterwards instead of before it. It should be a very full, free, and frank one.

LORD PAKENHAM

The Leader of the House will no doubt speak to-morrow but I felt it right to say that to the best of my recollection that was not the answer that the Lord Chancellor gave.

6.57 p.m.

LORD LLOYD

My Lords, I want very briefly to support the noble Lord, Lord Tweedsmuir. Much has been said in the debate and in the gracious Speech about economies and about increased production. But very little has been said about markets—and in my opinion goods without markets are about as much good as a navy without ships, or a Government without a policy. We have been told that we have got to export 75 per cent. more in volume than in 1938, which means that we have got to export 100 per cent. more in manufactured goods. That is a stupendous task. The sellers' market is drying up. Our high standard of wages, the cost of our social services, and crashing taxation, inevitably make us high-cost producers. Where are we going to find markets? Before the war the Empire took 60 per cent. of our exports and even now I believe it takes something, in the neighbourhood of 50 per cent.

The following figures, which I have found by research, may interest your Lordships. The Empire, in the first half of 1947, provided 231,000,000 lb. of butter, which was enough for the ration of the whole population of Great Britain for the first twenty-six weeks of the year. It provided 143,000,000 lb. of cheese, or enough to give everybody the two-ounce ration for twenty-four weeks. That was obtained from the Empire. On the other hand, they took from us 60 per cent. or 50 per cent., as it may be, of our products. Why did they do that? Mainly because of the system of Imperial Preference, which enabled us to use our greatest and last remaining asset, the great bargaining power of our home import market, which before the war imported no less than 20 per cent. of the total exports of the whole world.

It is for that reason that we were able to achieve this astonishing expansion in the year before the war and why our Empire countries, not only through bonds of sentiment but also through bonds of practical application, I believe, like this system and would wish it to continue. But the situation seems to be that we have abandoned, or are abandoning, some of these preferences; and yet we have the markets. I maintain that the Empire must form the basis of our export drive. Any weakening of our Imperial economic unity will be most serious. I expressed my anxiety at the time of the American Loan debate on that very point, and in particular about Article 9 and about this matter of Imperial Preference. I do not believe that anybody would gainsay me when I say that we have already suffered very severe damage from the application of Article 9. We are not even now able to increase our imports of tobacco from Rhodesia because we have not the dollars to buy more from America.

We come now to Imperial Preference. It is impossible to give full judgment on this matter without the full facts, but the following things do seem clear to me; first of all, that these concessions that we have made must inevitably reduce our potential markets in the Empire. Let us not forget that American industry has not been dislocated by the war as British industry has been dislocated; in fact, American industrial power has been increased. Let us not forget that they have a home market of 140,000,000 people whom they can supply before they go over to export at all. That means that they can inevitably produce more cheaply and on a much larger scale than any individual unit of the British Commonwealth. I cannot see how they can fail to deprive us of some of our markets overseas.

Another point, as it seems to me, is this. By this system, we are losing control of our home market. If our people voted for anything at the last Election, I should have thought that they voted for security in their home market and against the uncertain conditions of the inter-war years. Here are His Majesty's Government, who control nearly everything else but the one vital thing—namely, the home market. By this arrangement, the home markets are to be controlled by forces outside this country; jeopardizing, as I see it, the policy of Imperial expansion which was outlined in the gracious Speech. All experience goes to show that the young progressive industries in the Empire to-day—the Rhodesian tobacco industry, the wine industry of South Africa and the wine industry of Cyprus—have all been built up by Imperial Preference. I fail to understand how the Government are expecting expansion to take place unless in their early stages our industries are given assured markets which they will need in face of strong and established competition from elsewhere. We risk losing that. What do we gain? The noble Lord, Lord Tweedsmuir, expressed his doubts about our making any substantial advance in the American market. We cannot tell. I hope that the noble Lord, Lord Pakenham, is right when he says that we have really obtained equivalent concessions from elsewhere. Even though I doubt that, I hope that he is right.

I would make this point: these advantages which we think we may have got may be temporary; we cannot tell. I do feel that this matter of our markets is a matter that is far too serious to be rushed through without a proper appreciation by the country of the situation and without very grave deliberation. It is, indeed, the future of this country because, if we cannot get the markets, all the rest of His Majesty's Government's plans are so many pious aspirations. I would therefore like to ask the following questions. I know that they cannot be answered to-day, but I would like a reply either to-morrow or at some later date. What is the time factor for this? How long are these agreements for reduced preferences to last before we have an opportunity of reconsidering them, and, if necessary, of saying, "They are no good and they do not work"? Secondly, will our adherence to the Draft Charter, which I understand is to be signed in November, mean that we can neither raise preferences which have not been negotiated under the present Agreements at Geneva if we want to, nor institute new preferences which do not exist at the moment, without reference to the I.T.O.? I understand that to be the case, but I would like to have confirmation of that fact.

LORD PAKENHAM

Would the noble Lord please repeat his questions?

LORD LLOYD

I am sorry if I did not make myself clear. I want to know whether, by adhering to the Draft Charter which I understand has not yet been signed, we make it impossible for ourselves to raise preferences which have not been the subject of negotiation during the conferences that have been taking place at Geneva; and, equally, whether we deprive ourselves of the right of creating new preferences, should we so desire. I imagine that the answer to both those questions is that we do deprive ourselves of both these rights, but I would like confirmation of that fact. The last question I have is: If we adhere to this Draft Charter, is there any time limit to that Charter? Are we bound to it for life? Can we review it after a few years and say: "We will have no more of it?" I will not detain your Lordships any longer. I should like to say very sincerely to the House that I believe this is a matter of the greatest moment, and one which we should deliberate very thoroughly. I do hope, if decisions have already been taken and the country has no opportunity of making its voice heard, that we shall, at any rate, have a full debate after the event.

7.8 p.m.

LORD LUCAS OF CHILWORTH

My Lords, I very much regret that the noble Lord, Lord Cherwell, who moved this Motion that is now before your Lordships' House, is not in his place, because I intend to offer one very serious criticism of a statement which he made in his speech, which I think I could call, without disrespect, the "Oxford University edition" of the speech that was made by the right honourable gentleman the Leader of the Opposition in another place yesterday. My noble friend, Lord Pakenham, I thought rather naively, wanted to ask noble Lords opposite what their policy on various points was. The policy of the Conservative Party at the present time was made abundantly plain by the right honourable gentleman who leads them. It is a return to laissez faire, a return to the policy of "Every man for himself, and the devil take the hindmost," which, the devil most obligingly did on September 3, 1939, when he took us all.

But the point which I want to comment upon is this. When the noble Lord, Lord Cherwell, made what I would, with great respect, call a most deplorable statement, he said that the will to work was on the decline in this country. In the debate upon the gracious Speech, I begged the noble Lords opposite not to join in this parrot cry that "Labour will not work." I was heartened, as I said at the time, by the statement of the noble Viscount, Lord Swinton, who said that he had not lost faith in the British working man. I sincerely hope that when the noble Viscount, Lord Swinton, reopens the debate for the Opposition to-morrow, he will again affirm that as the official attitude of noble Lords opposite. I join with my noble friend Lord Shepherd. I can imagine no more wicked thing that can happen to-day than for responsible statements made by statesmen to sow discord between employer and worker. Unless we can get both sides of industry pulling together we are in a hopeless position, and I would counsel noble Lords, and anybody else, to pay far more attention and give far more praise to the fifteen million men and women in this country who are working hard and working conscientiously than to the few malcontents who cloud not only the newspapers but the horizon of a lot of people like Lord Cherwell.

The principal reason why I intervene in this debate is that, since I made some observations upon the Address in response to the gracious Speech, the right honourable gentleman the Minister for Economic Affairs has made an outstanding contribution to contemporary thought, one which received commendation from all sides of the House. My noble friend Lord Pakenham invited us all to view this crisis from our own particular angle, and I do not think I can do better, if the House will permit me, than to quote these words of Sir Stafford Cripps. He referred to the task we have to do as regards increasing oar exports, and he said: We are proceeding frankly, on an optimistic basis so far as the saleability of our exports is concerned. He went on to say: If we are proved over-optimistic in our export expectations, then we shall be faced with an even more difficult position than that which I have sketched to the House. The noble Lord, Lord Kenilworth, and the noble Lord, Lord Lloyd, this afternoon have both stressed this fact, and it is a fundamental fact. I do not believe, my Lords, that the problem we have to face is so much a problem of production as one of disposing of that production when once it has been produced. That is going to be our problem. We are at the present time high-cost producers in this country; we are high-cost producers because we are attempting to produce with plant and equipment which is, in a large degree, obsolete. While we go on producing with that equipment, and while we do not give first priority to re-equipment and capital equipment, we shall never be able to take a competitive position in the export markets. I do not think I can do better than quote what I thought was a very pregnant sentence in the leading article in The Times, when it commented upon the speech of the right honourable gentleman the Minister for Economic Affairs. It said that the necessity for capital equipment is "still writ too small." I would beg my noble friend to convey those fears, which have been expressed upon all sides, that the cuts in capital equipment in industry are going to have a marked boomerang effect in this next decade, because until we do equip industry not only shall we be in a noncompetitive position overseas, but we shall never increase the standard of living of the people of this country.

The standard of living of the people of this country depends upon their being able to acquire goods at cheap prices, and unless we can produce the goods at prices which the average wage-earner can afford, then I think the standard of living is never going to be comparable with that of America. I once made the statement in your Lordships' House that in America to-day wages are twice as high, hours are half as long and productivity is twice as much as they are here, which means that to obtain the same amount of goods for the same working effort the British workman must work about twice as long as his American counterpart, and in this life that is far too long, because he will never acquire those goods. So I am going to content myself with asking my noble friend Lord Pakenham if he will give us some answer to the question whether His Majesty's Government are certain that the proposed capital equipment cuts have been studied in the light of every consideration, not only that of our quality production which is falling far short of requirement; whether it has been considered against the background of cost, and whether it has been considered against the background of the standard of living of the people of this country in the years to come. Perhaps, if my noble friend would deal with those specific points to-morrow, it would ease the minds not only of a lot of independent people but of all engaged in industry.

7.15 p.m.

LORD ALTRINCHAM

My Lords, I had No 1ntention of taking part in to-day's debate, but since I shall, unfortunately and unavoidably, be prevented from being here to-morrow, I wish to express my personal regret at not hearing what the noble Viscount, the Leader of the House, may have to say, and to indicate in a few words, as clearly as I can, what our anxiety is in regard to the matter on which we hope he will be able to speak. So far as the statement made by the noble Lord, Lord Pakenham, is concerned, obviously comment would be quite impossible until the details are known. The statement itself consisted of assurances, to some extent of protests, but of information nil. I really begin to wonder why it was made, unless the assurances and the protests were considered both to be necessary.

LORD PAKENHAM

If the noble Lord will allow me to say so, I think it is fairly obvious why it was made, and I am sure the noble Lord would have protested if it had not been made.

LORD ALTRINCHAM

I do not know. I do not understand why statements are made unless there is some information to be given, and No 1nformation was contained in the statement, except an assurance which I most gratefully welcomed, that there has been no harm done to Imperial co-operation. Those words are admirable, and I welcome them with all my heart; but was it necessary to make a special Parliamentary occasion and to interrupt a debate in order to tell us that? I hope it is true, but it depends upon the details of this Agreement, which we have not got. However, I will not press that new because I want to explain what our anxiety is, apart from this Agreement.

I presume that that Agreement is going to be tied up with the provisions of the Draft Charter which is, I understand, to be discussed at a Conference in Havana next month. I presume that, when it is tied up with the provisions of that Charter—it will be binding on us for a period of three years anyhow—it will be binding on us thereafter under the provisions of that Charter, if they are accepted, for ever, unless we choose to leave the world trade organization. The only alternative to that, I understand, is a process of trying to get two-thirds of the countries of the world represented in that organization to agree that you are entitled to alter this Agreement or the other. That appears to be the bearing of the Trade Draft Charter to which, I gather, we are likely to be committed next month.

Apart from that particular detail as to the manner in which, if we accept those Agreements, we are going to be bound, those Agreements are tied up with the Draft Charter and all the provisions contained in it, and I would like to explain what is a further ground for our anxiety.

In the Draft Charter, the assumption throughout is that a system of Imperial Preference, of group co-operation and reciprocity between kindred or neighbouring countries, is wrong. The assumption is that this is something that must never be expanded or developed; that it is something you have to defend, if you can, against a world which believes it to be improper and against the interests of other countries. That theory is laid down in the first paragraph of Article 16 and in most of the provisions which relate to the negotiation of future trade Agreements of any kind. That is an assumption underlying the whole of this document, and it is an assumption that we should never accept. It is dead against our interests in the world, and I believe that it will also be found to be dead against the interests of the United States which fathers it. On this matter we ought to stand much more firmly than we have been standing in recent months.

What does this Article say? We are going to be bound to the unconditional, most favoured nation clause; we are committed to the reduction of tariffs and to the elimination of Imperial Preference—not that we agree to do it immediately but we accept it as an idea. Why is this line drawn between ordinary customs duties and preferences? Why is one simply reduced and the other eliminated? That, in itself, is a kind of moral stricture on preferences, and we ought not to allow a thing of that kind to go into any document which we sign. There is a bias throughout this document against the system by which the Commonwealth saved itself. I agree with the noble Lord, Lord Shepherd, that it saved itself at the cost of great suffering from which it had not completely recovered in the late 30's, but it saved itself from the terrible world economic slump of 1929, 1930 and 1931. The whole bias here is against that.

Quite recently a most admirable book, The Steep Places, has been published by Sir Norman Angell. It analyzes the relations between this country and the United States and Russia, and goes very deeply into the difficulties and misunderstandings which divide us from the United States. I hope most profoundly that that book will be widely read in this country and in the United States. It is one of the wisest books I have read for a very long time. Anyone who reads that bock, I believe, will he convinced by Sir Norman's argument—it is an argument: to which I, myself, subscribe absolutely—that, so far from it being in the interests of the United States to keep on mining and sapping and weakening the structure of the British Commonwealth, it ought to be the American ideal and the American determination to strengthen it in every way.

My anxiety and the anxiety of all noble Lords on these Benches was expressed very ably just now by Lord Tweedsmuir and Lord Lloyd. I am very glad that they both expressed anxiety, for I believe it is widespread. Certainly I think it is universally entertained on this side of the House. It is that we appear to accept a doctrine of putting ourselves in a state of moral inferiority in dealing with this matter. That is a doctrine which is entirely wrong, not only from our point of view, but from the American point of view and from the point of view of world recovery and world peace. That is a case which has to be met. This is a very dangerous document because the whole assumption underlying it is treason to that system of Commonwealth co-operation in which we believe and which I consider is absolutely necessary for the future security of this country. I hope that the noble Viscount, the Leader of the House, will be able to assure us to-morrow that the Government is going to take a much firmer line in the future on this great issue. It is not a question of this duty or that, or of one preference or another. It is a question of our moral attitude on a matter of policy which affects the whole future of the Commonwealth.

May I say a word in conclusion with regard to a question which was asked by Lord Shepherd? He addressed the question to the Party to which I belong. I do not know whether I am able to answer that question properly because I really am not sure that I quite understand it. I may be misrepresenting him, but he appeared to be speaking of the machinery and organization for the negotiation of wages which is represented by the trade unions, and the control of wages—if there were such a thing—by the Government. So far as I know, there has never been any idea of Government control of wages—

LORD SHEPHERD

I dealt with the question of price mechanism, and, arising out of that, I asked the question, in the first place, whether the Conservative Party were prepared to tell the farmers of the country that instead of having guaranteed prices they were to go back to the old marketing conditions. Secondly, I asked whether the Conservative Party were going to tell their Conservative working men that henceforth instead of wages being settled by negotiation between unions and employers, the wages of the workmen had to be subject to the law of supply and demand.

LORD ALTRINCHAM

Those questions, I am glad to say, are very easy to answer. I have not argued in favour of Imperial Preference without being ready to do all that is humanly possible to guarantee prices for the producers of the Commonwealth in this British market, and if you are going to guarantee prices to Commonwealth producers, then presumably you are going to guarantee them also to producers in your own country. There need be no anxiety about that. With regard to the noble Lord's other point, never, I imagine, has it occurred to any responsible Conservative, statesman, leader, or member of the rank and file, to imagine that this country could dispense with the great mechanism which the trade unions afford for negotiating wages and all other matters concerning employers and employed.

LORD SHEPHERD

I am very glad to have the assurance of the noble Lord, but I would suggest, if I may do so with due respect, that he should have a talk with Lord Woolton, the Chairman of his Party, who seems anxious to return to the old system of marketing.

LORD ALTRINCHAM

I am afraid that the noble Lord must have misunderstood Lord Woolton, but I will certainly have a talk with him.

VISCOUNT SWINTON

My Lords, I beg to move that this debate be now adjourned.

Moved: That the debate be now adjourned.—(Viscount Swinton.)

On Question, Motion agreed to and debate adjourned accordingly.

House adjourned at half past seven o'clock.