Lords Sitting of 21 April 1948

Preamble
The House met at half-past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers.

TRANSPORT USERS CONSULTATIVE COMMITTEES.
2.35 p.m.
LORD GIFFORD: My Lords, I beg to ask the Government the question standing in my name on the Order Paper.
[The question was as follows:
To ask His Majesty's Government when they intend to implement the provisions of Clause 6 of the Transport Act and set up consultative committees of users and whether the Minister, in so doing, will make certain that two additional members, really representative of the travelling public, will be recommended for such consultative committees.]
THE MINISTER OF STATE FOR COLONIAL AFFAIRS (THE EARL OF LISTOWEL): My Lords, the Minister of Transport is about to invite nominations for the Central Transport Consultative Committee for Great Britain from the national bodies representative of the interests concerned. He proposes to appoint on this body two additional members, who will be the persons to be designated as the Chairmen of the Transport Users Consultative Committees for Scotland and for Wales. When setting up the transport users consultative committees for various areas he will have fully in mind the assurance given in this matter to the noble Lord opposite on July 9, 1947.
LORD GIFFORD: My Lords, arising out of the noble Earl's answer, I should like to ask him whether he is aware that we have in London a body called the London Passengers' Association, which is the sort of body that is eminently suitable for the selection of one of these additional members.
THE EARL OF LISTOWEL: I have no doubt that my right honourable friend will bear that organisation in mind.

CURRENCY DEVALUATION.
LORD BARNBY: My Lords, I beg leave to ask His Majesty's Government the question standing in my name on the Order Paper.
[The question was as follows:
To ask His Majesty's Government, whether, in view of the unilateral action of the French Government in devaluing, in contravention of the agreement undertaken by signatories of the Bretton Woods Agreement, of which it is understood France was one, they can state if it is to be understood that the Foreign Assistance Act recently passed by the United States Congress contains any provisions direct or implied which would exclude similar unilateral action in devaluation by the British Government.]
THE LORD PRIVY SEAL (VISCOUNT ADDISON): My Lords, the answer to the noble Lord's question is in the negative.

POLICE SERVICE COMMITTEE.
VISCOUNT TRENCHARD: My Lords, I beg leave to ask His Majesty's Government the question standing in my name on the Order Paper.
[The question was as follows:
To ask His Majesty's Government, whether they will now announce the names of the members of the Committee to be appointed to inquire into the Police Forces and what are the terms of reference.]
THE LORD CHANCELLOR (VISCOUNT JOWITT): My Lords, I hope to be able to make an announcement at an early date, but I cannot say anything more to-day.

GOVERNMENT OF INDIA (FAMILY PENSION FUNDS) (AMENDMENT) ORDER, 1948.
THE EARL OF LISTOWEL: My Lords, I beg to move that this Order be approved.
Moved, That the Draft Order, as presented to Parliament, and reported from the Special Orders Committee on March 16 last, be approved (The Earl of Listowel.)
On Question, Motion agreed to.

THE ECONOMIC SITUATION.
2.41 p.m.
LORD CHERWELL LORD CHERWELL rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, it is almost exactly two years ago that I moved a Motion in your Lordships' House in almost identical terms to those which I have put down to-day. On that occasion I expressed great anxiety about the grave danger of continuing inflation, about the difficulties of distributing man-power in the best way to maximise the output of goods required for export, and, above all, about the prospect of a grave deficiency in our balance of trade. I am sorry that the twists and turns of life in the Socialist Party have found out the Achilles heel of my noble friend Lord Pakenham, who replied then. I trust that he will soon be with us again. On that occasion, the noble Lord indicated that Ministers had no grave misgivings about the questions that caused me anxiety, and that the Socialist Government would no doubt be able to cope with these problems without great difficulty. The Economic Survey published last month shows that the Government have proved unequal to the task. The Government, as a whole, I think, realise this. Some Ministers, like those who said that the demand for increased exports was a fallacy or that exports are a silly will-o-the-wisp are, of course, past praying for. But I believe that the majority have now begun to see the red light.
Before we can discuss remedies, we must have a diagnosis. Many attempts have been made by Ministers and others to explain our troubles. While I do not invariably agree with them, I always pay great attention to what Ministers say. I was much interested, therefore, to read the other day that the Parliamentary Secretary to the Ministry of Supply, who ought to be well informed, attributed many of our troubles to "a lot of jumped-up Left Wing idiots." Of course, that is really getting down to fundamentals. But even if we could agree about
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categories, I may say, frankly that I think it is an over-simplification. A more usual excuse, and a more comfortable one, is to say that the whole trouble is due to word conditions. This a very convenient way of shifting the onus, equivalent to writing "Passed to you, please, for necessary action," and putting the whole problem on the "Out" tray marked "To the Deity." Nobody denies that world conditions have been difficult; but they have not proved insurmountable elsewhere. We have only to look at the progress made in Belgium to see what can be done by energetic, hard-headed people who get down to work instead of chasing lain-bows. It is quite true that in Belgium they also have a Left Wing Government. A friend of mine recently asked one of their Ministers how they managed to avoid being hamstrung by all sorts of Utopian schemes of nationalisation, and the like, despite the large Socialist element in their Cabinet. The answer was: "Well, you see, our Socialists are sensible people." Some people have all the luck!
The two outstanding threats to our economic life to-day are the fact that we are not balancing our foreign trade, and the growing inflation. I propose to concentrate my remarks on those two problems, in that order. As to the balance of trade, the position is shown very clearly in the Economic Survey. Broadly speaking, it is this. For the last two years the cost of our imports has exceeded our earnings abroad by something approaching £50,000,000 a month. In other words, every household in this country is getting, and has been getting for two years, goods from abroad to the value of about £1 a week—goods which are not being paid for by our earnings. Every family has been enjoying £1 a week for two years now as a gift from the generous American people. And since the Loan ran out, it is to the extent of £1 a week that every family in this country has been drawing on its capital reserves, amounting to about £40 per family. That is the position. So far there is no sign of improvement. Last night's newspapers had great headlines: "Exports best since 1920." Only in small type did I see that the imports were also a record, and that the negative balance for the month amounted to the appalling figure of £57,000,000. Obviously, this cannot be allowed to continue indefinitely.
Many people have wondered why this country, which used always to be able to pay its way, has suddenly been reduced to living upon charity. True, our population is 4 per cent. up; but so is the number of persons gainfully employed. It is not as though we were living on the fat of the land. On the contrary, the Government have admitted that the housewife's rations give her less than two-thirds of the nourishment given to prisoners in gaol. Nobody has ever explained how she is to make up the deficit. It is true that in Table IX of Command Paper 7371 we are told that our personal expenditure is 102 per cent. of what it was in 1938, revalued at pre-war prices. As this implies that prices have gone up by only 61 per cent., whilst, as we know, raw materials have risen two and a half times, and wages, salaries and profits 1.8 times, I do not think it need be taken too seriously. People may well ask why we should be short of pretty well all the ordinary articles needed in the home; why we should find it impossible to-day to pay for our essential imports by the export of manufactured articles, as we have been doing for the last 100 years; and, worst of all, why the position in 1946, which suggested that with the help of the American Loan we had four years to get things straight, should have worsened so catastrophically that the whole Loan was exhausted by the end of 1947.
This urgent problem of paying for our imports should not have taken the Government by surprise. It had been foreseen by the Coalition Government, and a number of committees were set up to prepare for the enormous expansion of our exports which would be required in order to pay our way. As I said last October, the Socialist Government failed to cope with the situation. They failed to realise in time how important it was to man the export industry. They embarked upon a vast capital programme, which used up man-power without any prospect of adequate return for many years. They dissipated our resources by free gifts and long-term loans, and by expenditure of various sorts all over the world. They sent large quantities of unrequited exports abroad to compensate nations which have not themselves been ravaged by the war for any efforts they may have made to help win it. They allowed a large part of the American
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Loan to slip or leak away, and then allowed exports to be lost to a value equivalent to a considerable fraction of the American Loan by the gross inefficiency of their handling of the coal situation which led last year to the so-called fuel crisis.
I expounded these failures of the Government at some length six months ago, and I will not weary your Lordships by going into them all once more. I think they have been largely admitted sub silentio, for our new Chancellor and economic dictator has reversed almost all the vicious activities of which I complained. But though he has admitted the need to cut down the capital programme in this respect his performance has not matched his professions. Frankly, I was shocked to learn that the Government planned to spend this year £1,800,000,000 on capital investment—that is to say, about one-third of the total material physical production of the country. If only one-third of this amount could be diverted to the production of exports, and we could sell these exports, all our troubles would be at an end. I cannot believe that in 1948, when we shall be so hard put to it to make ends meet, the country can afford this terrific outlay on capital investment, much of which will bring no return for many years, however desirable it may be in itself.
I would not mind so much if the capital investment consisted mainly of machine tools and the like, but in fact these form only a small proportion. Roads are being straightened and widened all over the place, although private motoring has been reduced to a trickle. Railways are being electrified, though we are short of power. New lines are being constructed which will not come into use for three or four years at the very least. New factories are being built, although we had already expanded our factory space for war purposes. Yet the Government intend to direct more than one-third of the physical output of the country in 1948 into capital goods—and this when the consumer is starved of practically all articles of domestic use and the exporter is often working short time for lack of steel. I am convinced that the Government are misguided in planning this vast investment at this moment.
I now come to the catastrophic collapse last summer, when we suddenly learned

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that the American Loan, which was expected to last three or four years, was virtually exhausted. I think the reasons for this debacle emerge fairly clearly from the Economic Survey. Naturally there are a variety of causes, but the figures given in the Economic Survey show that their relative importance has frequently been misconceived. A major item was our failure to reach the export target—attributed largely to the so-called fuel crisis—which seems to have cost us about £260,000,000. The fuel crisis, however, should have been foreseen when our stocks of coal did not reach 11,000,000 tons in October. Apparently the then Minister of Fuel and Power preferred to hope against hope.
Incidentally, there is a small point concerning our exports which the Government might care to clear up. According to the Digest our exports in 1947 amounted to £1,196,000,000. According to the Economic Survey they amounted to £1,125,000,000. I am told that one of the figures derives from the Board of Trade returns and the other from the Exchange Control. In view of this a difference of £71,000,000 seems a little disquieting, although I expect there is some perfectly innocent statistical explanation.
In our last debate great stress was laid upon the rise in American prices. It is quite true that between 1946 and 1947 they did rise by about 19 per cent. and, according to the Digest, import prices averaged over the year rose by 20.4 per cent. This meant that our imports cost about £268,000,000 more than they would have done if prices had not risen. But as against this the prices of exports rose by 16½ per cent., so that we received £159,000,000 more for exports than we had a right to expect. Thus the damage to our trade balance caused by the rise in prices was less than £110,000,000, which is not nearly enough to account for our troubles. And had we succeeded in exporting the anticipated amount—which was unfortunately prevented by the Government's coal muddle—the losses due to rising prices would have been considerably less. Then we are told that our troubles are due to the loss of earnings on shipping. That this is erroneous is proved completely by the figures given in Table VIII of the "Economic Survey, which show that our annual shipping earnings are only £3,000,000 down on pre-war. Another popular explanation is
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that the sale in the early days of the war of our assets abroad has reduced our investment income, which used to pay a large part of the difference between the cost of our imports and the value of our exports. Actually, according to Table VIII, our investment income from abroad is only £60,000,000 down as against pre-war.
Quite another point is that we seem to have agreed to pay out in the form of interest and profits £64,000,000 more than in 1938. Is this some long-term funding arrangement? It is a considerable amount; it would be 2 per cent. on £3,200,000,000. Or does it represent profits and more interest on foreign capital invested here during the war? Or what? Where docs the £64,000,000 go? I am sure the House would be interested if the noble Viscount could give us an answer to that. An even more mysterious and equally important loss is shown in Table VIII under the heading "Other Receipts" According to the figures given there, we had a profit of £100,000,000 in 1938 and £73,000,000 in 1946. But for some totally unexplained reason this was suddenly changed to a loss of £20,000,000 in 1947. I think the Government should give us an analysis and an explanation of this sudden change. It amounts to twice as much as the loss of interest and profits paid on our foreign investments since 1938, which is always stressed as being one of the main causes. This enormous change over of £120,000,000 should not merely be lumped under the heading "Other Receipts."
All of these items, however, fade into insignificance compared with Government expenditure overseas. This is the: rue nigger in the woodpile. It amounted in 1947 to £352,000,000—£211,000,000 classified as "military," £62,000,000 for relief and rehabilitation, and £79,000,000 for Germany. Of course, if we spend these extravagant sums abroad it is not surprising that we cannot balance our trade. £352,000,000 is more than half our deficit. It is just about what we paid in 1947 for all wheat, meat, bacon, sugar, butter and shell eggs which we imported in the year. No wonder our ration has to be reduced, if the Government are spending these sums abroad! I do not know how many troops we have overseas, but £211,000,000 for military expenditure, with a forecast of £76,000,000 in the

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first half of 1948, is a figure which requires some sort of explanation.
I am sure the House would welcome also some elucidation from the Government of the figures given in Table X. We are told there that the United Kingdom expenditure in the dollar area went up 84 per cent. in 1947 above the figures in 1946. This is no doubt due in part to the rise in prices. But, after all, they rose only 20 per cent., and the increase in the volume of our exports can scarcely account for the remaining 53 per cent. Much more odd are the figures for the net expenditure in dollars of the rest of the sterling area. In the dollar area they rose from £38,000,000 in 1946 to £266,000,000 in 1947—a seven-fold increase. This is surely very curious. As for the dollar expenditure of the sterling area in other countries, this changed from a net gain of £80,000,000 in 1946 to a net loss of £157,000,000 in 1947. Surely this extraordinary reversal, a loss to this country of £237,000,000, can scarcely be accounted for by normal commercial transactions.
These mysteries seem to be reflected in the last four items in Table XI. Apparently we allowed £190,000,000 to be invested in some form of capital assets abroad, and we also allowed £165,000,000 to be drawn from the sterling balances in England, which I have always maintained should have been frozen until a general settlement could be made. All this £355,000,000, apparently, had to be set against our dollar drawings of £963,000,000. Am I right in thinking that the sudden running out of the American Loan, which seems to have taken the Government by surprise, is connected with this draft of over £300,000,000 in 1947 as against an investment of nearly £200,000,000 in 1946? It seems to be the only intelligible explanation. With huge figures like these floating about unexplained—quantities equal to half the American Loan—can the Government really complain if the public seek enlightenment?
Before proceeding I must say a few words about the Chancellor's plans for improving our situation. All of us, I am sure, will agree that the proposal to increase our agricultural output so as to save £100,000,000 in three years' time is admirable. The need for such action has been stressed in your Lordships' House in numerous debates ever since the war
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and we can only regret that the Government set this plan in motion only last autumn. Another project, which all of us I am sure will approve, is the plan to increase the export of textiles. I mentioned the need for this when I spoke two years ago. Textiles are one of the few materials where the terms of trade are greatly in our favour, their price in January having risen to 3.26 times the 1938 value, whereas the average price of our imports went up to only 2.69 times the 1938 value. I am glad the Government now realise how important it is to augment man-power, or rather woman-power, in the textile industries, and I am sure we all wish the Chancellor of the Exchequer success in his endeavours to increase the numbers and bring them back to something like pre-war figures.
I am sure we all hope that the Government will succeed in raising man-power in the coal mines. Uphappily this seems the only hope of getting production back to pre-war figures. It is no use the Government boasting about a 3 per cent. increase in the output per man-shift due to the improvement in the whole spiral of the industry, if, as is now happening, the men work fewer shifts. Actually, according to the Survey, the output of deep-mined coal per man per year increased only 0.7 per cent.—three-quarters of 1 per cent.—between 1946 and 1947. It is the output per man per year which counts. Of course it is a step in the right direction, but we still have a long way to go before we reach the 1938 figure for the annual output per head, which was 8.3 per cent. higher still, not to speak of the 1937 figure which was 17·7 per cent. higher. Three-quarters of 1 per cent.! That is what we have gained by nationalisation. In the old days we were 17·7 per cent. up. In this connection I might stress one important matter, and that is the getting of clean coal. I gather that the calorific value of coal now delivered is something like 6 per cent. lower than it used to be, owing to the excessive amount of dirt. This not only implies a huge waste of transport, but has the added disadvantage that a considerable amount of coal has to be thrown away unburnt with the ashes. I trust that the Minister of Fuel and Power will realise the importance of thoroughly screening and washing coal—whatever he may think about the importance of washing the human body—and that arrangements will be made to

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improve the quality even though it may mean a statistical decrease in the amount of saleable coal shown in the Monthly Digest.
The need to increase electrical generating capacity has also been evident for some time. Whether it would have been so great had supplies of domestic coal been better can be argued. We are told in the Survey that coal used for electrical generation rose by 12.2 million tons between 1938 and 1947. The amount of coal available for domestic use fell in that period by 14.2 million tons. In the circumstances it is not surprising that the unhappy domestic consumer resorted to electric fires. Apparently over 2,500,000 fires were sold in 1946 alone, and this corresponds to an increase in possible peak time of over 2,000,000 kilowatts. The planned increase of electrical capacity by 1,000,000 kilowatts a year, which will involve the efforts of over 200,000 men, is a heavy price to pay for this, but I fear it is inevitable. This brings me to the remarkable plan to use 1,500,000 tons more oil in 1948 than in 1947. No doubt this accounts for the forecast increase in expenditure on petroleum products of £19,000,000, despite the loss of basic petrol which has caused so much hardship to so many millions of people. No doubt this is the aftermath of the panic measures taken by the late Minister of Fuel and Power about which I complained last year. He pressed industry to change over from sterling coal to dollar oil when he realised what a mess he had made of things in general. On his own showing, we would have to export coal at a price of £5 to £7 a ton, and, what is more, to dollar countries, to offset the cost of those oil imports. That is indeed a heavy price to pay for that Minister's assistance in running our affairs.
I come now to what we are told is likely to be this year's bottleneck—namely, steel. I see that one newspaper said that it is one of the bottlenecks which ought to be ironed out! It is really most surprising, when we are producing more steel than ever before, to learn that there is a shortage. During the war, when we were turning out millions of tons of shells, armoured vehicles and so forth, we managed all right. And now, when every dollar counts, I am told that the Nuffield organisation, which can sell every M.G. car it can produce for American dollars,
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is working at little more than half-speed owing to shortage of steel. Many people believe that some firms with long-term contracts are getting the steel in now though they may only need it years hence. No one can blame them, for they can never be sure, under our carefully-planned economy, whether they will be able to get it later on or what price they may have to pay if they do. If this is happening it might, of course, well create a temporary statistical shortage.
Can the Government tell us how they are getting on with their census of steel stocks? I hope that before long they will give us something like a steel budget showing both the capital position and the production and consumption figures, and indicating in broad categories where the vast quantities of steel produced annually actually go. If the shortage is real,: he gravity of the situation seems to justify some relaxation of the safety factors in structures on which we normally insist. Very large amounts of steel might be saved in this way without appreciable risk, in view of the greater uniformity and reliability of the modern product.
On the whole, the Economic Survey is undoubtedly an able and honest document, representing an unbiased attempt to state the facts as they are, such as one might expect from our new Chancellor. It was, of course, written before Congress had voted Marshall Aid, and it is very difficult to see how our trade balance will develop now that we can count upon this generous subvention. I see to-day that Britain is to get £331,000,000 under the Marshall Aid Plan. So far as I can make out, this is to be spread over fifteen months, making about £22,000,000 a month. On last month's figures this still leaves a gap of £35,000,000. I hope the Government spokesman, when he replies, may be able to give us some reassurance in general terms on this matter and show how and when the present fatal drain on our gold and dollar resources will be halted. In my view, the Survey scarcely places sufficient emphasis upon a very dangerous aspect of our foreign trade—namely, the question whether we shall be able to sell all the goods shown in the Chancellor of the Exchequer's target figures, even if we can produce then.
Two years ago one could sell almost anything at almost any price. Then, unfortunately, we had not much to sell

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and we shrank, rather ineptly it seems to me, from asking very high prices. Now many other competitors are in the field, and our costs of production are going up so fast that it is difficult to meet their competition. If we failed to sell our exports and were in consequence unable to buy our raw material, we would pass at a bound to unemployment and slump conditions. One of our great difficulties is the long time that we have to quote for delivery, due largely to the elaborate system of Government controls, licences, quotas and so on, which are such a drag on production. In Belgium none of these things exists. They have no trouble in selling their exports, even though their prices have gone up about three and a half times, as have their wages. On being asked recently whether they would not soon have to devalue their currency to enable them to export, one of their Ministers told a friend of mine that sooner or later it might be necessary. "For the time being, however," he said, "we can sell all we can make, as we can promise quick delivery, and we have quite a satisfactory export surplus."
This brings me to a matter to which the Government, in my view, do not pay nearly enough attention. One of the greatest difficulties afflicting Europe at the present time is the shortage of food in the towns, due largely to the reluctance of agriculturists to sell their produce for a paper currency in which they have no confidence. This is the reason why continental Europe, which used to be 80 per cent. self-supporting in food, is now demanding—and I hope will receive, under the generous Marshall Plan—such large imports of food. Surely by far the most important thing that could be done to promote European recovery would be in some way to restore confidence in the various European countries in their currencies or, if necessary, to start some new currency, as Schacht did in Germany with the Rentenmark, in which the inhabitants had confidence. If something like this could be managed, continental Europe would, I believe, rapidly become more nearly self-supporting and its demands on the food-exporting countries would dwindle, with excellent results from the British point of view, on food import prices. If something like this could be done, presumably with American help,
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I believe that many of the economic difficulties of Europe would vanish into thin air.
One thing we should strive for, I suggest, is that some arrangement be made by which any export surplus we may develop in countries which are receiving Marshall aid should be credited to us in dollars. It would surely be to everybody's interest that we should be able to pay for our American imports by sending manufactures to Europe—thus relieving America of the need to do so—rather than that America should have to make a gift of similar goods to Europe and also of imports of a corresponding value to Britain. As I have said, one of the great dangers confronting the Chancellor of the Exchequer's plan for restoring trading equilibrium is a rise in manufacturing costs due to inflation. In his Budget speech, the Chancellor of the Exchequer very properly devoted most of his attention to this topic. Of course, there are all sorts of definitions of inflation, but there is no question about its principal symptom—namely, a considerable general rise in prices. There is little need to give reasons why we all dislike this: our income buys less, our savings become less valuable, we have to make do with much less, and people who are dependent on pensions or annuities are permanently crippled.
It is true that certain classes may be able to force an increase in wages, by means of strikes and methods like that, but strikes cause only hardship all round and, in any event, there is always a time-lag during which the weekly wage will not go so far as before. Even when an increase in wages has occurred, this only leads to an increase in costs of production, prices rise again and the well-known vicious spiral takes another turn. Moreover, there is always the risk of galloping inflation supervening, the horrible conditions that arise when people lose confidence in currency, when the rate at which prices rise becomes so marked that everybody tries to buy any object in the shops rather than wait a day or two, lest his money might purchase only half as much. I remember that when this happened in Germany in 1923, people used to race one another on their bicycles to the shops and buy anything they could lay hands on, rather than keep their wage packet an hour longer than could be

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helped. I do not think I need labour the case against inflation, its social evils, the impossibility of exporting without devaluing the £, and so on. I think this is all common ground.
What are the causes of inflation? The answer we have been told ad nauseam in the last two years is "too much money chasing too few goods." It reminds me of a cartoon that I saw, in which two natives were talking to one another, and one of them said "the whole trouble is that there are too many goats chasing two few wives." What I object to is the idea that this condition of affairs is an act of God. Why is there too much money, and why are there too few goods? It is easy to see why this happens in war time. During the Second World War, for instance, nearly a quarter of the working population were in the Services, and another quarter were engaged in making munitions of every sort and kind for their use. Only half the normal working population were available to provide the goods and services for all the people not in uniform. Thus, while everybody had to draw pay or wages in some shape or form, far fewer goods could be produced on which the money could be spent. It is simple enough, therefore, to see why we had too few goods during the war, and why people were prepared to pay more for what there were.
The Government did what they could—by pegging the price of food through food subsidies, by rent restrictions regulations, a great savings drive and the like—to hold down prices. But the workers would have been more than human if they had refrained altogether from asking for higher wages to meet the general increased cost of living. Considering that there was a war on, I do not think we can complain about what happened. The cost of living index rose by about 33 per cent.; wage rates went up about 50 per cent., though of course earnings were higher, owing to over-time work. What I think we have a right to complain about is that this process of inflation has continued—and, indeed, has been deliberately encouraged—since the war ended. As the noble Lord, Lord Rennell, pointed out, the Government are entirely to blame for this.
It is a curious fact that the late Chancellor, who lamented so frequently and so bitterly of the existence of inflationary pressure, never seemed to realise that he
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was himself entirely responsible for it. He boasted that he had given the country cheap money. But what is cheap money? Money is, cheap—that is to say, people are prepared to lend it at low rates of interest—if they have plenty of it but nothing to spend it on. The Chancellor never tired of telling us that we could not expect a large volume of output in the transitional period be: ore our industries had got going, so that there was bound to be a shortage of goods on which to spend our money. Yet at this very time, when people were crying out for every conceivable form of capital and consumer goods which they had been forced to forgo for six years during the war, the Chancellor, through his control of the Bank of England, pumped £1,000,000,000 of extra credit into circulation. Can anyone imagine action more calculated to produce the very inflationary pressure which the Chancellor never ceased deploring? You might as well complain if your kitchen got flooded after you had stopped up the sink, turned the tap on and left the water running. The Middle Ages knew the Angelic Doctor, the Seraphic Doctor, and the Irrefragible Doctor. Perhaps this century will re cognise the Egregious Doctor.
Though the new Chancellor's desire to check inflation is clear enough, the question is whether the methods he has adopted are suitable. As I have said, if people have plenty of money and have not much to spend it on, they will be prepared to pay more for what little there is, and prices will rise. That is the situation the Chancellor has to correct. Obviously the best way to do this is to see that more goods are made available. If there is plenty in the shops, they cannot hold out for higher prices. But this involves producing more—that is to say, simplifying and reducing many of the controls which are hamstringing industry, and working harder or working longer hours.
It would take too long to-day to discuss the delays and frustrations caused by the infinitude of petty, detailed forms of Government intervention which hamper anyone trying to carry on business. Their noxious effect on output is, I think, admitted by everyone except members of the Government. But I think even Ministers would admit that more output could be secured if greater efforts were made. It is not surprising, however, that

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they find it hard to put this thesis across. For generations their slogan has been that extra output profits only the boss. It is difficult for them now to put their propaganda machine into reverse. When the Lord President of the Council, in the intervals of listening to "Dick Barton," puts up "Work or Want" posters, the wage-earners suspect that he has been "nobbled." And despite the efforts of the Government and their close relations with the T.U.C., working hours have been reduced 2 per cent. between 1946 and 1947 over the country as a whole.
In the circumstances, I think we all agree that the Chancellor was well advised to pray in aid the wicked profit motive, masquerading for the time being under the more respectable alibi of "incentive." I think we shall all welcome the changes he has introduced in direct taxation, which tend to give people earning up to £2,000 a year a greater reward for their effort. Whether they will suffice to reduce the manual worker's objection to handing over a considerable part of his overtime earnings to the Government remains to be seen. We must all hope they will. However, I cannot help thinking that a flat reduction of a shilling in the rate of Income Tax would have had a much greater psychological effect.
The essential thing is, by some means or other, to increase the output per head. As I said in our debate in October, much as I wish it were otherwise I fear there is little doubt that the country's output per head is down on pre-war figures. The noble Viscount who leads for the Government reproved me for taking such a gloomy view. In evidence to-day I will merely quote two figures given by the Government. According to the Statistical Digest, the number of men engaged in the export industries in January, 1948, was 1.96 million as against. 99 million in June, 1939; in other words, we have nearly twice as many men working for export as before the war. Yet the volume of our exports, according to Government figures, is up by less than one-third. How is it, if output per head is the same or better than pre-war, that 98 per cent. more men can produce only 28 per cent. more goods? Actually I do not believe that output per head is down to that extent—namely, some 35 per cent. But that it is down is certain, probably by about
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10 to 15 per cent. And if it is down in the export industries there is no reason to suppose that it is not also down over the rest of the industries of the country. How much of this is due to controls and how much to slackening of effort I must leave the Government to evaluate, but I think the Prime Minister was not far out when he asked for an increase of 10 per cent. It should be possible to obtain it and, if this were achieved, it would not be difficult for us to re-establish our position.
If we can make sure that no more money is put into circulation unless there is a corresponding increase in production, things should at any rate not get worse. This, of course, is the intention of the Government's suggestion set out in rather a tentative manner, as it seems to me, in their Paper on wages and prices. There they say that wage increases should not be granted unless there is a corresponding increase of output. In principle, of course, that is right; but it is surely rather feeble for a Government with the slogan "We are the masters now" to content themselves with advice and to put the onus of really preventing wage rises on the employer by threatening not to take increased costs arising from increased wages into account in Government contracts.
A crude and rather naïve method of preventing prices from rising, which, of course, commends itself to the bureaucrat, is to put on price controls. All we need do, he says, is to fix the prices of the principal commodities. Then they cannot rise, and inflation is stopped. To some extent this method has been employed. It has led to the disastrous result which might have been anticipated. For if the price of any commodity is fixed, the wages that can be paid to people producing or handling that commodity, and the profits that can be made thereby, are ipso facto limited. On the other hand, anyone producing or handling other commodities whose prices are not pegged is not hampered in that way. If he can get higher prices he can afford to pay higher wages and is able to make bigger profits. Hence controlling the price of any one commodity or form of service, when there is plenty of money about, simply drives effort into making or providing uncontrolled items. In other words, if we control the price of necessities, this will encourage the production of junk and the

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provision of unnecessary services where high profits can be made and high wages paid. That is precisely what is happening. Short of controlling all prices and directing labour, there seems no way of escaping this dilemma. The Government's appeal to all concerned to avoid any rise in prices is, I suppose, a mild and well-meaning effort to achieve the result: without actual compulsion and, in a patriotic community such as ours, we must trust it will be successful. But, unfortunately, to a great extent the harm is already done. The makers of junk have established themselves. The football pools are a going concern. They can undercut the unhappy purveyor of necessities even without raising their prices.
If, as I have pointed out, we cannot obtain a rise in output per head or peg prices, the only way of stopping a rise in prices—in other words, inflation—is to reduce the amount of money in circulation. This crude device, of course, is supremely attractive to the bureaucrat, who can do it with a stroke of the pen in his Budget proposals. It is much easier to cure a man suffering from blood pressure by drawing off his blood than by treating the real cause of the disease. It is, however, by no means easy to do it without doing more harm than good. The amount of money in circulation may be reduced in two ways: either by taxing the people more, or by inducing them to save more. Only a few weeks ago this House unanimously approved efforts to induce our people to save as much as possible.
But if we want to reduce the total amount of money "chasing goods," as the saying goes, it is no use imposing taxes which induce people to save less. And this is what the Chancellor has done with his so-called levy. The very people who are of a saving disposition and who have put money aside are the ones to be hit. I will not here discuss the moral aspects of the case or the injustice inherent in this particular form of tax which afflicts different people in such a various measure. I confine myself to the simple argument of expediency. Private savings differ enormously from year to year. In 1946 they were £272,000,000 more than in 1947. Yet, in order to get a mere £50,000,000 in the fiscal year, the Chancellor has aimed a blow at all thrifty people more calculated to discourage
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them from putting money aside man anything that can be imagined. And this blow, whether deliberately or not, was amplified and reinforced by his predecessor's mischievous and illogical oration. Nor must we forget that people in the dollar area, on whose investments in the sterling area the Chancellor is banking, to some extent, to balance his dollar accounts, may well be deterred by this action from putting their dollars within the Chancellor's reach. It is really surprising that a man of the Chancellor's integrity, intelligence and stature should have allowed himself to be made the stalking-horse of such an obvious bit of Party rancour.
I must say, quite frankly, as I said two years ago, that I doubt whether it is possible to avoid inflation in the long run if the Government spend such an enormous proportion of the country's real income and, therefore, have to collect such a huge amount in taxes. If no incomes over £500 a year were allowed, only about 15 per cent. of the national income would be saved, This year we are to be mulcted to the extent of over 35 per cent. in rates and taxes. It follows that a large amount must be taken away from the poorer sections of the community. If this is done by direct taxation it is resented. As we know from our experience with P.A.Y.E., this tends to reduce output so that goods become scarce and prices rise. If the Chancellor plumps for indirect taxation, the prices of the affected commodities rise and the worker asks for higher wages. Either alternative leads directly to indation. Apart from some extraordinary change of heart, therefore, inflation may well be inescapable unless the Government can reduce their expenditure and, therewith, taxation.
The Government's attitude seems to be that it is impossible to reduce expenditure, but that they hope by appeals and persuasion to induce their followers to refrain from demanding higher wages and thus giving another turn to the inflationary-spiral. I devoutly hope that they may succeed. But they will have a difficult past to live down. There is no reason why we should not surmount our troubles if Socialists would drop the class war and get all our people to pull together. But the nation will have to realise that you cannot get more than a pint out of a pint pot; that a country cannot, in the long run, consume

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more than it produces; that you cannot make a country rich by raising taxes or produce prosperity by Act of Parliament; and that you cannot create wealth as easily as you can make laws. It is no use saying, as sentimental Socialists frequently do: "Never again will we tolerate conditions in which a man has to work 48 hours a week merely in order to get his pre-war standard of life." You might as well say: "Never again will we tolerate conditions in which people have to sow in order to reap." Even before the war, when we were paying for a considerable fraction of our imports by invisible exports, we could only manage to produce what we needed by working 46½ hours a week. Now that this source of foreign currency has largely dried up or been dissipated, when we are paying almost as much interest as we are getting, and, above all, when we are spending abroad hundreds of millions a year, it is stark lunacy to think that we can cut our hours of work by 5 per cent. or 10 per cent. and still enjoy the same amenities.
The Chancellor has said that we are making a great experiment in civilisation. I think that this is true in an even more fundamental sense than he intended. As I have said, the country is living beyond its means. The public, misled by generations of Socialist propaganda, believe that it is possible to raise their standard of life by Government decree. The unhappy wage-earner thinks that he can combine social services on the highest scale with the highest standard of life in other respects, while only working a 40-hour week. He has been persuaded that the fact that his actual standard of life is much lower than before the war is due to world conditions which, he is given to understand, will no doubt improve, and, with it, his allowances of food, clothing and housing and all the fundamental things. And since he has plenty of money in his pocket, which he is unable to spend, owing to rationing, dockets, coupons and other controls, he has the illusion of wealth. Actually, as I have said, there is not much hope of any notable rise in living conditions through a general improvement of world conditions. That can come only if we can pay our way by harder work and more production. Some slight amelioration may come if and when good harvests cause a glut of food, provided, of course, that the Government
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allow the free interplay of normal economic factors to reduce the cost of our imports, which have so often been unduly high because bulk buying allowed us to be held up to ransom.
On the other hand, as I have pointed out, we have all been living since the war to the extent of £1 per family on American generosity, or by selling our capital assets, gold, Argentine railways, or whatever they may be. The Marshall Loan should give us another breathing space. But a breathing space—as we have seen in the last two years—is not of much use if you just breathe. The great question is, whether this democracy will have enough sense and self discipline to realise the position and agree to make the necessary, often unpleasant, steps which should be taken now if we are to escape a complete debacle. Many people believe that nothing will bring home to the public the gravity of the situation except a complete crash. The Chancellor and the more sensible members of the Government realise the truth and are, I believe, trying to disseminate it, so far as this can be done without allowing any blame to fall on the Party. Others, perhaps hoping to fish in troubled waters, insist that there is nothing much amiss and that everything will come right if only they are allowed to get on with their Party programme and the class war. If they have their way, nothing can save this country from complete disaster, mass unemployment and starvation. It is indeed a great experiment and a great test that lies ahead.
In a totalitarian State, orders would be given and the people would have to obey. The question is, can this Government—dare this Government—really bring the facts home to the electorate and get them to accept the harsh truth that they cannot consume more than they produce; that they must either work more and harder or reduce their standards of life; and that they must do this now, at once, and not relax upon the cushion of Marshall Aid. Can the people be convinced by reason and moved to act before they are bludgeoned by disaster? It is not only the Government, it is democracy that is on trial. I beg to move for Papers.
3.41 p.m.
LORD BRAND: My Lords, after the speech of my noble friend Lord Cherwell, I think your Lordships will agree that a

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sufficient number of questions on the external problem are now before the Government. Therefore I shall not go very deeply into the external position of the country. It is obviously exceedingly precarious. The figures that we have seen in to-day's papers are sufficient indication to prove that to us. In the Economic Survey we hoped for a deficit during this year of £270,000,000. We are now running, according to the figures in the Press to-day, at a rate of £550,000,000 a year. Even Marshall Aid goes only a certain way to meet that huge deficit. If it continued, the rest of it would have to come out of our reserves, and that would be a disastrous solution. What surprised me in these figures in the Press is that the enormous cuts in imports which the Government made towards the end of last year, totalling in all, I think, £300,000,000, do not yet seem to be effective. No doubt the Government will be able to give us an answer why that is.
In my opinion, the adverse balance of payments is not our own fault, in the main. If it were, it would be much more easily remedied. Like all other European countries we are suffering from profound trade alterations throughout the world, particularly in the disequilibria which exist between European countries themselves and in the still greater disequilibrium which exists between Europe and the Western Hemisphere. It is something which cannot be remedied quickly. We particularly suffer from the very great rise of prices, both of imports and exports. It matters much more to us because our imports are so huge and so much greater than our exports. I put down the causes of our extreme adverse balance of payments more to price rises than to anything else; secondly, to the loss of our invisible exports; and, thirdly, to the great Government expenditure abroad, to which the noble Lord, Lord Cherwell, referred. The noble Lord gave certain figures about invisible exports which rather surprised me. I thought the net loss on invisible exports was something like £200,000,000 a year. I am speaking from memory, but that was my impression. If we put the loss from price rises at some £400,000,000 and add our invisible exports and Government expenditure, it is easy to account for the total adverse balance. I am afraid that when the sellers' market is at an end we may find it still more difficult to make both ends meet. The extreme difficulty of our
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overseas position is all the more reason for making every possible effort internally. We cannot solve the external problem solely by what we do or do not do, internally, but we can certainly make it much better or much worse. I propose, therefore, to say something about the internal situation.
First of all, I should like to pay a tribute to the Chancellor of the Exchequer's Budget statement. But like the noble Lord, Lord Cherwell, I very much regretted to see him include in his Budget the special contribution, not because I think the taxpayers, who like myself, have to pay something, are not anxious to do what they can for the sake of their country but because in my opinion the special contribution will do more harm than good. It will be a great blow at saving, and that is exactly the opposite of what is required at this moment. I can see some reason for imposing a tax which is regarded as a reasonable and justifiable tax for a number of years, but to upset all the savers in the country for the sake of a special contribution of one year is something I find it difficult to understand. Otherwise, it seems to me, the Budget was a courageous attempt to control inflation. That this should be done is very important for our external position, as the noble Lord, Lord Cherwell, has pointed out, because inflation tends seriously both to increase imports (and that may be some reason why our imports continue to be great now) and to decrease exports. If it were allowed to go on, we might be forced later, merely to secure more exports, seriously to consider the devaluation of our currency; and that is the last thing we wish to do.
The most serious internal danger, however, seems to me to be the huge Budget and the huge taxation that it involves. If we ever have to devalue the currency, this, to my mind, is the most likely reason. Can we stand a Budget of this size? I seriously question it. It depressed me to see that the Chancellor of the Exchequer, winding up the debate in another place, seemed to see no hope of a reduction. I think that is too pessimistic. My own impression is that world prices are likely to fall—certainly, I think, food prices. Probably food prices will fall in the next six months or year, and if there were a fall in food prices, I assume that we should see a fall in food subsidies.

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Possibly we might even have cheaper money later, if inflation were really overcome. But we cannot have cheaper money now.
Perhaps I may interject here a remark about something that Dr. Dalton has recently said. I had the pleasure of serving under him when I was in Washington, and I do not like to say anything that he might feel is not very polite. Nevertheless, Dr. Dalton has stated that he feels there is a conspiracy against him in the financial Press and in the City. I have lived and worked for 40 years or so in the City, and I cannot think of any better word to use than to say that any idea of a conspiracy in the City is moonshine. Everybody living in the City knows that. I cannot but think Dr. Dalton must have been misled by people who did not fully understand the position.
If the burden of the Budget is too heavy, then something has to happen. A country is just like an individual or a company. If our expenditure is really too great, serious results will show themselves. The real test will come when inflation is curbed, when the sellers' market ends, when taxation reduces enterprise, and when, perhaps, we have a considerable amount of unemployment. We may then have to face devaluation, or drastic cutting down of our expenditure. Frankly, I desire to express the opinion that our expenditure is too great. My own opinion is that we have put the cart before the horse. We ought to have secured greater recovery and greater production before we spent such huge sums on social welfare. I realise that to say this will bring criticism upon me. Nevertheless, how can it be denied? We could not possibly have spent all this money without the help of the taxpayers of the United States and Canada. Without such aid the social schemes which have been passed during the past two or three years would not have been worth the paper they are written on. In this respect, I prefer the Russian method. I prefer the method of asking the people to make all possible sacrifices until they can get a little way further on towards increasing production and raising the normal standard of life. It must astonish the world that we borrow so hugely, and at the same time work less hours at the expense of other people. It seems to me a curious
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paradox that American and Canadian help, first, and American help now, again, should twice have saved the present Government, as well as the country, from disaster, and twice have been the cause by which so much Socialist legislation has been enabled to be passed.
The only possibility of our standing the present Budget, and of solving our other problems, is by much greater production. Here we face peculiar difficulties, unlike those of such self-contained countries as Russia and the United States. We need enormous masses of raw material, and we find it very difficult to pay for them. How then, can we greatly increase our production at home which would require still more raw materials? Marshall Aid will help temporarily, but the greatest efforts and sacrifices are required as well from every section of the population. The Chancellor of the Exchequer is fully aware of all this, and he has emphasised the necessity of further production, and also the necessity of further saving. He said himself that he thought some moderate incentive to encourage production was necessary, and for this reason he gave certain relief to some P.A.Y.E. classes, and also to the members of the managerial and technical staff—particularly, he said, "those to whom we look for production." These measures, in my opinion, are satisfactory. Nevertheless, the Chancellor of the Exchequer gives a very limited meaning to the word "producer." In an army you have to have commanders-in-chief and officers, as well as non-commissioned officers and privates. I do not think we need be so democratic as to pretend that, so far as production is concerned, it is only the common man that matters. The uncommon man matters a great deal more.
In the end it is the few who make all the difference, whether it be the great enterprisers, the great scientists, the great managers or the great technicians. Those are the people who will decide whether or not production goes up much higher than it is now. The Chancellor of the Exchequer himself is a good example: he makes all the difference to his Party. I think we can apply that to the country at large. The greatest danger is too heavy taxation at the top now. In the long run that must have a great effect on enterprise. No young man starting now without capital can create a business. Such a man cannot, unless he has extreme luck, build up his

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capital. There will thus be no new grass growing up underneath. Without being too critical, I think the trend of Socialism is all against recognising this danger; Socialists do not see the vital importance of incentive for new private enterprise. The bad effect of no incentive works slowly, but in the end the effect is disastrous.
The other vital need in order to produce more, in my opinion, is modernisation of our plant. I do not think many people realise, perhaps as much as I do, having been a good many years in the United States, how far behind we are in this respect. It may be the case, as my noble friend Lord Cherwell said, that there is already too much capital expenditure. But I should like to see a great deal of capital expenditure, so long as we all skimp ourselves for that purpose. Certainly I would give A.1. priority for any capital expenditure directed to modernising our industry, from which action, after all, we shall get more production than from any other. For this purpose, of course, we must have plentiful private savings, and private savings are hardly possible with the enormous taxation we have. Therefore, they are likely to be unavailable.
I do not think anything I have said is contradicted by the fact that there has been, in the last two years or so, a very great increase in profits. The Economist said not long ago that according to their estimates between 1944 and 1947 profits had increased by 45 per cent. That may well be the case. It is due, of course, entirely to inflation, and, if deflation were to come, the turn round the other way might be just as big. But even with those profits the position is still, as is shown in Table V of the National Income White Paper, that after deducting taxes—that is, taking net profits—wages have gone up to 44 per cent. of the national income, as compared with 39 per cent. in 1938; salaries have gone down from 24 per cent. to 20 per cent., and interest, profits and rent have gone down 1 per cent.; that is from 37 per cent. in 1938 to 36 per cent. in 1947. But I would draw attention to the fact that interest, profits and rent are not limited to a particular class. They are earned by other classes in the population than the high Income Tax payer. The salaried class and even the wage-earning class take a share of interest, rent and profits. You have, however, to set
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against the figures in that Table the fact that they do not include indirect taxes, and therefore from that aspect they over emphasise the re-distribution in favour of the wage-earning class. On the other hand, it is quite certain that a very large proportion of interest, rent and profits go to those with not more than £1,000 a year, whether salaried or otherwise, and even below that level and to those paying no tax at all.
I have had calculated certain figures which may interest your Lordships. I calculate that the Income Tax paid in 1947 on interest and profits earned in 1945, with Surtax paid in 1947 on interest and profits earned in 1944 were together at an average rate of 4s. 9d. That is, all those receiving interest and profits paid on the average only 4s. 9d. This to me is very surprising. It appears to indicate that a large proportion of interest and profits go as I say, to Income Tax payers in what I might call the comparatively low brackets. If you add to this the fact that £4,000 is more or less the absolute upper limit of any net income, I think one can say that what might be called he "great income profiteer" is a mythical figure—he does not exist.
I should like to say much more on this all-important question, but I cannot do it now. There has no doubt been a great distribution of wealth since the beginning of the war. I think this question of profits—and I apologise to your Lordships for insisting on it—is all-important, first, because private enterprise, in my opinion, is absolutely essential for a country of so complex a character as ours and, secondly because private enterprise depends on: he profit and loss system. Yet a large part of the population think that profits are what might be called "money for jam"—that nobody does anything for them. There is no foundation for this view, and we shall never have social peace in this country, until that is better understood. Profits, in essence, so far as they do not represent interest on capital or remuneration for management, are remuneration for risk. I have had a good deal of experience in forty years of what the world is like in that way. The world is a very risky place; it always has been risky, and it is much more risky now than it was. There must be losses, and, therefore, there must be profits. I have heard nobody propose

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that when there are losses a kind Government should come to the rescue of those who make losses. They are quite prepared to limit dividends, but not to pay any proportion of losses. The Government, too, already know all about losses; they know that losses can easily be made. One has only to look at the results shown by the B.O.A.C. or the National Coal Board. Those are losses just like private losses, but they would bankrupt any private concern, because it has not the taxpayer at its back.
I should like to express my own conviction that, under reasonable competition, profits are broadly the measure of the service rendered by the company or the individual to the community. None of this, of course, is recognised by the great bulk of wage-earners. I would like to urge on the Government that they should get the Inland Revenue, and any other authorities, to provide the fullest information as to total profits and the categories of Income Tax-payers to whom the profits go. With the distribution of White Papers, Economic Surveys and so on, the whole public, for the first time, are getting a view of what are the real economic problems facing the country and how the national income is divided. It is vitally important that the public should know how it is divided. Nothing is more important than that we should all know to whom the different shares go and understand which services are rendered for them. For that purpose it has to be recognised that those who save money and buy ordinary shares are performing a service, and those who make profits in their business are performing a service—they are not just getting profits for nothing. I suggest, too, to the Opposition Leaders that it is vital that they should make a convincing case to the public for the profit and loss system. It is not that the public do not wish to understand, but I do not think anybody has ever really tried to make them understand. It should be quite easy to do, but it requires full figures and a knowledge of the whole situation.
I admit that laissez-faire private enterprise by itself brings too great an inequality. I admit it has to be tempered by taxation in the first place, and inheritance taxes in the second place. But you cannot go too far, particularly in the way of taxation, without so damaging the
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working of the system that you cannot get back again. You have to go forward to more and more controls, and more and more towards a system under which the standard of life in this country will certainly be reduced. In my opinion we should be able to find means by which it is possible to combine reasonable justice with a reasonable reward for risk and enterprise.
4.8 p.m.
LORD PETHICK-LAWRENCE: My Lords, it has been a great pleasure to have the opportunity of listening to the thoughtful, careful and well-balanced statements made by the noble Lord who has just resumed his seat. I think the whole House owes him a debt for the interesting facts which he has been able to give us. The figures which he has had looked up as to the distribution of profits between different classes of the community are well worth pursuing. As I understood the statement, it applied not to what are called rentes in general but exclusively to profits. It may be that the holding of equities is so well distributed throughout the community that a large part does fall to persons with incomes in the category of £500 to £1,000 a year, who would probably be the people who are paying Income Tax at about 4s. 9d. on their whole income. I hope the noble Lord will pursue his inquiries in that way, and I am sure the figures he produces will be of great value.
There were many other statements which the noble Lord made, with which I find myself in substantial agreement. There were one or two things I did not agree with, but a great deal of what he said had my full concurrence. As to what he said about large numbers of people having strange ideas about profits, I recall that when I first went into the House of Commons I shared the opinion of a great many people of one Party who took a strange view of the members of the other Party; and I found that the members of the other Party, when they first entered the House, took a strange view of the working people of the country. After a time we came to the conclusion that character, ability and honesty of purpose were in about the same proportion in all classes and sections of the community. One of the great advantages of the other place in its present membership is the way in which people from all

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classes come together and are able to understand one another and each other's problems. I think I can assure the noble Lord that among all thinking people in the Labour Party, the people who really direct and devise the policy of the Party, there is a much better understanding than among people who know only of what they do themselves.
I should like to say a word or two about the speech of the noble Lord to whom we are indebted for opening this debate. He is, of course, a great expert on economic matters, and he justified that by giving us a large number of figures in the early part of his speech. But perhaps I may be allowed to recall that when I was an undergraduate at Cambridge I made a speech in the early days of my oratorical career; and a writer in the Granta, who criticised my speech, said that the honourable member had spoken in "contemptuous footnotes." When I listened to the noble Lord and to the large numbers of figures he gave us, I could not help being reminded of that criticism of my own early efforts. Statistics are all right provided they are gone into carefully, understood, and documented so that one knows where they come from. In his desire to press his point, the noble Lord gave us such large doses of figures that it was difficult for us to follow exactly what he was driving at, and still harder to be able to test his figures in the light of established facts—
LORD CHERWELL: In order to assist the noble Lord's argument, may I say that all the figures were gathered either out of the Survey or out of the Statistical Digest?
LORD PETHICK-LAWRENCE: I know the noble Lord is not the sort of man to try to make up figures out of his head. I think, however, that some of the figures the noble Lord gave may not prove the points which he desires they should prove. Let me give one or two illustrations. He told us in the first place that the Government were planning an expenditure of £1,800,000,000 in the course of the year on capital development. But the Government are not expending all that £1,800,000,000 themselves. What they are doing is to attempt to give an estimate of the amount that they and private employers of the country are going to spend during the next year. I should like to know whether the figure
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includes the amount needed to make good depreciation; I have a pretty shrewd idea that that would account for perhaps £800,000,000 out of the £1,800,000,000.
In the old days, before the present Government came in, no one knew what the expenditure was by people other than the Government. The amount spent by private employers could perhaps be vaguely ascertained by people who had access to a large number of figures. This is the first occasion on which any attempt has been made to give the country the facts and figures which it has really needed all down the years. I think a great tribute is due to the Labour Government in that they have prepared for the first time figures on which the noble Lord can attack them; such an opportunity has never been possible before I am prepared to admit that during the war some distinguished persons, including the late Lord Keynes and probably the noble Lord himself, assisted in ore-paring certain White Papers which enabled members of both Houses of Parliament to get an insight into the real economics of the country. I have always been anxious that the Chancellor of the Exchequer should regard himself not merely as the custodian of the State purse but also as the Finance Minister responsible for the economy and expenditure of the country. Now let me take one or two other figures given by the noble Lord, Lord Cherwell. He told us that production was down on pre-war production.
LORD CHERWELL: I said production per head.
LORD PETHICK-LAWRENCE: Of course I accept that, but I do not think the noble Lord can prove his statement. In an estimate of the economic situation, made by a United Nations Committee and published a few days ago, the industrial production in this country in the third quarter of 1947 is given as 109 per cent. of the production in the corresponding period of 1938. I do not think the increase in the population approaches 9 per cent.; and, making allowance for the correction which the noble Lord has just made, I do not think his statistics can be borne out. He said just now that every one of his figures was taken from these White Papers, but I certainly have not been able to find this one there. Then we come to the question of output per manshift.

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This problem is a difficult one, because all sorts of questions arise, such as whether people are working at the same process as before or whether they are in different categories. The noble Lord said that the coal output was very slightly higher—less than 1 per cent.—between 1946 and 1947. That is not the figure that I have here. The figure given in the Survey shows an increase between 1946 and 1947 of 1.07 tons as against 1.04 tons—an increase of 3 per cent. It is now 1.11 tons per man-shift—an increase of 7 per cent.
LORD CHERWELL: The point is that they are working 2 per cent. fewer shifts. The amount per shift is up by 03 per cent. but they are working 2 per cent. fewer shifts.
LORD PETHICK-LAWRENCE: If that is so, then I misinterpreted the figures the noble Lord gave. That was the impression I had, that he said it was less. Then he said that the situation in the mines of this country was so very shocking, implying, in the course of the general tenor of his speech, that it was due to the misgovernment of this country. I have here figures comparing what has happened in this country with what has happened in other countries of Europe. They give the output per man shift in October, 1947, as a percentage of the 1935–38 average. These are the figures: Great Britain, 95 per cent. of what was produced pre-war; Germany (French Zone), 80 per cent.; Czechoslovakia, 77 per cent.; Belgium—I notice that noble Lords have been murmuring "How can you expect Germany and others to be up?" But Belgium was the country which the noble Lord himself specially singled out as having done so much better than we have done, with our wicked Socialist Government—Belgium 76 per cent. as against 95 per cent. in this country; Holland, 75 per cent.; Poland, 75 per cent.; France, 68 per cent.; and Germany (British Zone) 57 per cent. The net result is this: the output per man-shift in this country compares with all those countries in Europe that I have put forward as reaching a higher percentage of the pre-war output than any of them. Of course I cannot follow up all the noble Lord's statistics and figures, but I think I have put forward enough to show your Lordships that you cannot accept all his
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figures as correct and as proving the point that he is trying to make, and that you need to examine them with a little care.
The noble Lord mentioned a number of things that were going wrong in this country, and he claimed in a generous fashion that the whole of them, or nearly all of them, were due to the machinations of the present Labour Government. I was interested when the noble Lord who spoke last got up and, without saying so in so many words, threw over that wide claim of the noble Lord who introduced this Motion. Lord Brand took an entirely different view and, if I may venture to say so, a much saner view of the position.
LORD BRAND: Perhaps that is because I am a non-Party man. If I were a Party man, I should have done what the Americans call "lambaste" you more than I did.
LORD PETHICK-LAWRENCE: I am indebted to the noble Lord for his intervention, because it rather dots the i's and crosses the t's of the point I was making. I notice that the noble Lord who spoke last did not take up the noble Lord, Lord Cherwell, who, in opening, held up Belgium with such singular commendation to us. He had told us later two things about Belgium. The first was that prices have risen there, not in the proportion in which they have in this country but three and a half times since the beginning of the second World War. That surely is more than double the inflation (if you can so call it) that you have in this country Another fact about his wonderful Belgium is that they all regarded devaluation of the currency as almost inevitable The noble Lord, Lord Brand, said that the terrible disaster might never come here. Apparently, the noble Lord who opened the debate looks upon the position in Belgium, where devaluation is almost certain, as better than that which the Labour Party, through their malignant misguided machinations, have achieved in this country. I should be interested to know whether the noble Lord who followed him really thinks that it would be wise for us to copy in this country the Schacht plan for the restoration of the Rentenmark. Personally, I should have thought that it would be most undesirable.
I come now to the question of the Budget. As a House of Commons man,

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it seems to me a little peculiar that we in this House should be discussing the Budget when the Budget is not in any sense before us. We have neither had an explanation of its terms nor are we in any sense strictly bringing it—
VISCOUNT SWINTON: With great respect, the Chancellor of the Exchequer asked that the whole of the economic debates should cover not only the Survey but also the Budget.
LORD PETHICK-LAWRENCE: I am not in the least criticising or complaining that: we should do this. As an ex-House of Commons man, I am regarding with interested surprise the fact that we can enjoy discussing the Budget. In the ordinary House of Commons way of treating the matter, it would be out of order. I am happy to have an opportunity of discussing the Budget rather before its time.
I want to take the bull by the horns and go to the question of the special levy to start with, because that is something which honourable members do not like. I can fully understand their reasons and I would be prepared to say this: that I do not think the proceeds of the special levy will have the effect of helping to cure inflation. I do not think the Chancellor of the Exchequer suggested that it would. The Chancellor of the Exchequer quite frankly admitted that most of the money for the total contribution would not come out of income and would not, therefore, be a reduction of the amount of purchasing power; it would come out of capital. Therefore, when the noble Lord says that the policy of the Socialist Government is to find money, and find it in any way, and that in the Government's opinion it will stop inflation, I do not regard that as a fair criticism of the Chancellor of the Exchequer. What he said was that as the country was in considerable straits, he did not think it was a bad time for people who were in possession of special wealth to make some special contribution to the needs of the country.
It is true that a large number of members of this House will have to pay a great part of this levy. It is no use pretending that that is not the case. Anyone who will have to pay it, and who tries to hide that fact, is taking a step which is easily discovered to be incorrect. I suppose
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that this is the justification for the levy. The one class that have not been saving—I want to direct the attention of the noble Lord below the gangway to this point—during the last few years is the class who will pay this special levy. They are the class who live upon investments, and who have had their income seriously impaired during the war years. I am not blaming anyone in the least, but it is a notorious fact that, in order to keep up something like their standard of living, the class who live more generously have dipped into their capital resources. Owing largely to the fall in the rate of interest which has, up till recently, appreciated the capital value of their wealth, they have been able to do that without reducing the nominal value of the wealth that they have had, because they have made up for their lack of income by the appreciation which they have had upon their capital resources. I am not complaining of that or saying that it is wrong. All I am saying is that those are the facts.
The position is that in point of fact, though it was true in years gone by that the class from whom savings came were mostly the very wealthy, it has not been true, as I venture to suggest—I speak without knowledge; perhaps the noble Lord knows more about this subject than I do, but I think it is true—that the classes from whom the savings have come have not in the last few years, been mainly the classes of great wealth, but rather the less wealthy classes in the community. Therefore I do not think it unfair, in view of the great appreciation which has come to the wealth of the other class to which I have referred, that they should be called upon to make some special contribution at this time, provided we quite clearly see, as I said before, that it will not help appreciably in avoiding inflation. Towards the rest of the Chancellor of the Exchequer's proposals, the noble Lord, Lord Brand, was, I think, fairly favourable. But the noble Lord, Lord Cherwell, said he thought it would have had a much better effect on incentive if, instead of the special arrangements that were made, there had been a flat rate reduction of 1s. in the pound on income tax. Is that really the opinion of this House? I venture to think it is not so, and your Lordships will be hiding

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your heads in the sand if you follow the noble Lord in taking that view.
What did the Chancellor actually do? He increased the allowance for earned income from one-sixth to one-fifth, making a considerable advance in incentive. He took the third slice of a man's income—the bottom slice being the part that is exempt, the second part being that which is taxed at 3s. in the pound instead of 9s. in the pound. The third slice is the one on which he paid 6s. and still will pay 6s., but the Chancellor increased the size of the slice from £75 to £200. That is a considerable additional incentive to people who work. On top of that he made a concession with regard to married women. There is a considerable incentive to a married woman to add to her resources by working, if there is an allowance to her of a rebate similar to that which is allowed a single person. For the noble Lord to rise in this House and suggest that it would have a better effect and enable people to go on earning money had there been a fiat reduction of one shilling, instead of those admirable concessions which were made, seems to me to insult your Lordships' intelligence. I do not think it is true at all. I have spoken longer than I intended, but I have dealt with those points. I suggest that if the noble Lord who opened this debate wants his figures taken seriously there ought to be an opportunity for them to be examined. I beg your Lordships, as a whole, not to swallow his figures and all the conclusions that he would apparently wish to draw from them until those figures have been examined and their full bearing understood. Not till then will you be in a position to know whether the conclusions that he has drawn are right, or whether they are wrong.
4.33 p.m.
THE EARL OF SELBORNE: My Lords, the noble Lord who has just addressed us is always interesting and lucid, and on this subject is particularly well informed. But, with all respect, I venture to say to him that in his remarks to-day he has not really addressed himself to the great problem that confronts this nation and about which his two predecessors in the debate spoke in such strong terms; I allude, of course, to the fact that, as a nation, we are consuming a great deal more than we are producing.
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That is the root problem. That has been going on since 1939, and, as has been said, it cannot be avoided in war time. But I think it is mainly the fault of the present Government that it has been going on for so long since the conclusion of the war, and, as has been pointed, out, it is going to continue, certainly through 1948 and goodness knows for how much longer. In so far as Marshall Aid masks the real facts from the British public, it is really a great disaster. Of course, I am far from saying that Marshall Aid is not necessary in present circumstances, but it seems to me that one of the psychological factors from which we are suffering is that the British public, or a great section of it, does not even yet appreciate how desperate is our economic position. If it had not been first for the Canadian and American loans, and now for the Marshall Plan, we should have been faced with starvation a long time ago. It is true that our Socialist Government is carrying on on the savings of capitalism—American and Canadian capitalism, and also the savings of Nineteenth Century capitalism in this country. Our assets are being whittled away, and must continue to be whittled away so long as we are not making both ends meet.
Therefore, it seems to me that the complacency with which the noble Lord who has just addressed us views the situation is very uncalled for, and I think it is a most dangerous thing that statesmen in his position, having occupied the offices that he has occupied, should not tell the country, and especially members of his political Party, how extremely serious the economic situation of this country is to-day. Instead he, and other noble Lords and members of the other place on that side, are continuously trying to make the people in this country think that things are really not so bad as the Tories make out.
LORD PETHICK-LAWRENCE: May I interrupt? I never said a word to that effect. So far as I have spoken, and so far as the members of the Government are concerned, we are saying quite frequently that the situation is very serious and has to be dealt with.
THE EARL OF SELBORNE: I will give the noble Lord an instance of what I mean. What he said in regard to coal

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output is within your Lordships' recollection. What the noble Lord said, taken by itself, no doubt was accurate, and I agree with him that certain figures can be quoted with complete accuracy in nearly every case, and yet be far from presenting the whole picture. I agree with the noble Lord about that. But he quoted certain figures in regard to coal and I would merely refer him to the words of Sir Charles Reid, Production Director of the National Coal Board, which all of your Lordships have read. On Saturday last he was addressing the miners, and this is what he said:
" Output is not commensurate with the volume of machinery being installed in the pits. Taking the country as a whole, the output per man-shift at the coal face in 1938 was 2.9 tons, to-day it is only 2.85 tons, although 74 per cent. of coal is now cut by machinery against 58 per cent. in 1938."
I think, if I quote a man in the position of Sir Charles Reid, it gives a better guarantee that the figures present a genuine picture than could be given with figures selected by an outsider.
We all know that the miners to-day are not working as they used to work in 1938. Not only is that one of the chief causes of our lag in recovery, but it is also one of the greatest causes of the lag in European recovery. That is one of the main problems that confront all those nations of Western Europe which used to be dependent upon Britain for their supplies of coal. But have the miners ever been rebuked by any of the noble Lords who sit on that Front Bench opposite? On the contrary, in our last economic debate, a month ago, I listened to Lord Pakenham (whose absence to-day owing to ill health we all very much regret), praising the miners, metaphorically speaking patting them on the back, because, forsooth, they had worked better in January, 1948, than they had in the same period in 1947 or 1946. That is not the sort of comparison which will bring home to the people of this country the realities of our economic situation. The real comparison is between what we used to produce before the war and what we are producing now.
I entirely agree with what the noble Lord, Lord Brand, said about the importance of modernising our capital equipment. But there is this point to be borne in mind. You can modernise your capital equipment and yet achieve two different results. On the one hand, you can secure
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much greater output through your new equipment; on the other hand, you can secure the same output as before, but with less work. I know of cases—and I expect other noble Lords also know of them—in which modern machinery is being put into works in order to make the job easier and, thereby make it more attractive to labour. I am not complaining about that, but it will not bring us the same economic advantage as we should derive from capital equipment used to achieve increased production.
What is happening in the coal mires is true with regard to a great number of other industries to-day. I am afraid it is true of the great majority of industries. Look at the housing output. Consider the number of men who have been employed in housing since this Government came into office and the miserable number of houses that they have put up. I know a small speculative builder in the country who formerly built houses for sale. He used to lay 1,500 bricks himself every day. The average rate of bricks laid by bricklayers to-day is nothing like that, and noble Lords opposite know it perfectly well. Ask any factory manager, and he will tell you that output to-day is not what it used to be. Why should that be so? The character of this people has not changed. We are bound to ask ourselves the cause of this reduced output, and I think that, undoubtedly, it is partly due to the fact that men are not working as they used to work. When, some time ago, the reason for reduced output was asked, it used to be said—I think with justice—that it was largely due to war weariness. But I do not think one can go on saying that, three years after the conclusion of the war. Another reason is given, and I believe there is still a lot of truth in it—insufficiency of the right sort of food. I do not believe that the people of this country to-day are getting the food that would enable them to achieve the outputs they achieved in 1938. I am sure that that is true of certain classes of agricultural workers who are not, for some reason which I have never been able to understand, allowed to have the same amount of meat foods as the miners. The work of those men is just as hard as that of any miner.
But another and most potent reason—indeed I am afraid it is the main reason—for reduced output is lack of incentive

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to the wage-earners. Many wage-earners find that they can earn, at present wages, all they require to spend in order to maintain their standard of living without overexerting themselves. And they have not the desire to exert themselves in order to save money. That seems to me to be a psychological fact which cannot be blinked. I am aware that the Government have indulged in a vigorous Savings Campaign; I propose to say something about that in a minute. But they are not making it easy for people to save. I think that in view of the way the prudent man is being treated by the present Government the man who sat back and said he would not save can now point the finger of scorn at the man who has saved.
Finally, I do not think you can get away from the fact that there have been two generations of propaganda by the Labour Party designed to persuade people that once Labour were in power everyone could draw bigger wages and do less work. It is quite true, in a great many cases, that they are drawing bigger wages, and I am afraid it is also true—
VISCOUNT ADDISON: Will the noble Earl forgive me for interrupting him? Will he produce to me any Labour pamphlet ever published that has recommended that?
THE EARL OF SELBORNE: Unfortunately, I do not go about with my pockets stuffed with Labour pamphlets, but in the course of my political career I have fought nine political elections—nearly all of them against the Labour Party—and I won every one of them except one. Therefore, I have had my dose of Labour propaganda. I shall have great pleasure in obliging the noble Viscount by sending him some of his old pamphlets—I have kept a great many by me—in which the general impression given, and the promise held out to the voters, was that if only a Labour Government were returned to power the working man would have more money and would not have to work so hard. It is all part and parcel of the propaganda that all wealth is produced by labour (which is untrue), that the capitalists and the managements take more than their share of the profits (which I do not think is true), and, generally, of the propaganda by which the Labour Party climbed to power.
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But that is not the only cause of our reduced output. It is also due, in my opinion, to the difficulties of management at the present moment. I am not speaking now of nationalised industries. Nationalisation is a new experiment which we must all watch with attention, but in regard to those industries which are not nationalised, I say that managements today are impeded, obstructed, frustrated and thwarted at every turn by numerous Government officials and controls. There are now 700,000 more civil servants than there used to be. People in business cannot do the slightest thing without having to secure the consent of half a dozen different Departments. If those Departments would only agree among themselves the task of getting their consent would frequently be twice as easy. But as often as not the Departments differ among themselves. I can assure your Lordships that I spend a lot of my time in business, and a large part of it is spent—and I think this is the experience also of every other man who is concerned with management in business—in getting over the obstacles which these numerous controllers and Government officials put in our way. I am not saying that in these days control is unnecessary. In the abnormal times through which we are passing, when there are still great world shortages, it is clear that some controls are necessary; but there are controls and controls, and ways of controlling. My complaint is that the Government have tried to control the economic problem from the wrong end. They have erected a vast machinery of small bureaucrats whose permission has to be obtained at every turn. These people simply make work for each other—and they make work for everybody else as well. I am convinced that that is one of the major factors holding back the economic recovery of this country.
The third factor holding back economic recovery is the attack of the Government and Labour Party on the so-called wealthier classes—the policy that is known as "soaking the rich." That does so much to discourage confidence and gives so much discouragement to the ablest men in business that it is an important factor in retarding our economic recovery. What encouragement is there to anybody to save to-day? Directly you have saved money, you are held up to obloquy by

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the whole Socialist Party. You are regarded as a rentier, as a parasite, almost as an enemy of society. Any income you derive from your savings is taxed at a specially heavy rate. It is classified as unearned income, though you may have earned every penny of it. Generally, you get no sympathy at all from the Government or the Party in power. If that is not discouraging people to save, I do not know what is. I do not see how any honest-minded man can advise people to save money and put it in Government securities under a régime of this sort.
The noble Lord who has just spoken justified the special levy on the ground that it would come only from the class that has not been saving—the most extraordinary argument I have ever heard. I think even the noble Lord himself would admit that the Government have not made it very easy for the once wealthier part of the community to save money, because they have taken every penny off them in one exaction or another until it is practically impossible to save. But how does the noble Lord know how individuals have handled their means? To justify a new imposition on the ground that it falls on a particular class that has been so highly taxed that it cannot save any money appears to me to be not only illogical, but unjust. And this question emerges. Who are the men who have made modern British industry? It is men of the class of Jesse Boot, William Morris, Thomas Lipton, Lever and many others—men who have risen from the ranks. Under the régime of the present Government it is impossible for anyone to found businesses as those men did. Under our present system of taxation, people are prevented from accumulating the capital to build up a business. If we are to adopt a system of taxation which produces that result, it is clear that we cannot hope to survive when Marshall Aid has come to an end.
In my judgment the only solution to our economic problems is for the Government greatly to reduce their expenditure. The Government persist in spending money which we as a nation simply have not got, and persist in social schemes which, however excellent they may be in themselves, we just cannot afford. If it were not that we are receiving a stream of dollars from across the Atlantic, we would not be able to keep any of those schemes going to-day. As a nation we
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are living above our means. We are consuming more than we are producing. Our people are not working as they used to work. In the past they have received from the Government encouragement in that attitude. I agree that during the past twelve months the Government have changed their tune and are trying to explain to the people that they must "Work or Want," but that message has not yet carried conviction, coming, as it does, after forty years of Labour propaganda in a contrary direction. I do not see any chance of recovery under the present régime. I cannot feel that this Budget, though an improvement on its predecessors, makes any serious contribution towards solving this economic problem—increase production: reduce consumption.
When the sellers' market has disappeared we shall be in a far worse position than we are to-day. Something has been said about Belgium this afternoon. I do not propose to enter into that question, but I happened to be in Brussels last week and I looked into a Belgian shoe shop, which was crowded with purchasers waiting in a queue to be served. Then I looked across the road and saw a shoe shop belonging to a well-known British shoe company which was selling shoes made in Northampton. I looked into that shop and saw there was only one customer. I wondered at first what the difference was, because I felt sure that the British shoes were the best. Then I looked at the prices in the windows and saw that the English prices were about ten shillings higher than the Belgian prices. I could not help reflecting that when the sellers' market has come to an end—it is already waning—it will be impossible for us to keep our present prices and retain our markets in Europe.
5.0 p.m.
LORD PIERCY: My Lords, the noble Lord who introduced this discussion began by stating broadly the problems which face us, and I have no doubt that your Lordships felt he had stated them with great conciseness. But as he began to turn his microscope over a wide field I am bound to confess that I for one felt the broad perspective was a little lost. So far as the external factors are concerned, the noble Lord, Lord Brand, restored the perspective most effectually, and I say nothing on the point. With

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others of your Lordships I shall look forward to reading, and considering in detail, the points that Lord Cherwell brought forward. He claimed, I think, some priority for the diagnosis of our ills, but I was glad to note that he did agree that at the present time there is little or no difference of opinion as to what those ills are. His criticisms were really concerned with the results achieved to date, and with the measures adopted. At the level of political and practical results one is dealing with a level of reality rather different from that of diagnosis. However, one cannot complain of any of the criticisms which the noble Lord put forward.
I wish to deal with two of the themes which have run through this debate, one inflation and the other production, and in the course of my remarks I propose to say something on the view of the Budget expressed by the noble Earl who has just spoken. First, with regard to inflation, there is no difference of opinion about the evils, but it may be worth reading a short statement from the Economist. It says:
" Inflation has been doing much damage by depleting stocks, and thereby forcing industry into spasms of short-time work, by frustrating the physical controls, encouraging the black markets, and attracting workers and materials into non-essential activities."
I do not say that I agree with every clause of that, but it sets out the evils.
I begin by picking up a point from the noble Lord. I agree with him that some of the effects that brought about our inflationary situation have largely disappeared—for example, the 700,000 odd persons demobilised from the Forces who at one time were not gainfully employed. The disappearance of these particular factors was brought out most vividly in the study of production in 1947, which has appeared independently from two sources within the last week or two. That study showed that our production in 1947 had reached, and, I think, slightly exceeded, production in 1938. That, of course, is the total volume of production, and if it was slightly larger than 1938 it was because the employed population was slightly larger. So that nothing arises there on the point about productivity per head. But that restoration of the working forces and its product does not remove the evil of inflation. There is no doubt
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that the Economist, before the Budget came out, was right in saying that the paramount need was to restrain inflation. The journal went on to say that the restraint could be achieved only by budgeting courageously for a large and genuine surplus. From that arises the point on which I feel bound to disagree with the noble Earl, Lord Selborne, when he said that the Budget has made no contribution to our present problems. Perhaps, however, I state his point more broadly than he meant it.
The Budget establishes prospectively a surplus of not less than £330,000,000. The Chancellor of the Exchequer took some trouble to unravel the arithmetic of surpluses, and as a result there is no doubt that this £330,000,000 is a surplus in the most genuine sense of the word. It is something over and above the balance of revenue and expenditure, something over and above the Government's capital expenditure; it is a genuine deduction from the spending power of the community. Therefore, it is precisely what the Economist called for as the principal means in restraining inflation. I think it would be fair, and relevant to the noble Lord's argument, if I were to point out that the dispositions bringing about a Budget surplus of roughly these dimensions were established by the present Chancellor's predecessor. In other words, this surplus of round about £300,000,000 is a result of Government policy which goes some way back beyond the present Budget. No doubt I should add that it is one thing to inherit a Budget surplus prospectively, but quite another to maintain it. And the Economist may well be right in saying that it took a politician of courage to refuse to allow a surplus of those dimensions to be nibbled at.
As regards the dimensions there is an important point. It is not possible by any absolute measure to say what the amount of the Budget surplus ought to have been in present circumstances. But the Economic Survey for 1948 points out that, on the assumption of a surplus on revenue account of public authorities in 1948 of £275,000,000, and with a net saving of 5½ per cent. of personable, disposable income (it was 8 per cent. in 1947), we could avoid inflation and reach an overall balance on foreign account by borrowing abroad, or selling assets to foreigners, to a total of £250,000,000. As the noble

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Lord, Lord Brand, pointed out, that figure of £250,000,000 as the final overall deficit might to-day be in jeopardy. But we have recently been told officially that, translated to the same basis as the White Paper calculations, the Budget surplus, plus the net result of local authority finances in 1948, would bring out a figure nearer £400,000,000 than £275,000,000. That being so, there is—I do not say it is adequate—some margin left in this surplus which the Chancellor has so courageously preserved intact for us.
Let me now turn to the question of production. The problem of production has many branches, and I am not able or qualified to speak on all of them. There is the vital question of redistribution of labour among our major industries—the so-called problem of the redeployment of labour. On the results of last year, it begins by being a problem of preventing undesirable movements in the distribution of labour, rather than of stimulating the desirable ones. All I can say under that head is that the administrative achievement in the way of redirection of labour to the right industries seems to be rather greater than appears in the figures disclosed up to date. Apart from the question of the redistribution of labour, there is the question of productivity per head, with which the noble Lord, Lord Cherwell, dealt, and on which my noble friend Lord Pethick-Lawrence broke a lance with him. I am not going to say anything on that, because my sympathies are rather with the noble Lord opposite. As an observation which should not be taken too seriously, I would say, however, that if he examines his argument on this head in the Report, I do not believe that he will approve its logical form when he sees it in print. But I may be mistaken on that. Thirdly, there is the question of incentive, with which I will deal later; and fourthly, there is the question of controls, with which the noble Earl, Lord Selborne, dealt. As regards controls, we know that they are numerous, they are vexatious and they may have to continue for some time. But as a crumb of comfort we believe that they are being examined section by section, and let us hope some mitigation will be possible even in the difficult circumstances of the present time.
Now I would like to say a word about incentive. Many people speak as if incentive
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were the whole problem of production, and we are bound to admit that it is a most important part. In setting out to construct this Budget, it is clear that the Chancellor had in mind two main objects. One was to check inflation by establishing a large surplus; the other was, by some means or other, to heighten the incentive among our working population at all levels. Viewing that task beforehand, one might have thought that any re-arrangement of taxation which would accomplish those purposes would be little short of a miracle. Expenditure being what it is—and I will come to that subject later—every instrument of taxation is over-pressed; there is very little elasticity anywhere. On the proposition that relief given in some directions must be balanced by increases in other directions, the problem was extremely difficult and, to my mind, it has been solved with remarkable virtuosity and very remarkable success. The heads of that solution are well known to you and it would be a waste of your Lordships' time if I were to go into them in detail.
First, there is this rather comprehensive scheme of Income Tax reliefs. My noble friend dealt with that, and he made it abundantly clear that relief had been given in places where it was sorely needed. First of all, it affects members of the professional classes in the lower income brackets. My own boy, who is struggling along with a family of three children, rejoices in a reduction of Income Tax in the neighbourhood of £30 a year, and no doubt he will work the better. Married women are encouraged to go out to work, which is important in some parts of the country. My noble friend did not touch upon one important feature of this scheme, which is that the rate of tax upon marginal earnings such as overtime is much reduced, and I cannot help thinking that that may be almost the most important aspect. Finally, a large number of people are exempt who were not previously exempt. There is also the rearrangement of Purchase Tax. That, again, must be viewed as providing considerable stimulus in certain directions, mainly on the domestic side.
The counterpart of these rearrangements and some minor adjustments—all of which cost money, and all of which do raise incentive—was the taxes on beer, tobacco and betting. I will not deal with

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those, though I should have liked to say something about them. I need not, either, say much on the subject of the special contribution, which again has been dealt with rather exhaustively. The cost of the Income Tax reductions, plus the cost of the Purchase Tax rearrangements, came, if I recollect rightly, to somewhere round about £107,000,000 in 1948–49. The compensatory imposts on beer and spirits, tobacco and betting—the three great democratic engines of taxation which are left to us—came to about £65,000,000, which left a gap. I agree with the Economist that it took a politician (and the words are very advisedly chosen) of great courage to preserve the surplus intact. There was a gap of some £40,000,000 this year, and some £56,000,000 next year. The device chosen for bridging that gap was the special contribution, and upon that I say two things. First, I think one should, whatever the merits of the device, attach some importance to the spirit in which it was conceived, and I understand and believe that it was conceived by the Chancellor on the basis that the people with what he considered to be the broad backs would show a certain alacrity in bearing it. That may have been an unjustified hope. In the second place, looking at the other devices which to-day are open to a Chancellor who means to raise money, I could think of possibly worse means of bridging the gap.
We have in this Budget a powerful instrument dealing with two of our present needs, one the correction of inflation, and the other a stimulus to increased production. It is apparent that, rightly or wrongly, the Government do not rely in the main upon these measures for correcting the inflationary situation, powerful as the Budget dispositions are. They are relying above all on the policy which stems from the White Paper on personal incomes, costs, and prices. This it is which, if successful, will moderate our propensities to spend, increase our efforts to work and to save, keep prices controlled and, by agreement—because it must largely be by agreement—produce the essential stabilisation of wages. The Government, adopting a policy which might be anathema to orthodox economists, is relying upon methods of argument,
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persuasion and propaganda such as, in the past, the noble Earl thinks the Socialist Party have used in a wrong way. I think he might give them some marks for the endeavour to use them, in our present critical situation, in the right way.
I have only two further points upon which I should like to say a few words. One is the general subject of reduction of expenditure. One can sympathise heartily with the view which has been put forward to-night that the weight of this Budget is extremely heavy; it is almost of back-breaking dimensions. There is one angle from which that can be exaggerated, the angle being that a large part of the revenue raised by taxes is transfer revenue which is paid out in interest or in social service payments and the like. However, there is another angle from which it is clear that the burden is becoming too heavy, and that is the fact that it is rendering the instrument of taxation a very difficult one to wield. Therefore, one would hope that the burden of expenditure could be reduced, and one would have great sympathy with arguments to that end.
As regards the particular argument put forward by the noble Lord, Lord Brand, that the Government might have deferred some of these measures of social services until the economic house was in better order, I think there again—although it is a politician's point rather than an economist's—it might be remembered by noble Lords who are Party politicians that all the main measures involving new payments were devised and agreed before the present Government was set up, and might presumably have been introduced by a Government of another complexion.
However, there is an answer at the present time to the demand for retrenchment. The first part of the answer is that very considerable reductions have already been effected in the country's expenditure. These have been set out by the Chancellor of the Exchequer in his speech in another place, and the picture was also presented with rather more attractive figures by Mr. Douglas Jay in a speech on the next evening. There is a substantial reduction of expenditure which would be far more apparent if it were not for certain necessary items of expense such as the increase of National Health services by £143,000,000. Even then over £200,000,000 net saving is

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shown on next year's accounts. The remainder of the answer, too, was given in another place. It is that the main possibilities of reduction at the present time are concerned with the dismantling of controls. In present circumstances, it cannot be expected that controls can be reduced except by comparatively minor steps—not indeed until the evil of inflation has been abated and the production situation is more healthy and more normal than it is now.
Finally, there remains the question of food subsidies. Undoubtedly it is a great misfortune, from any Chancellor's point of view, when he has to deal with the taxes of the country, that the Budget should be burdened with an item of £400,000,000 for these subsidies. But I would remind your Lordships that these food subsidies were introduced at an earlier date—during the war, in fact—precisely as a measure of stabilisation to prevent inflation; and they are performing a similar function at the present time. Of course, their removal in proper stages would make life much easier for any future Chancellor; and it is open to anyone to say that it would make the whole economic scene much more healthy. I personally would hope that the reduction of these subsidies, by stages, could be contemplated at no very distant future. But bear in mind, my Lords, that any Government which undertakes to abolish these subsidies—by stages, of course—will find itself obliged, both as a political matter and as a matter of equity, to accept such consequences as may flow from the abolition. In the first place, while world prices remain where they are it will be necessary to increase the amount of the social service payments, and by the ordinary logic which rules these things it will be necessary to accept certain increases in wages and in salaries, those being consequences which in my view are not only unavoidable but fair. It can hardly be argued that steps to abolish the subsidies or to reduce them at present are possible. At this moment: what we are trying to do is to stabilise prices and, if possible, to reduce them, so that under that cover we can secure, largely by agreement, the stabilisation of wages and of economic quantities generally. That is quite essential from every point of view; that necessity rules the situation. Those were the considerations I wanted to offer to your Lordships.
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The noble Earl, Lord Selborne, spoke on a theme which is very familiar and which has haunted the minds of many of your Lordships—that is, that the people of this country as a whole are not taking the financial crisis seriously enough. It is open to anybody who takes that view and wishes to give it political import to suggest what more the Government can do. Propaganda has been pursued by the Government by every means and pursued almost ad nauseam. There is no question of disguising the gravity of our situation; it is evident to all your Lordships. Over every discussion of: his topic, whenever it recurs, there hangs the shadow of possible economic disaster—and one cannot speak those words lightly. A comment was made on a recent politician—a very unkind comment—that he was capable of looking the most appalling dangers straight in the eye—and failing to see them. I hope none of us can be accused of that. I think it would be exceedingly uncharitable to suggest that any of the leading members of the present Government are in that frame of mind.
5.25 p.m.
LORD MONKSWELL: My Lords, the two last speakers have approached: his question from different angles. The root of our financial troubles appears to be that very few people realise where we stand. It is little recognised that the real income of this or any country, as distinct from its money income, consists of the; yearly value expressed in goods and services of all its material assets—buildings of all kinds, roads, fields and other fixed objects; vehicles and other movable objects—together with the goods and services produced during the year by the work of the whole population. To arrive at the country's net income the value of the work done to maintain all fixed and movable assets must be deducted. Effort which does nothing to increase or maintain the production of objects useful to man, such as service in the Forces or the manufacture of munitions, must also be deducted. The most notable effects of war from an economic point of view are that maintenance has to be neglected because most of the man-power normally devoted to maintenance has to be diverted to war work, and at the same time a large amount of wealth is destroyed. Large numbers of buildings and other incomeproducing

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assets having been destroyed and the maintenance of many more neglected, the income which used to come from them has ceased or dwindled. In this way the interest on hundreds of millions of pounds is lost, with corresponding decrease in the national income. This is what has actually happened in this country.
Nevertheless, this is the moment chosen to increase nominal wages, reduce hours of work and promise enormous new subsidies to the old, the young, the poor, the sick, the unlucky and so on. This is not the raving of lunatics but it is what the British Parliament appears seriously to suppose it will be able to do by the simple process of passing laws. Parliament can pass laws and allot as much paper money as it likes to all and sundry, but it is completely impotent to settle the value of money. The value of money keeps pace with the real national income. Unless production of wealth is sufficient to keep pace with the swelling volume of money distributed by the action of Parliament itself, the value of money declines. It is a completely automatic process. The real fact of the matter is that wages, salaries and subsidies are much too high, while the reward of thrift is too low, but no political Party will face the loss of votes which the recognition of this fact would involve. The consequence is inflation. The supply of money for wages and salaries, but not for the reward of thrift, is allowed continually to increase, while the supply of goods and services lags far behind. The value of money being dependent upon the proportion which exists between the volume of money in circulation and the amount of goods and services available, the degree of inflation settles itself. It cannot be influenced by laws or by Parliament unless the proportion is changed.
When the value of money declines, it is possible for any group of persons, if they can exert sufficient pressure on the Government or on the public, to secure for themselves an increase in remuneration to offset the loss they have suffered. So long as other groups do not do the same thing, they can in this way avoid undertaking their share of the burden. But when, as at present, every group of wage and salary earners is perpetually engaged in a struggle to be even with
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the most favoured of the other groups, there is no end to the process. Therefore, as wages and salaries are forced up and up, so is the value of money forced down and down. No doubt, it is possible for wage and salary earners to improve their position in comparison with that of investors in securities bearing fixed interest. By forcing down the value of money and securing a larger share for themselves, they can plunder the holders of fixed interest-bearing securities.
If this were the end, and there were no further consequences, it would just be too bad for the holders of fixed interest securities; they would have to grin and bear it. But this is far from being the end. It discourages thrift, and to discourage thrift is to discourage production. Civilisation rests, and always has rested, on thrift. By work, man produces goods and chattels of two kinds. One kind, like food, can be used once, and is then of no further value; the other kind, like houses, is of permanent utility. Thrift requires the devoting of part of one's income to the production and maintenance of objects of the latter kind which themselves produce more income. Without thrift, civilisation could never have come into existence and, as things are always wearing out, without thrift civilisation must come to an end. Thrift is civilisation's essential support and should be its most cherished and carefully protected possession. The more thrift the better. The man who can save £1,000,000 is much more use in the public than the man who can save £100. I am most emphatically one of those who regard the existence of individual holders of large blocks of capital as of great value to the State. I regard the vendetta against them as suicidal. They have the immense advantage of being able to command the best equipment with the minimum of delay and official obstruction, and, from the nature of the case, they are usually among the more intelligent citizens, having best succeeded in the struggle to make money, in which we are all more or less engaged. Therefore, they are the people most likely to make the best use of money.
Of course, thrift of money is not the only kind of thrift. There are also thrift of effort and thrift of time, both of which are important aids to production and both of which cut right across many of the restrictive customs of British workpeople.

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It is difficult to believe that the Government are in earnest when one finds that inflationary pressure for increased wages appears to be continuing unchecked and no serious resistance is offered to waste of time and effort. A peculiarly disgraceful case was recently reported, and I should like to ask the Government if the particulars are accurate. It is said that a workman at the Government railway works at Darlington reported that time was being wasted. Thereupon 2,000 men struck and demanded his dismissal, which was granted. Perhaps the Government can also tell us whether anything was done to speed up the work or whether the slackness which caused the trouble was allowed to continue unchecked. Thrift of money, time and effort are all one. It is thrift that makes one man better than another. Unfortunately, for this very reason, it is thrift that generates class hatred. To my mind, the most disturbing feature of the whole situation is the blind and venomous hatred of thrift displayed by so large a proportion of our people and actively encouraged by many prominent politicians. Thrift is the sheet anchor of our survival. Without it we die. Yet, those good citizens who practise it are hated, bullied and plundered, and the more successful they are in their efforts to help, the worse they are treated. I hope that some of your Lordships can see the way out. I cannot.
5.38 p.m.
LORD BARNBY: My Lords, most noble Lords who come into this House in the hope of addressing your Lordships find that when our turn to speak arrives, almost everything to which we had wished to draw attention has already been dealt with. Particularly if one comes after a spell abroad, inspired by the enthusiasm of the evangelist or the indignation of somebody offended, one feels confident that one's theme is original. However, in addressing your Lordships this afternoon, I am quite satisfied that my noble friend the mover of this Motion not only gave us a reference to almost all the points to which anybody could with usefulness have referred and which have in turn been reinforced with effect by succeeding speakers, but also gave us a wealth of figures which will take considerable digestion and will be well worth studying.
I am glad that I had the good fortune to follow so quickly upon the noble Lord,
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Lord Piercy, because his engaging and convincing manner of speaking—I am sorry he has just left the House, but I feel I can say it with a greater frankness in his absence—is one which appeals to us. His experience and achievements qualify him to speak with authority on the subject on which he chose to address us to-day. He started to say a great deal with regard to the Budget. I thought that was less important than the subject which had been referred to by so many of the previous speakers and upon which the noble Lord, Lord Cherwell, laid such emphasis—that we are in fact planning to live to a considerable extent on charity. I refer to that point with greater confidence because it was emphasised by the noble Lord, Lord Brand. His contribution to-day will be recognised by all—I think the more so by any of your Lordships who take the trouble to read his words again, as I am sure many of your Lordships will—to be an achievement which admittedly succeeds the two or three notable contributions that he has made before, and which established him as such a valuable addition to this House. Not only does he speak with authority and life-long experience, but that temperate manner which he adopts must convince even some of the noble Lords on the opposite Benches whose instinct is to resist acceptance of any of his purist reasoning.
At this stage I would like to support what was so impressively put by Lord Selborne, and which Lord Brand also supported—namely, the urgent need for greater re-equipment of our industries. This is of as great importance as the correction in our balance of payment. It is obvious that we have not only to export more, but to buy less. Whatever may be the degree of correction under either head, there will be no disagreement about the risks we run by not more rapidly spending money on the re-equipment of our industries. Reference was made to the export targets. I am among those who have grave doubts as to whether those targets will be attained. Lord Selborne gave a striking illustration. From what I have seen in the U.S.A. and Canada, in addition to what one hears from other parts of the world, out costs are rising to a crippling point. I do not fear capacity to produce but our ability to find markets. I have in mind textiles, on which the Government lay importance as

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a contribution. Reference has been made to-day to the importance of making sure that as wage advances occur they shall be accompanied by increases in production. After an absence abroad, I must say that it is a little mystifying to find a proposal for pegging dividends without its being accompanied by a freezing of pay rates, unless with any wage increase there is also increased production. In the industry with which I am particularly concerned—the wool textile industry—the agreement to preserve the status quo on dividends and wages has been broken by a 7½ per cent. increase of wage rates. Presumably the truce is already broken in that industry. I must admit mystification at this development.
My main point in asking your Lordships' indulgence this afternoon is that I have just returned from a stay of some months on the North American Continent. I have travelled widely, met many groups of industrialists, and had many conversations in places from California to Maine. I saw and heard a great deal, and I wish to take this opportunity to make reference to the American outlook. The assistance that we are to receive from the United States means that a Socialist and collectivist Government are readily accepting assistance from an individual enterprise or capitalist State. I want to present the impression of a journey often made before—namely, going across that great Continent and witnessing the stupendous pioneering achievements that have been carried out, and to recognise that they were made possible only by individual enterprise; no bureaucracy could possibly have produced them.
We hear eulogy of their achievements by a Socialist Government here, but when one sees how in Texas, Arizona and California, cities have doubled within the space of a few years, one realises that all the tremendous expansion could never have been achieved except by individual enterprise. The garage hand of to-day is the owner of to-morrow. The U.S.A., with only 7 per cent. of the population of the world, is producing over 50 per cent. of its industrial production. The installed horse-power per operative in the United States is already double that of this country. Lord Pethick-Lawrence made comparisons of production in European countries and the United Kingdom. But he omitted any reference to the production
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per operative in the United States. We should take the highest standard and strive to achieve it. I have unswerving belief in the prinicple of individual enterprise and the normal price mechanism.
I spent a considerable time in Washington, and I availed myself of the privilege which is afforded to your Lordships of spending some time on the floor of the Senate. One can sit there and listen to the debates, and one can also converse with individual Senators. I also attended the House of Representatives. I came away with no illusions as to the perplexity of the average member of Congress in regard to the degree to which the American voter will support the idea of being taxed to provide funds for Governments who carry out policies with which he is in entire disagreement. Let us look at it in regard to ourselves. We are not believers in the totalitarian system of Russia. Would we be enthusiastic in accepting taxation for overseas disbursements on politics with which we were in disagreement? The hard-working farmer in Iowa or Oklahoma has doubts about providing funds for a country working less hard, through a reduction of hours which—desirable as it is in principle—is not appropriate at this time.
I took the trouble to read the Foreign Assistance Bill from cover to cover—which I suspect few members of the Senate or Congress did. Incidentally, I would say here that the common term in the United States is E.R.P. I think we too should refer to it in that way, because it is the European Recovery Programme; it is not directed to this country alone, or to any particular country, but to Europe as a whole. Moreover we hope it will continue when perhaps Mr. Marshall is no longer in a Democratic Administration. I am convinced, as the result of conversations which I had with many Senators, that there is considerable uneasiness as to how long they can rely upon the voters supporting charity on this scale. If Mr. Stassen is elected—and there is good prospect that the Republican Party will win at the next Election—there will be some stiff instructions to the Administrator as to how the funds which come from the sale of these contributions from America shall be dealt with. Your Lordships will be aware that, under the Act, all funds accruing to the recipient Governments under E.R.P. must be subject to the direction and supervision of

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the Administrator himself. That, I suggest, is likely to prove a handicap to recipient Governments pursuing policies of extravagance—amongst which, it is widely held, is the policy of nationalisation.
I would turn for a moment to the inflationary effect of these exports on the United States economy, a matter referred to briefly by the noble Lord, Lord Cherwell. Let us remember that there is a ready inclination in this country for critics of the United States to assume that the removal of controls there has been the cause of rises in prices. It is impossible to measure the truth, or the reverse, of that view. One thing is certain: if you take out of the country all the goods produced under this programme, and leave there all the wages that must have been distributed in payment for their production, it must tend to raise internal costs. Remember that none of these receipts will have gone to reduce internal taxation. I think that it is fallacious to attribute rises in prices to relaxation of controls. Whatever they may be, they have been easily balanced by production following the removal of the bureaucratic impediments and frustrations of which the noble Earl, Lord Selborne, has so brilliantly spoken this afternoon. This strain on the U.S. economy undoubtedly makes the capitalist system appear to work less well than is really the case. This whole system of provision of aid to Europe must, if it is to succeed, receive the continuing endorsement of Congress—and it certainly would be disappointing if policies which would antagonise voters in the U.S.A. and the members of Congress should be pursued unreasonably here We in this country are consuming more than we are producing. This promises the result that applies alike to business and to private individuals. All the warnings which have been so emphatically given by other speakers seem to me to be fully justified. Assuredly, all this help from the United States will be futile unless the recipient countries discontinue the pursuit of policies which tend to unbalance trade and cause confusion, and which may even prevent or interfere with production.
5.55 p.m.
LORD SHEPHERD: My Lords, I looked forward to this debate, anticipating that we should learn something about
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alternative policies which might be adopted if the present Government were to go out or were to make a change. Frankly, I am disappointed because, whilst we have heard a great deal of criticism of the Government, and indeed some charges levelled at them, we have heard little or nothing to indicate what is the alternative to their policy. The nearest that we have come to it was in the speech of the noble Lord, Lord Brand. It seems to be his view that because we are living in a complex society in Great Britain collective organisation is unworkable, and that we ought to depend upon competitive enterprise. It is true that the noble Lord took the precaution of saying that he did not want competitive enterprise entirely without controls. But he seemed to suggest that the only way in which we in this country can survive or recover is by warring against one another for the things that now exist, and to see which of us can become the richest. I therefore have recourse to-night to something that was said in another place to give me the key to what I want to say.
Mr. Harold Macmillan, speaking on April 13, put in a very few words what he appeared to think described our present condition, and I wish just to paraphrase it in order to convey the chief point of it to your Lordships. Mr. Macmillan said, in effect, that if we can check inflation, if we can avoid substantial leakage of our capital assets, if we can get some fair settlement of the raw debts, if we can maintain our savings, if we can cut our imports to the required millions without injury to our exports, if we can expand our exports by the targets which have been proposed, if we can get the right kind of currencies for the exports that we sell, if the foreign markets remain open and continue to expand their imports in a rapidly contracting world, if we can pick up a few millions here and there from the remaining international funds, if Marshall Aid is sufficient in quantity and flexible in form—why then we can scrape through for a year or two.
LORD CHERWELL: That is what you have brought us to.
LORD BARNBY: The millennium!
LORD SHEPHERD: As I was saying, Mr. Macmillan said that if we can do all this we can scrape through for a year or

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two. But Mr. Macmillan did not finish there. He went on to say that these are all tremendous "ifs" and, even so, the main underlying problem remains. That problem is only partly economic; it is also psychological. It is not only material; it is also moral. It is not only national, but it is international. As a Socialist of many years standing, I would like to add another "if." If we can get rid of speculative, competitive capitalism, and substitute the organisation of industry from top to bottom on a basis of cooperation, we can not only carry ourselves over the next few years but secure for all time a well-ordered state of society.
I want to back up the point I have made by reference to some well-established facts, and I hope that at the conclusion I may arouse the interest of your Lordships and, in some degree perhaps, your support. I want to take an industry—namely, agriculture—which has been left entirely alone in to-day's discussion, and I want to take a single product of that industry, wheat—of all foodstuffs perhaps the one which most excites the feelings of the mass of people of the world. Between the two wars there existed at the time when the new harvest was being reaped in all exporting and importing countries vast stores of old wheat. They were never less than 15,000,000 metric tons, and they would rise on occasion to as much as 30,000,000 or 32,000,000 metric tons. I sometimes-asked myself whether those great stocks of wheat consisted of what had been left after human needs had been fully met. I came to the conclusion, and I feel sure your Lordships will come to the conclusion, that that was not the case. Those great stocks of wheat—in some cases more than double the normal world trade in wheat—existed because of the failure of purchasers and sellers to do a deal. Indeed, your Lordships will remember that, apart from the untold millions of Asia and Africa, and apart from the underpaid sections of the population on the European Continent, there existed in this country between the wars a great deal of poverty, of such an intensity that it has been said by Sir John Boyd-Orr that no fewer than 10,000,000 of the people suffered from malnutrition.
There were these great stocks of wheat, both abroad and in this country, and we
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had this poverty side by side with them. Those facts constitute one of the principal reasons for the growth of the Socialist movement. They constitute, also, one of the principal reasons why this Socialist Government of ours intend to pursue their way in the direction they have started. I want now to look at those wheat stocks from an angle which may interest your Lordships perhaps more than the point I have just made. What was their effect on the landlords in this country? What was their effect on the farmers who tilled the soil? And what was their effect on the farm labourers? If those great stocks of wheat had belonged to those people, they would have been part of their wealth, but as they belonged to other people, they ceased to be of interest to those whom I have mentioned. Nevertheless, they had a great effect on the well-being of those living by the land in Great Britain. Let me quote a few figures: they will not be many; and lest I should be asked where the figures came from, I will tell your Lordships that most of them have been taken from the Report of the Preparatory Commission on World Food Problems.
In 1929 and 1937 wheat averaged on the Liverpool market 140 cents a bushel. It may have been that in those years landlords and farmers had something to rejoice about, although I suspect that the profits did not come their way, but rather remained in Liverpool among the brokers, the bears and the bulls. In two years before the war (namely, 1932 and 1939) the price of wheat came down to 55 cents a bushel—a tremendous drop. Those who believe in the law of supply and demand and advocate its usage, those who believe in private deals in the distribution of food, should pause to consider what these two figures mean. What effect on the British farmers and farm labourers had a market, which in one year gave us wheat at 140 cents a bushel and in another at 55 cents? Many in the farming community, rather than lose their entire capital, went out of the industry, or emigrated to other countries. I do not know the number, because I have no figures. There were landlords who reduced the rents to enable their tenants to survive, and there were farmers who applied for a reduction of the wages of their labourers in order to make up the deficiency from that end.

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In the House of Commons on December 18, a question was put to the President of the Board of Trade asking the number of farmers in Great Britain who went into the bankruptcy court during those inter-war years. The President of the Board of Trade replied that the number was 7,456.
With these facts in front of me, as a Socialist, I came to the conclusion that private enterprise, and the absence of over-all organisation, is a destroying thing. It is not a developing thing. And those interested in the land, unless they have a degree of organisation and some control of their products, are unlikely to survive in the struggle which confronts them. Another point about prices which may interest your Lordships refers to the years 1935 and 1936. This is what happened under the old system. In Liverpool in the middle of that period the price of wheat was 60 cents a bushel, in Chicago 75 cents a bushel, in Paris 95 cents a bushel, in Milan 125 cents a bushel, and in Berlin 140 cents a bushel. Why was there that variation of price? It was due first to the action of Governments, and those who supported Governments, in straightening out the difficulties in the markets. Sometimes the price was brought about by taxing at the ports; at other times it was brought about by forbidding imports entirely. We in our Party therefore believe that we must organise through Governments—not merely this Government, but Governments of other countries—the marketing of wheat in the interests both of farmers and of the people Who have to buy.
The question arises: If the old method is not good enough, what is the new method? I would urge the House to give attention to the recommendations of the Preparatory Commission, to whose Report I have drawn attention. The objectives they propose are as follow:
" To co-ordinate and reinforce national policies designed to promote greater stability of wheat prices. To establish a co-ordinated system of world wheat reserves through national holding of stocks. To promote increased consumption, and to provide security for efficient producers."
Then, on the subject of prices, they urge that the Governments of the world together should establish something in the nature of a price at both floor and ceiling levels. I am glad to say—perhaps your Lordships have noticed it—that that has
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now been brought about. The recent settlement that was reached by thirty nations is now before us. Under that settlement the exporting countries are to produce for export 500,000,000 bushels of wheat per year, and the other nations, who are the importers, undertake to buy that wheat from the exporting countries. There is to be a minimum price in the first year of 150 cents a bushel, and a maximum price in the same year of 200 cents a bushel. I myself think that the prices are a little high, but there is an escape clause in the agreement under which, as food increases in production, those prices can be brought down. His Majesty's Government have given their support to the plan, and with the Governments working in that way the interest of the farmers and the consumers should be looked after.
I conclude with this question: If the Labour Party and His Majesty's Government are going to adopt methods of that kind, where do our friends of the Conservative Party stand in the matter? Are they prepared, with the Labour Government, through co-operation with other countries, to control the production of wheat, to control the distribution of wheat and to control the price of wheat? I sincerely hope they will give attention to those points. As I understand it, the Conservative Party now stand, as do the Labour Party, for a fair price to the farmer for his product. They also stand for an assured market to the farmer for his product. Neither of those things can be obtained by going back to the old system of buying and selling that we knew before the war. In the wheat pits of the world, with the bulls and the bears at work, a steady price, a fixed price and an assured market cannot be given. If the Parties of the State can agree together that this shall be done for the farmers, it seems to me that we shall be laying the foundation stone to enable us to get through the crisis that now faces us, and bring days when men and women can have certainty and a sense of security in their position. We will then forget these ugly times through which we are now passing.
6.16 p.m.
LORD BLACKFORD: My Lords, after five days' debate in another place, and almost at the end of a long discussion here, it is not easy to find anything fresh to say on this topic. However, before

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offering a remark or two on the general question, I should like to draw attention to two subsidiary points which seem to me to be of some practical significance, and which have not been mentioned throughout the debate here or elsewhere. The first has reference to the voluntary limitation of dividends. I think it will be found that every company of any importance will accede to the Chancellor's request voluntarily to limit their dividends, at any rate for the next twelve months. Certainly every company in the iron and steel industry will do so. The iron and steel industry is enjoying great prosperity, and is doing very well. A good example of it is afforded to-day by the preliminary statement of Messrs. Stewart and Lloyds, which shows an increased net profit for the year, after tax, of 35 per cent., and would have justified that great company in increasing their dividend from 12½ per cent. to at least 20 per cent. But, in accordance with the Government request, they have not done so. If they did so, then the value of that share would be at least £1 higher than it is, because Stock Exchange prices are always fixed with reference to yield and not to capital value.
The reason why I mention that is that the Labour Government threaten to nationalise the iron and steel industry. It has always been freely rumoured that many influential members of the Cabinet are against that extremely unwise course; indeed, some people have thought that Mr. Herbert Morrison invented the Parliament Bill in order to draw a red herring across the trail and postpone the consideration of the Iron and Steel Bill for a year. However, in view of the categorical statement of the President of the Board of Trade in another place only two days ago, that the mind of the Government is unchanged on this matter, we must take it for granted that proposals to that effect will be put forward in the next Session. The point I want to make is that in former nationalisation schemes—in the case of the railways, electricity and gas—compensation has been fixed by reference to the Stock Exchange value of the securities on a given day. It will be very unfair if the same basis of valuation is made in the case of the iron and steel industry, because they have acceded to the Government's request to limit their dividends, whereas they could have paid a much higher dividend. Therefore I take
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this earliest opportunity of drawing such public attention as I can to that point.
Now I pass from that point to another, which has reference to the transport and electricity stocks recently issued to holders of railway and electricity securities. There seems to me every reason why those stocks should be surrenderable at par, in payment either for estate duties or this special levy. I understand that the point was put to the Chancellor at a Press conference the other day that all Government stocks recently subscribed should be surrenderable in this way, but he turned the suggestion down. I can well understand his doing so, because, of course, anybody who was so unwise as to subscribe to the loan which is now known as "Dalton's two-and-a-halves," now finds that his £100 is worth only £76, and perhaps it is asking rather a lot of Dr. Dalton's successor to ask him to accept that at par value.
But surely the transport and electricity stocks are in a totally different category? The Treasury promised, when those stocks were thrust upon unwilling shareholders, that they would be worth par. That promise has not been fulfilled, because the Treasury made a mistake and chose too long a date for those stocks. Although the electricity stock may eventually work nearer to par, I think it will be many, many a long day before there is much chance of the transport stock being higher than it is now. After all, in four short months it has fallen to 4 discount, thereby becoming quite a competitor to Dr. Dalton's effort. Seeing that these stocks have, as I say, been thrust upon shareholders, and seeing that the Treasury said they would be worth par, surely it would be illogical for the Treasury not to accept them at par in payment of death duties or of special levy, because if they refuse they stultify their own statement. I would ask the noble Viscount who is to wind up the debate, if he would be so good as to spare a moment of his speech, to promise me that he will represent that point to the Chancellor, and if he has any valid objection to it I shall be very interested to hear what it is.
Turning to the general question, I would remark that a man who is consistently living beyond his means may put off the evil day of destitution by living upon his remaining capital or by cadging a present from a rich relative. When his capital

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is used up and when his rich relative is no longer willing to dole out, what is he to do? I have never heard of any other remedy for a man in that condition but for him to work much harder and to spend much less. We are in exactly that position as a nation. For years we have been living beyond our means. We are using up our capital, using up our gold reserves, infringing upon the savings of our capitalists (not only by this special levy but, of course, by death duties and by the penal direct taxation which has to be paid) and, of course, we are receiving charity—large doses of it—from America. The noble Lord, Lord Barnby, who has just returned from the United States, has pointed out that this charity, which is fixed for only one year and is subject to review at the end of that time, may not be renewed, and in any event it is quite certain that one day it will cease. Our capital reserves are being rapidly used up, and in any case Marshall Aid, as is shown in the statement of the President of the Board of Trade and by the comment in to-day's financial leader in The Times, is going only rather less than half way towards bridging the adverse gap which already exists.
I would like to know what plan anybody has, other than much harder work and much less expenditure, when those two advantageous aids end. I have read every word of the debate in another place, I have listened to noble Lords opposite speaking here this afternoon, and none of them offers any solution. The plain fact is that the people are not working harder, and that we as a nation are not working as hard as we used to do. That fact is not being brought home to the people of this country. The Chancellor of the Exchequer makes a speech and says that the workpeople of this country are doing a good job, but two days later Sir Charles Reid, one of the coal controllers, informs an audience of miners in Edinburgh that it takes three miners to-day to do the work that used to be done by two. All of us know in our heart of hearts that throughout the nation nothing like so much or as good work is done as used to be done in days gone by. The noble Lord, Lord Shepherd, asked in his speech if anybody had a constructive suggestion to make. Well, I speak only for myself and, therefore, no propaganda can be made out of me. I say that, all through the nation, we shall in due course be
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forced, whether we like it or not, to work very much harder than we are doing now.
I will pass from that matter to expenditure. The noble Lord, Lord Pethick-Lawrence, and the noble Lord, Lord Shepherd, scouted that subject altogether, but the noble Lord, Lord Piercy, did make some attempt to deal with it. In the end he said much the same thing as Sir Stafford Cripps said in another place when he read out the totals of expenditure under all the different heads and challenged the Opposition to say which of them they would reduce. Of course, that was done in the hope of getting some cheap electoral propaganda, such as was made out of the speech which Sir John Anderson recently made in Scotland on the subject of food subsidies, and the Opposition were not going to be caught like that. I speak only for myself but I would have said to the Chancellor that there is not a Government Department in this country, or one of the Services, in which very substantial economies could not be made without interfering in the slightest with efficiency, but, indeed, improving it. If one were asked to make specific references, I would say that I consider that in the circumstances of to-day it is absolutely crazy to embark upon a new expenditure this year of £143,000,000 for an improved National Health Insurance Scheme. Nor does that expenditure end at £143,000,000. As is shown by a letter in The Times to-day, the employer of 300 hands will be mulcted of an additional £1,000 a year for increased contributions. Every employer and employee will have to pay about two shillings a week extra. The total cost of this new expenditure, therefore, will be far more than the £143,000,000 to which Sir Stafford Cripps made reference three times in the course of his Budget speech.
That is one end of the scale. At the other end of the scale, infinitesimal expenditures which could so well be ruled out go on to make up a great total. I do not think that the fringe of economy has been touched. I believe that before we have finished unheard-of economies will have to be inflicted. Of course, that is a very unpopular policy, and one cannot expect the Socialist Party ever to put it forward. According to the speech of the noble Lord, Lord Shepherd, he is quite complacently satisfied with the way in

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which things are going. But so, I remember, were his Party complacently satisfied in the years 1929 and 1930. In the year 1931, however, they came up against it; and the result was that they were sent into the wilderness for years, because when the people of this country realised their danger their common sense was good enough to make them appreciate the true position.
I promised not to detain your Lordships more than a few minutes and therefore I will conclude by saying that I do not believe that Socialism will work in this country. I am an unashamed supporter of the capitalist system. If we had a population of about half of what it is, if we were still the workshop of the world without competition, as in the Victorian era, if we had not suffered the affliction of two World Wars, perhaps some of the experiments of Socialism might be tried without danger. But as it is we shall be subjected to severe competition, and it is only if we can stand up to that that we can survive. I ventured to offer some suggestions on these lines in a maiden speech which I made in your Lordships' House about six weeks ago, and the noble Lord who followed me characterised my remarks as the efforts of one who had not been able to clear the fog from his mind in moving along the corridor from one Chamber to another. He may be right and I may be wrong; the course of events in the next three years will show.
6.33 p.m.
LORD RENNELL: My Lords, I had not intended to intervene in this debate but there were two points in the speech of the noble Lord, Lord Piercy, which I should like to take up, since I fear that because of the charming manner in which he made them they might pass unnoticed. He spoke in particular about the very creditable effort made by the present Chancellor of the Exchequer to stem the consequences of inflation by creating a true Budget surplus; and thus far I think most of your Lordships will agree with him. Whether all the methods which the Chancellor adopted are equally creditable I am not prepared to say, but no doubt we shall have an opportunity of discussing that hereafter. The noble Lord, Lord Piercy said that the policy which led to the creation by the Budget of this surplus was one which had been started by the
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present Chancellor's predecessor. It seems to me that the admirable calculation that the present Chancellor of the Exchequer made about the nature of a true surplus, and how it should be arrived at, were in terms which we all appreciate and which undoubtedly shed a new light on the way in which a Budget surplus should be calculated; but it does nothing to show how fictitious and wrong were the Budget surpluses alleged to have been made by his predecessor. In fact, it was about a year ago in your Lordships' House that the prospective Budget surpluses were described by a number of noble Lords, including some from these Benches, as being entirely fictitious and as having been calculated in a manner which, in other parts of London, might have earned a great deal of criticism and discredit. I think that possibly the greatest service that Sir Stafford Cripps has rendered to finance in this country has been to show how fictitious those surpluses were.
The second point in the speech of the noble Lord, Lord Piercy which I wish to traverse is that which dealt with possible economies. The noble Lord said, in dealing with possible economies in expenditure in connection with certain social services, that these were political matters and not economic matters. That is a point which surely cannot be allowed to pass. If any of your Lordships, under the pressure of economic circumstances, do not at the present moment find it possible or desirable to live on oysters and champagne, but nevertheless do so, then that is an economic fact, and not a political one. And it seems to me that we are rather in that state of living beyond our means and of requiring a reduction in our expenditure and a more modest outlook on the standards of life which we ought to enjoy. But it is not a purely political issue, and to say that it is is a travesty of the definition of economics and finance. I was glad to see that the noble Lord damned with singularly faint praise the special contribution, which we shall no doubt have an opportunity to discuss when the Finance Bill comes before your Lordships. But I was much struck by what he said to the effect that the burden of taxation in this country is almost too heavy to bear. We on this side cordially agree with that. I would only remind your Lordships of what happens, and what has happened in history, to countries in which the burden of taxation has been too heavy to bear.
6.37 p.m.
VISCOUNT SWINTON: My Lords, I do not propose to stand for long between your Lordships and the noble Viscount the Leader of the House. We all want to hear his detailed reply to the pertinent questions and challenges put to him by the noble Lord, Lord Cherwell, by the noble Lord, Lord Brand, in a most valuable speech, and by the noble Earl, Lord Selborne. I have no doubt that he was informed in advance of the points, but they are certainly all matters which arise—I may almost say, without disrespect, as a matter of course—on the Survey which we have all read. The Survey is all very well in itself. Indeed, after what we have had in the past we must all be grateful for it. It is realistic in its approach, and realistic in its statement of the danger and of the task. There is no talk about recovery being "round the corner." I only hope that the estimates, which I am sure are sincerely made, are more realistic than those given by the late Chancellor of the Exchequer. I will not go in for percentages; I agree that percentages can be made to suit one's purpose—as the noble Lord, Lord Shepherd, well knows.
I was interested in the remarks of the noble Lord, Lord Pethick-Lawrence, on Lord Cherwell's figures. I must say that I thought my noble friend's statistics were, on the whole, not unreasonable. I remember someone once saying in this House, though I have forgotten on which side, "Never make a mistake in your logic; the facts remain at your disposal." The future is in the womb of time; but the past we now see in the light of the present. In the Estimates which the late Chancellor of the Exchequer gave with such buoyant, if inflated, assurance, he estimated our hard currency deficit for 1947 at £350,000,000. In fact, as we know, it was more than three times that amount: it turned out to be over £1,023,000,000. I know the difficulties of estimating when prices are fluctuating, but the error which changes a deficit of £350,000,000 into one of over £1,000,000,000 is more than would be tolerated in any pupil in a lower form, much less in the headmaster himself.
In so wide a field, so well covered in this debate, I would select only a few topics. I entirely agree with my noble friend who has just spoken that the Chancellor of the Exchequer is right to have a
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genuine surplus. I am more doubtful about the method employed to obtain it, but there will be a further opportunity for discussing that. I think it would have been wiser to reduce expenditure and maintain the taxation, apart from the special inducements, to which I take no exception. I say in all sincerity—and in this I am sure that I speak for noble Lords who criticise the special levy—that nobody in this House, or indeed outside it, objects to paying a special levy imposed as a particular tax on somebody fortunate enough to possess rather more than his neighbours, although, under the combined efforts of successive Chancellors of the Exchequer, it is becoming a rapidly diminishing difference. It is not that. We would gladly pay this special import if we believed that it was genuinely for the good of the country and would do its job. What I am very doubtful about is whether it is going to do what the Chancellor of the Exchequer means it to do; in fact, whether it will not do more harm than good.
I do not think that the Chancellor of the Exchequer himself really considers that it will have any effect on inflation, that it will be deflationary, because he has admitted that it will be paid almost entirely out of capital; one person will sell and another person will buy. It certainly cannot help saving; in fact, it must have a most damaging effect upon saving. It certainly cannot help what his predecessor was anxious to secure—cheap money—for the immediate effect of its announcement was to bring Government stocks down several points.
I would pause for one moment to say one word about cheap money. The noble Lord has challenged us, and I always try to be constructive; in fact, I am not sure that I do not offer too many hostages to fortune in this respect. I will tell your Lordships where we stand in regard to cheap money. We on this side of the House are all in favour of a realistic and effective policy. What is more, the man who did far more to create the policy of cheap money, and to make it effective, was not Dr. Dalton but Sir John Anderson. Certainly it has not been helped by Dr. Dalton's nonsensical talk about conspiracy. I do not think the noble Lord, Lord Brand, need be anxious that he was unduly impolite. I thought it was with studied moderation that he referred to

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that curious outburst. What did this late Chancellor of the Exchequer say? When all experts and practical men—I do not mean that the two terms are necessarily mutually exclusive—but some of us are more practical—
VISCOUNT ADDISON: More synonymous.
VISCOUNT SWINTON: More synonymous on this side of the House. When all the experts and "practical men agree, they are conspiring; and when events justify their forecasts, then the events are conspiring. Really, this is going even one better than the Communists. When the Communists want to pull off a terrorist coup, they discover a conspiracy among their political opponents, or even among the members of their own Government whom they do not particularly like. The existing Chancellor of the Exchequer has no doubt taken note of that technique for, in a curious way, Dr. Dalton appears to me to be able to combine both the technique and the vices of the Communists and of Dr. Schacht. We shall all be behind the present Chancellor of the Exchequer in a real policy of cheap money, if it can be obtained by practical and honest means. If the Chancellor of the Exchequer can restore the confidence which his predecessor squandered, and is still doing his best to undermine, and if he will curb Government expenditure, he will be taking effective steps to enhance Government credit and keep the rates of interest down. I make no bones about it in saying again that there certainly should be a reduction in Government expenditure. It is an indispensable contribution which the Chancellor of the Exchequer must make, and a most valuable example when we are all urged to reduce costs and to save.
I make one or two suggestions. As one noble Lord said, I am sure it is true that, when you go through these swollen Departments, the whole spirit of war extravagance is not only still rampant but becoming regularly worse. Frankly, as an old administrator, I am shocked at the approach that I see to these questions of expenditure. Can it be reasonable or necessary that non-industrial public servants should to-day be costing the taxpayer £245,000,000 a year in salaries? That was the figure given (I speak subject
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to correction) a few days ago by the Financial Secretary to the Treasury. I do not criticise the payment of good money to good men, but what we want there, as I think was said about another set of people—I am not sure that it was not generals at one time—are "fewer and better." Nobody will grudge the money paid to good men. The Government themselves estimated at the beginning of 1947—you will find all this in the two Surveys—that the number of public servants during 1947 would be reduced by 80,000. What happened? Actually, they were increased by 14,000. Therefore, in place of this proposed reduction, you have actually 94,000 more.
I take the Air Services. We are told that they are small figures. The noble Lord, Lord Nathan, more than achieved his target last year. He has told us that he is going to beat his record next year. More than £10,000,000 in a year was lost on these airlines. It is alleged that prestige requires this. Prestige can be bought too highly, and I hope that the noble Lord, the Minister of Civil Aviation, is not too proud to economise. After all, I do not see much prestige in losing £10,000,000 a year on nationalised airlines when the Belgians and the Dutch can carry on at a profit. We want from the Government example as well as exhortation. The exhortation given by the Chancellor of the Exchequer, at any rate, is a firm exhortation, although other people do not always speak with the same voice.
I am bound to say that I thought the Leader of the House was a little rash when he challenged the noble Earl, Lord Selborne, on his suggestion about Socialist propaganda in the past. The noble Earl did not carry an anthology with him. In the interval, I have supplied myself with one. May I give your Lordships one quotation? It is this. It is about wages, your Lordships will remember.
" The level of wages depends on several factors, but not in the least on how much the worker produces. If he doubles his production that is no reason why wages should increase by a single penny. Our conclusion "—
that is the conclusion of the Socialist Party—
" is that, however hard the workers work they will remain workers, and poor workers at that."
I should like to draw your Lordships' attention to this passage also:

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" Allied with this propaganda for industriousness you will remember the old Produce more ' cry. I suppose we shall get it again after this war too."
That is an extract from a production by a most eminent author, a Cabinet Minister. It is called " Why you should be a Socialist," and it is described as "A completely revised and up to date version by Mr. Strachey," published by Gollancz in 1944.
LORD SHEPHERD: Would the noble Lord quote the publication, and tell us who issued it?
VISCOUNT SWINTON: I have just quoted it—" Why you should be a Socialist." It is "A completely revised and up to date version by Mr. Strachey," published by Gollancz in 1944.
LORD SHEPHERD: It was not published by the Labour Party.
VISCOUNT SWINTON: Oh, I see! That is very interesting. Here is the doctrine of collective responsibility! We have been seeing a little of it lately. I did think there was at any rate one motto which held some repute in practice among politicians, and that was that you all "Hang together to avoid hanging separately."
LORD SHEPHERD: The Labour Party publishes a programme, and it is generally known that that programme is the policy of the Party. From what the noble Viscount has just said, I understand that that publication is not a Labour Party publication and is, therefore, not necessarily Labour Party policy.
VISCOUNT SWINTON: That is very interesting. It would have been interesting to know whether the noble Lord, who, I think, used to be the boss of the Labour Party (or, should I say, the organiser of victory?), is now saying that unless it has his approval it is no good.
LORD SHEPHERD: I do not say that.
VISCOUNT SWINTON: Does the noble Lord repudiate Mr. Strachey?
LORD SHEPHERD: I do not agree with what you have read.
VISCOUNT SWINTON: That is very interesting. It would perhaps have been more effective from a voting point of view if the noble Lord had said that before the election, and not after. I will leave him now to settle with Mr. Strachey. We will
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certainly remember that, on the authority of the late Organiser of the Labour Party, no attention is to be paid to what any individual Minister says, however vocal he may be.
LORD SHEPHERD: I do not say that.
VISCOUNT SWINTON: We must all do our best to close the gap. By that I do not mean the gaps in the Labour ranks, I mean the more serious gap which confronts us in our national life. In happier days invisible exports made a large contribution. We must try to get back to them. It will be difficult to restore: hat position by saving, but we must try all we can. Invisible exports produced some great figures, but a large part of them were built up by something which in these days we ought to be most careful to endeavour to restore and maintain—by this country being the great market and the great clearing house for many of the commodities of the world besides money. A great deal goes with that, and with the confidence it begets. The markets came here, and, as the noble and learned Viscount on the Woolsack knows, the arbitration clauses in every agreement had to be settled in London. It was not only money, hard currency, which came from that, although there was a great deal of it; it was the confidence which flowed from that position. Does not that show what folly it was, for example, to wipe out the Liverpool Cotton Exchange?
The major contribution, however, must be made by our industry and commerce. Industry has financial and production problems and the two are closely linked, and the Government must help, or at any rate not hinder, in both. I would say that the aim in industrial finance should be, first, to encourage the creation of reserves so that companies may re-equip and may engage in research and development in the only way they can—namely, by ploughing back into the business some of the profits they have made. That is essential if we are to have increased production and lower costs. I entirely agree on this matter with Lord Brand; the last form of capital expenditure I would like to see curtailed is capital expenditure in the modernization of industrial plant. But that does not mean that we can afford everything; we must put first things first.

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For the time being I think companies should not increase distributed dividends. I do not say that because increased efficiency and risk are not entitled to their reward. Certainly we are not in the least ashamed of the fact that profits are made. I am sorry that under private enterprise 7,000 farmers went bankrupt in a particularly difficult year. What I am anxious about is whether under the present Government's régime it will be not 7,000 people but 47,000,000 people who will go bankrupt by the losses which are made on bulk purchasing and by the nationalised industries. I am not at all ashamed of efficiency getting its reward, but spending power must be temporarily withheld. That is well secured by the very high rate of taxation on Income Tax and Profits Tax, coupled with what has been most honourably observed, the undertaking by industry to limit distributed dividends. But I would say, as a counterpart, that it is the Government's bounden duty—and I know there are many experienced noble Lords on the other side of the House who agree—and it is right, to encourage the creation of reserves and the ploughing of them back into industry. I hope the present Chancellor will consider abolishing his predecessor's ill-considered and tendentious penal tax on the capitalisation of reserves.
There are two passages in the Chancellor's Budget speech which I think are as true as they are relevant. In the first passage I quote he is speaking of time, and he says:
" Time, I would remind the Committee, is the scarcest commodity of all to-day, and we cannot afford to waste a moment of it."
The other passage is this:
" We must maintain a great degree of flexibility as these plans develop, so that we can manufacture for the countries which send us additional supplies the goods they need, at the price and quality they can afford, in return for the imports which we need from them. This is not a matter which is capable of precise regulation by the Government. It must be left to close co-operation between the Government and industry."
Time! I wish he had convinced some of his colleagues two years ago or even one year ago that we could not afford to waste or lose a moment of time. Now time can be lost in two ways. It can be lost first of all by not getting down to the job soon enough. Here, frankly, I think the Government are grievously to blame.
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But the more important it is that we should make up for lost time now. Time can also be lost, and, in the aggregate, a great deal of time is lost, on the job. Factories, like trains, lose time if they are stopped or slowed down. The bottlenecks due to excessive and meticulous controls have just the same stopping and time-losing effect in factories as continued signals or breakdowns would have upon the progress of a train. The White Paper says somewhere that no system of control can make nine tons do the work of ten. That is perfectly true. But excessive controls, meticulous, delaying, unintelligent controls, may make nine tons do the work of eight. And I believe it is that which, in some cases, leads to what has been called a statistical famine.
I come back to the old plea for the Government to give the general directives and the general economic intelligence and to trust industry and commerce to carry out the tactical operations. The last time we debated this subject, the Government, in their reply, were not unfriendly to what I said. I hope that that is going to be evidenced in action. I am sure they need not be afraid that industry will not conform to their general plan. But it is only by giving directives and by giving industry some free play that the real partnership between the Government and industry which we need to-day will be established. The Chancellor spoke of the need for flexibility. I think he was right. He might have added that no Government Department can possibly know the infinite variety and complexity of the export trade. In the experience of manufacturers and traders, we have a priceless asset in the know-how. But they must have a wide tactical discretion as to how to apply their knowledge. We need merchant adventurers just as much in the new world as ever we did in the old, and they must have reasonable freedom to conduct their adventures. It cannot be done on Government sealed patterns and Government blue prints. We have to be flexible to meet changing conditions where so much is uncertain and so much is outside our own control.
But we want certainty in planning and operation where we can get it, and the greatest certainty as well as the best opportunity in the development of mutual trade lies in our Commonwealth and Empire. I believe that that is common ground between us to-day. The Colonial

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Empire can not only supply us with the food and raw materials that we need, and take an increasing share of our exports to our mutual advantage, but it can be a great earner of dollars as well. In this matter, I hope the Government will go for first things first. I am all in favour of big planning, but do concentrate first on what can give the quickest and best returns. I think it is equally accepted that development of Commonwealth and Empire trade is not in the least inconsistent with European co-operation; it is, indeed, its necessary counterpart and complement. The more trade that is done within the Customs Unions, or within what I have called before the looser trading association of the British Commonwealth, the more prosperous the individual countries will be, the quicker they will restore their own economies and the more trade they will do with the rest of the world. Here again there can be no sealed pattern. We must be flexible. I beg the Government to avoid the danger of committing themselves to a rigid formula or to a uniform system.
I am grateful to the noble Viscount the Leader of the House for the undertaking he gave me on behalf of the Government the other day, that the Havana Charter will not be ratified until it has been brought before both Houses of Parliament. I have not studied the latest version sufficiently, and frankly I am very nervous of it, particularly at this time. But what is vitally important is the spirit and the intention. The British Commonwealth and the countries of Western Europe are anxious to co-operate in their own interests and in the interests of the world. What matters is the common aim and objective. If countries believe that that is the right objective—genuine co-operation—they will work to it and play the game. If they do not believe that, they will find a way round the highest hedge or the most carefully drawn formula. I would say, do not try to make the rules of the club too rigid.
" Many roads thou hast fashioned. All of them lead to the light."
In practice, such success as the Government have obtained in breaking down restrictions and increasing trade with countries which have been imposing restrictions have not been by some great broad universal formula but by carefully
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conducted bilateral negotiations. What is needed is the right aim, but no rigidity. Let there be plenty of flexibility in its application and, all over, the same outlook, the same spirit; let there be leadership, united effort and individual responsibility.
7.9 p.m.
VISCOUNT ADDISON: My Lords, with what the noble Viscount, Lord Swinton, said in the latter part of his speech, as he knows well, I am in full agreement; and the pledges I gave with regard to Havana and other matters will, of course, be kept. I agree with the noble Viscount, very sincerely, as to the necessity of maintaining flexibility in our methods. I will refer later on to what the noble Viscount said with respect to developing supplies and increasing trade within the Commonwealth and Empire. Leaving aside the noble Viscount's usual skilful and charming dialectics on Party matters, I will say that he contributed a most valuable and helpful speech to our debate. I followed as closely as I could the complicated array of figures which the noble Lord, Lord Cherwell, paraded before us, but I cannot pretend that I shall be able to comment upon them all. Indeed, I do not think that at this time of the day the House would expect me to do so. But I will comment on two or three of them.
At the end of a long series of interrogations the noble Lord asked us this question: "Dare this Government bring these facts before the people?" I took this down, I think, correctly. I do not know what he wanted us to do, but for my part I do not believe there has ever been a British Government that has displayed the clear facts before the people with more frankness than this Government. I am not saying anything about whether we have achieved well or ill, but at least we have tried to tell the people what the facts are. I am sure that we cannot be accused of not daring to tell them how unpleasant things are. So I was perplexed when the noble Lord addressed that question to us, at the end of his catalogue of crimes and wickednesses and inefficiences. Earlier on, he glibly asked why we were not able to buy by our exports everything we wanted, as we did before the war. What a strange question! Before the war! Something has happened since that happy day when

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we were able to buy what we wanted by our exports.
LORD CHERWELL: I did not ask that question of the Government. I said that the people of this country are asking that, and I do not think they understand the answer.
VISCOUNT ADDISON: I took the words down as well as I could. The noble Lord asked the question in the House and that is good enough for me. I do not propose to answer it; the reply is self-evident. 11,000,000 tons of British shipping were sunk or damaged. Goodness knows what happened to our overseas investments! I need not occupy the time of the House explaining why this country, after its immense sacrifices and prodigious losses, is not so well able now as it was before the war to buy all our imports. I will not delay the House by pursuing that topic any longer.
I shall reply to one or two points of which the noble Lord was good enough to give me notice. He asked why should £64,000,000 more have been spent abroad on profits and interest in 1947 than in 1938. The reason is, that in 1938 we were a creditor country and in 1948 we are very heavy debtors. We have to pay interest on the immense balances held against us.
LORD CHERWELL: Funded long-term interest?
VISCOUNT ADDISON: Funded sterling balances. The noble Lord, referring to Table VIII in the Economic Survey, pointed out that there was a surplus in our investment receipts of £73,000,000 in 1946 and a deficit of £20,000,000 in 1947. I have inquired how that has been arrived at. A very complicated series of tables have been supplied to me, but it is an entirely honest calculation. The main reason is that in 1947 British concerns abroad started upon the re-equipment of their damaged industries and properties. The money sent abroad is for the re-equipment of British concerns all over the world, and a large part of it is for the re-equipment of the oil industry. I will make reference to that later.
The noble Lord also commented on Government capital expenditure and expressed surprise that the figure was to be £1,800,000,000. I noted what he said
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with great care, and I was overcome with surprise. I hope that I may fairly assume that the noble Lord has studied the other figures with more care than he has studied this, because he is dreadfully out. The figure relates to the estimated amount of money required for increased capital equipment, for what is described as "investment capital equipment and improvement, public and private"—I repeat, and private." Here I come to a point raised by the noble Viscount—namely, the importance of making sufficient provision for depreciation and other reserves to enable this equipment to be provided. I entirely agree with that. The estimated figure for depreciation allowances, which makes up part of the £1,800,000,000, was about £700,000,000 last year, and is estimated to be about £800,000,000 this year. Where is the rest of the money which will be required for capital investment to come from? I will give the actual Government figure. Here, may I say that I appreciate sincerely what the noble Lords, Lord Brand and Lord Rennell, said about the character of the Budget statement on this point.
The normal surplus was £787,000,000, but the Chancellor of the Exchequer has taken great pains to exclude items—like the sale of Government stocks—which are not really part of a dependable surplus. When they are excluded, the real surplus on revenue account is £598,000,000. That figure is reduced by the amount of Government capital expenditure, which is £279,000,000. When we take this from the £598,000,000 of real surplus, we have, as the net surplus, £319,000,000. I make this somewhat lengthy explanation because I was so horrified at the noble Lord's figure of £1,800,000,000. I have since taken considerable trouble to ascertain the facts, and I think he must have been looking at the wrong column. Apart from that, I would like to express my sincere agreement with what the noble Viscount, Lord Swinton, said as to the necessity for making as much capital as possible available for capital improvements, and for directing it into the right channels. I fully agree, also, with what the noble Lord, Lord Brand, said as to the vital need for improved capital equipment in the industries of this country.
I will now mention, quite briefly, some of the facts of our effort. Re-equipment is required in every industry, but perhaps

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more than any other in the vital textile industry. As we know, the textile industry is one of our best dollar earners. And, in that connection, I think it is right to draw attention once more to that element of the Budget which gives relief in Income Tax to the lower income levels with the idea of encouraging production. The earned income relief is £46,500,000, the reduced rate relief £50,000,000, and the relief in respect of married women's allowances is £101,000,000. I see that since 1945, in Income Tax relief on the lower scales of income, this Government have provided no less than £581,000,000—an immense figure.
I would refer to one other point which the noble Lord, Lord Cherwell, raised quite properly, and which has caused every one of us great anxiety—that is the drain on our reserves in the non-sterling countries. It was very great last year, and we all know what disastrous consequences it had. I know the House will be glad to be informed that we now have firm agreements with both India and Pakistan, and with other countries, putting a precise limit, which is absolutely essential, upon the drawings on the central fund. We have also good working agreements with Australia and New Zealand to the same effect. Therefore, whilst: I myself would be reluctant to give any figures, it is estimated that we shall keep the drawings on the fund for the first half of 1948 down to a very much lower figure (I have the figure here, but I will not quote it) than it was last year. I refrain from quoting the figure because we have so often been disappointed.
I would now like to make one or two comments on our efforts to bridge the gap. I do not want to say a word to minimise the gravity of the situation. Heaven knows, it is dreadful enough. This country is confronted with a situation that is almost unprecedented, and I freely accept that there are only certain ways out of it. We have to spend less and produce more. That is obvious. We have said so from one end of the country to the other. It is nothing new; it is not a discovery of to-day. Far from it! Indeed, the Government have incurred considerable unpopularity in some quarters by saying it rather loudly. But, be that as it may, we have said it, and it is true. In this respect, when I listened to the noble Earl, Lord Selborne, my mind went back to the days when he was opposite me in another
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place, and how he belaboured me sometimes for my sins in various offices in the Government. It was quite like old times to hear him on the subject again. But I think he rather overdoes it, if he will allow me to say so with respect. He seems to single out the unfortunate working man and the Labour Party for all his censures.
I do not propose to go back into past history but, to tell the truth, we are the inheritors of many things for which we are not responsible. No doubt extreme things—and sometimes, perhaps, foolish things—have been said by people when describing the worst features of the capitalist system, of which I am sure nobody is more ashamed than the noble Earl himself. No doubt you can find extracts in one paper or another condemning this system. But that has nothing to do with the policy of realities, and I will come back to realities now. In the first place, our great handicap is the increase in prices, which is something like 60 per cent. We can only do our best to put the brake on that. I think the White Paper and the efforts of the Chancellor of the Exchequer are courageous indeed, and every noble Lord will hope that they will be successful.
The first element in our self-help is clearly increased production. In the coal and steel industries we are at the present time up to the targets. Let me just say a word about steel. The noble Lord, Lord Cherwell, seemed to question whether there was a real shortage of steel. That was most astonishing. Without a doubt there is a shortage of steel. In the first place, we have not been able to import as we did before the war. I see that the diminution of imports was more than 1,000,000 tons in 1947, as compared with 1938. There is at the present time an entirely unprecedented demand for factory construction, for rebuilding, and all the rest of it. Some hundreds of thousands of houses, and many factories, have been destroyed or damaged all over the country, and there: is an unprecedented demand for steel. We only wish that it were not so. However, the fact cannot be questioned, and I was somewhat surprised that the noble Lord should question it. In many other industries we are up to the target, but in one industry in particular, which is of vital importance, we still have a long way to go—that is in textiles. Here we need not only the re-equipment of which the noble Lord spoke

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but many other improvements as well. With regard to agriculture, I can report at present that quite good progress is being made; and with regard to some elements of it (I will not give the House the details, though I have them here) we are in advance of the programme. The production of fertilisers has exceeded the target by a very large amount, which is most encouraging. Some other industries are still disappointing, and I am afraid that I must hark back to textiles, for there is no target for increased production more important than that, and at the present time we have not realised the target.
I need say little or nothing here about the export drive, although that is, of course, vital. However, I would like to say a word about increased supplies from non-dollar sources. I come now to what the noble Viscount said a minute since. We are making immense efforts to expand the supplies from the Colonies and, with the co-operation of the Dominions, from non-dollar areas. We have about three years under the Marshall Aid—and no more, I think—to try and develop those sources of supply as they will need to be developed. I know that it will take time, but I hope that the three years will be enough. The fact is that by the end of three or four years we have to obtain supplies of food, materials and other things from sterling countries in a much greater volume than we are now doing, if the assistance given by Marshall Aid—which of course will taper out as the years go by—is to be sufficient. One of these supplies I would like in particular to mention, because it arises out of the table which the noble Lord, Lord Cherwell asked me about. I am quite sure that in the coming years we must develop sterling oil. We are spending an alarming number of dollars on oil, as we all know, although we obtain a great many dollars from our own sterling oil production. But I am glad to say that there are very ambitious plans for improving the quantity of sterling oil in the provision of refineries and other installations connected with the oil companies. If the noble Lord, Lord Cherwell, were to consult with the engineers who are advising these companies, and were to ask them whether they had any difficulties in obtaining sufficient steel, I think he would be no longer in any doubt as to the facts of the case. However, that is a source of supply which
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must be substantially developed during the next few years.
I am sure the House will expect me to refer here to what has been said with regard to the Marshall Aid scheme—this great scheme of international co-operation, the generosity of which is unprecedented. It does not cover the whole of the gap. We shall have to make economies and we shall have to develop other sources of supply, as I have just been indicating. But it does give Western Europe and ourselves an opportunity. I have little doubt that, as time goes on, there will be many discussions in your Lordships' House upon the progress that is being made. Therefore I will not anticipate anything, but I would like to pay this tribute to the scheme on behalf of my colleagues here. We are doing our best, too, to curtail the rise of prices, and the rise of salaries, wages and so on, which contribute to increased costs, and in doing so we are incurring considerable unpopularity in some quarters. But nobody can accuse the Chancellor of any lack of courage in this vital matter, and I think we are approaching it in the right way. I do not think, for example, that the unfortunate effect upon savings which the noble Lord, Lord Brand, anticipated would follow from the special levy will be realised. I cannot help but think that he was more despondent in his outlook on that than need be. After all, I understand that the total number of persons estimated to be affected is about 125,000, the vast majority of whom will be people with relatively small amounts above the £2,000 level. I quite expect that the influence of the levy upon them will be to diminish their expenditure which is, of course, what we want. I do not think we shall find that it will have the depressing effect on savings which the noble Lord anticipates.
Before I sit down, I will just complete the sum in arithmetic which I started some time ago, when I was accounting for the £1,800,000,000 required for investment purposes. £800,000,000 was put down to allowances for depreciation. There will be a real revenue surplus in the calendar year—not the financial year—of about £400,000,000. If you put that to the money made available by depreciation of other things you will discover that we have still to find—if you have allowed for imported supplies which we have not paid

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for—some £400,000,000 from real savings. The figure last year was over £700,000,000, and I sincerely hope that it will be more than £700,000,000 this year. At all events, it is quite evident that the estimates of the Budget, and the provision of real savings as a contribution towards this accumulation of resources, will leave us with a good prospect of encouraging personal savings to do more than fill the gap. Finally, I hope we shall find that in the course of the year our experience will induce the noble Lord below the gangway, Lord Brand, to be a little less despondent about the effect of this levy than he seems to be at the present time. I would like at the same time to join with many other noble Lords and conclude my observations by thanking him for one of the most informed and valuable contributions I have ever heard upon this subject in this House.
6.37 p.m.
LORD CHERWELL: My Lords, we have all listened with great interest to the speeches which have been made on the other side of the House. I am glad that the noble Lord, Lord Pethick-Lawrence, says that figures can be taken seriously only if they have been examined. We all agree about that, and I had hoped, of course, that he had examined all the figures in the Survey and that I did not need to go into these matters in great detail. As to output per head, I think the noble Lord, Lord Barnby, has answered that question. The noble Lord, Lord Pethick-Lawrence, said: "We produce more than other countries in Europe," but he did not ask: "Why do we produce so much less than the United States? "Nobody answered my simple straightforward question. According to the Government figures, we have 98 per cent. more people on exports, and we are producing only 28 per cent. more exports. After that it does seem to me that it is no use saying that the people are producing as much per head. The noble Lord seemed to be under some misapprehension about this business of output per shift. We agree that there is a bigger output per shift, but people work fewer shifts. If the noble Viscount, the Leader of the House, before the King's birthday, were recommending the efforts, let us say, of Lord Walkden, and said, "Oh, he has done an awful lot more work; his speeches are twice as long as they used to be," and
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forgot to say that he spoke only half as often, he would not be giving a fair picture of the noble Lord's activities. That is what is happening in the mines.
The noble Lord, Lord Shepherd has gone, but he tells us that according to Sir John Boyd-Orr 10,000,000 people suffered from malnutrition before the war and that is why he is a Socialist. I seem to recollect the Under-Secretary for the Ministry of Food saying that on the wireless, and I am glad there is something on which he agrees with some Minister. But on that standard, I would beg to point out that there are 30,000,000 people in this country suffering from malnutrition to-day. It is no use pretending that everything in the garden is lovely when, of all the countries in Europe, Britain is the one from which most people want to emigrate, as was shown by a Gallup Poll published the other day by the News Chronicle, which is certainly not a Tory paper.
I now venture to come to what the noble Viscount, Lord Addison, said. He complained of my complicated array of figures and said in effect, "Look at the way we have put the matter before the country Look at our Digest." The Digest, as far as I can estimate, has over 100 pages, each containing about 300 figures. If members of your Lordships' House could not follow the twenty or thirty figures which I gave, I do not think we can expect the country to read the Digest with great success. The second point I wish to mention is that of capital expenditure. I do not think I said it was Government capital expenditure. I said "the Government plan capital expenditure." If I said anything else, it was a slip of the tongue. The Government plan, and they boast of their plans.
VISCOUNT ADDISON: No, that £1,800,000,000 is not Government-planned capital expenditure; it is an estimate of capital expenditure that will be incurred. It is not planned by the Government We are responsible for the £279,000,000.
LORD CHERWELL: If the Government say that people can spend £1,800,000,000 in this country without Government blessing or support, I am very much surprised
VISCOUNT ADDISON: That is a different matter.
LORD CHERWELL: The noble Viscount said just now that they will direct capital expenditure into the proper channels. If they can direct, they must take responsibility for it.
The noble Viscount mentioned investment income. But the drop in our investment income accounts for only 4 per cent. of the cost of our imports. As for shipping, the drop in shipping receipts is only one-fifth of 1 per cent.; that does not make much difference. He told us that £64,000,000 was long-term interest on the sterling balances. I was certainly not aware that these things had been funded and that these rates of interest had been agreed. I think it would be interesting to the country to know what has been agreed. I am glad to know that £93,000,000 was expended last year in the form of re-equipping firms abroad. But I am surprised that we have been able to send £93,000,000 worth of stuff out of the country to re-equip firms abroad. I only hope that the amount sent to expand our oil production in the sterling area will not lead to a big increase in military expenditure there. But the principle is good. As to steel, I trust we shall get a Steel Budget. Why should not the country know what happens to the steel, what the stocks are, and who is getting it? It would cause a great deal of satisfaction amongst many people.
I do not wish to detain the House any longer. I am reminded sometimes of the Hegelian Scottish Minister who prayed, "Oh Thou that enjoyest the singular privilege of uniting within Thyself all contradictories … ", when I hear noble Lords answering these points. At any rate, the noble Viscount the Leader of the House agreed that we should spend less and produce more.
VISCOUNT ADDISON: Quite right.
LORD CHERWELL: I am so pleased at that that I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

ROUND OAK STEEL WORKS (LEVEL CROSSINGS) BILL. [H.L.]
Reported, with amendments.
SOUTH LANCASHIRE TRANSPORT BILL. [H.L.]
Reported, with amendments.

DUDLEY BRIERLEY HILL AND DISTRICT GAS ORDER, 1948.
Special Order proposed to be made on the application of the Dudley Brierley Hill and District Gas Company:
Laid before the House (pursuant to Act) for affirmative Resolution, and referred to the Special Orders Committee.

TIVERTON GAS ORDER, 1948.
Special Order proposed to be made on the application of the Mayor, Aldermen and Burgesses of the Borough of Tiverton:
Laid before the House (pursuant to Act) for affirmative Resolution, and referred to the Special Orders Committee.

BANGOR GAS ORDER, 1948.
Special Order proposed to be made on the application of the Mayor, Aldermen and Burgesses of the Borough of Bangor:
Laid before the House (pursuant to Act) for affirmative Resolution, and referred to the Special Orders Committee.
House adjourned at a quarter before eight o'clock.