§ Order of the Day for the Second Reading read.
§ LORD MORRISON
My Lords, your Lordships are no doubt well aware that the main purpose of this Bill is to put into legislative form, where necessary, the proposals made by the Chancellor of the Exchequer when he introduced his Budget in April last. In those circumstances, I hope it will meet your Lordships' wishes, if I give but a brief summary of the provisions of the Bill, followed by an equally brief summary of the purpose behind it. The Bill, of 82 clauses and 11 Schedules, is conveniently divided into 8 Parts. Part 1 imposes increases—I think I may say, modest increases—in duty on tobacco, beer, wines and spirits. It also extends by four years the period of stabilisation of the margins of Imperial Preference on sugar; extends the life of the key industry duties by three years; and enables effect to be given to obligations accepted in the Geneva Trade Agreement in relation to silk and artificial silk apparel, agricultural tractors, motor bicycles and motor tricycles, patent leather, rice and prunes. The rate of tax on football and other pool betting is increased from 10 to 20 per cent., and a licence duty is imposed on bookmakers operating on those dog race-courses where totalisators are operated. Provision is 1209 also made for the reduction of entertainments duty on "living" entertainments and for the complete exemption from duty for entertainments held in rural areas.
That brings me to Part II of the Bill, dealing with purchase tax, which represents the results of a comprehensive review of the scope of the tax, and long and detailed examination in another place. The new Schedule, the Eighth Schedule of this Bill, covers substantially the same goods as the old Schedules, but the goods have been regrouped and to some extent redefined so as to make their scope more precise. There are now only three rates of tax—33⅓rd percent.66⅔rd percent, and 100 per cent.—instead of five. The highest rate is applied to luxury goods, and the most essential goods within the scope of the tax have been moved to the lowest rate, while food, fuel, utility clothing and utility furniture remain exempt. Part III of the Bill deals with income tax. It maintains the standard rate of tax for the current year at 9s. in the £. But earned income relief is increased from one-sixth to one-fifth., and the maximum relief under this heading is increased from £250 to £400. In addition, the band of income charged at reduced rates is widened and extended to cover married women at work.
Part IV of the Bill aims at checking an abuse, by providing that all expenses, allowances and benefits in kind provided for directors and senior officials of companies shall be assessed on the recipient under Schedule E. Part V of the Bill deals with the once-for-all special contribution from taxpayers whose total income in 1947–48 from all sources exceeded £2,000, of which investment income accounted for more than £250. No purely earned income, however large, will be liable to the contribution. The charge will be on the excess of investment income over £250, on a sliding scale ranging from 2s. in the £ to 10s. in the £ on investment income of over £5,000. Part VI of the Bill deals with profits tax on certain payments between connected companies on expense allowances and payments in kind made to directors or employees. This latter provision is consequential on the provisions of Part IV of the Bill. Part VII deals with minor amendments of the law on stamp duty, 1210 and Part VIII deals with a few miscellaneous points, of which the most important is the provision as to the permanent annual charge for the National Debt, which this year is reduced from £525,000,000 to £500,000,000.
So much for the Bill itself. I promised to summarise briefly the purpose behind it. The purpose is, no merely to balance income against expenditure, but to implement the Government's financial and economic policy. That policy is to counter inflationary tendencies, to redistribute to some extent the burden of taxation, to provide incentives for wage earners and the salaried classes, to encourage married women to go into or to return to industry, and to assist the housewives. The Chancellor has deliberately budgeted for a surplus of income over both revenue and capital expenditure of more than £300,000,000. This surplus will be used—indeed has been used to the extent that it has already materialised—to counteract inflationary tendencies, by relieving the Government of the necessity to renew borrowing to that extent. The redistribution of the burden of taxation under this Bill is achieved in the main by the reductions in direct taxation and the increase in the indirect taxation on tobacco and alcoholic drinks, and the once-for-all special contribution.
It is obvious that the income tax reliefs will benefit to a greater or lesser degree all workers. The majority of them will not have to pay any tax at all at the full standard rate of 9s. in the £ and administrative, professional and scientific workers earning up to £2,000 a year will receive much deserved relief. This relief should provide incentive to more production or, at the least, remove the "dis-incentive" which is, I am afraid, inseparable from high direct taxation. The proposal to give married women in industry the same income tax allowances from their earnings as are given to single workers will, we hope, encourage more of them to help in the production drive. Lastly, the housewives. The new purchase tax Schedule to which I have already alluded includes many reductions in tax, and most of them are aimed at benefiting the housewives. I need only mention the reductions from 50 per cent. to 33⅓ per cent. on gloves, haberdashery, carpets, rugs and matting, carpet sweepers, washing machines and cutlery, to show that the housewives have not been forgotten.
1211 I hope this brief summary is sufficient to give your Lordships a general idea of the scope of the Bill. The proposals I have so briefly outlined, and the purpose they are intended to serve, were, no doubt, not altogether unknown to your Lordships, even before the Bill was presented, and it is for that reason that I have not sought to detain your Lordships with a lengthy exposition of its provisions. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Morrison.)
§ 3.0 p.m.
§ VISCOUNT SIMON
My Lords, I am sure we are all grateful to the noble Lord opposite who, in his pleasant way, has put before us a carefully prepared summary of the contents of this Finance Bill, with a few observations as to its purposes. In these days, of course, your Lordships do not attempt to alter the contents of a Finance Bill. Thirty-eight years ago, your predecessors made some attempt to alter a Budget but badly "burnt their fingers" in the process; and no one has ever suggested that this House should resume those powers. None the less, the occasion of the Second Reading of a Finance Bill in this House is an important one. It is an occasion when we can survey the financial situation and the way in which those in authority are seeking to deal with it. And certainly the financial situation is difficult enough. We have in this House a number of members—some of whom may be taking part in our debate this afternoon—with special qualifications to speak on these subjects, and it is useful to take this occasion seriously.
The last time we had a debate on the Second Reading of a Finance Bill in this House, the upshot was a little unfortunate. A number of speeches were made, some of them (like that delivered by the noble Lord, Lord Brand) of undoubted authority and weight; but the hour was late and the noble Lord who, I understand, is to reply for the Government today, did not find it possible on that occasion to give a very adequate response. On this occasion, I shall confine myself to a few concrete points, and for greater security I have provided the noble Lord, Lord Pakenham, with a note of them. I shall therefore hope for a more 1212 adequate reply than was received by those who spoke on the last occasion. I have one or two critical things to say but, first of all, I think we ought to acknowledge the stalwart effort that is made by the present Chancellor of the Exchequer in this Budget to correct the unhappy tendencies which were, I fear, fostered by his predecessor. We all acknowledge, frankly and gratefully, the effort which the present Chancellor of the Exchequer is making to invite the country to a more realistic approach to our very grave financial situation, and to obtain—as the noble Lord, Lord Morrison, said in his speech—a surplus which is a real and not a sham surplus. As, I think, the noble Lord indicated, it is plain to anyone, who has studied what the Chancellor of the Exchequer has said, that Sir Stafford Cripps' prime object throughout has been to reduce an ever-increasing inflationary pressure, to devise methods which would counteract the inflationary tendencies to which Lord Morrison has just referred, and, I would add, to conserve our dwindling resources.
I hope that I do not speak in any language of presumption, but I say what I feel; and I think that the present Chancellor of the Exchequer could not have had an easy time. What he had to do, quietly and without producing too much rumpus, was to reverse a tendency which had in fact been growing for some time. We do not want unnecessarily to go into the past, yet it is no use passing over the fact that the previous Chancellor of the Exchequer squandered the American Loan—for it was a Loan which was planned to last not only right through 1948, but even into 1949. As the result of very large expenditure, little or nothing was left. Further, Dr. Dalton had told the Labour Party Conference that "the fear of inflation is diminishing, and it has largely passed away" Of course, that was not true at all. That speech, if I may use a modern phrase, "stole" the Conference and, unfortunately, served only to blind Dr. Dalton's hearers so as to prevent their seeing that the inflationary danger was increasing. That is what the present Chancellor of the Exchequer has, most sturdily, set himself both to prove and to correct. One can see how easily this happened. To some extent, the imminence of the peril has been concealed by the opportuneness of American help, for 1213 which we are all most sincerely grateful. But as the points which I want to put are critical points, I thought it was right to acknowledge that it needed both a clear head and undaunted courage to tell the Cabinet to face the true facts and to make the effort to correct what I can regard only as a most unfortunate and false diagnosis.
Now I come to the specific points which I desire to mention. First, I wish to ask a question about food subsidies. It appears to me that this matter is left in some little confusion. As I had something to do with the starting of food subsidies, when I was Chancellor of the Exchequer at the beginning of the war, I wish to say first that food subsidies were not conceived of as a social service. Originally, I think, they amounted to £50,000,000. At the beginning of the war, they were needed for two purposes. They first arose in this way. This island draws so large a part of its food supplies from overseas that it is inevitable that the mere fact of our being at war tends to raise the prices of such foods. Food ships are torpedoed, or they are delayed; insurance against war risk is a new burden, which may be a considerable one. Therefore, when an island like ours is at war, it is inevitable that there should be an increase in the cost of food from overseas. The first object of food subsidies at the beginning of the war was to try to correct and prevent that.
There was a second reason, which, I think, was recognised at the time as a good one, and universally approved—namely, if the price of prime commodities rise, a number of people are encouraged to feel disheartened about the war and to complain. An increase in the cost of living may easily lead to a demand for higher wages; and the demand for higher wages may lead to industrial disputes and may even, unhappily, result in a strike. When a Government are conducting a war, they cannot afford such disputes; and food subsidies were devised to meet this difficulty and not as a social service. If they are to be regarded as a social service, they are an extremely clumsy one, because every one of your Lordships who has had breakfast this morning and consumed bread, milk and sugar will be relieved to know that he has been subsidised out of the Treasury to exactly the 1214 same extent as the poorer consumers of these commodities have been subsidised.
The matter now seems to be in some little confusion. Dr. Hugh Dalton, when Chancellor of the Exchequer, I recall, said that the figure at which food subsidies were then standing was £375,000,000, and that that was too high and ought to be brought down. When Sir Stafford Cripps opened his Budget in April of this year, he made an express statement on this subject. He said that food subsidies were estimated in his Budget to amount in round figures to £400,000,000 for the year 1948–49. He went on to say, not merely for himself but for the Government, "We have decided to continue these subsidies at this level." He pointed out that the provision out of taxation of this sum of £400,000,000 was equivalent to something like 12s. to 14s. a week for every family in the country—as I have just pointed out, for both rich and poor. I understand his statement—and I think most people will read it that way—to;mean that he intended to keep the figure at £400,000,000. That is the amount the Chancellor of the Exchequer provided for in calculating the two sides of his Budget. Quite recently, however, it has been stated by the Minister of Food, Mr. Strachey, that food subsidies are new running at the annual rate of £470,000,000.
That brings me to my question which I respectfully address to the noble Lord, Lord Pakenham, who is going to reply. Which of the two policies are the Government pursuing? Are they pursuing the policy that we must go on paying more and more food subsidies as the price of food goes up, so that the figure is always just right to make the equation? Or are they pursuing a different policy—that of saying that there is a limit to these things, and that they cannot in the circumstances agree that there should be a rise beyond the figure which is fixed by the Chancellor of the Exchequer? These two policies are perfectly distinct and easy to understand. But, most mysteriously, they do not seem to have been understood in the House of Commons by the Chancellor of the Exchequer himself. When he was asked (I think by Sir Waldron Smithers) whether or not there was some "ceiling" to the subsidies which the Government intended to grant, the Chancellor of the Exchequer gave the remarkable answer, "I am 1215 afraid I do not follow the question." I hope that I have made it plain, and whatever may be said about it, I hope that something may be said in answer to my questions. At what rate are food subsidies now running? How long had they been running at £470,000,000 when Mr. Strachey spoke? And what prospect is there of keeping within the £400,000,000 mark which the Chancellor of the Exchequer plainly prescribed?
I understand perfectly that there is one conceivable circumstance in the future which might make it possible to bring it within that limit—that would be, if prices fell greatly in the latter part of the year. All of us hope very much that they will, but if this total of £470,000,000 has been applicable for some time, it will take a very big fall to get the figure down to an average of £400,000,000 throughout the year. If an Australian batsman wished to have an average of 50 and had so far made 100 every time he went in to bat, he would have to do exceedingly badly during the rest of the season to get back to the prescribed average. If we are to be required this year to find another £70,000,000 above the Chancellor of the Exchequer's estimate and intention, it is important to know what is to happen to the balance which we are seeking to preserve. It will be reduced by a very substantial amount. It will mean that the special contribution, of which the noble Lord gave a non-committal but clear explanation, and which is to produce only £50,000,000 this year, will be more than swallowed up in the increased amount of food subsidies. I hope I have put the question clearly, and that in due course I shall receive an answer.
That leads me to the question of the special contribution. I appreciate and sincerely admire a great many of the efforts in Sir Stafford Cripps' Budget. As I have said, he was faced with a very difficult task and he has grappled with it with great courage and determination. But why he should have put into his Budget this special contribution—which, as your Lordships may know, is dealt with in the present Bill in a Part all by itself, from Clause 47 to Clause 68—it is exceedingly difficult for some, at any rate, of his admirers to understand. It looks as though he had to make that concession in order to obtain a little support in quarters 1216 which were not adequately informed as to the necessities of the time. Just consider it for a few moments. I will say nothing of the cheerful assurance about it being "once for all." It is to be a special "once-for-all." levy, largely payable out of capital and requiring the realisation of savings.
It is obvious that the Chancellor of the Exchequer is not too sanguine about it, because, if one examines his Budget speech, one finds that, in the earlier part, he insists on the importance of voluntary saving. He uses the significant words:Money should be safely invested and kept unspent until it is wise to use it.He urged—as we all, and especially every Chancellor of the Exchequer, ought—strong support of the National Savings Movement. Later on, however, he introduced this form of capital levy which, whatever else may be said about it, is a direct attack on saving. There can be no doubt whatever about that. If anything is more astonishing than the proposal in its general character, it is its particular form. The scheme, as I think my noble friend said in a sentence, fixes the amounts to be paid, not by reference to the amount of investment that a person has but by reference to his income from investments; that is to say, the tax falls most heavily on those who, having money to invest, have invested it in productive enterprise, or in risk-bearing concerns. You do that at your peril; such an investment may produce a certain income, but you are much more heavily taxed in those circumstances than if you take the same amount of capital and leave it in the bank at one-half of one per cent, interest, or perhaps wrap it in a napkin, and keep it in a form of bank notes or jewels until a more fortunate season arrives.
What Sir Stafford Cripps has succeeded in doing here is precisely to reverse the Parable of the Talents. Your Lordships will remember that in the Parable of the Talents the man who buried his talent, who kept it in the ground and did nothing with it, was severely reprimanded; but another man, who took the talents entrusted to him and proceeded to invest them in enterprise and produced a considerable return, was regarded as "a good and faithful servant." The Chancellor of the Exchequer says that that is all wrong. He says: "If you have a sum of money and want to invest it in 1217 order to earn anything, I will see that you pay by this special contribution. But if you keep it and do not invest it, then you will not have any special contribution to pay." Surely that is an aberration quite unworthy of the great command which Sir Stafford Cripps has of these matters. It may appeal to a certain kind of mind, because it looks like a capital levy—as, indeed, it is—but it is open to every objection, in substance and in form, that can be submitted.
That leads me to a third question. I should like to put a few questions about the position of the National Savings Movement. I see on the Cross Benches my noble friend Lord Mackintosh of Halifax, who knows more about this than almost anybody. The first question that I venture to put, which I have had the pleasure of sending to the noble Lord opposite, is this: In the present financial year, beginning on April 5, 1948, how does the National Savings account stand? It has always been true that while on the one hand people might be induced to put their money into National Savings (it is one of the most patriotic and sensible things that anybody can do) it was also open to them, under certain conditions, to take it out. If I understand the figures which have recently appeared week by week in the Press—and, indeed, I learned this partly owing to the good offices of the B.B.C., who shouted it out to the assembled hearers—we are now in a situation where less money is being put in as savings than is being taken out. I therefore ask, with respect: Is the result of these operations from April 5 last that there has been a net gain or a net loss?
I then put this further question. Supposing that I am right in suggesting that it will not be possible to show (I am sure the Government wish they could show it) any great addition to the net total of national savings since the Chancellor of the Exchequer's speech, why is it? These things do not happen without a cause. I wonder whether the Government consider now that their unfortunate proposal of a special contribution, which was nothing but an attack on savings, may have had something to do with it. The Government were warned at the time. Sir John Anderson, who speaks with exceptional authority, pointed out in the Budget debate, with reference to this very matter, that the special contribution must have a gravely disturbing effect, and must 1218 react disastrously on savings. Sir Arthur Salter (one of the Members of the House of Commons who is now to lose his seat by the abolition of the university vote, but a person who is always regarded as an extremely competent economist and a very fair-minded man, and who, so far as I know, never uses the language of exaggeration) pointed out that the hope that this special contribution would have a counter-inflationary effect—there are, of course certain people who will have less to spend—would be completely outweighed by its effect in discouraging saving.
I know quite well that the special contribution does not affect the whole of the general population. That is why it is so popular. There are only 150,000 people who have to pay it, and that gives great pleasure to some of those who will not have to pay it. But do the Government now think there has been any pyschological effect upon the National Savings Movement by this unhappy proposal of a special contribution which begins on January 1 next? At the time when this was said in the Budget debate in another place the spokesmen of the Treasury ridiculed the idea. Mr. Glenvil Hall, for example, simply jeered and said: "They have even suggested that the levy will discourage saving." He proceeded to point out that only 150,000 people will be touched by the levy, whereas; the majority of people who are, or used to be, contributors to National Savings amount to millions. I do not know about that. What I do know is that the National Savings Committee, who in these matters are completely impartial and do not presume to criticise any tax imposed on its merits, at once communicated with the Chancellor of the Exchequer—and the communication was published—their fear of the discouraging effect which the special contribution would have on the members of the Movement.
We have to remember that if we want to carry on this great National Savings Movement—in support of which I have done everything I can, ever since the beginning of the war; I have addressed dozens of meetings about it all over the country—we must not only appeal to the individual citizen who happens to come and hear speakers on the subject (a low standard of amusement, though occasionally indulged in) but we have to rely particularly upon the organisation of the people in every 1219 area, people who are throwing their whole heart and soul into making the National Savings Movement the success it is. I should like to know what the noble Lord, Lord Pakenham, has to say. I am afraid that the decision to levy this contribution was a very unfortunate one. I know quite well that during the holiday months one does not expect the National Savings Movement to show large increases, week by week, in the deposits, as at other times of the year. But the holidays are just coming, and I wonder what is the view which is taken now by the Government in connection with this contribution, and its possible repercussions.
I make that point and, I hope, make it clearly; it may be thought that I have even made it forcibly; but I cannot leave the subject without saying this, which I think it is my duty to say. However people may have been alarmed or discouraged by this tax or that, I state, for what it is worth, my own firm opinion that it remains the duty of all citizens, in all circumstances, to do their utmost to support this National Savings Movement. There can be no more effective way of counteracting inflation than that. In the dozens of speeches I have made, I have never failed to point out to the audience, however simple and uninstructed they may be, that, "The real importance of the Movement is not that you are saving your money which you may use later on, but that, by putting the money in a place where you cannot spend it, you are reducing the demand on supplies and playing your part—humble citizens though you may be—just as much as great authorities of the land, in endeavouring to bale the water out of the ship and to see that our old country floats again."
I would just mention one other thing. I do not know what will be said at the end of the debate, or during the debate, by way of an analysis of the comparison between the rise in wages and the cost of living. I would contribute only this simple observation and leave it to others either to challenge it or develop it. It seems to me that the true value of the money wage at any time is to be ascertained by asking what that wage will buy. All other arguments appear to me to be fallacious. It was reported to me that the other day a man said in a public 1220 house: "You tell me there is a financial crisis. I do not care. I have never had higher wages than I have to-day, thanks to this Government. For all I care, there may be a financial crisis once a week." That is an unfortunate and not very well instructed remark, although I dare say it will give the Government a little comfort. The truth, of course, is that before deciding whether a rise in money wages is really a blessing or a curse, you must consider what you can buy with it. I will give a simple illustration. Before the war, as I am informed, one could get a glass of beer for 7d. and a packet of twenty cigarettes for a shilling, so all you needed to spend was 1s. 7d. To-day, unless I am mistaken, a glass of beer costs 1s. 4d.—am I wrong?
§ VISCOUNT SIMON
I am quite willing to be corrected by others better informed than I am. When one now buys twenty cigarettes, I think the price is 3s. 6d. Adding those two amounts together, we get a total of 4s. 10d. The whole question for every intelligent workman and his wife is this: "Does an hour's work produce much in the way of goods that I want as it used to do?" Of course, unless the increase in wages is in the proportion of 1s. 7d. to 4s. 10d., it manifestly does not. A perfectly good suit of clothes before the war—I will take only a moderate figure, suitable to your Lordships' House—could have been bought for seven guineas. I will undertake to say that such a suit of clothes could not be bought under twenty-seven guineas to-day. What is the good of throwing up your hat and saying that your wages have increased, if every—thing which a workman or his wife wants to buy has increased in that proportion? Indeed, at the moment, I cannot recall anything the price of which has not been increased since the war, except the price for the privilege of pulling the railway communication cord without reason. The price for that is, and was before the war, £5; no more, and no less.
That is all I want to say. I have deliberately confined myself to a limited number of special points, and I hope I have not been in the least unjust. I wish to recognise the good work which the present Chancellor of the Exchequer has done. Behind all this, there are broader issues of the most fundamental character, 1221 and I do not doubt that before the debate ends we shall hear more about them. There is the question of the balance of our overseas payments, upon which my noble friends Lord Rennell, Lord Brand, and others, have addressed your Lordships with great knowledge before. There is the question of the adjustment of our own internal economy, which is another fearful headache for those responsible. We are, of course, deeply grateful for the prospect and promise of Marshall Aid. Where should we be without it? But do not let us be too ready to assume that it is going to last for four years for, if I understand rightly, that depends on the annual vote of the United States Congress. Without that aid our condition at this time would be approaching the desperate. I am using language not nearly so strong as has been used by authorities in another place.
What does Marshall Aid really give us? It gives us a respite and a breathing space. But what are His Majesty's Government doing to improve the situation during the period while we are receiving Marshall Aid? It must be improved, or else, at the end of the period, we shall be in the greatest difficulty. Can we, in the meantime, correct our adverse balance of external trade, and by how much? If we cannot, there will be nothing but a reserve, and a very limited reserve, left. In my day at the Treasury, it used to be the view that one never stated publicly what the amount of our gold reserves was. I think my noble friend Lord Clydesmuir who was with me at the Treasury will agree with me on that. That practice has not continued, now that the situation has become so bad, and any information which it is thought proper to give in the public interest will be very significant. But American aid will undoubtedly help us in that way now.
As regards the adjustment of our own internal economy, I will make only one comment. Are we or are we not going to continue with an expenditure of public money through the Treasury of something like £3,000,000,000 a year? I doubt very much whether, if we are, we can hope to get on an even keel. The truth is this—I wish to put it moderately—that the Government have, from the beginning, as I think, made one grave mistake. It was made, I am sure, in all honesty and good faith, but that does not prevent its being a very grave error. Their election appeal 1222 was, "Let us face the future" Their duty, the duty of any Government that had to face the terrible difficulties that immediately followed the expenditure on the war, was not, like little Johnny Head-in-air, to be looking into the future and falling into the ditch, but to face the present.
§ 3.42 p.m.
My Lords, the Finance Bill debate in your Lordships' House has generally been taken as an occasion for a debate in economic affairs. I do not wish to follow that example today; I believe that the Finance Bill it self contains quite enough to warrant comment from noble Lord. I want to touch upon only one point, of which I have not given notice to the noble Lord who is to reply, but which I hope he may see fit to comment upon; and possibly he may pass on to the appropriate quarter some of the remarks which I shall make.
I should like to follow the noble and learned Viscount, Lord Simon, in one matter, and that is to pay a tribute to the type of Budget which the Chancellor of the Exchequer has produced. There are many points of criticism in it, but I think there will be a virtual unanimity in your Lordships' House on the manner in which he has presented the "housekeeping" accounts of the country on this occasion. He has attempted to show how a true balance of expenditure should be arrived at, and has in fact produced a true balance, not only on income and expenditure account—if the forecast is realised—but also on current borrowings and repayments; and for that, in common with all your Lordships., we on these Benches are profoundly grateful. The policy involved, so far as the general issue is concerned, possibly offers one point of criticism; that is, that this balance—this surplus, as we hope—lias been achieved by the maintenance and, in certain respects, by the increase of taxation, instead of by a reduction in expenditure, which some of us might have preferred. And in so far as the rate of taxation remains at its present level, it must be a factor contributing to "disincentive" and must be a retarding factor in the recovery of production in this country. I will not labour the point, for it has been covered so often; but I think high taxation will be recognised as a mistake.
1223 There is within the Budget itself, however, one aspect which I regard as particularly vicious and which (I have a shrewd suspicion) is so regarded by certain members of His Majesty's Government, judging by public utterances made recently and, notably, by certain hints, if I have read them aright, dropped by the Chancellor of the Exchequer himself. In common with many other leaders in the world of finance and economics in this country, he has for years past urged industry in this country to provide proper depreciation for the renewal of plant and equipment. The Chancellor of the Exchequer, while at the Board of Trade, referred on more than one occasion to the absolute necessity of keeping our plant and equipment up-to-date, since without it our competitive position will become, in some respects, very difficult, if not impossible. Yet the Budget contains provisions for taxation which, in my submission, run directly contrary to a policy designed to encourage the renewal of plant and equipment and the provision of proper depreciation. I refer in particular to the tax on undistributed profits.
It will be known to most of your Lordships that depreciation allowances provided by former Finance Acts are on the modest side—even with the additional allowances that have been given in recent years. In the case of modern industries, or industries engaged in developing new processes, those depreciation allowances are already wholly inadequate to provide for depreciation or renewal of plant and equipment operating under processes still in course of development. All these companies and corporations, some of whose names are household words all over the world, have kept their position only by adding to the depreciation allowed free of tax large sums of money on which tax has already been paid. It is out of those savings made by industrial companies—that is to say, out of funds which these companies have been able to set aside—that these renewals have been made. It is those funds which the late Chancellor of the Exchequer proposed—and now the present Chancellor of the Exchequer proposes—to remove. It seems to me that that tax—I am referring to the tax on undistributed profits, and not to a tax on distributed profits—is a "dis-incentive" to investment in industry. There 1224 are, I know, arguments on both sides. But what I am attacking is the policy of subjecting to profits tax funds which must be used for extension and renewals and which have already been taxed. I realise that I have put these in the wrong order, since profits tax comes off first, and what is left is subject to income tax; but the point remains the same: that money which should be used for renewals and additions is taken away. If the Chancellor of the Exchequer and other Ministers were sincere in their plea for modernisation, and really wished to assist the industrial and commercial community in this country to play their part along the lines on which they are fully prepared to cooperate, it would have been logical not only to remove the tax on undistributed profits, but also to increase substantially the depreciation allowances over those already in force, because I believe that there, at the present moment, we are up against a great difficulty.
This is the last point upon which I wish to touch. Most industrial concerns, and those that have the largest amount of capital invested per unit of production—in other words, the concerns in which the ratio of capital equipment to labour employed is highest—are at the present moment in a position where their allowed depreciation is assessed on the original cost of installation, and not on to-day's replacement costs. A company had (let us say) £10,000,000 capital invested in equipment before the Second World War, and an allowed ratio of depreciation of, say, 5 per cent. To-day that equipment may cost two, three or possibly more times as much to replace; therefore, the effect is that, quite unconsciously (or, rather, consciously on the part of the companies, but unconsciously so far as the public are concerned) the capital value of the equipment of such a concern is gradually disappearing, with no form of replacement being made, out of profits, by allowances or as a result of any help or incentive given by the Government.
This is obviously an extremely complicated matter. I do not want to detain your Lordships by talking about the various ways and means which should be adopted to remedy this situation. The Inland Revenue and the financial authorities have said that were a company, as a result of a rise in the replacement 1225 costs, to reap the benefit by increased depreciation allowances, it would be unfair, in the event of a fall in prices, for the Exchequer not to reap the benefit of that fall. The calculation of those replacement costs at varying levels of prices is not only an exceedingly complicated matter but is one that would prevent any industrial company being certain at any one moment as to its tax position. However, those are not insuperable difficulties. The Inland Revenue have had experience over a period of years in assessing profits on stocks of materials carried. It should not be beyond the bounds of ingenuity to devise a method whereby a concern was allowed to have a varying rate of depreciation, according to prices and costs, or even to purchase something in the form of a tax certificate to be cashed during the life-time of the equipment which has depreciated on a varying scale according to a Board of Trade index. A variety of schemes of that sort have been discussed and, I hope, are under discussion now. My only point in bringing them out here is as an extension of the argument whereby I have tried to show that not only should this iniquitous tax on undistributed profits be removed, in order to follow the logical outcome of the policy of the Chancellor of the Exchequer, but also there should be a general review of our taxation attitude to capital equipment, in order to see what we can do—and here a great deal can be done—to renew and modernise equipment which we want and which, moreover, our American friends, under Marshall Aid, have suggested is one of the immediate and burning necessities for production in this country.
§ 3.55 p.m.
§ LORD MACKINTOSH OF HALIFAX
My Lord's, I venture to address your Lordships for a few moments because the question of National Savings has been raised already in this debate. I thank my noble and learned friend Lord Simon for his commendation of thrift and the National Savings Movement. It is all the more valuable coming, as it does, from an ex-Chancellor of the Exchequer and one who represented for so long a Yorkshire constituency, where thrift is second nature. I thank the noble and learned Viscount for that most splendid speech upon National Savings. It is time he came back on to our platform. The noble and learned Viscount made a great 1226 point of the effect upon National Savings of the special contribution. Unfortunately I have to be careful not to take sides in these matters. Indeed, I spend most of my time walking an imaginary tightrope, as it were. All I will say about the question of this special contribution is that it has not made that feat any easier. But for over thirty years the National Savings Movement has been successful in keeping out of politics, and I have no doubt it will continue to do so, for it is in the interests, of all Parties that it should. It will interest your Lordships to know that in a recent social survey, in which some 3,000 members of the public, of all stratas of society, were interviewed scientifically as to why they were saving either more or less, not one, out of more than 3,000 people, gave politics as a reason why he was either for or against savings. It is only fair to say, however, that this survey was made just before the Budget.
I give that for what it is worth. I have my finger fairly well on the pulse of the public, however, and I do not think this special contribution has affected our figures. But I do know that it has hid, psychologically, a bad effect upon our workers. There is no doubt that our figures have been disappointing of late; but, as the noble and learned Viscount reminded your Lordships, this is the middle of the holiday period, and it is no time to form a judgment. We suffer from the fact that our financial year in National Savings starts on April 1, with the Government year, and therefore, before we can get into our stride, we find ourselves right into the holiday period. I am reminded that in he past the month of July—and not either August or September—has always been the peak period for withdrawals for holiday purposes. The figures for the sixteen weeks ending July 17 were £242,000,000 in and £247,000,000 out—a deficiency of £5,000,000 in the sixteen weeks, most of which came during the holiday period. But if we take the figures from January 1 to the same date—that is, twenty-nine weeks—there is a net increase of £85,000,000. If we were able to offer a Defence Bond with a late of interest more comparable with present-day market values, I do not think that our results would be any worse than they were in 1947.
1227 Those of your Lordships who are familiar with the West Riding of Yorkshire, and the industrial towns of Lancashire, know what vast sums of money are saved week by week throughout the year and withdrawn for holiday periods. Thousands of our savings groups are holiday clubs. This is an elementary form of savings, and millions of people have been taught to save by beginning in that way. I feel it is not fair to judge our figures, as many people do, by the net weekly figures alone. For instance, take the week before last. New savings were £17,000,000, and encashments£17,250,000. The papers and everyone seized on the £250,000 decrease, and scarcely anyone gave us credit for the £17,000,000 of new savings. Yet, not only has one to think of the position of the country, especially if the money went out and the £17,000,000 did not come in; one has to remember, in considering the weekly figures, that this week's new savings must largely come out of this week's national income, about £150,000,000, whereas withdrawals comes out of a vast reservoir of past savings of £6,000,000,000. We are suffering today, from the very high figures which we were able to show in the war campaigns and the immediate pre-war years. I think we shall never see those figures again; I certainly hope not, because I believe that only a time of war can produce such figures.
In the middle of the war, when we were dealing with these astronomical figures I remember saying many times: "If, two years after the end of the war, we can get in as much new savings as will balance the withdrawal of the old savings we shall be doing a very good job." It is now three years after the end of the war, and we are doing that—and better. The National Savings task is primarily to get new savings—I sometimes "pull the leg" of the Treasury by saying that we are their sales department—to keep control of that large reservoir of £6,000,000,000, and, if we can, to add to it. We try to discourage the withdrawal and encashment of old savings, but there is not a great deal we can do about it. It is Government policy and the general economic position that are largely responsible for what is spent. When the Government, in their wisdom, decide to give the 1228 nation extra coupons, or to lower the points value—and we are glad to see it done, when it is possible—and when they increase from £10 to £100 the amount that we can spend on our houses without licence, of course savings will be spent; and rightly so. We all welcome the 20,000 new houses that are being built each month. But most of these houses have to be refurnished from top to bottom for young people, with furniture and carpets and all that goes to make a house into a home. What better way is there of spending savings than that? If more homes mean less savings, I am content. When all these things are taken into account, I maintain that the Savings Movement will be doing a good job if, in the years to come, we can maintain that great total of past savings, and perhaps add to it here and there.
There is another way of testing the achievements of the movement at the present day—namely, by comparing what we have done during the three years since the last war finished with what we did in the three years after the First World War. In 1921, three years after the 1914–18 war, some 15,000,000 people held small savings, amounting to £900,000,000. To-day, 30,000,000 people hold over £6,000,000,000. In other words, twice as many people hold seven times as much savings. As a percentage, the withdrawals were much heavier three years after the First World War than they are to-day. Indeed, withdrawals at present are not increasing; they are less than they were this time last year, and no more than they were two years ago. If you analyze the withdrawals, you will find that people at the present time (which is the worst time of the year), are withdrawing less than Id. out of every pound that they have saved each week. In 1921, there were 28,000 savings groups. To-day there are over 200,000. Then there were only 1,000,000 members of savings groups, and now there are over 6,000,000 members. At the present time 60 per cent. of the population hold National Savings of one form or another, and one-third of the population are still adding to their savings, which at present average 7s. per week per head for every man, woman and child in the country. I apologise for taking so much of your Lordships' time, but I felt that some corrective to the present defeatist talk about our figures was due from Savings workers.
1229 If I may for a few moments crave your Lordships' indulgence, there is one other aspect of the Finance Bill upon which I would like to touch, and it has a direct reference to the point made so strongly by the noble Lord, Lord Rennell. I agree with everything he said, and from experience in my own business, I would confirm all that he says. I am speaking at the moment as a businessman, and not as Chairman of the Savings Movement. I want to mention the question of the present tax of 10 per cent. on the issue of bonus shares. I have always questioned the wisdom of this tax except, possibly, as the just penalty on the financial world for using inaccurate terms. The words "bonus issue" are a complete misnomer and give some excuse for the late Chancellor saying that they were "money for jam," and for the widespread impression that they provide a means of evading income tax. Both those views are the exact opposite of the case. Before such an issue can be made, the profit must have been earned and income tax paid on it, and at the present time, of course, profits tax as well. This is, certainly, not "money for jam" So far from creating money, the creation of the bonus shares is an act which makes it legally impossible to pay that amount of profits in the form of cash dividends, either now or at any future time. Bonus shares are a great aid to careful and thrifty directors.
The value of this method is based on human psychology. If a man holds 1,000 shares in a company with a capital of £100,000, he owns exactly one per cent, of the company. If the capital of the company is increased to £150,000 then the shareholder holds 1,500, which is still one per cent., and the tax, of course, has been paid on it. In the savings certificate method of saving, we use exactly the same principle. Each year, the interest dividend is added to the capital and it is free of tax. What is good practice in one form of investment cannot be bad practice in another. Once money is paid out, it is hard to get it back into savings, as we all know. It is a human characteristic to be fairly willing to take advice about leaving the money to accumulate, but to be rather slack about re-investing it once you have it in your pocket.
In the last two or three years we have had legislation which permitted a larger 1230 allowance for depreciation out of the taxable profits—not large enough, but larger than was the case heretofore. This is an enlightened move in the right direction, and encourages the ploughing back of profits, so very necessary to keep oar equipment in industry up to date. In this respect, the present Government have been more favourable to real private enterprise than have previous Governments. The penal tax on the capitalisation of profits is a move in the opposite direction, and goes quite a long way to discourage the ploughing back of money which is so badly needed, into the business.
I spend the greater part of my time in encouraging saving, not alone nor indeed mainly to provide money for the Government, but because I and all your Lordships know that the strength of this country is the sum total of the strength of its individual citizens—and that means business as well as and perhaps more than private enterprise. My work for savings is, as your Lordships know, absolutely divorced from Party politics, but it is not, and never can be, dive reed from human nature, and it is a fact that if a man saves he likes to have some evidence of his savings. I hope the Government will revoke the tax on capitalisation of profits, whatever they may do in taxing cash dividends. I was glad therefore to hear from the Chancellor of the Exchequer in the debate on the Finance Bill that he did not rule out this possibility. That is the attitude I would expect of him, for he is that rare combination, an idealist and a realist. Here he has an opportunity of exercising both attributes.
§ 4.10 p.m.
§ LORD BRAND
My Lords, I would like to start my, I hope, comparatively brief remarks by joining with my noble and learned friend, Viscount Simon, in paying a tribute to the Chancellor of the Exchequer and his Budget. On the whole it seems to be a very courageous and good Budget, though, like Lord Simon, I except the special contribution which, I think, was a blot upon it. In what I am going to say I hope I shall not disappoint my noble friend Lord Rennell, by acting rather in contradiction to what he said, because I shall deal with one general financial subject—that is, the present 1231 enormous figure for Government expenditure and, therefore, the heavy taxation, and with its effects.
The ordinary Budget amounts now, I think, to something like £3,000,000,000, which is about 30 per cent. of the national income. But, if you include taxation of all sorts, including that of local authorities, National Insurance contributions and so on, the total comes to about 40 per cent. of the national income, which is, in my opinion, a figure greater than this country can permanently stand. The country is thus faced with two great problems. One is that relating to the external balance of payments, to which I shall not refer; the other is excessive taxation and whether there are any means of reducing it. I have the impression—I hope that I am wrong—that the question of reduction of expenditure does not excite great interest in the Socialist Party or on the Socialist Benches. They are, in my view, essentially an expanding and spending Party, and I feel that expansion and reform is much more in accordance with their habits of thought than retrenchment and reform. Retrenchment does not fit them; but they will have to face that unfortunate necessity.
Take the example of the Soviet Government. We know that they have at least the necessity of seeing that what they spend is produced. But the Socialist Government in this country rely on others, with or without incentive, to produce what they, the Government, are quite ready to spend. I do not suggest that our Government should adopt the Russian system. I think that this is the better of the two, if they act with wisdom and recognise the absolutely vital need of maintaining initiative and enterprise. Otherwise the results of their policy may be very damaging. But possibly the Socialist Party, and certainly, I fear, many Socialist voters, have not yet reached the conclusion that crushing taxation injures all Parties in the State. Things are still going well and we have full employment. Nevertheless, this may change very rapidly, and then, of course, the national income would fall, and the burden of existing taxation would be still greater.
In the first place I would like to add a few words to what the noble Lord, Lord Rennell, said about the taxation of 1232 industry. As I have said, things are going well at present, and high profits have been made in the last year or two. But those profits are largely illusory. The capital and reserves of all companies have shrunk, perhaps to one half in value, by reason of the fall in the value of money. In my long experience as a bank director, I have seen other periods like this one, of liquidity in the case of most companies—and may I say, from such banking knowledge as I have, that I am surprised to find how good everything seems to be at the present time both as regards balance sheets and profits? But the present liquidity may easily turn into illiquidity, for the reasons which Lord Rennell has given—namely, that so soon as you replace existing stocks by stocks at much higher prices and, still more, when you make renewals and improvements at very high cost, you may find that reserves which you have put by are nothing like sufficient. That is why the tax on undistributed profits and the profits tax itself is a serious matter for industries. They will be hampered in making improvements, and the consequence may be large demands for capital from companies, when they find that their position is not nearly so liquid as they thought.
If that is so, and large demands for capital do occur, it will be very necessary that "there should be large supplies of what I would call "risk savings": that is, savings which do not go into such things as those to which Lord Mackintosh has referred—for instance, the Post Office Savings Bank, Savings Certificates and so on—but savings which are employed for the purpose of investing in new shares of existing companies, or for providing capital for new enterprises. There still remain, of course, large institutions—trust companies, insurance companies, and so on—who will buy equities up to a certain proportion of their resources. But the private investor with new income available for risk-investing hardly exists. Therefore, this sort of capital may prove scarce. In addition to that, of course, the enormous taxation makes the starting of new enterprises very difficult; indeed, it makes them hardly worth starting. I scarcely think that a young man with a very moderate capital could possibly start a new business and build it up out of savings, because taxation will not allow him to keep the savings.
1233 Taxation, therefore, loads the dice against anyone who starts a business. It is a question of: "Heads I win; tails you lose." If a man makes profits they are taken from him. If he incurs losses, no one thinks of contributing towards them. Yet it is this class in the community, the risk-taker, the shareholder, that Socialist economists and writers often attack as if there were still in existence a lot of robber barons, who really own big companies. In fact, of course, they are, in the main, owned by millions of modest shareholders. These modest shareholders are depicted by these writers as mercenary profiteers, and everything possible is done by the Government in the way of taxation to discourage them from performing what I regard as an essential public service—that is, risking their capital in order to make the wheels of industry go round. For these and other reasons, I believe that taxation now is higher than can permanently be borne, and higher than is consistent with maintaining the standard of living of any class.
This being so, I should like to put certain considerations to the noble Lord, Lord Pakenham, which I will address to him as the representative of His Majesty's Government. Do the Government regard existing taxation as excessive? Do they think that enterprise, which they wish generally to maintain in private hands and on which the nation's prosperity must depend, will suffer from existing taxation, and that the ultimate consequence to our whole economy may be very serious? If they do, will they, in the interests of maintaining and increasing production and of maintaining the general standard of living, put first in their future programme as a primary objective of their policy a reduction of expenditure, leading to a reduction of taxation, and an avoidance of all measures for additional Government activities which may involve additional expenditure upon the Budget?
The noble Lord, Lord Pakenham, will probably answer, in the bland and innocent manner which I have come to recognise as very difficult to deal with, by asking what items of expenditure do I suggest should be reduced? My first answer would be: Why take this moment to add £145,000,000 to the Budget for the National Health Scheme? The National Health Scheme may be an admirable scheme, but in considering it 1234 we have to look at what that £145,000,000 does to our economy on the other side, when additional taxation to that amount has to be imposed. I think the figure is right; if I am wrong the noble Lord can correct me. My more general reply would be that such an answer as I think he will give me would be quite inadequate. If taxation is too high, if it is more than we can permanently stand, it will be reduced voluntarily or involuntarily. Voluntarily it can be reduced in two ways. The best way, of course, is to increase production. To that and we should all be more efficient and work harder, abolish restrictive practices and so on; but I am more than doubtful whether in the time required increased production would sufficiently meet the problem. The second alternative is that some definite reductions in expenditure should be made. I recognise the difficulties. Speaking to your Lordships some time ago, I recommended that a commencement should be made with the reduction of food subsidies. I am interested to know that I have on my side to-day famous economist, Professor Pigou, who was Professor of Political Economy at Cambridge and has now retired from that post. I had a; chance of reading to-day his recent article I in the Economic Journal, and I should like to quote certain words from it because I think they are relevant. He wrote:It is relevant, too, that, whereas, as we have seen, during the first world war and its immediate aftermath, real wages rates on the average just about held their own, this time, so far as the statistics give a fair picture of the facts, they have risen as against 1938 by no less than 45 per cent. This figure fails, of course, to take account of the worsened quality of many goods, the inconveniences of rationing, shopping queues, and so on. Still it strongly suggests that wage-earners as a body, and so probably the poorer classes, have on the average improved their position in an absolute sense; while there can be no doubt at all that, as compared with the richer classes, more especially when taxes are taken into account, they have improved it relatively to an enormous extent. In the present difficult situation these war-time gains, helped out, as they were, by extensive lend-lease from America, cannot reasonably be regarded as untouchable. We have agreed that consumers' subsidies on essential foods are inappropriate to normal conditions. A beginning in the task of removing them must, therefore, be made some time. Would it not be wise not merely to refrain from increasing the rates of subsidy should the import prices of these foods continue to rise, but to undertake forthwith a moderate downward cut?1235 Professor Pigou goes on to say, however, that if it were to follow that wage rates would be moved up in consequence, then food subsidies had better not be touched, because to do so would involve further inflation.
I am sorry to interrupt the noble Lord, when he is interesting the House so much, but I understand that Professor Pigou suggests a reduction in the real standard of living of the working people. Is that his argument?
§ LORD BRAND
I will put it as I understand it. Professor Pigou says that food subsidies cannot be looked on as a permanent part of our economy. He estimates that the working classes have gained (before, I understand, taking account of taxation) a 45 per cent. real increase—I take that figure from him; he is a much greater authority than I am. He thinks that food subsidies ought to be reduced, and food prices allowed to rise, by a moderate amount to start with, with the object of getting rid of subsidies altogether in the end. If your Lordships read this article you will see that Professor Pigou says that certain of the poorest classes—for instance, pensioners—should not be allowed to suffer. Professor Pigou does not think that the ordinary wage-earners would buy less food than they do now. I would say that his conclusion is that something must be done, sometime. He definitely says, as I understand, that he does not think the present general standard of living can be regarded as untouchable in all circumstances.
If, however, the Government's view is that any reduction of expenditure, however gradual and moderate, is unthinkable because wages will be forced up, then the assumption is that the great mass of wage-earners intend to keep the 45 per cent. increase in all circumstances. That is a very human and natural attitude. Every class when it has had the power has done the best for itself, and I fully understand that that should be the attitude of the ordinary man. But it is not necessarily within their power, or within anyone else's power, to do it. If, owing to "disincentives" to enterprise and production—due to taxation, or, due say, to depression—the national income and national production prove not great enough to 1236 maintain our existing taxation, but nevertheless we do maintain that taxation, then nothing, not even American help, can keep the standard of living as it is now. If that is so, the more attempts that are made to maintain it, the worse the results.
As I see it, the course of affairs might be as follows. There would be a fall in the national income. There would be a fall in taxation yields. No doubt, in such circumstances, there would be unemployment and depression. There would be Budget deficits, and more borrowing and inflation. There would then be a rise in prices, and a reduction in the value of all fixed incomes; that is to say, incomes from the National Debt, National Insurance benefits, wages and salaries. The process, however it takes place (it might take place in various ways) is just like water finding it own level. If wages were to be raised again with the price rise, the vicious circle would go on, ultimately, through increase of costs, with great damage to our export trade. Our credit would fall, and irresistible pressure might be developed against sterling, which in turn would disrupt our foreign trade and in pair seriously the sterling area. It is a question in the end of whether you can get a quart out of a pint pot. It may be that you have to drink down to the bottom of the pint pot to convince yourself that you cannot, that nothing will stop you drinking until you find that the pint has gone. Then you will certainly be convinced. We have seen the process over and over again in countries like France. The Frenchman does not like paying taxes. He prefers to suffer from inflation. But either he must pay taxes or he must make an equivalent sacrifice by inflation which ruins large classes by the most unjust method. You cannot avoid things that are going to happen just by saying: "We cannot take this or that step."
To my mind, these questions are immensely important; the Government responsibility, and the responsibility of the trade unions, is very great. No doubt, I have the advantage of speaking freely as an independent member of your Lordships' House. I recognise that these questions are immensely difficult for any Party, whether it be the Labour Party or the Conservative Party, who are in power. I think it was Mr. Robert Lowe who, long ago, said "We must now 1237 educate our masters." That problem still faces us, and still faces the Socialist Party. The success of democracy depends, to my mind, on obtaining a proper solution to it. I trust we may assume that at any rate the leaders of the Labour Party, and the Labour members of Parliament, recognise the seriousness of the problem, and that in any case they draw the conclusion that further extension of further Government activities, leading to still further Government expenditure falling on revenue, must at all costs be avoided.
§ 4.35 p.m.
My Lords, I do not intend to detain your Lordships for more than a few moments, as I have two short points only to make. I am emboldened to intervene in the debate for two reasons. I want to say a word about the economic position of Scotland and, as my noble friend who introduced the Bill, is my fellow-countryman, I feel that it might fall on sympathetic ears. The other reason is that as Financial Secretary, studying under the noble and learned Viscount, Lord Simon, I had an opportunity some years ago of working on these financial problems. I recollect that in relation to the last Budget in which I was associated with him—or rather, followed a long way behind him—the House showed its concern when he proposed to raise a sum of £1,000,000,000 in taxation. Yet to-day we find that £3,000,000,000 is accepted, and there is a kind of fatal complacency settling on the country that this huge expenditure should continue. It was never thought that this great expenditure would roll down the years of peace in this way.
The Chancellor of the Exchequer, in introducing the Budget, used a phrase which gives us some heart to hope that there will be a reduction in expenditure. I would ask the noble Lord who is going to reply if he can say anything on that subject in line with what was said by my noble friend Lord Brand a few moments ago. The Chancellor of the Exchequer, in the course of his Budget speech, referred to the sacrifices that were being required from those with invested capital, and certain others, and said:This is both fair, and in accordance with our economic needs, and will be matched by the large economies effected in Government expenditure1238 I hope the noble Lord who is to reply will be able to show us that some of the large economies effected in Government expenditure announced by the Chancellor of the Exchequer a few months ago are being entered upon. That speech was made on April 6, and, presumably, when the Chancellor of the Exchequer made that statement he had in mind what the economies were going to be.
Can we make economies? And can we maintain and increase production? First, can we make economies? On a previous occasion, when economy was suggested, the noble Lord, Lord Pakenham, taking up a position that we could well understand, said that he had not heard any suggestions for economy on this side of the House. It has been suggested to-day that it might be possible to reduce the food subsidies. If that were done it would be an unpopular move, and on this side of that House we should have to support the Government if such a move were made, and not make capital out of it, because it is so essential in present circumstance that expenditure should be reduced. I do not know whether the Government have any proposals in mind in that direction, but the food subsidies should come under very careful scrutiny. The present Chancellor of the Exchequer shows a realistic approach to the problem; but does he speak for the Government as a whole? If we felt sure that in the line he is taking up he speaks for a unanimous Government, with a united Party behind them, we might feel happier about the whole situation.
It must be borne in mind that some of the income this year is not income in the proper sense at all; it is drawn from the proceeds of the special contribution, and there have been windfalls in death duties and other features which contribute to it. Yet, with all that, we need and receive American aid. That brings me to my second point. We read with interest in this morning's paper the announcement of the Chancellor of the Exchequer that, in consultation with Mr. Hoffman, he was proposing to set up a Joint Advisory Council, in the sense that American experts will come over here to advise us on increasing production. American advice may be very helpful to us, and we welcome such a proposal. Equally, there are some points upon which we 1239 might be able to help and advise, because we are not quite out of date in our production methods.
But there is one point upon which the Americans cannot advise us, and that is the question of the nationalisation of industries. That is a question which we must thresh out for ourselves. As the Chancellor of the Exchequer said, we do not expect intervention upon any such question, just as the Americans would not expect intervention in their home matters. For that reason, we must thresh it out thoroughly here, in the light of experience already gained. I note, for example, that in the Press statement issued this morning, referring to this announcement in Paris, the Chancellor of the Exchequer pointed with pride to two industries in this country which were assisting recovery—the coal industry and the steel industry. He said that the coal output was very good, and he foreshadowed that there would be an export of 10,000,000 tons in the next twelve months to what are known as the participating countries. Gratifying as that is, it is very much below the pre-war performance of the coal industry, and although we welcome it and hope it will continue and improve, we must be careful not to contrast it advantageously with a previous period. The coal industry has been nationalised and is now running under national control and management.
The Chancellor of the Exchequer mentioned another industry, the steel industry. At this point, as it is the first time I have mentioned the steel industry in a speech, I should declare my interest in it. For three generations my family have been interested in steel, and I hope that what I may say will not be misunderstood or resented. As the Chancellor said, the steel industry is providing exports to Western Europe at a rate substantially greater than pre-war. He took pride in that feature, and quite rightly so. It is a considerable contribution to European recovery—one of the biggest things we are doing at the present time. The output of iron and steel in the United Kingdom is substantially greater than the average output of the five years before the war. The steel industry is not yet under public control and management. I do not wish to open up a wide subject, but I would like to express the view that a method of 1240 flexible and efficient management in the nationalised industries has not yet been fully discovered. It is still in its experimental stage. I sincerely trust that the Government, in looking at the whole position—including the budgetary position—will give thought to the wisdom of having a longer period of experience of the control of nationalised industries before greatly enlarging the field.
I referred earlier to Scotland. A Report has been issued—a most valuable Report—Industry and Employment in Scotland, 1947. It covers a wide field of industry and brings out an interesting point in that, while before the war the difficulty facing Scotland was that the world market was lacking for certain of her primary products, ships and steel, to-day the demand is intense for these products and it is rather a question of man-power. The incidence has changed. I would like to express appreciation of the work which the Government are doing in studying these problems, and attempting to widen the field of industries in Scotland. Not to enlarge upon the subject more, I would like to quote the last sentence of the Summary of the General Economic Position of Scotland, which is a prelude to the book. It says:Scotland may justly be proud of her skill, enterprise and natural wealth, but in small things as well as the largest issues, the recovery of the country is bound up with that of the United Kingdom as a whole. To help this major purpose many schemes of special importance must accept restrictions for a time. The magnificent and generous act of statesmanship on the part of the United States Government and Congress which has given us the European Recovery Programme provides an opportunity not for relaxing or for dissipating our energies on attractive but uneconomic projects, but for setting our economy in order and working hard until we again stand on our feet. Skill, pride of craft, hard work, thrift and forethought are traditional Scottish virtues. They were never more needed than they are to-day.Those are carefully chosen words, well chosen words, and they refer with equal force to the whole of the United Kingdom. I will leave to the House the thought that when this Bill passes—as it undoubtedly will—it will ensure that the revenues are fully provided for. But it will not assure us that the Government are fully alive to the dangers which surround us unless some pronouncement can be made about economy on the lines indicated this afternoon.
§ 4.44 p.m.
§ LORD BARNBY
My Lords, there are live points to which I want to make reference, necessarily briefly. The first is the absence in the provisions in Government policy, as set out in this Bill, for any encouragement of facilities for overseas investment in industrial development. Everyone realises that resources are meagre and that foreign exchange has to be conserved. But surely, when we are receiving from the United States of America these grants-in-aid of hundreds of millions a year, it should be possible to bear in mind the importance of maintaining that traditional contribution to the nation's development which has come from the overseas investments of those who were termed the merchant adventurers, or industrial pioneers, who went to the ends of the earth and developed large businesses from small beginnings. It is that absence of income—which up to the disaster of this last war permitted a balancing of our Budget—which is laying up for us such great disadvantages for the future. It is because I feel so strongly that this is overlooked in all the plans for the encouragement to enterprise, that I think it should be raised in a Finance Bill debate. I have in mind that it will naturally be said how invidious it would be to select those cases which would be considered appropriate to share in this treatment. I call to mind the Trade Facilities Act, which was passed, I think, in 1919 after World War I, and which threw open to those who successfully administered it the obligation to choose between the various proposals that were put before them.
My second point is with regard to the discrimination against Canada, to which I refer under two heads. Canada, who has been so outstandingly generous to us, and given us such great financial assistance, seems to me not to merit treatment which, while it may not matter much to her, will redound very much to our disadvantage. Both cases come under general principles in which Canada has been made an exception. The first of these is the withholding from intending migrants to Canada of funds which they wish to take with them, in contradistinction to the practice applying to other countries within the Commonwealth. To suggest, in view of the tremendous assistance that we have received from Canada, that we cannot afford that small amount 1242 of money must be ground for indignation on the part of Canada. We cannot retain Canada as part of the Commonwealth unless there is a big development of her population by immigration, and for that there must be a leavening of British migrants. This would help Canada to do her share in relieving the rest of Europe of some of the displaced persons, which would contribute to the general good. But we must have a proportion of British migrants, and therefore it is against British interests to follow the present policy of withholding those funds.
I must apologise for not having been present to hear the first few sentences of the noble Lord's remarks. I wonder whether he would indicate what is the order of magnitude of the sum involved.
§ LORD BARNBY
It has been debated at such length, both in your Lordships' House and in another place, that I do not think it would serve any useful purpose if I were to weary the House with repetitions. But if the noble Lord desires the references I will willingly furnish him with them.
The second case is the withholding from United Kingdom holders of the possibility of switching Canadian securities owned by them. Here is a reference I can give now. It will be found in the Written Answers (column 215 of the OFFICIAL REPORT of the House of Commons) for August 8, 1947. Mr. Dalton, then Chancellor of the Exchequer, said:… I regret that these arrangements cannot apply to Canadian dollar securities, but I am pledged to apply the realisation proceeds of such securities to the amortisation of the 1942 interest free loan from Canada.It was suggested in a report in the Financial Times of July 3 that this loan of 700,000,000 dollars had been reduced already to 300,000,000 dollars. I suggest to my noble friend, while I do not expect him to make any statement to-day, that it would be helpful if some authoritative statement could be made as to what is the unpaid balance now outstanding. Fortunately it has been left to the wisdom and impartiality of those who at the Bank of England are called upon under the Exchange Control Act to discharge the difficult task of deciding what exceptions can be made. There is little doubt that in those hands it will be safe; but it does impose upon them a burden from which 1243 they should get relief by a general direction for generous interpretation of the agreement with the Dominion Government, to that switching from one Canadian investment to another may be permitted, to the mutual advantage of Canada and this country, particularly where refusal would not in any case achieve repatriation. I would add, in parenthesis, that I realise that investment of new capital in Canada is already permitted in particular cases, at the discretion of the Bank of England, as has been emphasised by Colonel George Drew, Premier of Ontario, on his recent visit.
I would ask the indulgence of the House, on this question of investment, to read a short extract from the Sunday Times of Sunday last:They"—that is Canada—seek also a renewal of the fructifying flow of foreign investment, because, during their own lifetime, they have seen Canada reap benefits from foreign investment many times the value of the dividends received by British and American investors. If there is any formula which can persuade the Kremlin that its true interest lies in working amicably with the West, it is one which the Anglo-Saxon nations alone can provide by their decisive example.My third point is concerned with the insufficiency of the amortisation allowances for industry. That point has been covered with lucidity and conviction by the noble Lord, Lord Rennell, and also by the noble Lord, Lord Brand, to whose contributions we always pay such attention in this House. But since this matter is almost annually brought before the notice of the Chancellor of the Exchequer, I must record that this year is the first in which I, as a past President of the Federation of British Industries, can remember its being omitted—discouraged resignation, I suppose; certainly no weakening of conviction. My fourth point is that the provisions of the Chancellor do not allow for an early enough removal of more controls. The noble Lord, Lord Woolton, has in public utterances drawn attention to those that in his opinion could soon be relaxed. I would take as one additional illustration, the case of the wool textile apparel rationing.
My fifth point, not strictly one which is in the Bill, deals with the general financial policy in connection with E.R.P. My suggestion (and here I would express my 1244 admiration of the brilliant contribution made by the noble Lord, Lord Brand, to the discussion in your Lordships' House in the recent debate on E.R.P.) is that it will be helpful if early indication can be given of how the loan part of the Programme is to be dealt with. I urge that some part of this should be applied to development within the Commonwealth. Surely, by large development corporations directed by private enterprise, the future productivity of the Empire could be increased. Here is a splendid opportunity to use these funds, associating them, if possible, with some adventure capital from this country. Those who are prepared to risk capital should have their funds augmented by allocations from loans made available under E.R.P. I recognise that it depends upon how the outright gift parts of the funds provided so generously by the United States are used, and in this connection I will quote from the American Outlook, an authoritative publication, dated London, July 23, 1948:For the E.C.A., Mr. Hoffman has categorically declared that while he does not consider the internal political affairs of a nation to be his business, as his brief runs at the moment, he does consider that nationalisation of the British steel industry would cause transitional inefficiency in the industry. He went on to say that this would preclude the quick results,' in terms of recovery, that the U.S. would expect from the investment of dollars to modernise the industry.I do not raise this on a question of politics but of economics. I did not advise my noble friend in advance of my intention to raise these points because I did not expect a reply at short notice. I hope that I may have his assent that he will convey my remark's to the appropriate quarters.
§ 5.4 p.m.
My Lords, I wish to make one point, and one point only. I would not have ventured to intervene in this debate at all among many noble Lords who are far better acquainted with this subject than I am, were it not for the fact that, on compassionate grounds, I wish to bring to your Lordships' notice a certain class of person. I refer to disabled people—not the war disabled, because they are provided for by pensions and so on, but other people disabled through illness such as infantile paralysis, accident and so forth. Through no fault of their own, these people have certain 1245 unavoidable expenses which those of us who are more fortunate than they do not have. It is almost essential for them to employ full-time personal or domestic help, because they cannot be left alone for long periods. In fact, many of them must have someone with them nearly all the time. Therefore just a "home help," who is sometimes provided from municipal or Government sources, is not sufficient. In addition, they are obliged to have certain invalid equipment, such as special mattresses and so forth, and also—and this is of the greatest importance—they cannot help spending a great deal more on transport than the normal person. They must either have a car of their own, or else they must spend money on taxis, because often they are physically incapable of getting in and out of buses or of standing in queues for public transport. In winter time, the Ministry of Fuel and Power provide generous allowances of additional fuel for persons who are disabled, but those people have to pay for it, and their annual budget is again increased on that account.
I am rising to suggest that there should be some form of tax relief for a person of that class because of the extra expense to which he is put. I would suggest that a moderate estimate for the things I have just mentioned would be something like £200 or £300 a year. In support of what I say, I would like to quote extracts from two letters which, appeared in The Times in the past month. The first one says:Apart from the difficulty of his value to the labour market, the paralysed person has two other grave disabilities which are a drain on his income; first, he needs more domestic assistance than a normally healthy individual; secondly, he has to be more dependent on transport.… Surely I, a congenital spastic paraplegic, and my fellow sufferers who have been afflicted with these disabilities through no fault of our own, should be allowed some income tax rebate to enable us to share to an extent the pleasures and recreations enjoyed by the rest of the community and to help us to pay for the additional assistance that we have to employ.I have one other extract from somebody whom I know personally very well.I can only speak personally as the wife of a serving naval officer with no private income. I have been paralysed for thirteen and a half years, during part of which it has been necessary to employ two people to run the house and nurse me. I shall not reach a pensionable age for many years and we can get no income tax relief whatever.1246 I do feel that those disabled people who are not provided for by pensions should have some income tax relief. It may be argued that administratively such a thing is impracticable. I do not for one moment believe that it is. Surely, there is ready made a system by which the matter can be dealt with. Could not those people who wish to obtain tax relief on the grounds of their disability apply to appear before Ministry of Pensions tribunals, where their cases could be assessed for disability, in exactly the same way as are the cases of war-disabled men or women who apply for pensions? It seems quite a simple way of doing it. It appears to me that these people, because of their great difficulties in making ends meet and quite apart from the suffering which they endure, ought to receive really sympathetic consideration.
§ 5.10 p.m.
§ LORD CHERWELL
My Lords, as I have wearied the House only recently by discussing these economic matters, not to mention various incursions into debate on many previous occasion, I hope to spare your Lordships a long harangue this hot afternoon, not only out of feelings of humanity, but because there is little left for me to say. The noble and learned Viscount, Lord Simon, and the noble Lord, Lord Rennell, have already made many points of great importance with which I cordially agree; and there are many other points which have been made frequently on previous occasions which I need not raise. I have looked through my speeches of the last year, to see whether there was anything that I ought especially to mention to-day and I found nothing that I feel I ought to modify or retract. There is only one thing that I found, on reading those speeches, which I have to regret; that is that many of the gloomy prognostications which I felt it my duty to make on those previous occasions have, unhappily, now come true. I can hope and trust only that the hopes we centred upon the substitution of the scientific approach of the new Chancellor of the Exchequer, in place of the doctor's "pink pills for pale people," may come true. So far, at any rate, it seems to me that in some degree some of his intentions are on the road to fulfillment.
I think we all agree that there are two main problems confronting the Chancellor. One is to combat inflation, with all the 1247 resulting misfortunes, due to the rise in prices, the fall in the value of real wages and the fall in the value of savings and so on. The other big point he has to meet is to try to balance our trade—in other words, to be able to pay for our imports without which we should all be reduced to mass unemployment and, indeed, to starvation, in a very short space of time. Of course, the usual cliché about inflation is to say that it is due to too much money chasing too few goods, and that the only way of curing that is either to increase the goods or cut down (or, at any rate, slow up) the rate of circulation of the money. As I said on a previous occasion, it is very much easier to cure high blood pressure by bleeding the victim than by attacking the root of the trouble; but while that is certain to cure the high blood pressure, if it is not done with great care it may kill the patient.
As the Government, despite their efforts, have not managed to get sufficient goods on to the home market, the Chancellor has decided on the other line. Nobody denies that the Government recognise the need for increased production and are making strong efforts to ensure it. All of us remember the Periclexian orations of the Lord President of the Council, ending in that noble phrase: "Get cracking!" and we hope that sooner or later it may have some effect. In the meanwhile, the home market has not sufficient goods and the Chancellor, therefore (probably quite rightly), has budgeted for a large surplus—an enormous surplus from the point of view of those of us who remember Budgets of twenty or thirty or forty years ago, for his surplus is 50 per cent. more than the ordinary Budgets before 1914. This will undoubtedly cut down spending power. The laws of economics, which still do business at the same old stand, are coming into their own, and no doubt there is now a shortage of spending power. The shop windows are filling up, and one is met in some shops, after all the experiences from which we have suffered during the war, with a quite embarrassing degree of politeness. It must positively remind some noble Lords opposite who have joined us from the more robust atmosphere of another place of the change from the forms and modes of expression there employed to the silky civility which obtains in this Chamber.
1248 Whether this deflation—or perhaps I ought to have called it disinflation—will continue, is of course another matter. As the noble and learned Viscount, Lord Simon, pointed out, the amount of money in circulation must depend to a great extent on the amount of money saved; and, as he also pointed out, this levy on capital is apt to discourage saving. I know that the noble Lord, Lord Mackintosh (who knows more about these things than anybody), expressed himself with notable caution on this matter, but I cannot help remarking—I think my figures are right—that in the three months, April, May, June, 1947, the net savings were £53,500,000, and in the three months April, May, June of this year, they are only £4,000,000. I know that one must not argue post hoc, atque propter hoc, and I am ready to admit that there may be other causes for this. But it seems significant that in exactly the same three months, with exactly the same holidays intervening, there has been such a big difference.
Quite apart from this, I think we should remember that one of our most promising modes of balancing our payments would be to get United States investments in the Commonwealth. I cannot believe that the risk of having a levy on capital at any moment will encourage such investments. It would be most valuable as a direct dollar augmentation of our resources. The levy on capital of £50,000,000 in this financial year is obviously no use whatever from the point of view of helping disinflation. Everybody recognises that the capital levy cannot prevent or diminish the amount of money in circulation, or reduce the speed of circulation. Everyone must now recognise that it was not a financial measure, but was merely a bone thrown to those snarling wolves who unhappily exist in the Party of the noble Lord opposite—and there are people who think that some of them have even penetrated into the Cabinet—who cannot bear to see anyone who has worked harder or more efficiently than themselves enjoying any sort of reward. I cannot help thinking that some of these feelings have been engendered by a misapprehension as to the quantities involved.
I know that in the Economic Survey for 1948, under the heading "Profits," we have listed a huge figure, something 1249 like one-third of the national income, which is apt to give a wrong impression. One noble Lord opposite—I think it was Lord Shepherd, but I would not be sure and I hope I do him no injustice—mentioned those facts, and one could not help observing the way he rolled round his tongue the assertion, that whereas wages were only 38 per cent. of the national income, profits were 35 per cent. Of course if that were really so, if profits in the ordinary sense amounted to that sort of sum, which I think many noble Lords opposite consider they do, that would be much too big a proportion. But if anyone looked carefully at the figures in the Survey he would rind that those so-called profits include debt charges, the earnings of all professional men, fanners and (though it may not be stated specifically) I imagine also the small, self-employed shopkeeper, and so on. These things, the earnings of the small shopkeeper, the fanner and the like, are no more profits than wages are. There is absolutely no reason to consider them something which we ought to disapprove of and to decry. Moreover, these so-called profits include all the money set aside for renewals and extensions and the starting of new enterprises, which as my noble friend, Lord Rennell, has already pointed out, are so extremely important if our industry is to survive. And they are doubly important, as I think the noble Lord, Lord Brand, pointed out, because of the shrinking value of reserves set aside in the days when the pound was worth more than twice what it is to-day.
I cannot help thinking that when these people who object so strongly to profits read about them, they think of them as belonging to the sort of blood-sucking coupon-clippers who are portrayed in the Daily Herald and the Daily Worker Your Lordships know the sort of caricatures to which I am referring—men wearing striped trousers with large waistbands, enormous gold watch chains and funny little pointed top hats, which, as a matter of fact, are quite unlike the sort of headgear which I have seen noble Lords opposite don when they are about to leave for a garden party, but for some reason are accepted to be the sort of hats which these men wear. Really, only about 3 per cent. or 3½ per cent. of the total national income goes to people with over £2,000 a year gross, and a large part of that goes in the form of earnings, not in 1250 any way in the form of dividends or what the noble Lords opposite would probably call "unearned income" I see nothing wicked in receiving dividends and interest. After all, dividends are a reward for waiting and a reward for taking risk, and I cannot see that there is any harm in letting people have a reward for using their savings in this way, especially as the total received is extremely small.
As I have said before in this House, if we cut everyone down to £750 net, £1,000 gross—which is not really excessive; indeed it is what people in another place consider themselves to be worth—it would save only 3.1 per cent. of The national income or 7½d. in the £. So it is not really a large issue at all. I hope that the noble Lord, Lord Pakenham, may be able, if not to-day at any rate on some future occasion, to give us an analysis (I think that nowadays it is called a "breakdown"—I do not quite know why) of this term "profits" in the Survey, stating the amounts under the various headings—how much goes to the service of debt, how much to farmers, professional men, small shopkeepers and so on, and how much is ploughed back. It should, I think, be easy for the Treasury to let us know how much was paid out in dividends, and above all how much is received in the form of dividends by super-tax payers. They will have to ascertain this anyhow, presumably for the new levy. After all, it is the super-tax payers, even though some of them may be Ministers, who are, I believe, regarded by the Party opposite, as the villains of the piece, simply because they have succeeded rather better than most people in doing what everyone is trying to do.
I think most of us on this side are agreed that there is no moral justification for picking on these people, and there is certainly no financial reason for a capital contribution which is in no way dis-inflationary. Indeed, as has been said, if savings are discouraged, it may be inflationary. We must all hope that the Chancellor will succeed in his battle with inflation. The noble Lord, Lord Brand, said, I think, that it is very doubtful whether that is possible, when 30 per cent. or 40 per cent. of the national income is being taken in the form of taxes. But to a certain extent there are signs of an effect from the Budget making itself 1251 felt. People have less money to spend and there are more goods to be bought. But why is this happening? Why are we getting disinflation? Simply because people have not the money to spend and we have got back to the old state of affairs, so often decried by the Labour Party, in which you get rationing by the pocket book and not rationing by the mercy of the Ministries. We are back exactly where we were. It is surely a little ironical that a Labour Chancellor of the Exchequer should take pride in managing to succeed in putting us back to that position.
There is one point in that connection, raised, I think, by the noble Lord, Lord Barnby, which I consider is important. That is, if and when inflationary pressure falls—and, as I have said, it shows some slight signs of falling—then clearly a number of controls could be taken off. The Government, of course, have told us frequently that they do not want controls for controls' sake. I always believe what I am told. Therefore, I trust that the Government have now begun to think about removing some of these controls. I admit that there are other people who do like controls. Not long ago a friend of mine heard two young girls, aged about eighteen or nineteen, talking in a café in Oxford about one of the Heads of the Colleges—I think it was the Master of Balliol, which of course means that anything which he suggested must be in perfect taste. But one of these girls said very firmly: "He suggested something like that, but I was not going to let him get away with it." Of course, people of that sort do like having controls, and they do not like having to take them off. I think it was Professor Jung who claimed that the power complex was one of the strongest, if not the strongest, in the world. I hope that the Government will be firm in standing up to these people who like controls. I hope that they will make plans, and perhaps tell us about them, for taking off controls as the amount of goods available in relation to the amount of money in circulation becomes more normal.
Before sitting down, I would like to say one or two words about the subject of the trade balance. I hope that we shall have some reassuring figures from the 1252 noble Lord, Lord Pakenham, in this connection. My difficulty is to see exactly how we stand. The figures for visible imports and exports are published every month, and they are, of course, easy to follow, but I have not been able to find any direct statement about invisibles. In 1947 the visible deficit was £450,000,000 and the invisible was £227,000,000—just a little over half as much. So that it may be or may not be an extremely important item in ascertaining how we stand. So far as I can make out, for the first half of the present year our visible deficit was about £250,000,000. Expenditure of reserves, so far as I can see, was £254,000,000 plus £26,000,000, which we acquired from the International Monetary Fund, which means that there was a total of £280,000,000. If this mode of analysis is correct, which I doubt—there are so many things we are not told in Government figures—our reserves have dropped to a deficit of £38,000,000 in the first half of the year. I hope it is so. I would be more than delighted. I would be very glad, and I am sure the House would be very interested, if the noble Lord, Lord Pakenham, could reassure us on this point, and perhaps he could tell us what the reserves position is.
The drain on our reserves is considerably bigger than was anticipated. It was forecast in the first half of the year that it would be £222,000,000, whereas really it has been £280,000,000—that is to say, 26 per cent. more than we had expected. That, of course, is extremely disquieting. On the other hand, our reserves are now £473,000,000 instead of the £450,000,000 which was forecast. Whether this is due to adventitious aids, Marshall Aid, or purchases from the International Monetary Fund, I cannot disentangle. Perhaps we shall hear something about that when the noble Lord, Lord Pakenham, replies. We are all very pleased that exports have gone up to 140 per cent. pre-war by volume. I can only hope that the terms of trade will be improved—I say deliberately "will be improved" and not "will improve," because I do not think it is an act of God. The position is by no means void of anxiety, because the sellers' market is rapidly vanishing and it is no use producing goods if we cannot sell them. As I have said, I hope my noble friend Lord Pakenham will give us information about the total monthly drain 1253 on our resources. In the early months of this year, every family in the country were consuming £1 a week value of reserves or of gifts from abroad. If the deficit in visibles dropped to £38,000,000 last month, that figure of £1 comes down to 16s., which is a step in the right direction, though by no means adequate.
I think we all agree that it is absolutely vital for us to stand on our own feet and to be able to pay our way when in due course the most generous American aid comes to an end. We can do this only if we all work together to obtain a great upsurge in production. I do not wish to enter into the vexed question of our present level, but everyone, from the Prime Minister upwards, or downwards, as the case may be, seeks to get a bigger production. The Prime Minister asked for 10 per cent. and I hope something of that sort will be achieved. I cannot forbear remarking that this is not helped by violent attacks on half the nation and all employers by leading Ministers. Of course, not everybody realises, though anyone who has read any books on psychology will, that those attacks derive from an inferiority complex, and those tantrums and inaccuracies should be discounted. Surely, the economic and international situation is too grave to permit such extravagances, which are quite out of place and would be quite unworthy in a disputed election in a parish council. Unless the Government can unite the nation in a concerted effort to increase production, their endeavours to balance our external trade and stop inflation are doomed to failure. If they can rise to the occasion and put aside all Party rancour and dogma, so that we all pull together during this grave emergency, then I think there is no reason why, with American help, we should not win through once more to solvency and security.
§ 5.35 p.m.
My Lords, this has undoubtedly been a most interesting debate. All that has been said will, of course, be closely studied by the Government, and by a great many other people as well. The noble and learned Viscount, Lord Simon, gave the House much pleasure in his opening remarks. I feel like my noble friend Lord Walkden, who once remarked that he enjoyed fine speaking and that it was always a special treat to listen to the noble and learned Viscount. 1254 The noble Viscount referred to an unfortunate occasion, some months ago, when I seriously misinterpreted the appetite of the House for information at an hour a good deal later than this. I assure the House that I shall not make the same mistake to-day. I am glad to find that, far from talking late, this is one of the earliest hours at which I can remember approaching the winding-up speech on an important occasion. We have at least an hour and a half of good work ahead of us, but if at any moment the thirst of the House for information is assuaged, and your Lordships ask me to hold back, it is extremely likely on such a warm afternoon that I shall accede to that request.
Once again I had much pleasure in listening to the speech of the noble Lord, Lord Cherwell. I came across, in Duff-Cooper's life of Earl Haig, an account of Haig's first visit to the Principal of Brasenose, who belonged to the old-fashioned type of Oxford head. He said to the future Lord Haig, by way of guiding him in his university career, "Ride, boy, ride, I like to see the gentlemen of Brasenose in top boots." I like to see the noble Lord, Lord Cherwell, mounted on his horse, even though sometimes it is only a hobbyhorse. The noble Lord said he had read over all his speeches for the past year, and found not a single word he wished to modify. Surely, in giving such an account of himself, he places himself in a category all his own. Few of us would care to read through our own speeches, if we made as many as some of us do; and few would deal with the utterances they had given forth with the extreme complacency which the noble Lord showed.
If I had time to read all my speeches, I should feel that I had more time than I wished for. The noble Lord is more fortunate. I have not read all his speeches, though I am certain I would benefit from doing so. I do, however, remember an occasion when he told us there was a general collapse of the will to work in this country. To-day he takes severely to task the Ministers who happen to represent a large part of the nation. If they do not fall into the category he described earlier, he still stands over them. He places himself in a category in which he would hardly wish others to 1255 place him. The noble Lord said of some of us that we were "snarling wolves" and compared that with his own "silky civilities." If his reference to the collapse of the will to work is an example of his "silky civilities," I almost prefer the din of "snarling wolves." But we must take our own choice.
§ LORD CHERWELL
In regard to the will to work, all I said was: Are noble Lords opposite genuinely seeking work?
I listened with interest to the discourse of the noble Viscount, Lord Simon, who was good enough to give me careful notice of what he was going to say. From our point of view, we are apt to divide noble Lords opposite into two categories—those who give us notice about the points they are to raise; and those who adopt the "cloak and dagger" approach. They keep a rather strong point under their cloak, whip it out and (to change the metaphor) stab it in our backs. I am bound to say that some of the "cloak and dagger" methods may well have a boomerang effect. That, I think, will be found to be the case when I turn to a letter which the noble Lord, Lord Cherwell, recently wrote to the Daily Telegraph, which I feel should be answered in this House, as it was difficult to answer it elsewhere, and it bears very much on our deliberations this afternoon.
To return to what was said by the noble and learned Viscount, Lord Simon: first, he put a question about food subsidies. I am afraid that I cannot add to what has already been said in that respect. We are still hoping that the aim of keeping the food subsidies down to £400,000,000 will be achieved, but I cannot give any guarantee on the matter. We must see how things develop. Every effort will, of course, be made to keep within the original figure. The statements made by the Chancellor of the Exchequer, and by the Minister of Food, are both, of course, right in their contexts. I am afraid I cannot add to those statements this afternoon.
§ VISCOUNT SIMON
Will the noble Lord excuse my interrupting? Is it not possible to say what is the present rate at which expenditure on food subsidies is being carried on? Or is it not possible to state for how many weeks the rate of 1256 £407,000,000 is continuing? Are those matters beyond the competence of the noble Lord and those who advise him to answer?
I am afraid the noble and learned Viscount is asking me a question which I cannot answer this afternoon. If he were the Chancellor of the Exchequer to-day I do not think he would deem it possible to offer the country a kind of weekly account of the rate at which the subsidy is moving. One figure was given a little while ago, and that figure was correct at the time.
§ VISCOUNT SIMON
I do not want to interrupt the noble Lord unnecessarily, because he has a lot to say and he is always very courteous. The question I asked was whether or not the Government proposed to have a "ceiling," as was announced by the Chancellor of the Exchequer, or whether, on the contrary, the total amount of the food subsidies would change with the variation of the food prices. That is a question of which I gave the noble Lord notice. I find it difficult to believe that he is in the same position as the Chancellor of the Exchequer was, when he said the other day that he did not understand the question.
I should be very surprised if my position on a matter of finance was superior to that of the Chancellor of the Exchequer. I can only say, what I think is common knowledge, that the figure of £400,000,000 is the target, and that every effort will be made to keep within that figure. If the noble Viscount says, "Supposing you cannot keep within it, what then?", I can only say that we hope to keep within it, and that if we do not, that fact will be announced.
May I come now to the question of the special contribution, because, in spite of the highly technical observations of the noble Lord, Lord Rennell, at one point, this question of the special contribution appears to represent the main point of criticism of the Budget. I should say—because I am afraid I have failed to say it before—that we appreciate the general reception of the Budget and the Finance Bill. I hope the noble and learned Viscount, Lord Simon, particularly, will allow me to say how grateful I am for his continued encouragement of the National Savings Movement, for which he has done 1257 such a lot in the past. But, coming to this bone of contention, the special contribution, may I just place these points before the House? I do not think that anyone to-day has argued that this special contribution is unfair because it discriminates against the rich and in favour of the poor. It is the manner in which it is levied that is the stumbling block so far as noble Lords opposite are concerned. As regards that, I would suggest to the noble and learned Viscount that he is labouring under one misapprehension. He seems to feel—of course, it is a matter where a difference of opinion can be held—that this will retard savings, and penalise thrift. Surely, the noble and learned Viscount is well aware that this refers to a past period. The tax is on the investment income, not in some future year, but in the year that has just passed, and nothing that anybody can do will affect their position in relation to this tax. Therefore, no reasonable person would be in any way deterred from any act of saving which he was otherwise going to undertake.
The noble Lord, Lord Clydesmuir, in another interesting speech, if he will allow me to say so, said that he and his friends would feel much happier if they could be assured that the Chancellor of the Exchequer carried with him a united Government and a united Party. I have no special right to speak on that, and can give only the honest impression of, I hope, an honest man. There can seldom have been a Chancellor of the Exchequer in British history who had such a strong position with his own Government and with his own Party. That is an observation which, the noble and learned Viscount will assess at its own value.
§ THE MARQUESS OF SALISBURY
Surely, this is the point. In the undertaking which the Chancellor of the Exchequer gave, that this was "once for all," did he carry with him the united view of the whole Cabinet? The reason why I ask that is because we have heard on another matter—namely, the Representation of the People Bill—the view of the Lord President of the Council that undertakings of this kind do not bind successive Parliaments. Is this, so far as it can be stated, a permanent undertaking, or a temporary undertaking?
AS the noble Marquess knows, no Government can 1258 commit future Governments. But I have the special authority of the Leader of the House for saying that in giving that undertaking the Chancellor of the Exchequer carried with him an absolutely united Cabinet. I feel that that should reassure the noble Lord, Lord Clydesmuir, and should help to answer the noble and learned Viscount. But a much better answer than I am able to offer was supplied by the noble Lord, Lord Mackintosh, who seemed to spring, as it were, form heaven to deal with some of the points argued by the noble and learned Viscount, Lord Simon. The noble Lord, Lord Mackintosh, I suppose, is the greatest authority in the world on the question of saving. He said that, in fact, the special contribution had not reduced the amount of savings. The noble Lord is an arbiter who sits on the Cross Benches, and no one suspects him of any bias. That is expert testimony which the noble Viscount will perhaps accept, more readily than he would from me.
§ VISCOUNT SIMON
I certainly accept it, and I am glad that the fear which I entertained is minimised. But I cannot altogether forget two things. The first is that Lord Mackintosh himself carried to the Chancellor of the Exchequer the resolution of the National Savings Committee representing their fear of the discouraging effect that this tax was having on the members of the Movement. The second point is that the noble Lord explained quite candidly that the Gallup Poll to which he referred was taken before the Budget was introduced. The question is, not what was the state of mind of the organisation before the Budget was introduced but whether one unfortunate result of this particular tax is not to introduce some new anxiety.
I feel that after to-day's debate, and with the assistance of the noble and learned Viscount, who will now go forth and deliver more speeches, the members of the National Savings Movement will have their anxieties allayed, because clearly they rest on a complete misunderstanding. I do not think the House would wish me to carry on further with that point.
I would now say something which I am rather reluctant to say, because it may seem discouraging to the noble Lord, Lord Mackintosh. I am afraid, in case there may be some misunderstanding 1259 outside, that I must place before the House some facts about the Defence Bond terms, because the remarks of the noble Lord are so authoritative and so helpful that they will, I am sure, be widely studied.
I should make it plain to the noble Lord that, according to our calculations, if the interest rate were improved, although the weekly figures might be inflated, they would not represent an increase in real savings—that is to say, abstention from spending other income—but only the transfer of money by well-to-do savers from one security to another. In case this is followed rather carefully, I should say that the terms of the Defence Bonds are not open to question. On January 14, 1948, the Chancellor announced his conclusion that the 2½per cent. rate on Defence Bonds was still favourable to the investor and would not be changed. On April 30, this conclusion was repeated again in public by the Economic Secretary. At a Press Conference on July 14, the Chancellor was asked whether there was a case for increasing the rate of interest in order to encourage people to save. He answered: "I do not think there is a case at all"; and to a further question he replied: "This conclusion applies to 2½ per cent. Bonds." I must make that plain in case our debate should be followed outside, and the saving public misled. I do not think that what I have said in any way affects what I said earlier. Perhaps the noble and learned Viscount will excuse me from giving the figures asked for, as they have in fact been given by the noble Lord, Lord Mackintosh. But I will readily provide him with further information about the receipts and repayments for the period he mentioned if he wishes to have it.
§ VISCOUNT SIMON
There is just one thing I would like to know. When one gets these figures, with which we have already been furnished, showing what is the amount of savings, and set against that what is the amount of the withdrawals, does the figure for withdrawals include the redemption demanded at the end of the period by those who are not willing to reinvest? If, when they put in the money, it counts as a contribution to savings, I have some difficulty in seeing why, when they take out the money, 1260 it is not counted as a deduction on the other side. Do you happen to know whether it is included in the figures or not?
Perhaps I may be able to assist the noble and learned Viscount on that point before the end of the debate. I would point out that these figures were never intended to be a comprehensive account of all investments, but they are understood to provide a good comparison between one period and another.
I repeat that I am well aware of the good work the noble Viscount has put into this effort. May I come to the next point of consequence, which is the question of real wages? The noble and learned Viscount, naturally desirous of seeing an improvement in the standard of living, is rather apprehensive lest real wages have not risen since before the war. He took as an example goods which certain people might be supposed to buy, pointed to the increase of price and implied, I think, that probably the working man was worse off than before the war. He was asking for information on that matter. I am not quite sure about his figures for beer. I gather that a pint of beer costs 1s. 5d. in the Staff Bar and 1s. 9d. in your Lordships' Bar. That is simply a piece of irrelevant and rather inexplicable information which I throw into the pool of thought. I have examined this matter a little more seriously. The only official figures which I can offer an ex-Chancellor of the Exchequer are these. The new index of wages rates started at 100 for June, 1947. The June, 1948, figure is 106, which is a rise of 6 per cent. in a year. The new index of retail prices started at 100 in June, 1947. The June, 1948, figure is 110, and the July figure would almost certainly be 108. Those are not really the figures which the noble and learned Viscount was seeking and I am therefore bound to say that I have not any satisfactory figures which would give a comparison between post-war and pre-war conditions. I would say that there is nothing at all that I can find—and I have consulted the experts, although a little hastily—to support his view that real wages are lower to-day than before the 1261 war. The House will recall the noble Lord, Lord Brand, coming to us with his tremendous authority and telling us that, subject to a number of qualifications, they should be thought of as 45 per cent. higher.
§ LORD BRAND
May I intervene for a moment? I deliberately quoted the figures of Professor Pigou. I said that I had not nearly the authority that he had, but as Professor Pigou is one of the greatest experts on this matter I took them as being correct.
I feel that this matter is of some interest, so I will pause over it. On the one hand we have the noble Viscount implying or fearing that the condition of the working people has deteriorated sadly since before the war, while on the other hand we have the noble Lord, Lord Brand, indicating that in fact there has been a sharp improvement in their position, an improvement which on the whole has been too sharp for the general welfare of the country. Whether we take the noble Viscount, who has been Chancellor of the Exchequer, or the noble Lord, Lord Brand, supported by Professor Pigou, compared with my individual knowledge, drawing a metaphor from Tom Brown's Schooldays, "They represent all Lombard Street to a china orange." I have, of course, fortified myself with the expert figures from the Treasury and elsewhere, and the figures that I would offer to the House, but tentatively, are these. If we take the average gross weekly earnings before tax deduction in 1938, and compare it with 1948, we find that there has been an increase of 103 per cent. If we take the price level of consumer goods, there was an increase of 68 per cent. in 1947, which is the latest figure for which we have good information. Perhaps one has to add another 10 per cent. or so to that for 1948. You will then begin to approach a figure of 80 per cent. in the increase of the cost of living, against an increase of something like 100 per cent. in the gross weekly earnings. From that 100 per cent. you have to deduct income tax and make various other allowances for the quality of goods, and so on. I would not like 1262 to suggest that these figures give a firm comparison. I would like to lay before the House the position in which we find ourselves. The facts that I can find out equate between those expressed by the noble Viscount and those expressed by the noble Lord, Lord Brand. That is the position as briefly as I can put it.
I would not like to pass over the many weighty exhortations for a reduction in public expenditure which have come to us from, various quarters to-day. The noble Lord, Lord Brand, asked me a number of questions of a kind which might well be put at a viva voce examination.
When the noble Lord, Lord Cherwell, pays his promised visit there, I expect that is the kind of question which will be put. At any rate, it is a question the noble Lord has frequently put in this House. I was asked whether I agreed that the level of taxation is unfortunately high. Of course I agree. I agree that there are many most unwelcome features in the economic prospect, which confronts us. I agree that this drain of dollars is most unsatisfactory and that we must do everything we can to stop it. I quite agree that in the abstract we would rather have a smaller than a larger expenditure; but in fact, in spite of the very intricate mechanism, it has proved impossible to bring the figure down. I am not apologising for the services which this expenditure in many cases represents.
The noble Lord, Lord Brand—who has the advantage of being, as it were, aloof from Party politics—when asked what deduction he would make, suggested that it might have been us well not to introduce the National Health Service. I do not suppose that that is the official policy of noble Lords opposite. The Health Service was a common policy agreed upon by all Parties, and I do not suppose that anybody in your Lordships' House, apart from Lord Brand, would seriously argue that it should not have been introduced. But the simple fact is that these great services have been introduced, and that nearly all of us here are entirely behind their introduction at this stage; and I do not think many of us would take very seriously the idea that we could bring 1263 about any reduction through cutting the social services. However, I still remain open for further suggestions on this matter.
§ LORD BRAND
My point was that fixed interest payments such as interest on war debts, social service benefits and food subsidies—which amount to something like £1,500,000,000 to £2,000,000,000—will all be reduced in value, even if the Government do not reduce the latter, by a fall in the value of money.
I am perfectly satisfied that we can carry the existing social services; and as time passes, and the position of the country improves, I am sure we shall all wish to see them improved more and more. However, I assure the noble Lord that what he says will be carefully considered by the Chancellor of the Exchequer.
The noble Lord, Lord Rennell, denounced what he called the iniquitous taxation of undistributed profits. There again, I will lay what he has said before the Chancellor of the Exchequer—without calling particular attention to the word "iniquitous," because I feel that that might prejudice the argument! All the noble Lord has said will be most carefully looked into. I have already referred to the noble Lord's other points, which will also be passed on. I am sorry to see that the noble Lord, Lord Gifford, has had to leave. To the noble Lord, Lord Barnby, I would say that he has no reason to think that we are in the slightest degree prejudiced against Canada—far from it. Recent events have shown this. The decision to purchase twenty-two Canadair aircraft has surely given evidence of our great attachment to the intimate family connection we have with Canada. I hope, therefore, that the noble Lord will put out of his mind any idea of prejudice against Canada.
§ LORD BARNBY
I accept the intention, but the facts are not in keeping. The facts are that, in the matter of these funds for migrants, we are discriminating against Canada.
I am assured that there is no question of discriminating. I think the noble Lord was recommending some policy which would involve a slight 1264 increase of expenditure. I think, if I may say so, that perhaps he had better get that passed by the noble Lord, Lord Brand, or by the noble and learned Viscount, Lord Simon, before submitting it for consideration! Apart from the recommendation to cut the National Health Services, we have not had any suggestions for reductions. But we have had this proposal from Lord Barnby for increasing expenditure.
If I might interrupt the noble Lord for a moment, I should like to point out that the Chancellor of the Exchequer, in the course of his Budget speech, foreshadowed major reductions in expenditure. I do not expect the noble Lord can give me any statement or list of these items to-day, but may we take it that the Government have in mind proposals for substantial reductions?
The noble Lord is extremely familiar with the Treasury; probably he knows more than I do about the working of the Treasury mind. But the first thing, surely, is to make sure that the reductions which are due to take place this year will in fact take place. I have no reason to suppose they are not taking place; I am not up to the minute, and am not in a position to inform the noble Lord of the rates of reduction; but, as I say, I have no reason to suppose the reductions are not taking place.
May I now, in view of my past failures, go in some detail into a number of figures bearing on the national life? First, let me take the dollar gap to which several noble Lords have referred. The two main points are that, compared with 1947, the rate of drain on our gold and dollar reserves has been substantially reduced. Secondly, the drain is, nevertheless, still so high that without Marshall Aid we should be faced with the prospect of seeing our reserves dwindle to nothing within a short time. The noble Viscount asked me for the figure of our reserves, and I will give him the figure as at the end of June: it was £473,000,000. So far as the drain itself is concerned, the following are the outstanding facts. In 1947 the total dollar drain, counting in everything—not only our own deficit, but any other forms of drain—amounted to £1,023,000,000. In the first quarter of 1948 the net drain was £147,000,000, and in the second quarter £107,000,000. That, 1265 as the noble Lord, Lord Chorley, said, represents almost exactly half of the 1947 rate.
Let me pass from that aspect to what might be called the physical side. I should like to deal with our exports and imports. The chief measure of our efforts to correct the disequilibrium in the balance of payments is given by the movement in United Kingdom exports. In terms of volume, using 1938 as the base year—that is to say making it equal 100—exports in the first six months of 1947 amounted to 101. That poor figure was mainly due to the fuel crisis, and is therefore not a fair indication. In the second six months of 1947, the figure was 116. In the first half of this year, it was 130. In June, the last completed month, the figure was 138—or, if one wants to be precise, and at the same time rather cheering, on the basis of a standard month of 26 working days it could be put down at 139½ But I think 138 is a good enough figure. It is fair to say that our export targets have therefore been substantially reached over the six months.
§ VISCOUNT SIMON
May I ask one question, not in criticism, but with a desire for information? Are these figures the figures of total exports, as measured by the Customs? Or is the noble Lord referring only to the exports which assist in meeting the dollar pressure? I have pointed out before that exports to, say, the Channel Islands, do not appear to assist the dollar situation any more than if we sent the goods to the Isle of Wight; and there are many such instances. Are these total figures, or are they only figures which affect dollars?
I anticipated that the noble and learned Viscount opposite would not allow that whisker of hair to remain on my chin, but I will deal with his point in a moment. I hope that, in taking those figures as a rather good estimate of the national effort, no one will underestimate the magnitude of this great achievement, which reflects the greatest credit on workers and managements alike, as well as on the capacity of those whose business it is to encourage the sale of British goods overseas. Not only have we expanded our exports; we have also been selling them, to a reasonably satisfactory extent (though a good deal more has still to be done) in the places where they are most needed. Compared with 1266 the last five months of 1947, our exports to the Western Hemisphere in the first five months of this year—that is the crucial period—have risen by 24 per cent. in the case of the sterling area, and to the rest of the world by 19 per cent. We have a long way further to go down this road, but at least we may say that substantial progress has been made.
Exports, however, are only half of the story. When we look at imports, the picture is more chequered. We have succeeded in drastically cutting down our purchases from the Western Hemisphere. Again, taking the first five months of this year—because in working out the distribution of exports and imports between years one is not quite up to date and, therefore, we take this five months period—compared with the last five months of 1947, imports, on a c.i.f. basis fell to £260,000,000, compared with £327,000,000. That was a drop in imports from what we, from our point of view, might call the "wrong countries" of £67,000,000. On the other hand, imports from the rest of the world rose from £459,000,000 to £589,000,000—an increase of £130,000,000. This last increase is partly the result of our success in switching supplies from dollar and other hard-currency sources to the soft-currency countries of the sterling area and elsewhere, but partly it is a measure of the serious rise in import prices which we have had to suffer. I will not say much more about this rise in prices this afternoon, because it is known to the House.
In the course of his very interesting speech, the noble and learned Viscount persisted in using one phrase which I feel was unworthy of him, when he referred to Mr. Dalton as having squandered the Loan. I think the noble and learned Viscount overlooked the rise in prices altogether in that part of his observations. This rise in prices has been a most serious problem.
§ VISCOUNT SIMON
Undoubtedly I used the expression, but I was not referring to that at all. I was referring to Dr. Dalton's assurances that, when the critical date in July came, the effects had already been practically discounted and that therefore we need not suppose there was any rapid drain of our dollar Loan. In fact, of course, there was.
I am grateful to the noble and learned Viscount for his explanation, but we who sit on these Benches would never agree with that use of language. I am bound to say that we on this side of the House have just as high an admiration for Dr. Hugh Dalton as we have for any other member of the Government.
In our efforts to close the gap in our total balance of payments, we have been seriously handicapped by the unequal movement in the prices of the things that we buy and the things that we sell. Taking 1947 as 100, the index of import prices last May amounted to 116, and that of export prices to only 109. That is to say (in the economists' phraseology) that the terms of trade moved against us, even in so short a period, by no less than 6 per cent.; and, of course, that is a movement that had been going on previously. We are here very much in the grip of world forces. I will not detain your Lordships further this afternoon with observations on this aspect, but I am sure that it is something to which we shall wish to return continually in these debates.
I am tempted by the language of the noble Lord, Lord Cherwell, to inflict certain other figures upon the House. I hope that noble Lords will allow me to answer him in some detail on the subject of the visible and invisible deficit. This subject is difficult because of various complications introduced by the valuation of the imports on a c.i.f. basis. If, however, we make a crude adjustment by reducing by 10 per cent. the value of the imports recorded in the trade and navigation accounts, then the trade deficit in the first half of this year amounts to approximately £150,000,000, or at a rate of about £300,000,000 a year. For 1947 as a whole, the visible deficit as estimated in the Economic Survey amounted to £449,000,000. Therefore on visible trade alone we have an improvement at a rate of about £150,000,000 per annum. Our trade deficit is at a rate of £300,000,000 per annum now as against £449,000,000 per annum—call it £450,000,000—in 1947. On visible trade alone, the improvement is of the order of about £150,000,000 per annum.
This is simply visible exports and imports, which is not the whole story, as the House will know. In 1947, we suffered a net deficit on account of invisibles of no less than £226,000,000. For the first half of this year, we estimated in the Economic Survey for 1948 that this figure would be reduced to £49,000,000—or at a rate of less than £100,000,000 a year. That was the estimate. It is too early to say how far this forecast is likely to be achieved, but I think that we may say with some assurance that it will certainly not be worse than the forecast, and it may be better. That fits in with the noble Lord's independent calculations and forms that kind of encouraging conclusion. At worst, therefore, still sticking to the question of invisibles, we should improve on the 1947 experience by more than £125,000,000 per annum. The improvement may be even greater. Substantial progress—this is the short point—has been made on both visible and invisible trade account, and together these improvements, compared with 1947, can in a very tentative and provisional way—I should like to stress that particularly for the benefit of anybody who may be taking down my words—be put at a sum not less than about £275,000,000 per annum in the first half of 1948. In fact, it may even be a little more.
Finally, I hope your Lordships will bear with me while I say a few words about production. What is the story of our productive effort since the Second World War? On the last occasion I spoke on the subject, I pointed out that we had done as well as any other European country, and a good deal better than most, whatever their form of government. On that occasion, I used figures obtained from the Economic Commission for Europe, supplemented by those from the United Nations Bulletin. Adopting for our own country a more austere basis, which does not of course invalidate the international comparison that I made last time, I would remind the House of the statement made by the Chancellor of the Exchequer on July 12 at the Mechanical Handling Exhibition at Olympia. He pointed out that the volume of industrial production was 30 per cent. higher in the first quarter of this year than in the first quarter of 1946, and perhaps 11 per cent. higher than in 1938. The population is perhaps 4 to 5 per cent. higher this year 1269 than before the war, so that whether one works it out in the aggregate or per head of the population, we are producing more industrial products than in the last full year before the war, or the average of 1935–38.
It may be asked what benefit we are getting from this extra effort. I quite agree that the production figures, which are the test of effort, are not the test of immediate benefit. Before the war, circumstances (now unhappily departed), enabled us to pay with visible exports for less than two-thirds of our imports. In this post-war era, as a result of war losses, we would be compelled, apart from Marshall Aid, to pay with visible exports for all the imports we receive. I agree that owing to the generosity of our American friends we are not in fact paying for everything we receive; but whereas before the war our visible exports were 64 per cent. of our imports, they are now, for the month of June, 87 per cent., so, according to that comparison, we are doing far better than before the war, when we paid for only 64 per cent. of our imports with exports. Therefore our productive effort—and this follows from what I have already said—is not supplemented to anything like the same extent as it was before the war, where it was supplemented through the agency of what one may call these additional imports.
This is where I come to the letter which the noble Lord, Lord Cherwell, in a commendable search for information, wrote to the Daily Telegraph. I will not join issue with him because the hour is beginning to be late, and I do not think it is fair to do so unless one stops and argues about it for a long time. But I would like in a few sentences to correct him, quite definitely and clearly, and to leave him time to think over what I have said. The noble Lord asks in his letter and elsewhere where this extra production has gone; he suggests that we do not seem to be better off, and yet there is all this talk about extra production. The answer is that part of it has gone to pay for what we used to draw as interest for investments abroad. That is the most important part of the answer. The noble Lord shakes his head, but I am afraid he cannot get round this. If I may say so, the noble Lord has been guilty of an elementary "howler" in his letter to the 1270 Daily Telegraph, and I would not use that language unless I was absolutely sure of what I was saying. I know the noble Lord cannot get out of that.
§ LORD CHERWELL
Would the noble Lord allow me to interrupt? According to the Economic Survey, we received in interests, profits and dividends £205,000,000 before the war, as against £145,000,000 in 1947, so it is not really much, little more than 1 per cent.—that is, £60,000,000—on a total of the order of £5,000,000,000 for the production of the country.
I do not want to detain the House, but I would point out that in his letter to the Daily Telegraph the noble Lord said this:In 1938 we exported something like 12 units out of every 100 units produced in this country and lived quite comfortably on the 88 units left.
The answer is of course, that before the war we did not live on our home production. When the noble Lord sees my reply he will, I think, be grateful to me, because it is not often when one puts a searching question that one gets a certain answer which disposes of the matter quite so definitely.
§ LORD CHERWELL
The home produced goods are very much down when we compare what we can buy to-day with what we used to buy; and if we really are producing 11 per cent. more than before the war we ought to have more available to-day than before the war.
I suggest that everybody can read in Hansard what the noble Lord has said and what I have said, and the House will form its opinion. I hope that the Daily Telegraph will print a correction, and I am sure the noble Lord will express regret for conveying a false impression! I would add the further point that part of our extra production since the war has also gone in housing and other forms of capital formation, which has absorbed a higher proportion of our resources than pre-war owing to the necessity for making good as soon as possible war damage and dilapidation.
The broad picture, therefore, is that as a nation we are placed in this way—as I have summarised it under six headings. 1271 First, we, in company with all the nations of Europe, are still suffering heavily from the economic consequences of the war. Secondly, we have done better in terms of productive effort than any nation whose losses were in any way comparable and for whom any reliable figures are available. Thirdly, we are producing more as a country than ever before in peace time, and production per head of the population is higher than before the war. Fourthly—and this is a harder point to make in a way that is at once accurate and informative—although the consumption of certain much-needed things has fallen, the consumption of others, some of them admittedly less desired, has risen. On the whole, making all the reservations which are set out in paragraph 231 of the Economic Survey for 1948, we are living at a standard of life which is roughly comparable to that ruling in 1938, with a good deal more equality of distribution than there was at that time. Fifthly, to enjoy this level of consumption we are receiving an amount of assistance from abroad which is certainly less than 5 per cent. of our total national income, but which is quite indispensable if we are to counter the adverse balance of payments which would otherwise ruin us. Sixthly, this assistance from abroad will not last for more than a limited period, so that it is literally a matter of life and death to expand our output increasingly, and more particularly our production for export.
I think, possibly with the exception of one of those propositions, the whole House will be with me in what I have said. I am sure there will be no disposition to question the motives of the Government, any more than we question the motives of members of the Opposition when they beat us about the head. There will be much disposition—after all, what would an Opposition exist for otherwise?—to question our policies. There will be much disposition, in which we most assuredly join, to call for still greater efforts than our people have yet put forward. But anyone who says that the efforts hitherto made do not represent a worthy buckling-to in the face of afflictions imposed on us by adverse circumstances is libelling the British people, and I know that there is no one in this House who would wish to do any such thing. We have made up a 1272 lot of leeway over the lap we have just completed, and as we move off on the next circuit our stride must lengthen still further. That I am sure will be done. I am most grateful to those of your Lordships who have taken part in this debate, and if at times I have appeared to be rather waspish, your remarks have been so stimulating that I have found it impossible to be otherwise. I beg to move that this Bill be read a second time.
§ On Question, Bill read 2a; Committee negatived.
§ Then, Standing Order No. XXXIX having been suspended (pursuant to Resolution of July 15), Bill read 3a and passed.