EXCHANGE VALUE OF THE POUND

HL Deb 28 September 1949 vol 164 cc789-875

2.35 p.m.

Order of the Day read for the resumed debate on the Motion moved yesterday by Lord Addison—namely, to resolve that this House approves the action taken by His Majesty's Government in relation to the exchange value of the pound sterling, supports the measures agreed upon at Washington by the Ministers of the United States, Canada and the United Kingdom which are designed to assist in restoring equilibrium in the sterling-dollar balance of trade for the purpose of enabling the economy of the sterling area to maintain stability independent of external aid; and calls upon the people for their full co-operation with the Government in achieving this aim, whilst maintaining full employment and safeguarding the social services.

THE LORD CHANCELLOR (VISCOUNT JOWITT)

My Lords, I should like to start by saying how sincerely I regret the absence of my noble friend Lord Pakenham, who, as your Lordships know, is indisposed. So it comes about that I am called upon to do the best I can to act as substitute for him in this matter, which is not one in which I pretend to be an expert. I have for many years past gathered such crumbs as I could from the tables of the economist. I have never found it a very nourishing diet, though I must say that it has been a varied diet, because what I have gathered from one has been counterbalanced by what I have gathered from another. But, like the criminal who said that he "felt his position acutely," I certainly feel my position acutely today, in discussing these intricate matters with your Lordships. All I can claim to do is to adopt what I believe to be a common-sense approach to these problems; and there is something to be said for that.

I find it a matter of regret that the Amendment which is down on the Paper, and which I presume the noble Lord, Lord Woolton, will in due course move, is there at all, because, in the words of The Times to-day, it is much more of an Election manifesto than a reasoned comment on the Motion, and will not help much in this discussion. I regret that that should be so because, quite frankly, I regard the matter which we are discussing as much too serious for ordinary Party polemics. If there are to be Party polemics, I am not going to join in them; after all, if the Leader of the Opposition and the Minister of Health are talking in another place, why should I add my whisper to the thunder which they, no doubt, will produce? As I see it, if we cannot restore some measure of equilibrium between the dollar and the sterling areas, the most serious consequences must ensue, and the only way in which we can restore that equilibrium is by a great increase in our productivity. That is very difficult to achieve. But if we do not achieve it, the consequences of failure must be not only a drop in our standard of living, not merely the risk of mass unemployment, but—as the noble Lord, Lord Balfour of Burleigh, said yesterday, in what I thought was a most interesting and most instructive speech, although I did not agree with all of it—there is even more at stake than that—namely, the whole future of our Parliamentary democracy. I am by no means sure that he is not right.

That being so, I am not going to talk about Party politics or to prognosticate what is going to happen at the Election. I remember the old saying: Let not him that girdeth on his harness vaunt himself as he that putteth it off. In the space of time, which must now be measured by months, some Government (I know not what) will be in power, and they and their representatives on this Front Bench will have to face this problem. Maybe it will be this Government; maybe it will be another Government; but the problem will remain. I believe, and I say at once that Anglo-American co-operation is absolutely essential for the future of this world. I believe that is the rock upon which we have to build. By "Anglo-American co-operation," I do not mean merely this Island. I mean the whole Common-wealth and Empire. For we live in a troubled world and, unless we can achieve that co-operation, there is no end to the troubles that may arise. But our Motion which is on the Order Paper dealt with devaluation and asked for the approval of the Joint Communiqué and for co-operation in achieving this aim. We asked your Lordships to approve a Resolution saying: That this House approves the action taken by His Majesty's Government in relation to the exchange value of the pound sterling"— that is to say, to move it down to 2.80 dollars— supports the measures agreed upon at Washington by the Ministers of the United States, Canada and the United Kingdom which are designed to assist in restoring equilibrium in the sterling-dollar balance of trade for the purpose of enabling the economy of the sterling area to maintain stability independent of external aid; and calls upon the people for their full co-operation with the Government in achieving this aim…. that is to say, in achieving equilibrium. The Motion was not designed to, and on the face of it does not, ask your Lordships to grant us approval for everything we have done in the past; nor does it ask you to grant us a blank cheque for everything we are going to do in the future. It was confined to that particular purpose.

I feel that there is a danger here of wrong diagnosis. As I see it, this is not merely a question of modifying or altering this or that defect in British politics. It is not to be dealt with by a diatribe against Socialism, which may or may not be good, bad or indifferent. May I quote these words from a most striking article in the Economist from the issue to which my noble leader has already referred? In our opinion Britain's present difficulties are not due to anything that can properly be called Socialism; they are not due, save in a minor degree, to policies of the Labour Government … and to make the present crisis an excuse for an anti-Socialist campaign would hinder rather than help towards its solution. If that is the truth generally, in particular is it true—if I may say so with the deepest respect to the noble Lord, Lord Lyle—of those proposals of Socialism which have not yet been put into force. In fact, as I see it (and I think it is essential to try to get a right diagnosis), this situation arises from a change which has been developing during the last thirty years, accentuated, no doubt, but not caused by the two World Wars, and masked, as I believe it has been, by American generosity and by the world's desire to buy anything after the war at whatever price; and in 1949, the maladjustment emerges. I want your Lordships, if I am right, to realise those facts because a wrong diagnosis imperils the choice of the right remedies.

The first question I propose to discuss with your Lordships is this: Were we right to devalue? I do not believe that devaluation could ever be right as a mere competitive step to try to gain an advantage over your rivals, to "put a quick one over" on your competitors. Therefore it is right, as a matter of good faith and good morals, to make it plain that the circumstances of the case made it necessary for us to do it. Some of your Lordships have said that it ought to have been done two months earlier. That is a matter of opinion; it is a matter of gauging when the necessary moment has come. But I say, better be too late than too soon. Better to demonstrate to the whole world that you had no option but to do this than to do it when people can think it is a mere competitive device to try to gain advantage over your competitors.

During 1948, things were going as we thought, hoped and believed, satisfactorily. During 1949 the difficulties emerged. There was developing an increased distrust of sterling. Perhaps the very fact that we were perfectly candid about revealing what our position was, advertising to the world at large how our gold was running away, in itself was likely to cause a distrust of sterling. We made no secret of our difficulties or of the extent of the drain, and we found that cheap sterling deals were increasing. The black market rate was not only below 3 dollars but, so I am informed, reached as low as 2.50. There was a withholding of payments by people who hoped that when the time came for payment they could pay at a depreciated rate, and for the same reason there was a refusal to place orders, hoping that if there were delay the orders could be placed at a more favourable rate. So we decided that it would be inevitable that we should devalue, and we decided that if we were to devalue we must do so to a figure at which we could hold, for this grave step cannot be taken twice.

Some suggestion has been made in your Lordships' House—not I think in another place—that we should have allowed sterling to find its own level. What we want to-day is stability. We want, beyond everything else, that exporters may know what they are going to get; and our reserves are perilously low. We were advised, and I am advised to-day, that in those circumstances the suggestion that we should allow sterling to find its own level and our slender reserves to be at the risk of market speculations and raids was far too dangerous and we could not do it. Another point has been made—namely, that we ought to have told our friends. Let me say at once that we desire to adhere in the fullest way to European co-operation. We did tell the Commonwealth Governments and the French Finance Minister on the Friday; we told the other Governments on the Saturday. In this matter, having regard to the position of sterling as a world currency, I believe it was absolutely impossible to advertise in advance the fact that we were going to devalue. That would have been to create a speculator's paradise. One must also bear in mind that we had to obtain the consent of the authorities of the International Monetary Fund. That consent we obtained. So far as I at any rate am concerned, let me not blink the fact that the consequences of the course we have taken—though I believe it to have been, as I think most of your Lordships agree, inevitable—are serious. If I may say so, I think that the noble Viscount, Lord Samuel, used rather too strong a word when he said that it was a disaster. But the consequences are serious. It would be wrong to suggest that the probable consequences are confined to the price of bread or wheat—nor, indeed, did the Chancellor of the Exchequer ever say so.

The noble Viscount, Lord Swinton, asked a specific question about raw materials, which, whether coming from the sterling area or the dollar area, have their world prices influenced by the dollar prices. Of course, inevitably the effect is that the prices of these things tend to rise. I do not hesitate to say that. On the other hand, let us remember that the cost of a manufactured article, though influenced by the cost of the raw material from which it is made, is by no means solely dependent upon that cost. I am told that of the average cost of our manu- factures at the present time, 12½ per cent. is represented by imported raw materials. In some articles, such as cables, for example, the proportion is very much higher; but in others it is lower. But we must face the fact that there will be a tendency for the cost of those raw materials to rise and, consequently, for the cost of the manufactured articles to rise. That tendency can be corrected, as I see it, only by more efficient manufacture, by a larger volume of production—which is capable of being achieved now—in order that the overheads and so on may be spread over a much wider area. In that way alone can that tendency, which certainly exists, be corrected.

The noble Viscount, Lord Swinton, also asked about Argentine meat. He will have read, no doubt, in the newspapers the answer which was given on that subject by the Chancellor of the Exchequer. There is no stipulation in the contract to alter the price by reason of the devaluation of the pound sterling, but there is an arrangement that discussions shall take place as to the price. Those discussions, of course, must take place.

Those are the drawbacks. Do not let anyone belittle them. What are the advantages? I confess that it seems to me that in the discussion in your Lordships' House too little attention has been paid to the Joint Communiqué. I attach the greatest possible importance to that Joint Communiqué. It seems to me, believing as I do that American cooperation is so essential to us, that perhaps for the first time we see quite plainly that the United States of America are determined to take their stand as a creditor nation and to play the rôle of a creditor nation, with all that that involves. I entirely agree with what the noble Viscount, Lord Swinton, said about that. Secondly, I think there is recognition of the fact that the problem is not one which concerns us alone. It concerns them just as closely as it concerns us. It concerns the whole sterling area just as closely as it concerns us. Therefore, we have this plain recognition of the fact. If your Lordships will turn to paragraph 6 of the Joint Communiqué you will see recognition of what we have to try to do, recognition of the fact that the problem concerns all of us and that we have to try to solve it in common. Thus we find a plain statement that high tariffs are clearly inconsistent with the position of creditor countries.

I have no illusion at all, though it may perhaps be foolish of me to speak as though I had knowledge of either finance or manufacture: to get into the dollar market will not be easy. But it is absolutely essential that we should do it. In this matter I feel that quite insufficient attention has been given here to the position of Canada. That country has hardly been mentioned in our discussions, yet it is enormously important to us. And this step is enormously important to Canada. Canada has a vast volume of wheat as well as other raw materials, which she wants to sell. In the case of almost all the raw materials which she wants to sell she herself has difficulty with regard to selling to the United States at the present time. I will give the figures for the year 1948. On the average, Canada was selling us every month goods to the value of £18,500,000, and we were selling goods to her to the value of £6,000,000—that is to say, we were selling to her goods of about one-third of the value of those which she was selling to us. Now if we can do nothing other than make our exports to Canada equivalent to the imports which we draw from Canada we shall have taken a very great step towards the solution of our present difficulties, though I would not for a moment suggest that the potentiality of the Canadian market is as great as that of the American market. I do suggest, however, that the position of the Canadian market, which is vitally important, has been rather overlooked in our discussions.

What, therefore, have we to do? It is easy to say but very difficult to achieve. We now have an opportunity which we must take. We must increase our productivity. We must sell the right goods at the right price, and get into those hard currency markets. We must encourage the manufacturers. We must help particularly in matters of salesmanship. It seems to be common ground that our salesmanship has lacked aggressiveness, and in the Communiqué we have an assurance that the United States and Canada will help us to sell our goods in their markets. Apart from that, we must do all we can to develop other sources of supply. In the last two years, for instance, with regard to our food we used to be dependent to the extent of 37 per cent. on the United States. We have now reduced that to 12 per cent. We must expand non-dollar sources of supply and, particularly, we must trade with those other members of the British Commonwealth and with our Colonies. Last, but not least, because it is of vital importance, we must grow more at home. Every acre in this country must produce whatever it can. We must stop inflation. Any advantage we may obtain from this devaluation will be destroyed if we have inflation in this country. That relates to what are spoken of as "personal incomes"—a generic term; I am not in the least frightened of saying that it relates to wages and it relates to profits.

Further than that, we must seek for retrenchment where we can find it. It will be of immense importance to manufacturers if by common agreement, by self-denying ordinance at the present time, we can secure a stand-still on wage claims, other than those claims, if claims there are, in respect of wages which are plainly insufficient to support a decent family life. That is not easy. There are great psychological difficulties in asking the men not to press their claims when, as they believe, very large profits are being made. That is why the Chancellor of the Exchequer has already indicated that he proposes some increase in the profits tax. The noble Lord, Lord Balfour of Burleigh, said, I think truly, that contrary to our hopes and notwithstanding the Budget provisions there were signs of inflation. I think he is right. In view of the circumstances, it may not be possible to deal with this in the contemplated Autumn Budget, but it is a matter which must be borne in mind when the next Budget comes.

With regard to retrenchment, we must examine our programmes. We must cut down where possible on programmes which have no bearing on productivity and, in particular, productivity for the hard currency area. When we come to discuss what does bear on productivity, we may, of course, have some differences of opinion. Take for instance the social services. We believe, and so do your Lordships, that sickness and ill health cause the greatest waste of all in this country. Let me give the example of the farmer, who puts on his land lime, basic slag, or whatever is necessary and puts up a building to house his cattle and horses. No one suggests that he is guilty of waste. If he did not do these things everybody would say that he was a bad farmer. So with us with regard to our social services. I believe that the proper safeguard of the health of the people makes for efficiency; it assists our productivity. So also with regard to housing. Therefore it would be wrong to interfere with the scope of these services, though I fully agree that we should examine them all to try to get rid of all waste and extravagance which may lie within them.

What are the factors which would make an increase in productivity possible? As I see it, there are two. First there is the degree of efficiency with which work is organised; that is the responsibility of management. Secondly, there is the degree of effort put into the job by the workers; that is the workers' responsibility. I believe there is a great room for improvement in both. Sir George Schuster, who knows something of these matters, gave an illustration of his experience in a letter to The Times not long ago. He said that by improving the managerial technique in a particular works he had been able to achieve an increase in production of 50 per cent., a decrease in the cost per unit of 28 per cent. and an increase in the average earnings of the workers of 28 per cent. It is on lines of that sort that we have to work.

I should like to say a word on over-full employment. Knowing the noble Lord, Lord Balfour of Burleigh, as we do, we should all reject with scorn the idea that he is the sort of man to scourge the workers with either the whips or the scorpions of unemployment. I agree with him to this extent, that I think he is right in saying that it is wrong now to embark on a building (I think that was the illustration he gave) which has no bearing on productivity, merely to see that there is no unemployment. I think that is the sort of thing we have to cut. On the other hand, I do not agree with the arguments which he advanced. The noble Lord said that this doctrine was necessary because, as things are to-day, wages could move in only one direction, and that is upwards. He also put forward the more dangerous doctrine that facing transitional unemployment was a stimulus to an increase in man-hour productivity. As applied by him it would probably be all right, but if that doctrine were to be applied by other people who hive not the noble Lord's outlook, it might be a most dangerous one.

There was a time, as we all know—and I am not concerning myself with the responsibility for it—when we were faced with mass unemployment, and if unemployment were the cure for these things we should have been living in an absolute Eldorado. There was certainly no Eldorado. At the present time, when we are asking a great deal of the workers, when we are asking them to stand still and not to raise wage claims, I think it is unwise, if I may say so with the greatest respect to the noble Lord, to advance the doctrine that a little unemployment not only does no harm but does positive good as being a proper stimulus to harder work. We have to find our stimulus somewhere else. We have to find our stimulus for harder work in trying to recapture some of the Dunkirk spirit. We are now faced with another, an economic, Dunkirk. We must a appeal to everybody to forget for the moment sectional and personal advantages and to stand together for the common good If we can all pull together—masters and men, employers and workers—if we can vastly improve the efficiency of our production, then we shall be able to build up our pound sterling once again. And when we have done that, we can have all sorts of dog fights as to who is to profit by what we have done.

3.8 p.m.

LORD WOOLTON had given notice of the following Amendment to the Motion: To leave out all words after 'House' and insert: 'While deploring the failure of His Majesty's Government during the time they have been in office to tike adequate steps to maintain the stability of the pound sterling notwithstanding the generous external aid they have received; and while recording its appreciation of the helpful attitude of the Governments of the United States and Canada at the Washington Conference; affirms its confidence in the ability of this country in co-operation with the Commonwealth and Empire to surmount the difficulties and dangers which confront it; and pledges its support for a sound economic and financial policy which will restore confidence, stimulate production and export, and evoke that united national effort on which the maintenance of full employment and the safeguarding of the social services most surely depend.' The noble Lord said: My Lords, in a previous Government I had the great advantage of having the eloquence of the present Lord Chancellor in support of me in office when we were both in another place—an advantage of which I was always conscious. To-day His Majesty's Government are indeed in very good case in having two of our greatest advocates to support them. Let me assure the noble and learned Viscount at once that I am not standing here to-day to make an Election speech, in spite of the fact that I happen, in other hours of the day, to be somewhat concerned with those issues. I think, perhaps, the noble and learned Viscount read The Times hurriedly this morning when he suggested that this Amendment was an Election one. I make no observations other than this: that the words he quoted were used about the Amendment which is before another place, responsibility for which, at any rate at the moment, I have none.

As I listened to the noble and learned Viscount, I found myself, as so often in the past, almost carried away by his eloquence. He said so many things with which I agreed. But when we have read and reflected on his extremely able speech, I think we shall realise that though it was an able speech it did not give us anything very new. In my own mind I do not feel any nearer than I was before he started to knowing how to solve the different problems that confront us. The noble and learned Viscount asked "Why have this Amendment?" I feel we are wise to have it. It can serve no useful purpose for us to pass the Government Resolution. If we did that we should be pretending that there was confidence in the Government, when on this side of the House there is not.

Moreover, we are not dealing here only with a domestic issue. The pound sterling is a world-wide currency, and it has had a proud place in the currencies of the commerce of the world. London has been the financial centre of the world; it is the centre of the pound sterling. We now have to face the fact, because it is a fact, that it is now the centre of a devalued pound sterling. The reason for pride has gone. Members of the Government, and many noble Lords, I hope, who have been more fortunate than I, have had the opportunity during this Recess of going abroad. Have they been unconscious of the questionings that are taking place there? Have their foreign friends not asked them, as many of my foreign commercial associates have asked me: "Does this mean that Britain is finished?" That question I have had asked me by men from European countries and by men from America. I have had no hesitation in answering that question by saying that it does not mean that Britain is finished—commercially, industrially or scientifically. But I suggest that it is time for us to recognise that the policy which Britain has been pursuing during these last four years should cease.

The noble Viscount who leads the Liberal Party spoke a pungent truth yesterday when he said: I … regard that devaluation as a disaster, a disaster to the world at large and to this country in particular. If we believe that, how can we pass this Resolution, which indicates that on the whole devaluation has been a good thing, and that it has something to do with ensuring full employment and the preservation of the social services? To my mind the need for devaluation is a sure sign that those very benefits are in peril, along with the whole of the economy of the country. Brilliant as are the learned advocates of the Government, they will not convince the nation that the right road to recovery is to pretend that we have had a success, when in fact the nation has suffered a failure. The Government have failed because they have not preserved our financial prestige among the nations of the world.

The noble and learned Viscount then spoke about the Washington Conference. I do not think that upon this issue of devaluation we can express any useful opinion. The die was cast long before Sir Stafford Cripps left this country, because sterling was devalued in the confidence of the foreign holders long before it was devalued in Washington. Whenever there is an emergency of this nature there is a tendency on the part of the public to find a scapegoat, and at the moment the Chancellor of the Exchequer is regarded as the scapegoat. The truth is that we are blaming him (if we are blaming him) for the wrong things. He is not to be blamed for having recognised the fact that devaluation had become necessary. But I wonder how much of our sterling balances he would have saved this country had he recognised it two or three months earlier. That is the only issue on which it seems to me proper to question his judgment.

The substantial charge is not against the Chancellor of the Exchequer, but against the Government as a whole. It is the Government, and not one man, who are responsible—as I am sure they will agree. Cabinet responsibility for the policies of the Government is surely recognised; and I believe it is the policies of the Government during these last four years that have brought about this situation. We have had a lavish capital expenditure; we have had an extraordinary under-estimation of the cost of the social services. But remember that these social services are not the creation of His Majesty's present Government; they came out of a Coalition Government. And if they are wrong then at any rate some of us—and I am among them—have considerable responsibility in the matter. Certainly the noble and learned Viscount on the Woolsack and I have considerable joint responsibility for them. We all agreed on them. However, it is not the social services but the way in which they have been applied on which we now have differences of opinion.

I was glad to hear the noble and learned Viscount talk about the things we must do for agriculture. I do not wish to trespass on other people's subjects, but it is no use saying that we must do these things now; we ought to have done them before. We could have considerably improved our meat, pig and poultry position if we had brought in feeding stuffs at an earlier date. For four years crisis has followed crisis. It is with this lavish capital expenditure and the high taxation imposed that we can charge the Government; and these are the causes of our present discontent. What troubles me most is that the Government have known for some time about this situation, but these things still go on. Always, as it seems to me, the Government managing the business affairs of the nation have been approaching the subject from the point of view of Party doctrine. Sir Stafford Cripps has become a political appeaser. The last time he was faced with a trade union demand for increased wages, what did he do? He imposed a capital levy. It was of no great advantage to his Budget, but it demonstrated that he was making the rich suffer. Yesterday, when he should have been seeking a united nation, he said he would increase the tax on profits. He has done this to please the unions, I presume. But what good will it do the working man of this country? The working man will not be better off because the middle classes are still further punished; the distribution of misery is no solution to the problem of increasing productivity.

The Chancellor of the Exchequer has lent himself—I am afraid that this is also true of the noble and learned Viscount on the Woolsack—to what I must regard as an uninformed attitude relating to profits in industry. If we are to have a healthy commercial life in this country we want to encourage investors to save their money and put it into productive industry, and we want industries to be encouraged lo become solvent.

LORD CHORLEY

Profiteers.

LORD WOOLTON

The noble Lord has so many of these phrases that his Party have used on platforms to misguide the nation. When one makes an observation like that which I have just made, which every business man knows is just the ordinary common sense of business life, the noble Lord calls out "Profiteers." If our industries are not profitable, I wonder what is going to happen to this country. What does taking away the profits of the business do? It reduces the spending power of the business and transfers it from the banks of the business to Government banks. But it does something much worse than that: it prevents the business from keeping reserve funds. I hope the noble Lord who called out "Profiteers" will just remember this: that when periods of bad trade come—as inevitably they will come, whatever Government are in power—if a business has some reserves behind it then it will be able to maintain full employment for a longer period than a business which has no reserves.

Noble Lords opposite have given the House little help in the problem which is facing us. They have dealt with generalities. The noble Viscount who leads the House, and whose speeches are always so acceptable to us that we sometimes hesitate to be critical about them, challenged us yesterday to define the economies that we would pursue. Well, I will make an Election speech to you. I will say: "Give us the power and we will take the responsibility." May I now revert to the speech which my noble friend Lord Balfour of Burleigh made yesterday? He favoured the House with a profound economic speech, and it was full of courageous thinking. He was not speaking on behalf of the Conservative Party—I never know whether or not he belongs to it. He was giving us the benefit of a reasoned, a seasoned and an experienced mind. Yet at once his phraseology was questioned as to whether he was advocating unemployment as a means of stabilising wages. I am certain that no such interpretation of his remarks will be made by those who have read his speech. But it is not for us on this side of the House to define how we would curtail Government expediture. The Chancellor of the Exchequer said that they, the Government, were going to do it. It is for us, who are asked to support what is tantamount to a vote of confidence, to ask what economic policies His Majesty's Government intend to pursue in order to get through our present difficulties. It is surely pertinent that we should say: Have they in fact learned anything by the experience of these present circumstances?

As I listened yesterday to the noble Viscount who leads the House, I sought in vain to read into his words some shaping of the things to come. But I saw no shape. I thought only of a political Paradise Lost, and the words of Milton came into my mind: If shape it might be called, that shape had none, Distinguishable in member, joint or limb. Devaluation is no policy. It is a hindrance to prosperity. If it were not a hindrance to prosperity, and if His Majesty's Government did not believe that it was a hindrance to prosperity, they would have adopted it long since. I wonder whether they realise that the flush of prosperity that will come from devaluation, and which the country will enjoy, will be but a very temporary flush. Presently, and because of devaluation, we shall have higher costs of living in this country; we shall have higher costs of production, and because of devaluation we shall, within a very short time, cease to be competitive in the dollar markets.

I have spent some portion of my commercial life engaged in businesses carrying on export trade with the United States of America and I am full of bewilderment at the way in which members of His Majesty's Government speak about the American market. We devalue our currency in order that we can get into that market—and so does everybody else! But what is going to happen to the American producers? Do you think that they will allow their country to be flooded with goods from all over the world? Where is the enormous consuming power of America to come from to embrace all these goods? How can they take up their own vast production, as well as surpluses from us? Remember they have their problems just as we have. They recognise that the only way they can get paid for their exports is by encouraging imports. But this is the problem which troubles me. How long is America going to allow our depreciated currency to be the means of underselling them in their own markets?

All that His Majesty's Government have done is to buy time. They bought time with the American Loan. Some of us—and I have a right to speak of this, because your Lordships may remember that I was not in favour of that Loan—think that they wasted that time. For many months I, at any rate, have been concerned about the way in which our national finances were going. I ask the Government: Did the Treasury receive warning from their financial advisers in the City as to what would happen? It is a year since the signs showed themselves, as those members of the House who are bankers will recognise. The bankers knew of the danger a year ago. How was it that the Chancellor of the Exchequer did not appreciate the position until July? Now we have again bought time, and it is acclaimed as a success.

The situation is so serious that my mind goes back to another serious situation, when another statesman visited a foreign Power in a period of national emergency and came back acclaiming success. At Munich that statesman had not achieved success; he had only bought time. If he had not used that time for what was tantamount to a reversal of previous policy, I doubt whether we should have been meeting here to-day. After Munich we prepared for war. If we had prepared for war before Munich perhaps we could have preserved peace. Sir Stafford Cripps has bought time. If the Government of this country adopt a different policy from that which they have been pursuing up to now, then perhaps that time will be sufficient. If they had adopted a different policy earlier they would perhaps not have had to buy time now.

If, on the other hand, they persist in their present policy then this crisis will be followed, as all previous crises have been followed, by another crisis—and we shall have exhausted our expedients. Once a nation devalues its currency, unless at the same time it alters its policy it will have to devalue again. Putting our house in order now may or may not affect the volume of employment and the measure of our social services. But if we do not put our house in order, then there will be no power in Government—either this or any other Government—capable of preventing not only the disaster of mass unemployment and the curtailment of many of our social services but, I feel in my bones, something worse—a scarcity of food in the country.

These are the facts as I see them—and a man can do no more than speak of things as he sees them. I repeat: I see the country in a dangerous situation, and I want courageous leadership from the Government. It may be that the Government—as people were saying to me only last night—have something up their sleeves. I say to the Government: If that is so, bring the card down now, and let us see it; and give us the chance, if we can, to support you. The country and its prestige are in great need of the stimulus of confidence; and in the realms of finance you cannot tinker with world confidence. If we do not now take this dearly-bought time by the forelock, making use of the temporary respite that we have secured, not only will that liberty for which we fought in the war be lost, and the austerities which we have suffered since have been in vain, but I fear that once again history may have to recall the passing of greatness from a nation.

The noble Viscount made an appeal to the people of this country. The ordinary people of this country do not understand what devaluation means, but they feel disturbed. Their pride has had a shock. To them the pound sterling abroad (although many of them never go abroad) is a matter of pride; it is a sort of financial Union Jack; and they hate to see any foreigner putting his flag above theirs. They will work to restore their country's position if they have leadership and reason and a clarion call from trusted men to summon them to action. Let us tell them the whole truth. Let us tell them we are in a mess and how we can get out of it. Let us tell them that we shall get out of it only by our own efforts, and that for the time being all these pipe dreams of greater leisure must cease. Then let us all get down to work and see what we can do, individually and by example, to help the country to come through these troublous times. Those, I believe, are sentiments which are shared by all noble Lords to whom I have the honour to speak to-day. We cannot pass the Resolution that His Majesty's Government have put before us, but we shall, I hope, pass the Amendment that I have moved. It shows that we have belief in Britain, that with the right policy and the right leadership we believe that we can come through these present troublous times. I beg to move my Amendment.

Amendment moved— Leave out all the words after ('House'), and insert ('While deploring the failure of His Majesty's Government during the time they have been in office to take adequate steps to maintain the stability of the pound sterling notwithstanding the generous external aid they have received; and while recording its appreciation of the helpful attitude of the Governments of the United States and Canada at the Washington Conference; affirms its confidence in the ability of this country in co-operation with the Commonwealth and Empire to surmount the difficulties and dangers which confront it; and pledges its support for a sound economic and financial policy which will restore confidence, stimulate production and export, and evoke that united national effort on which the maintenance of full employment and the safeguarding of the social services most surely depend')."—(Lord Woolton.)

3.35 p.m.

LORD RENNELL

My Lords, in the first place I wish to express my regret for not having been here yesterday for the first part of this debate. Unfortunately I had to be in the country and consequently was able only to read the speeches instead of having the advantage of listening to them. But in reading those speeches and the speeches which were made in another place, I have at any rate the advantage of knowing what His Majesty's Government have to say in these debates, made on the occasion of the recall of Parliament to consider the situation which has arisen as a result of the devaluation of sterling as announced by the Chancellor of the Exchequer on September 19.

In considering what that situation is, the first thing that must be made clear in everybody's mind is what devaluation really means. It means nothing more nor less than failure. It means the failure of a policy. It is an open and overt recognition of His Majesty's Government having failed to do something which they undertook to do and which until July 25 they said they were going to do—after which they changed their minds. That date was the day upon which the last financial statement was made by a Minister of His Majesty's Government. As a matter of fact, that statement was made in your Lordships' House by the noble Viscount, Lord Addison, on the occasion on the Second Reading of the Finance Bill. He was speaking for His Majesty's Government, and the statement must be taken—as I am sure he will agree it was intended to be taken—as an expression of the policy of His Majesty's Government. It was in line with all the previous statements which had been made, which were to the effect that His Majesty's Government did not contemplate devaluation and would not be parties to it. Therefore, it was on a date between July 25 and September 19 that something happened which made it apparent to His Majesty's Government that a change of policy was required.

Yesterday in another place the Chancellor of the Exchequer, and to-day in your Lordships' House the noble and learned Viscount the Lord Chancellor, referred to the factors which had led to devaluation. I have not the exact words of the Lord Chancellor, but those of the Chancellor of the Exchequer in another place are recorded in Hansard. He referred, I may remind your Lordships, to the lack of confidence in sterling abroad, leakages through the exchange controls, the fact that purchases which might have been made were being postponed in expectation of devaluation and that those who had purchased goods in this country were delaying payment. In other words, only yesterday and to-day were those factors referred to which to some of us have been apparent for many months past and to which I particularly referred in detail on July 25. Up to that point they had not been referred to by any member of His Majesty's Government.

These factors were all perfectly well known to anybody with an elementary knowledge of the financial position. But to none of them was any reference made until yesterday and to-day. It cannot be that those factors, which were apparent to an outsider without access to all the mass of information which Government Departments must and ought to have, can have escaped the attention of the Ministers of His Majesty's Government before July 29. I do not believe they had escaped attention—of course they had not. Yet to-day they are being adduced as reasons why devaluation became necessary. If they were present then they might have been adduced then, and the conclusion which was reached only after wasting valuable months might have been reached at a considerably earlier date. Every one of those questions has in fact been discussed by members of all sorts of bodies, societies and associations in this country for a long time past. There is one point on which I would venture to correct or to modify one of the statements made by the Chancellor of the Exchequer yesterday—namely, that it was in the Spring of this year that a campaign in favour of the devaluation of sterling had begun to make itself felt in America. As a matter of fact, it began in the Autumn of 1948, six months previously. If those facts were known, as they were known, to informed opinion in this country, how much more ought they to have been known and taken into account by His Majesty's Government? And yet up to the last moment we remained on the basis that in no circumstances whatsoever would His Majesty's Government envisage devaluation.

I wonder why. I think the reason is probably the ordinary human failing of very ordinary people—and we know that His Majesty's Ministers have described themselves as "very ordinary people"— who do not wish to face the fact that they have made grievous mistakes. By the decision which was taken last week they have to suffer the inevitable consequences of those mistakes over a period of years. It is in fact here, as in several other instances to which I shall hope to refer, a case of not having the courage to face up to realities in time to make a change in a policy. The policy ought to have been changed many months ago. That is the major and principal complaint that we on this side of the House have against His Majesty's Government at the present time. That is why we on these Benches feel unable to support what amounts to a vote of confidence in His Majesty's Government at the present time. I will return to that point later.

But we have a second major complaint. The fateful day came. I would ask you to believe how sad and unhappy it is to have, in the short space of time in which we have had to experience them, two devaluations—in fact, two bankruptcies. Let us be quite clear what "devaluation" means. Devaluation means, in fact, compounding with your creditors for something less than what you owe hem. It means nothing else but that. In the business world, "bankruptcy" and "failure" are virtually synonymous terms. Equally, to take an analogy from the business world, let us be quite clear that bankruptcy, the payment of 13s. 4d. in the pound, has never made the debtor richer; it has made him poorer. Always it must make him poorer; it cannot do anything else. To suggest that by paying 13s. 4d. in the pound we are better off is nonsense and is misleading What bankruptcy does is to enable people to make a new start. But a new start is possible and is likely to succeed only if the new start is made on a different basis. If the bankruptcy into which we have been forced by this second devaluation means merely a continuation of the same past policies of trying to spend more than is earned, if we wish to continue to have more of the good things than we can afford to pay for, the fresh start can lead us only to a second aid a third bankruptcy.

Therefore, as I see it, this means that we have to endure the consequences of having compounded with our creditors; it means that we have to start again on a more rational, a more sensible and a more economic way of life in which we shall try in the future to pay for what we have instead of borrowing it or cadging it as gifts from our friends. What exactly does that mean? Let us for a moment consider what devaluation means in terms of our foreign trade, in terms notably of what we have heard so much about in the last two days—the opportunities given to us to export more to the United States and to Canada. One of the reasons why we were not exporting more to the United States and to Canada was because the cost of the goods that we were trying to sell them was in excess of what the United States and Canada wanted to pay. If the goods had been cheaper, they would have bought more. That is a very simple statement, but it happens to be true. If we are to sell more goods, those goods must be made cheaper for the people who buy them. One of the methods of making those goods cheaper is to reduce the value of your currency.

Let us suppose that we wanted to sell an article in the United States for £100 that is, 400 dollars before devaluation—and the price was too much. We devalue our currency so that the buyer can get the article, worth £100, for 280 dollars. But supposing that the article which we were trying to sell for 400 dollars in fact could be obtained in the American market for 250 dollars, which in many cases was a fact. Then we shall not in fact get 280 dollars, or £100, for the article, but only 250 dollars. Therefore it does not by any manner of means follow that those goods which were being sold or which we were trying to sell for a certain price will realise, even in pounds at the devalued level, the amount of pounds which we expect to get. I hope your Lordships follow that example. It merely means that by the devaluation of currency by 30 per cent., we do not necessarily get the equivalent price in pounds, because we may have to reduce the dollar price below the level at which we were trying to sell before. Therefore, in order to sell more goods, I believe, and I believe all of us believe, the cost of production of those goods in England has ultimately to be decreased.

May I refer your Lordships to one of the points I made on the occasion of the Second Reading of the Finance Bill at the end of July? There are two ways, and only two ways, by which the labour content in the cost of production of an article can be decreased. One of them is for people to work longer hours for a given monetary wage, which, as the noble Viscount, Lord Addison, observed, means a lower rate of wage in money per hour. That is perfectly true. That is what I advocated at the end of July. There is another way, which is to maintain the monetary wage per hour and the number of hours worked per week, but to decrease the purchasing power of the pound: in other words, to make real wages come down. That is the course which, as I shall now attempt to show, His Majesty's Government have decided to follow in preference to the one which I claim would have been more acceptable and more reasonable to the people of this country.

In the very surprising broadcast made by the Chancellor of the Exchequer on September 19, the impression was left, as I think it was intended to be left, in the minds of his listeners, that devaluation of sterling did not involve, could not involve and would not involve, if the Government could help it, any rise in the cost of living beyond that rise which was attributable to a rise in the cost of bread, amounting to about a point. That, to me, and perhaps to many of your Lordships, was a very surprising statement. For months past spokesmen of the Socialist Party have not ceased from saying that devaluation would mean a rise in the cost of living and a fall in real wages. I think they were perfectly right: that is precisely what it means and what everybody in the country has to face in the future. I hoped that the spokesmen of His Majesty's Government to-day would have risen and said that—and not only said that, but added that that was the way in which we could cheapen our production.

My Lords, I think as a rough estimate—and I shall be glad to be corrected if my figures are wrong—the dollar content, the hard currency content, of the cost of living index is about 17 per cent. Mathematically, that involves a rise of approximately 6 per cent. in the cost of living index, and not 1 per cent. Those figures, or some of them, are beginning to come out, but only piecemeal. I hope that as a result of the debates in your Lordships' House and in another place during the course of the next two days the truth will become more apparent more quickly to the people of this country.

In the Chancellor of the Exchequer's statement in another place, reference was made to the dollar cost, the hard currency cost, of foodstuffs. After discussing the price of flour and the loaf (if I may have your Lordships' permission to read a sentence which I regard as very important), he went on to say: Apart from this,"— that is the rise in the cost of bread— rises in the price of foodstuffs are not likely to come either in large measure or soon. But he goes on to say: The percentage of dollar cost in foodstuffs is small—about 12 per cent. now—owing to the success of our policy of switching back to other sources of supply … Even on the basis of 12 per cent. there must be a rise beyond that modest rise on account of bread, and it is perfectly obvious that there will be a rise. Why I use the phrase "the truth is coming out piecemeal" is because this figure of 12 per cent. refers to the dollar cost of foodstuffs. It does not cover the cost of living index as a whole. There is no reference to the rise in the cost of living index as a whole, which I believe will probably be of the order of at least 6 per cent.

What is the effect of that? If wages are to remain level, if hours of work are to remain the same, the cost of living index alone, leaving out of account what, to coin a phrase, might be called the basic luxuries of life—and by those I refer to tobacco, films and things like that, which will also rise—how can it be otherwise than that the real wage of the country as a whole must inevitably come down by something of the order of 6 or 7 or perhaps more per cent.? My Lords, why is that being concealed? Why is that not contained in the Chancellor of the Exchequer's speech of yesterday? Why did the noble Viscount not refer to it yesterday? Why did the Lord Chancellor not refer to it to-day? Is it because these are unpalatable truths which His Majesty's Government do not wish to have attributed to the step which has now been taken?

Nobody likes wages coming down, and nobody would advocate it if it were avoidable. I believe that at the end of July devaluation was still avoidable, by an increase in working hours at the same monetary wage and at the same monetary stability which we then had. Moreover, I believe that a gesture of that sort would in itself have done more than anything else to restore confidence in His Majesty's Government and the ability of this country to maintain the stability of our currency. It is gestures of that sort, remedies of that kind, overtly applied, which give confidence to the rest of the world, confidence which I claim they lack to-day in His Majesty's present Government by reason of their conduct of affairs.

THE FIRST LORD OF THE ADMIRALTY (VISCOUNT HALL)

May I say something about the increase based on the 12 per cent. which was referred to by the Chancellor of the Exchequer? In Column 25 of the OFFICIAL REPORT the Chancellor, referring to the increase in the cost of living based upon the figure of 12 per cent., said this: The immediate effect of the increase in the price of bread and flour will put up the cost of living index by just over half a point, and it may be that by the end of the year, if there are no marked counterbalancing decreases, the index will have gone up by a point or so. That is the sort of measure of the immediate justification for price increases.

LORD RENNELL

I submit that that is practically what I said myself, but I said that that was not the whole story. I said that on those figures—on the 12 per cent. dollar content in food—I find it difficult to reconcile a rise of a little over one half a point with the 30 per cent. devaluation of currency, and 30 per cent. devaluation on a 12 per cent. content represents four points and not one-half.

May I turn to one other matter arising from the present situation? There is a point which I think must be borne in mind by everybody, and which has been made abroad very successfully by Mr. Gutt. We are urged to increase, and we hope to increase, our exports to close the dollar gap. I feel sure that everyone in this country will contribute the whole of his effort to doing so. But let us see what that means. To maintain the present amount of dollar earnings from our exports to the United States and hard currency countries at the present level of sterling, will in itself involve an increase of 44 per cent. in our exports. To close the gap would involve an increase of something of the order of 100 per cent. I see the noble and learned Viscount the Lord Chancellor is shaking his head. He may have better figures than I have.

THE LORD CHANCELLOR

It is merely that it is quite obvious that we could sell our exports for the highest dollar price. We shall be able to sell some of our exports for a higher price in dollars—for instance, whisky.

LORD RENNELL

And some for lower prices. The mathematical calculation is just this—and even if it is not 44 per cent. it still means a very substantial increase. The figures are perfectly easy to work out, and if your Lordships doubt my arithmetic I shall be glad if you will check it.

Let us suppose that formerly we were selling £100,000,000 worth of goods to the United States. We would have been getting for that 403,000,900 dollars. If you divide 403,000,000 dollars by 2.8 you get £144,000,000, which gives the forty-four per cent. to which I referred. It may be somewhat less, but as some of these goods will have to be sold for a lower price perhaps the Lord Chancellor will not disagree on a more modest figure. At any rate, we shall, by increasing our exports by 30 per cent., have stayed exactly where we were before.

THE LORD CHANCELLOR

I am told that the figure is between 20 and 25 per cent.

LORD RENNELL

In other words, by swimming very hard, by swimming a quarter as fast again as we have been swimming, we shall remain at exactly the same point in relation to the river bank. That is the measure of what we have to do. I believe it would have been better, and I believe every noble Lord on the Benches opposite would agree that it would have been better, not to have had to do that. No one, I think, will dispute that statement. What my noble friends on these Benches feel is that what was done was avoidable, that it was avoidable only as lately, I think, as the beginning of this year, by looking the position in the face and admitting the mess in which we then were. That was not done, so we now have to face the failure of that policy.

It is in that context that your Lordships are asked to-day to approve a Motion which to any ordinary person can only mean a vote of confidence in His Majesty's Government. By no ordinary person, within or without this House, can that Motion be read otherwise than as a vote of confidence in the present Government and an invitation to all the people of this country to contribute their full co-operation to this Government to achieve the aim referred to—namely, the stabilisation of our currency at its new level, with all that flows from it. Having regard to our experience in the last few years, and in spite of all the sympathy that my noble friends on these Benches have for many of the social reforms which have been introduced—reforms which we and many others (for we have no monopoly in this) have been advocating for years—we have come to the conclusion that to-day we have not that confidence in His Majesty's Government which would enable us to support the Motion.

We have every confidence in the ability and the capacity of the people of this country to restore the position, to produce enough to pay, at the lower level, twenty shillings in the pound. We believe that with a right appeal, with a policy unprejudiced by political dogma and theory and all that that means, with the give and take which is necessary when you have to get together to achieve a common object—and when I say "the give and take which is necessary" I mean by that that we both give and we both take, not that we give and you take—in a common policy of that sort the people of this country can restore the position completely. But we have not the confidence that the policies of His Majesty's Government, as they are at present announced, and without remedies which we had expected to hear described in the course of these debates, without any tangible proposal for any change, will achieve what is required. We have not the confidence that this Government are capable or are able to lead this people and this nation to the position which this people and this nation deserve.

Therefore we, on these Benches, have considered that the more acceptable Motion to us here in many respects—I speak personally when I say that it perhaps does not go so far as I could wish to go myself—is the Amendment which has been proposed by the noble Lord, Lord Woolton. We believe that everyone will contribute what they have, in thought and mind and activity, to restoring the situation. We on these Benches will support any leaders who will tell the people the truth, the whole truth, and nothing but the truth, and let the people of the country judge whether they like that truth or not. We believe that the people of the country will like that truth and will support those people who tell it them. For those reasons we prefer the Amendment proposed by the noble Lord, Lord Woolton. I trust that His Majesty's Government will find it possible to agree that it is a less controversial and more acceptable way of putting the position before the nation, so far as your Lordships' House is concerned.

4.8 p.m.

LORD WILLIAMS

My Lords, I have no desire to minimise in any way the serious position in which we find ourselves, following the adoption of the policy of devaluation. For the purpose of this debate I must accept the position that devaluation has taken place, and in the course of my remarks try to suggest what exactly that devaluation means from the point of view of the future conduct of business, so far as this country is concerned. The first effect of the devaluation policy has been to reduce the value of the pound sterling. That pound sterling will now purchase only 2.80 dollars worth of goods, against the 4.03 dollars worth which we previously bought. But there are certain modifications to be observed there, inasmuch as that some goods will be sold at a price which varies between the 2.80 and the 4.03, while some classes of goods will sell at the same dollar value as that at which they were sold previously. But, in any case, there must be an overall decrease in the value of our money as compared with what it was before devaluation. That deficiency can be made good only if we export a greater quantity of goods. But even if we export a greater quantity of goods to make up that deficiency, it will be essential to export still more in order to meet the increased costs for foodstuffs and raw materials that we shall be compelled to import.

The question of export is one that will fall to be dealt with by private enterprise. The question of manufacturing goods is one in which the Government can give assistance, but outside of that the actual task of marketing will fall to the lot of private enterprise, and private enterprise has in the past accepted its responsibility for finding markets. It has done that successfully throughout the world, and my own opinion is that it will be just as successful as it has been in the past in pushing its wares into the dollar market. If devaluation helps in that respect, it will have accomplished something.

I do not accept for a moment devaluation as a solution to the troubles in which we find ourselves. On the import side the arithmetical calculation is a simple one. If previously the pound bought 4.03 dollars worth of goods, and we devalue the pound to 2.80 dollars, it cannot buy so much as it did previously. It now requires 28s. 9d. to buy four dollars worth of goods. Whatever the Chancellor of the Exchequer may have said with regard to an immediate rise in prices, I think it is inevitable that purchases will be made only at enhanced prices. If that is so then the cost of both foodstuffs and raw materials must increase. Raw materials being one of the factors in the cost of production, that must of necessity mean, if we do not effect economies to compensate for that increase, that there will be a rise in prices.

Yesterday, in the course of the debate, the noble Lord, Lord Balfour of Burleigh, used these words: I wish, indeed, that the retrenchment and reform could have come first. Perhaps if they had, it would not be necessary to devalue quite so far I am offering no comment at all on that observation, except to make reference to the facts of the devaluation that took place in 1931. I think it is necessary to make some such reference, because memories are short. I want to refer to a few reductions that took place in respect of that devaluation. There was a reduction in the emoluments of Ministers, Members of Parliament and civil servants amounting to £4,500,000. There were reductions in the pay of the members of the Defence Services amounting to £3,614,000; education suffered a cut of £10,300,000; the Ministry of Health had its expenditure reduced by £1,250,000; the police had their pay cut by £500,000. There was also a reduction of £25,800,000 in expenditure from the Unemployment Fund.

I come now to another cut, about which I will offer no observation, merely giving the facts. At that period an unemployed man was entitled to a certain number of weeks' benefit, followed by transitional benefit. A cut was made in the transitional benefits. A man had his benefit reduced from 17s. a week to 15s. 3d. An adult dependent, which probably meant the wife, had a reduction from 9s. to 8s. The benefit for a dependent child was left, because it was only 2s. a week. Following the 1931 crisis the unemployed man receiving unemployment benefit with a wife and child received 28s. a week. Then the Government of the day proceeded to do something more: they instituted a means test for every worker who had exhausted twenty-six weeks of insurance benefit. Those who remember the means test know full well what that meant—there were countless thousands of families where the father was dependent on the earnings of sons and daughters. There were other families where the sons and daughters were dependent on the earnings of the father. In many cases transitional benefit was not paid until the applicant had exhausted the whole of his savings. That was the situation that existed in 1931. I pass no comment on it; I merely give the facts.

What was the position from 1922 up to 1939? Taking the unemployment figures from the index for January of each year, there was never a reduction below 1,200,000 between 1922 and 1939. During the war the number of unemployed was reduced to 68,000. I should like to draw attention to that fact, because it explains why I was unable yesterday to follow the argument of the noble Lord, Lord Balfour of Burleigh, who suggested that the figure of 253,000 on the unemployed register was not large enough to achieve a situation in which the workers in industry could be disciplined. What are the conditions to-day compared to those of 1931? We have developed our social services. We have full employment. We have a free medical service. We have family allowances. We have free milk for school children, and we have food subsidies. No one on this side will claim that these services were fathered originally by the Labour Party. No such claim could be made, but they have been extended by the Labour Government. These are the unemployment figures since the end of the war. In July, 1946, there were 391,000 unemployed; in 1947, 281,000; and in 1949, 273,000. Compare these figures with the total of 2,900,000 on the unemployed register in 1933, two years after a Coalition Government came into being—a Government that came in to save us going off the gold standard, but almost immeditely decided that we should go off the gold standard.

At the moment food subsidies are costing roughly £460,000,000 a year. We have heard a great deal about inflation and the danger of inflation. No one should minimise the seriousness of the position which would arise if inflation occurred to any great extent. If food subsidies were abolished, the cost of bacon would increase by 9¾d. a lb. Bread would increase by 5¾d.; flour by 1s. 1d.; butter by 1s. 3½d.; cheese by 1s. 0¾d.; and tea by 10½d.—so I could go on. But those are indications of what would happen if the subsidies were abolished, and the result would be that workers would have to press for increased wages to meet the increased cost of living. I agree wholeheartedly with what was stated by the noble Lord, Lord Balfour of Burleigh, yesterday, when he said that the time had come for the Government to tell the people the plain truth of our present position. I am one who believes in expenditure on social services, but that does not commit me to every form of expenditure. I agree with the noble and learned Viscount the Lord Chancellor when he says that if retrenchment can be made, it should be made. Having said that, I may add that I am still a wholehearted supporter of the social services. But in the situation that is developing, if we are unable to export more goods to purchase the goods we require then those social services will be in extreme danger. The only way in which we can overcome the difficulties in which we find ourselves is to secure a vastly increased production.

The problem which faces the Labour Government will face any Government. If they cannot obtain a ready response from the workers any Government will find themselves in exactly the same difficulty as the Labour Government. I am confident that if the facts are placed before the people of this country we shall meet with a ready response. I am of the opinion, rightly or wrongly, that the people do not appreciate the serious position in which we find ourselves. Therefore it becomes the bounden duty, particularly of His Majesty's Government and the supporters of His Majesty's Government, to place the facts frankly before the people. If that is done I am sure there will be a ready response. The noble Lord, Lord Woolton, said that the Government were paying for time. Certainly, the next six months may be very serious in the history of this country unless we have the right response from the people. It is our task to try to present to them the facts as we know them. I fear that unless there is an increased effort on the part of each and every one of us—and that includes workers, technicians, management and employers—we shall not achieve the right kind of result. On the other hand, I feel sure that if the workers of this country know that they are faced with two alternatives, the first to work harder and retain the social services and the second to continue working as they are at the moment, with the prospect of losing those social services, I have no hesitation in saying what the response will be. I feel that the time has now arrived when we have to place the facts before the people. If that is done I am convinced that the response will be immediate.

4.25 p.m.

THE EARL OF SELBORNE

My Lords, may I be the first to congratulate the noble Lord who has just sat down on what I think is the most realistic speech we have heard from those Benches during this debate, and certainly a more realistic speech than anything by any of of the leaders of the Socialist Party to which I have listened or which I have read. I wish that His Majesty's Government had followed the recommendation of the noble Lord, and had told the people the truth. But, as my noble friend Lord Rennell pointed out, the Chancellor of the Exchequer's very unfortunate broadcast did not tell the people the whole truth. It is surely beneath the dignity of the Chancellor of the Exchequer and His Majesty's Government to pretend that the cost of living will not be seriously affected. Of course, it must be, for the very reasons that the noble Lord, Lord Williams has just given. It will not be many months before the people realise that when they are handed their pay packets of £5, £10 or £15 a week, each pound will be worth only 14s. in the market of the outside world. Therefore I feel, with other noble Lords, that this is one of the greatest disasters which has befallen this country in our time.

I venture to say that it will take us a very long time before our prestige in Europe and in the rest of the world recovers from a shock such as this. Hitherto we have occupied the position of bankers, for Western Europe at any rate. Not only what has happened, but the way in which it was carried through, has been a profound shock to all the Continental nations. The noble and learned Viscount the Lord Chancellor told us just now that France was advised of the step we were going to take on the Friday, and Belgium and other countries were advised on the Saturday. But my information—I shall be corrected if I am wrong, but I have it from a quarter abroad that should be well-informed—is that our Continental friends were given the impression that the greatest extent of devaluation that was contemplated was in the nature of 20 per cent. Therefore when they heard on the wireless that it was to be 30 per cent. it came as a profound shock to them; it was regarded as unilateral action and, indeed, as a breach of confidence. That handling of the matter has done our prestige and our position as bankers an enormous amount of harm.

There is another thing we must remember. The next time there is a crisis (and I am one of those who think it will not be long before there is another crisis if this Government remain in power), and the next time there is any pressure on the pound sterling, the Continent of Europe will not pay the slightest attention to any assurance from Sir Stafford Cripps, in view of the way in which he gave those categorical assurances and then had to eat his words. I am afraid, also, that that fall in the prestige of the British Chancellor of the Exchequer will affect not only the present holder of that office but also his successors. I find it difficult to describe the harm that has been done to the credit of this country by the manner in which this matter has been handled.

The financial record of this Government is indeed a sorry one. When they came into power the first thing they did was to borrow £1,000,000,000 from America. What have they to show for that? Then they have received several hundred million pounds in Marshall Aid. They have allowed the gold reserve to run down to dangerous limits. And now they have devalued. All that in the space of four years! May I Also emphasise the fact which has been mentioned by other noble Lords in this debate, that devaluation in itself is no solution of the problem; it is merely the registration of defeat. We cannot solve this problem without a new policy. When we listened yesterday to the noble Viscount the Leader of the House, we listened for a new policy. There was none, and the only item of new policy which was announced in another place by the Chancellor of the Exchequer was that he was going to increase the profits tax—in other words, another dose of the same medicine. The Government's policy is exhortation to the wage earner, extortion to the employer.

The noble and learned Viscount the Lord Chancellor said this afternoon: "We must encourage our manufacturers." Is that the Government's idea of encouraging our manufacturers—to increase the profits tax? May I add this? I think that the Government are altogether over-estimating what our manufacturers can do to get into the dollar market. In certain respects the situation is entirely different from what it was in 1931. In 1931, the great bulk of our factories had large stocks of goods which they had been unable to sell abroad. At the present moment their order books are full. If any manufacturer to-day finds that devaluation places his company in a more favourable position as regards the American market he will not be in a position to take advantage of that for several months to come. He has to fulfil orders probably until April, May or June of next year; and it will not be until those orders have been fulfilled that he can hope to be able to sell anything in the United States. Therefore it seems to me to be unlikely that there can be any appreciable increase in our dollar sales for a number of months to come.

Then if the manufacturer wishes to step up his production, to manufacture more to sell in America, how is he to find the labour? Where is the labour reserve that is going to the export industries? With the present over-full employment—as my noble friend Lord Balfour of Burleigh called it—it is going to be extremely difficult to induce men to leave secure employment and to go into the export industries, particularly if the Government prevent the export industries offering increased inducements, in the form of better wages. How are the Government to get that fluidity of labour and the stability of wages at the same time? They can do it only by compulsory direction of labour, if they are going to do it at all. It will be interesting to learn the reply of the Government to that dilemma, because I do not see any way out of it. But if they know of one, perhaps they will be kind enough to tell us.

The position in which this country finds itself must be charged to the account of His Majesty's Government. The noble and learned Viscount the Lord Chancellor spoke as if it had nothing to do with the policy of the Government, and he comforted himself, as had his noble leader, by extracts from the Economist. I am glad to learn that His Majesty's Ministers read the Economist, because if they have done so during the last two years they must have read some home truths. I hope they will continue to do so, and I do not grudge them any crumbs of comfort which they may be able to glean from its columns. But the indictment against His Majesty's Government can be very simply stated. Ever since they took office they have behaved as if this country were richer than it was before the war, instead of being immensely poorer. They have indulged in every sort of extravagance; they have been no guardians of the public purse. Above all, they have diminished the incentive to work by excessive taxation, controlled prices and rationing, which they have carried to unnecessary lengths. We have only to look at the record of the mining industry and the building industry, to take two examples. The output per man, in spite of all the mechanical improvements which have taken place in recent years, is substantially lower than it was before the war. The Government cannot escape responsibility for that.

In addition, they have not ceased to interfere with industry at every turn. Some industries they have nationalised, and those industries have immediately and invariably shown a loss. Others are threatened with nationalisation. Efficient industries like the iron and steel industry or the cement industry (about which I happen to know something), which are doing a good job for the nation, maintaining competitive prices and winning us foreign dollars abroad, have had the Sword of Damocles held over their heads, and their difficulties are immeasurably added to thereby. But even those industries which have been left alone are hampered and checked at every turn by regulations and the necessity for obtaining permits for the slightest action, so that there is a time lag and a delay in every operation and far more office work than was ever necessary before. All those have been contributory factors to our present position. There can be no change in our situation until that policy is reversed.

I heartily agree with what my noble friend Lord Balfour said yesterday, when he said that the issue at stake was one which really affected the survival of democracy in this country. Our survival depends upon the people of this country understanding those facts and realising that we cannot continue to go along the same road which has led us to this position, and realising, as was so lucidly stated by the noble Lord, Lord Williams, that we cannot eat our cake and have it. Before the people can realise that fact they must be told the truth, and they must be told the whole truth, by His Majesty's Government; and I venture to say that so far they have not been told that. If the people do not realise the seriousness of the position the course of the English pound can only be downwards. Let us never forget what has happened before our eyes, in our life-time, to the French franc. We can all remember when the French franc was worth 10d.—and not only ten English pennies but ten gold pennies. It is now worth less than one-fiftieth of that value. Why? Because circumstances, or the way successive French Governments handled those circumstances, prevented France from living within her income. Why was the Victorian pound worth five dollars? Because our ancestors lived within their income, because they did not spend more than they had, and because they worked in an atmosphere of freedom. And it is because we as a nation have not been working—as the noble Lord, Lord Williams, has just admitted—as we could, and because we have been spending more than we possess, that we find ourselves in our present position.

Before I sit down I should like to say a word about agriculture, because little has been said about it in the course of this debate. I was glad to hear the words that fell in that respect from the noble and learned Viscount the Lord Chancellor. On both sides of this House it has been fashionable for the last few years to pay lip service to agriculture. But if words that were then spoken were true—and they were true—their truth has become more important to-day. Agriculture is a dollar-earning industry because it is a dollar-saver, and a penny saved is a penny gained. Therefore it is more important than ever that our agricultural output should be raised. I was greatly struck by a statement which appeared in a letter to The Times a few days ago—I presume it is accurate, though I have not verified it. It was to the effect that a hundred years ago there were 4,000,000 acres of wheat grown in this country, whereas the present target of the Government is about 2,000,000 acres. This letter also drew attention to a fact with which most of us are familiar: that there are some 17,000,000 acres of rough grazing in this country. I agree with that correspondent that those are facts which we ought not to ignore. They call for a renewed national effort towards greater production from our soil. Moreover, I would remind your Lordships that the fact that we have only half the wheat acreage of our ancestors, and that there are still -vast tracts of this country which are not producing what they could be made to produce, still remains—after all the work of the agricultural executive committees, the National Advisory Service, Ministers' exhortations, and all the rest of it.

Let us ask ourselves whether there is not another line of approach. What really is the practical way of dealing with this agricultural problem? In this sphere we are dealing with human nature—a stubborn and proud human nature. I believe that one of the greatest impediments to increase of output is lack of capital, which is the legacy of the long depressions that agriculture went through previously. Death duties are another impediment. The imposition of death duties on agricultural property has been suicidal finance. You cannot treat an agricultural property as you can treat stocks and shares in industry. A man owning so many shares in a company can, if he has to realise money for death duties, take the shares to the Stock Exchange and sell them. But if you have to sell a portion of an estate or of a farm it means cutting in twain a living thing. It is like asking a man to part with his right arm; it leaves an impaired body. What is more, it would be running counter to the dearest associations and sentiments of the individual, who will probably do anything before he can bring himself to part with land bequeathed to him by his ancestors. Therefore the effect of death duties on agricultural land has been to starve our land of capital. I suggest that that is a direction where the Government could easily, and at comparatively little expense to the State, do an enormous benefit to agriculture.

The other thing I would do would be to alter the incidence of taxation, so that when the agricultural labourer is asked to work long hours (as he must at harvest time, in particular) he will not feel that the State is taking an undue portion of his return for his labour. I am sure the noble Viscount the Leader of the House, who knows a great deal about agriculture and has many friends in that industry, is well aware of the fact that agricultural labourers (whose record of service to the State both during and since the war has been magnificent, and one which will bear comparison with that of any other great industry) feel that if they work overtime they are made to contribute what they consider an undue proportion in taxation. That has a great deterrent effect on overtime and extra working. I believe this to be another direction in which the Government could make a big contribution. I do not want to be taken as advocating that wage-earners should not pay their fair share of -taxation. But I do say that we should arrange taxation in such a way that it does not discourage extra effort, and in fact makes extra effort more profitable to the individual. Having done that, I would then let price mechanism work and I would abolish all subsidies to agriculture.

The devaluation of the pound, so far as it affects the cost of food production has, at any rate for the time being, put us much more nearly on a par with the Western World than we have been for many a long day. I would like to see all so-called subsidies to agriculture abolished, and I would also like to see all controls abolished, and the cessation of all direction to farmers as to what crops they must grow. The only subsidies I would keep would be those for the reclamation of rough grazing, because in many cases that is not an economic proposition to the individual farmer, and it is right that the State should help him to get that land into good condition again. The only power of direction I would retain is the power to turn out a bad farmer or land owner. I would use that power without hesitation, as it was used in the past. In this crisis no man has a right to misuse the land of England—it cannot be allowed. But, subject to that, I would give the greatest freedom to the agricultural industry, and I would give them incentives to get on with the job.

Why cannot cottagers keep pigs and chickens without having to fill up innumerable forms? The whole policy of His Majesty's Government on this domestic question of the keeping of pigs and chickens in the country has been pettifogging and short-sighted to the last degree. Some officials in London are apparently so obsessed with the fear that the cottager in the country may get more than his fair share of bacon, or an egg or two more than the man in the town, that they take every step to prevent his doing so. In order to carry out that policy, they flood the countryside with controllers and forms and interferences so that the cottager, to whom that sort of thing is anathema, is altogether discouraged, in a vast number of cases, from undertaking the keeping of chickens on any scale, or the keeping of a pig. I would encourage every cottager, every person in the country, to keep as many pigs and chickens as he likes, and I would let him have the full benefit of it. That would redound very much to the benefit of this country.

There is also the question of fruit production. I do not know whether the Government want this country to grow more apples. They are doing everything they can to discourage people planting up fruit and growing it in this country. They decontrol while there is a glut, and the moment the glut is over they impose the control again. The whole fate of British agriculture is in the hands of the Minister of Food, and he appears to be paying little attention to the Minister of Agriculture. If the Government will only cut the chains that are keeping this people down, that are taking away incentives to work on the bench and putting impediments and difficulties in the way of the office, then we may make some national recovery. But we shall never make any recovery while the Government pursue the course which they have hitherto pursued.

4.52 p.m.

LORD WINSTER

My Lords, in the course of the years I have spent in politics, I have often noticed that when Parliament is recalled in order to debate some great matter which has suddenly arisen, or even when Parliament has been sitting and there has been a demand for a debate on some such subject, which usually has to be fixed some time ahead, the debate, when it does take place, is frequently found to be somewhat in the nature of an anticlimax, and the steam goes out of it very soon. I think that is because the subject in question has been threshed out and thoroughly ventilated in the Press during the days which have elapsed. But certainly, in the case of this debate, no one could say that it has been anything in the nature of an anticlimax. If I might, with great diffidence indeed, venture an opinion, I would say that I have listened to no debate in your Lordships' House which has been more consistently infused with vigour and with ability than the debate in which we are taking part to-day.

There are one or two points from the speeches that have been made which have attracted my particular notice. Yesterday, the noble Viscount, Lord Addison, drew some fire upon himself because he had the temerity to ask the Opposition leaders what they would do in the present juncture, and he was told that it was no business of the Opposition to make statements about what they would do in various circumstances. The noble Lord, Lord Woolton, has I think recently been responsible for the issue of a pamphlet called The Right Road for Britain, which sets, out the Conservative policy. Really, if it is quite right to put upon the bookstalls a pamphlet containing a statement of your policy, I do not know why there should be any resentment when you are asked to give some explanation of your policy in Parliament. Certainly I can call attention to one statement which has been made by a member of the Opposition. The Government at the present moment are constantly being told to economise in their expenditure. I notice that the Vice-Chairman of the Conservative Party, Mr. Thomas, in making a speech the other day, said that economies to the tune of over £300,000,000 could be made by overhauling administration alone. The noble Lord, Lori Woolton, is not here at the moment or I would certainly like to ask him if he would endorse that statement made by the Vice-Chairman of the Conservative Party and if it is based upon calculations which have been made by the Conservative Research Department.

Another point which has been constantly reiterated in this debate is the necessity for telling the people the truth. I could not agree more than I do with that request. But I really think the truth has been told. For instance, the trade unions at the present moment, in regard to the production content of the working man and woman of this country, are taking a most courageous stand in telling the truth in the face of the most peculiar difficulties, including the difficulty of dissident elements inside the unions. I do not think anybody can contradict the fact that the trade union leaders are telling the truth to their members at the present moment. The Chancellor of the Exchequer made use in the Budget speech of a phrase which has been repeated in this debate. He told the country in his Budget speech that, "you cannot eat your cake and have it." He ran into a bit of a draught in many quarters in his own Party by saying that. But he has beaten down opposition and made the truth prevail, even in those quarters, and he no longer encounters difficulties of that nature when he proclaims the truth. Could the Prime Minister have spoken more frankly or more boldly than he did at Bridlington? Again, in the debate yesterday, could anybody say that the Chancellor of the Exchequer failed to tell the absolute truth about our present situation to another place, and through another place to the people of this country? I do not think any accusation can lie against the trade union leaders or the leaders of the Labour Party for failure to tell the truth.

There may be a failure sometimes a little lower down. But I would certainly deprecate speeches such as sometimes are heard, telling the workers of this country that now, in the situation in which we are, they must be called upon for sacrifices. I am not quite clear what those sacrifices are, because, so far as I know, they are being asked in some cases only to work rather harder within the present hours of labour, the five-day week or the 40-hour week, and so on. I do not think that anyone can consider it a great sacrifice to be asked to work a little harder. The Government, by the policy they have announced, have most specifically made it clear that they intend to try by all means in their power to avoid heavy sacrifices falling upon the workers of this country, because they have said that their policy will be to preserve at all costs the policy of full employment and the social services, and they will endeavour to deal drastically and thoroughly with any unwarranted attempts to raise prices. But I do not think it can be said with any truth or justice that there has been any failure on the part of the leaders of the Labour Party and of the trade unions to tell the truth to the people of this country, and more particularly to the workers.

Something has been said about a whispering campaign and the part it played in the devaluation of the pound, have noticed another whispering campaign which has been going on for some time, and that is a whispering campaign to the effect that our social services are largely paid for out of American and Canadian aid. That is no the case, and it is a very wrong and wicked thing indeed to tell such an untruth and to prejudice our relations with the United States and with Canada, who have helped us so nobly during the past years, but whose help has not been used to finance our social services. In this debate, while a great deal of criticism and blame has been laid at the door of the Labour Party for events which have led up to devaluation, there has been no attempt whatever to contradict the fact that devaluation has become absolutely necessary. No one has put forward any suggestion as to what the Government could have done other than what they did do a short time ago—namely, announce the devaluation of the pound. In certain newspapers a policy has been advocated of what is called "letting the pound go free," but I have not noticed any official Conservative support for that policy.

The main interest in the debate has been as to where we go from here. The pound has been devalued: what happens now? The noble Viscount, Lord Swinton, asked: "What is the policy which we are asked to support?" I think that policy has been clearly stated by the Chancellor of the Exchequer in his broadcast, in his Press conference and in his speech in the House of Commons yesterday. If the speech is read fairly and without prejudice, I think the policy will be seen. You may agree with the policy or not; you may think that what he is suggesting is wrong; but the policy has been quite fairly stated.

VISCOUNT SWINTON

May I ask the noble Lord what is the policy with regard to nationalisation?

LORD WINSTER

I am speaking at the moment about devaluation.

VISCOUNT SWINTON

I thought the noble Lord was telling us what was the policy of the Labour Party for the future—the economic policy.

LORD WINSTER

I shall be quite willing to discuss that, but at the moment I am dealing with the question of devaluation. The Chancellor has announced very clearly indeed that, following upon the devaluation of the pound, while the social services and expenditure on defence will not he cut there will be, and is going on at the present moment, an exhaustive overhaul of all departmental expenditure, and that every assistance, encouragement and support will be given to manufacturers who are endeavouring to make the drive into the export market which is open to them at the present time. As to nationalisation, no statement has been made by the Prime Minister or the Chancellor of the Exchequer which in any way varies past statements of policy by the Labour Party on nationalisation. Although I am not in a position to speak officially for the Party, I am not aware of any change in our nationalisation policy.

In support of that policy, however, I feel that there are certain things that must be done. The noble and learned Viscount who sits on the Woolsack told us this afternoon, with great truth, that it will not be easy to get into the dollar market. He said that the key to getting into that market is to increase productivity. That statement bears upon it the stamp of truth. But what are we to do to obtain that increased productivity? That is the crux of the matter. One thing which is certainly necessary is to secure and keep industrial peace, through settled conditions and by promoting a good healthy state of mind in industry. The trade unions which, as I have said, are at present playing such a courageous and statesmanlike part, must of course, be supported by the Government in every way possible in order to make their task of dealing with their members easy and successful. Although it is true that there is the wage-freezing policy, and it has been made quite clear by the Chancellor that wage increases cannot be entertained at the present moment, yet he has left a loophole open, as in fact was left open in the White Paper, for dealing with the case of workers who by common consent are underpaid. I think it would be an excellent and helpful thing if advantage could be taken of that loophole at the present moment.

I have in mind one particular section of the community. There are railwaymen whose wage is 92s. 6d. per week, and who have no possibility of augmenting that wage by overtime. As a magistrate I hear almost every week men and women cross-examined by the magistrates' clerk in separation and maintenance order cases. They are taken through every detail of their household expenses, in order that the magistrates may decide the appropriate order to be made, and I know from what I hear on the Bench that a wage of 92s. 6d. represents a bare existence, and nothing else, for those who are condemned to live upon it. I cannot believe that men who are drawing good and satisfactory wages would stick out and say, "If you increase their wages you must increase mine too, or you must preserve the differential which exists today between my wage and theirs." I cannot believe, if the matter is honestly and competently explained to them, that they would ever for one moment wish to deprive their lower paid brother workers of an increase in wages. I strongly urge the Government that they should try to take advantage now of the loophole left in the White Paper, and by the Chancellor of the Exchequer, and do something to redress these very low wages. If they will do this they will make their contribution towards producing that happy state of mind in industry which is so essential if productivity is to be increased.

Then we are told that if there is any undue rise in price it is to be controlled. I am rather in the dark as to what machinery exists for the purpose of exercising that control. Is there existing legislation by which the Government can step in and take effective action to control any unwarranted rise in price? I should say that such legislation is a great necessity. Then, again, productivity is undoubtedly hampered by what are known as "restrictive practices." There are restrictive practices in the trade unions, but there are also restrictive practices amongst employers—there are price rings and price-fixing arrangements. There are restrictive practices on both sides of the fence in industry, and I am sure that here too it would be of great benefit in increasing production if these practices could be inquired into and effective steps taken to bring them to an end.

We have also the problem of industries which are notoriously inefficient. I do not think any noble Lord would really wish to deny for one moment that two industries—namely, the cotton industry and the building industry—are both inefficient.

LORD QUIBELL

I do not agree.

LORD WINSTER

I am afraid the weight of the evidence is against the noble Lord. The noble and learned Viscount who sits on the Woolsack reminded us to-day how greatly good housing helps towards efficiency in industry. So I am sorry to have to maintain my point in spite of my noble friend's objection. Since I believe that the cotton industry—again on both sides of the fence—is largely inefficient, and that the building industry is largely inefficient, I think that, with a Government who stand for planned economy, it is high time that steps were taken to overcome the resistance which exists at present to producing efficiency in these industries. Sometimes I feel that the machinery of conciliation and negotiation at the Ministry of Labour does not work either as smoothly or as rapidly as it should, with the result, no doubt, that we have a good many unauthorised strikes, "go-slow" movements and so on. Again, I am afraid that in many instances distribution costs are too high, both in industry and in merchanting.

One last question I would put—and I would stress it. I would like to ask the noble Viscount who is to reply to the debate on behalf of the Government whether or not they believe that there are certain industries in this country which are at present hampered in the matter of production by having inefficient, obsolete or insufficient machinery. Do they or do they not think that there are firms which have been prevented, through one cause or another, from bringing their machinery up to modern standards and requirements? I would be particularly grateful for some information on that point, because I believe that one very cogent reason why American production in many instances outstrips cur own is that. on the average, the American worker has more horse-power at his back than has the worker over here. Therefore this question of the ability of our industries to equip themselves with the most modern and ample machinery is of vital importance.

I understand that the Opposition are to vote against the Government Motion, and I have been wondering exactly what it is in that Motion to which they object. They have not ventured to say in the course of this debate that they feel that any other step could have been taken recently than to devalue the pound. The Motion asks your Lordships' House to support the measures agreed upon at Washington. I have not heard any speaker in this debate raise any objection to what was done at Washington. On the contrary, there has been unanimous and warm praise for it. Further, the Motion asks the House to agree that the people should be asked to co-operate in carrying these Washington measures into effect. It asks for the full co-operation of the people in achieving the aim of carrying those Washington resolutions into effect, and it also asks that these things should be done whilst maintaining full employment and safeguarding the social services. I wonder whether the sting of the objection lies in the tail of the Motion, because except for that point, which is apparently thought debatable—that is, whether we should try to shape our policy in future within the ambit of maintaining those services and full employment—I am at a loss to know what there is in the Motion to which objection can be taken.

But whether the Motion is rejected or not, the Government will go forward with their policy and the real struggle now begins. We can win out if we mean to, and if the Government—as I am sure they will—play their part. Certainly we are in a very difficult situation; but we can get out of it. At the present moment everyone speaks in terms of high admiration of the wonderful prosperity and the fortunate situation of the United States. But the United States had a bad time in 1929 and immediately afterwards. They found themselves in a very difficult situation in 1929 but they got out of it, and I have complete confidence in the ability of this country to get out of the situation in which we find ourselves at the present moment. I am prepared to make that act of faith which one of His Majesty's Ministers has said is necessary in order to face the future, but I would remind that Minister that it is a matter of good theology and doctrine that faith is of no avail without work. The call is to work.

5.16 p.m.

LORD BLACKFORD

My Lords, rising towards the end of a debate such as this, naturally it is difficult to find anything fresh to say. The Government speakers have done their best to explain why a policy which was regarded as unthinkable up to midnight, September 17, had suddenly become inevitable, if not desirable, on Monday, September 19. The very masterly speeches to which we have listened have sifted the political and economic aspects of this devaluation question to the bottom. Incidentally, after such able speeches as those that have fallen from the lips of the noble Viscount, Lord Samuel, and the noble Lord, Lord Rennell, it is difficult to understand why any Liberal candidate in the country opposes a Conservative. Suffice it to say that, for my part, I agree with those who think that this devaluation is definitely a downward step. I do not believe we shall fill the dollar gap, and I think that costs of living will rise. I think that this crisis will lead only to another one later on, unless the whole attitude of mind, the industrial discipline of the nation, and the Government change.

Therefore, I wish to make only one point in the course of a few minutes during which I shall detain your Lordships. It is a point which has been brought out in many of the able speeches to which we have listened—namely, the desirability of telling the people the whole truth. Of course, before you decide to tell the people the truth you must make up your mind what the truth is. The noble Lord, Lord Balfour of Burleigh, at the conclusion of his masterly speech yesterday, urged the Government to tell the people the truth, and the noble Earl, Lord Selborne, did the same thing to-day. But both these noble Lords must know that there is not the slightest chance of the Government telling the people the truth. There are two reasons for that. First, the truth, as we Conservatives see it, means a complete reversal of the Government's policy. Second, the truth, as we see it, will be extremely unpalatable to the electors. In the course of his valuable speech yesterday my noble friend Lord Bruce of Melbourne told us something about a very unpalatable truth. He told us how when he was Prime Minister of Australia, twenty years ago, his Government were overspending on social services and the like. He found that it was necessary to ask his Party to retrench. They defeated him in his own House. He went to the country on the question, and he was defeated in the country. Twelve months later the Labour Government which succeeded him was obliged to make bigger cuts in the social services than he himself had proposed. I feel that that is a truth which ought to be broadcast throughout the nation, and I should like to hear what answer the noble Viscount, Lord Hall, will make to it in his winding-up speech to-night.

My noble friend, Lord Balfour of Burleigh, also told two unpalatable truths. He told us that to build an £800 house it took 1,100 man-hours before the war and now takes 1,440 man-hours, a deterioration of 31 per cent. The implication of that unpalatable truth is that work in the building trades is slack and lazy. What is the answer of the Socialists to that? The noble Lord went on to say that a British estimate for building a ship was £52,000, whereas the Danish estimate was £26,000. He said that to repair a British ship in a British yard cost between £50,000 and £60,000, whereas the work was actually performed in a German yard for £20,000. The implication of that is that in order to compete with our foreign competitors there should be more work and probably less pay. What is the Socialist answer to that?

I have said that there is no chance of the Government telling the truth to the country. Their conception of the truth is opposed to ours. They believe in Socialism; we believe in capitalism. I believe Socialism will be fatal to this country and will lead to irretrievable disaster if persisted in. But noble Lords opposite do not believe that; they think I am wrong. I remember I said the same thing in my maiden speech about two years ago, and then the noble Lord, Lord Lucas of Chilworth, said my mind was in a fog. There you are. It is quite clear that the noble Lord is not going to tell the truth to the country as I see it, so we must accept that. The electorate will not accept an unpalatable truth until they are frightened or until it is forced on them. Political history—indeed all history—is full of examples of that kind, the most recent being the experience of Mr. Churchill when between 1936 and 1939 he told unpalatable truths to the country and the majority of fools therein, including myself, refused to listen to him.

An unpalatable truth is not likely to appeal to the electorate. In his speech yesterday the noble Lord, Lord Darwen, said something about the forthcoming Election. He said he hoped that members of the Opposition would not say anything unkind about the Government because that would injure the credit of the Government throughout the country. I have noticed that Socialists are always unusually touchy when criticised, though they are always very ready to criticise other people. The noble Lord went on to say that in view of the forthcoming Election, there might be a temptation for the Opposition to misrepresent the actions of the Government. I do not think there is the slightest danger of the Opposition misrepresenting the actions of the Government. They have only to keep on saying how stupid the Government have been for five years, and they must be right.

What I am anxious about is not the hopeless wish advocated by the noble Lord, Lord Balfour of Burleigh, that the Government would tell the truth; what I am anxious about is that the Opposition shall tell the truth. That is the all-important thing. That is why I disapprove, as I have mentioned in a previous speech, of The Right Road for Britain. That is a very line idealistic pamphlet for a course of action which may be attained in the period of half a century or so, but it appears to me to have no relation to the actualities of the present day. The paragraph on economies and the reduction of taxation might have been written by Sir Stafford Cripps himself. I am desperately anxious that the Conservative Party shall not go into the forthcoming Election under any false pretences. If we have something unpopular and unpalatable to say, let us say it and stick by it, and be defeated on it if necessary, but do not let us win an Election on a programme of promises, as the Socialists invariably do. It will be fatal not only to the Party but to the country, which is much more important, because the country will have nobody to turn to if they find they have been deceived.

The late Lord Baldwin earned execration because he stated that if he had told the truth to the electorate in 1935 he would have been defeated. I believe that that statement was an accurate one, but it was a fatal thing to say in public. I am anxious that there shall be no possibility of the repetition of such a happening. If, in the interests of retrenchment and reform, we think it necessary to reduce the social services, if we think it is necessary to demand increased hours of labour, whatever unpleasant things in our opinion may be necessary, do not let us he afraid to say so; then if the electorate, in spite of those truths, decide to elect us, they will be under no misapprehension. I believe that we have to go through toil and sweat in order to recover ourselves, and I think the best cry for the Conservative Party is "Britain believes in labour"—with a small "I."

5.27 p.m.

VISCOUNT ELIBANK

My Lords, at this late hour I do not intend to give the House the whole of the speech I intended to deliver. I have taken considerable part in this question of devaluation in the past year, and having formed certain conclusions I do not feel it right that on the occasion of a debate on the subject in this House I should remain silent. I believe that in the circumstances in which we are to-day devaluation had to come, and that it had to come not later than the International Monetary Fund meeting in Washington in September. I agree with the Chancellor of the Exchequer in the view he took in another place last night, that it was better to fix the rate for that devaluation than to leave it to the free exchange of the markets. I agree with him that if that had been done, there would have been far greater confusion and chaos in the markets of the world, and that it was better to have a sheet anchor to which the other exchanges could hold, creating with it balanced exchanges. Having said that, I am nevertheless critical of the Government, because in my opinion this act of devaluation has been ill-timed and ought to have come far earlier. By its coming so late many of the advantages that might have been gained have been lost. I estimate that by this delay millions of pounds sterling have been lost, not only in this country but in the other countries of the sterling area. At any rate, looking at the Dominions alone, the increase in the price of gold by devaluation would have meant a good many millions more into the dollar reserves of these countries, including our own.

Your Lordships may ask why I say that this step ought to have been taken earlier. To begin with, it has been patent for over a year to a great many people in business and financial circles that in spite of Marshall Aid our economic situation, in so far as it was governed by the dollar-pound position, was rapidly worsening, and that eventually devaluation of the pound sterling was inevitable. This had become very apparent early this year. The dollar gap was widening, our dollar and gold reserves were declining and the value of the pound had depreciated by 30 per cent. and over in the free and black money markets, while in those same markets gold was being dealt with in some instances at double—and, indeed, over double—its fixed value of 35 dollars, or its sterling equivalent of £8 12s. an ounce. It was in January and February of this year that the Chancellor of the Exchequer should have grasped the nettle and arranged a scheme of devaluation with the International Monetary Fund.

I do not propose to discuss all the various happenings between that time and the actual devaluation, because that has already been done in your Lordships' House by a good many other speakers. But now that devaluation has come, we shall, in the words of the Socialist Party's pamphlet, have to "face the future." But we shall have to employ very different methods from the opulent methods with which the Socialist Party have faced the future in the last four years. Unless, indeed, we take some very drastic steps in company with devaluation, it appears to be a very grim future, because it is obvious to all of us who are engaged in business and manufacture that devaluation will never do the trick by itself; it is quite delusory to think it will.

There are certain drastic internal steps which I believe stand out clearly. I do not wish to take up too much of your Lordships' time, so I will state them as briefly as I can. I know that some of them have already been referred to, so I will give only a brief summary of them and make comments on them as I go along. First of all, there is the drastic reduction of Government expenditure in every possible reasonable direction. That is most essential. The noble and learned Viscount on the Woolsack has referred to that in his speech this afternoon. My criticism is that this ought to have been done before, and not be started now. It is absolutely essential to do it at once if devaluation is to be of any real help. My second point is that there should be stabilisation of wages, except in very special cases, until we reach smoother waters, when even taxpayers might reasonably look forward to some reduction in taxation to provide that incentive to work which, in spite of Socialist theories, human nature demands. Thirdly, there must be a determination on the part of all in our various industries, of whatever nature, to work harder and to give better results and so secure economy and efficiency. I have just spent a few weeks in France, where I found everyone working at full capacity to put France on her feet again, and this is rapidly happening. Last year I was in Belgium, where I found the same thing, with the same results. The year before I was in Denmark, where all were stretching themselves to recuperate from the war. In all these countries—and I am told the same applies to Italy, Holland and the United States—men and women are "going all out to restore their countries to financial independence and prosperity. I say solemnly, here and now, that if we do not do the same we shall, in the long run, lose the international battle for competitive existence—in fact, we shall be sunk.

My fourth point is that many of the restrictions and controls to which industries are now subject should be removed as soon as possible, so as to enable industries to be free to exercise more initiative and competitive enterprise. The fifth point I would make is that we should expand our agricultural production to as great an extent as possible, in order to make ourselves more self-sufficient in food and to reduce the quantity of food and feeding stuffs imported. A great deal has been said about that this afternoon, and I would like to reinforce it. My sixth point is that we should reopen the metal exchanges in London and the Liverpool Cotton Exchange. I am glad to see that the London metal exchange in tin is shortly to be reopened. The reopening of the London metal exchange for other non-ferrous metals, such as copper, zinc, and lead, and the Liverpool exchange for cotton, is most essential if these products are to find their true monetary level. Since devaluation, the sterling prices of metals have risen to such an extent, under the direction of the Ministry of Supply—I ask your Lordships to note those words—that they will seriously affect the cost in this country of manufacturers using those metals and will seriously nullify any advantages which might be gained by the cheapening of prices through devaluation. This also applies to cotton.

My seventh point is that the present Government policy of bulk purchase should be greatly modified, and the machinery of private trade should again have free play. It is only in that way that we can achieve that multilateral trading which is essential to bring the world back to prosperity. Finally, all new nationalisation products should be abandoned, including that of iron and steel. This last—and this is a very serious point—will hamper the manufacturing trade in this country at a time when manufacturers should not be called upon to shoulder the inevitable troubles of dislocation, with probable increased prices for iron and steel products, which nationalisation would involve. In all industries that have been nationalised prices have risen. That is an irrefutable fact.

Those are my main recommendations. Before I sit down there is one final point I wish to make. It has reference to a part of the Amendment which the noble Lord, Lord Woolton, has moved. I am not satisfied, notwithstanding the conference of Dominion Finance Ministers which met in London under the chairmanship of the right honourable gentleman, Sir Stafford Cripps, in July last, that the Dominions were sufficiently taken into the confidence of His Majesty's Government. The Chancellor of the Exchequer stated last night that it was only on Thursday, the day before the break-up of the Inter, national Monetary Fund Conference, that they were made aware of what would happen, that the pound sterling was to be unilaterally devalued, and of the figure to which it was to be devalued. The Dominions were closely interested in this devaluation, as obviously it would affect the price of gold, and I think that in the case of three Dominions gold is their principal commodity of export and the one which would yield to them the greatest amount of hard currencies. From another point of view, the United Kingdom was also vitally concerned in that commodity, as it was obvious that an increase in the value of gold would go a considerable way in easing the dollar shortage in the sterling area, including the United Kingdom.

I have raised this point with the object of asking His Majesty's Government whether, in the light of the great importance to the sterling area of the Dominion countries, they will in future not only inform the Dominions of what they intend to do in these financial questions but will also take them into the closest consultation. We in the British Commonwealth are all together in this serious crisis, and we can again successfully emerge together as we did after the 1931 crisis. I firmly believe that we shall once more do so, but we shall do so only if the nations of the British Commonwealth co-operate in the closest possible way.

5.42 p.m.

LORD LAYTON

My Lords, I rather think that the House is warming up for the last stage of this debate and waiting for the two last boxers to enter the ring, but, greatly daring, I propose to intervene for a little while to call your Lordships' attention to some rather different aspects of the problem before the Party issue is revived and the Division taken. We on these Benches, like noble Lords in other parts of the House, have for many years devoted ourselves to raising the standard of living in this country; trying to develop schemes for giving security in sickness, unemployment, and old age; to re-equip our factories; to build new schools and hospitals and re-house the workers in the cities or the countryside. But, largely as a result of our losses during the war, Britain to-day has to export a substantially higher proportion of her production than before the war, in order to pay for the food and raw materials which she must have. Unless we greatly increase our production we cannot hope, with what is left, to maintain greatly enlarged social services, devote an increased proportion of our resources to capital development and at the same time enjoy a higher standard of living. We cannot, in fact, in present circumstances, carry all the cargo and the spread of sail of which my noble friend Lord Samuel spoke yesterday. Nothing that I have to say in any way qualifies the view that only by hard work and the most rigid economies can we bring success out of the new situation which has been created.

I also agree with those speakers who to-day have said that our action is really only buying time in order to put our house in order. I strongly endorse the view of my noble friend, Lord Samuel, that this drastic devaluation has created a most violent disturbance in the economy of the world. It will need the most skilful handling to extract from the confusion a balance of advantage. But we cannot hope for a wholehearted response if we tell the country only that it is going to be worse off. If the British people are to be roused to a new effort they must be given some hope that what they are asked to do offers at least some prospect of success. I want to say something about the situation from that point of view.

In the first place, I question whether it is wise to use too alarmist and depressing language. For example, it is misleading to say, as has so often been said in the past ten days, that the pound is now worth only fourteen shillings. The pound is worth to the people of this country what it will buy in this country. In so far as prices are held stable, the value of the pound will be unchanged. It will lose value to the extent that prices rise—no more and no less. In this connection of the price level, may I remind the House of the remark made by the late Lord Keynes when we went off the gold standard in 1931? "Gold," said Keynes, "has gone off sterling." There was something more in that remark than a brilliant epigram or a witty half-truth. In that year the pound depreciated in terms of gold and the dollar, but British prices did not rise appreciably. Indeed, after a slight hardening for a few months they fell slightly below the level of September, 1931, and the next few years were years of exceptional price stability in this country. It can be done.

Circumstances to-day, as Lord Pethick-Lawrence pointed out yesterday, are not the same as they were eighteen years ago, but in one respect they are identical. In the past week most of the countries who followed Great Britain in 1931 have followed her again in 1949 and have devalued their currencies, either to the full amount of sterling or to some intermediate figure, and there are some who did not follow her in 1931 but who have followed her now—for example, South Africa. How important this is will be realised from the fact that considerably more of the international trade of the world is being done by countries who have devalued in the past week than is being done by dollar countries. Leaving out of the reckoning Russia and her satellites whose international trade is small and bears little relation to prices and costs, but including Western Germany (who is going to devalue but at a rate which has not yet been settled) and Italy, whose exchange has begun to slide but again has not yet been finally settled, 60 per cent. of the world's imports, and 50 per cent. of the world's exports were done in 1948 by countries who have devalued. Sixty per cent. of the imports are in the hands of the countries who have devalued, and 40 per cent. in the hands of others. If I may divide that 60 per cent. into two parts, 38 per cent. of the trade was done by countries who have devalued on an even pegging with sterling, and 22 per cent. was done by countries who have devalued at some intermediate figure. This calculation is based on the statistics of world trade produced by the International Monetary Fund.

From that point of view, is it more true to say that the pound has depreciated in terms of dollars, or that the dollar has appreciated in terms of sterling? The ratio has changed between a great part of the world and the dollar countries, and I would add that when I give the figure of 40 per cent. for the dollar countries I include in it all the rest—countries such as China. That is the scale of the change that has happened. For this reason the outcome of this drastic monetary change is not a matter which can be assessed in terms of this country alone; and it is against this broader background that we must consider the prospects of being able to bridge the dollar gap.

There are many ways of doing so, and I want to mention four. The first and most obvious way is to increase our exports to the United States and other dollar countries. In an article in the Economist which has been referred to several times during this debate, which was published a little more than a month ago, it was pointed out that Great Britain had made greater progress in paying for her dollar imports by exports to dollar countries than had any other Marshall country. I think that in presenting the case to the country it is most important that we should give full credit where credit is due. But our exports were still only 36 per cent.—a third—of our imports from those dollar countries. If dollar prices remain the same, you can calculate how much more in quantity we shall have to send abroad to balance the account. There was a little discussion on that issue earlier to-day with the noble and learned Viscount the Lord Chancellor, and I do not propose to pursue it now.

To lower the price of our goods in terms of dollars will certainly help, and there is good reason to suppose that that way of paying for imports will increase. We must not underestimate the conditions created by devaluation. It will pay to organise sales agencies; it will pay to open up entirely new lines of goods; and any action that the United States may take in the matter of lower tariffs will be helpful. I am looking to a substantial step forward in this matter; anybody can guess the amount. Secondly, other countries of Europe and the sterling area will also find it easier to export to the United States; and their exports will tend to relieve the dollar famine and the strain on sterling reserves. But he would be an optimistic man who would assume that the non-dollar world will quickly balance its accounts by increased sales and by direct trade with the dollar area.

Before we can see a solution of the problem we must look at what we buy on the other side of the account, and when we come to do that the picture is interesting and striking. In 1947 the United States had a surplus of exports over imports—to all countries—of nine-and-a-half billion dollars. That was the dollar gap which the Marshall Aid Committee had to study and endeavour to meet. The surplus, for which the world had no means of paying, had fallen in 1948 to five-and-a-half billion dollars. That surplus last year was to a large extent sent in the form of gifts which we call Marshall Aid. The disequilibrium, however, between America's great export capacity and her limited imports remains the heart of the problem which we have been discussing. I therefore ask the House to consider for a moment the nature of America's overseas trade. It is often assumed that her exports consist chiefly of food and raw materials. That is entirely incorrect. In 1948, when the proportions were almost exactly the same as in 1938, no less than 56½ per cent. of America's exports consisted of wholly manufactured goods. Exports of crude foodstuffs and raw materials were only 22 per cent., 10½ per cent. were manufactured food and drink, and the remaining 11 per cent. semi-manufactured goods. In spite of the tariffs against American goods, the figure last year was seven billion dollars of exports of wholly manufactured goods, and three-and-a-half billion dollars of exports of raw materials and food and manufactured food and drink.

Look for a moment at that picture in terms of the dollar gap. I have said that America's surplus of exports in 1948 for her total trade was five-and-a-half billion dollars. But in that year her excess of exports of manufactures over her imports of manufactures amounted to five-and-three-quarter billion dollars. In other words, in the other categories of America's trade she imported more than she exported. She imported more crude foodstuffs than she exported, more raw materials than she exported and more semi-manufactured goods. Her unbalanced trade position was created entirely by her immense export of manufactured goods. I do not believe that that position is fully appreciated. Imports of these manufactured goods to Great Britain have been largely stopped by our import controls, but they flood the markets of the world.

That situation will be profoundly modified by devaluation. This action is equivalent to imposing an additional tariff of 43 per cent. on everything that we buy and pay for in dollars. Goods for which we previously paid £100 we must now buy for £143 unless dollar prices fall. It is exactly as if a tariff of 43 per cent. had been imposed. Countries which buy nearly 40 per cent. of the world's imports have done the same, and there is now erected against everything America sells a 43 per cent. tariff over this large area of the world. Countries importing some 20 per cent. or more have taken action equivalent to a tariff of from 10 per cent. to 30 per cent. or more. The consequences of that will be a great switchover within the new devaluation zone of the world from American goods to goods made within the zone itself. That is absolutely inevitable. So far as Britain is concerned this will enable the account to be more nearly balanced by a great extension of triangular trade.

May I give a simple example, which is suggested in the news on Sunday? It was reported that Australia is going to buy British instead of American aeroplanes. Now, we may assume that previously Australia would have balanced these purchases of planes by sending, say, wool to the United States. Meanwhile, America was also shipping cotton to Britain, against which there was no counterpart, and we had to give Marshall dollars or in some way pay out of our reserves. Now Australia's wool will earn the dollars to pay for the cotton, and the British planes will square the account by triangular trade—in other words, the American export of planes will cease and the triangular deal will balance, leaving no dollar deficit at all. That is just an example of how it will work in relation to the great mass of American manufactures which, as I say, have been creating the world-wide scarcity of dollars.

I suggest that this world-wide diversion of the channels of trade will prove to be the most important of the four means by which the dollar gap will be bridged. Let me say at once that to the extent that the dollar deficit is cured by America selling less to the non-dollar world rather than by America buying more from the non-dollar world it is a solution by restriction, and not by expansion; so the world will be the poorer. But it may be necessary. In any case, it raises large issues of policy. Before making any comment on that, however, I should mention that there may be one other means by which the account may be balanced—namely, a lowering of the dollar prices of some of the goods that America exports. The present widespread devaluation is bound to exercise a depressing effect upon prices in the United States. This happened in 1931, and undoubtedly helped to increase the depression in that country which reached its climax, as we all know, eighteen months later. The American economy is so much stronger to-day than it was in 1931 that history, I venture to say, is not likely to repeat itself. But the downward pressure will be there, with perhaps some increase in unemployment, just as the pressure on prices will be upward throughout the devaluation zone. This is one of the conditions that the United States is apparently prepared to face, in order to avoid a widespread international crisis.

Increased sales by Britain and by the rest of the devaluation zone to the United States and other dollar countries, a very considerable diversion of trade to the devaluation area and some fall in the price of dollar exports are four of the main means by which the dollar gap must be bridged. Many other adjustments will have to take place, including some redistribution of raw materials—and, of course, this diversion can happen only if the raw materials reach the right countries in the right proportions; and there may be many cross-currents. But it is by no mains an impossible proposition, provided, as has been said again and again during the present debate, that inflation can be kept in check in this country—or, as I would say, in the devaluation zone as a whole.

I therefore think the Government had no option but to take this step which, in the conditions of 1949, is the only alternative to prolonged dependence on American charity. Indeed, I share the view that it should have been taken many months ago but, whether it had been clone then or now, it is a clumsy instrument—your Lordships will appreciate how clumsy it is when I liken it to a 43 per cent. tariff on the greater part of the world's trade—that can only be compared to using a hacksaw instead of a surgeon's knife on the living body of the world's international trade. If the step had been taken earlier, it need not, in my opinion, have been so drastic, and the dislocation would have been less. Indeed. I think it is probable—this is only an opinion—that in the long run the rate of 2.80 may prove to be too low. If the cut should turn out to be greater than is needed to correct the disequilibrium that I have tried to describe, we should not hesitate to raise the rate again, for an unduly low rate of exchange is a standing temptation to competitive depreciation, with all its dangers and uncertainties.

For this reason, I was one of those who would have preferred to let the pound go free for a while and find its own level. But I recognise the force of the arguments in favour of the course that has been taken. It would have been unwise to break with the principle of the Bretton Woods Agreement that devaluation should be made only with international consent, and I doubt whether in present circumstances—no one will ever know the answer to this—other countries would have followed an entirely unanchored pound. In fact, as I have hinted, the fact that the movement is so broad and world-wide will be one of the greatest advantages, in face of this new situation.

I think the Government were right to act as they did, but I have two critical comments to make. I suggested just now that the setting up of what in effect is equivalent to a tariff of 43 per cent. round a large part of the trading world may be a restrictive act. Yet, if proper steps are taken, it may be turned to the general advantage. Your Lordships will appreciate that in what I am going to say now I speak from a unique position, because I had the great privilege of being the only member of your Lordships' House to be present at the Strasbourg Conference of the Consultative Assembly of the Council of Europe. From the Press reports your Lordships will be aware that close cooperation over an area which corresponds closely with what I have described as the devaluation zone was contemplated in the Economic Report adopted last month by that Assembly. It was there suggested that the general lines of a common economic and financial policy should be drawn up, in consultation with the overseas countries associated with the members of the Council.

Your Lordships will, of course, realise that that is not merely a question of the British countries overseas, but also the French, the Dutch and the Belgian countries. It was suggested that an effort should be made to secure a coordinated economic policy in conjunction with those associated countries overseas; that the increasing integration and development of these countries would require, for a period, at all events, some extension of a system of preferences, and that the countries concerned should collectively approach the United States of America to persuade them to waive their objections to any form of tariff discrimination. Your Lordships will see the resemblance to the picture of what I have described as the devaluation zone.

If that suggestion had stood alone, it also might have been described as restrictive, but it was, of course, a part of a much wider general plan which would involve uniting and enlarging their markets and so lowering their costs and selling prices and raising the productivity of the whole group. Here I quote from the Report: The realisation of economic union would include the abolition by stages"— there was no "crying for the moon"— of restrictions on the movement of men, money and goods; the co-ordination of investments in basic industries and agriculture and the gradual harmonising of national legislation in the fields of social policy and taxation. It would imply the rapid establishment of a multilateral system of payments leading"— and this is vital to the present matter— to the restoration of convertibility of European currencies with one another subject to the safeguards necessary to enable movements of capital to be controlled during the transitional period. It also implies some measure of central planning, but in the opinion of the Assembly this should be combined with the maximum possible degree of individual liberty. The whole conception involves the co-ordination of both financial and economic policy generally, and the drawing together of all the various organs—and there are far too many of them—engaged in economic co-operation.

Last week a discriminatory system of colossal dimensions came into being. That system may do more harm than good, unless it is followed by those other steps, taken within the devaluation zone, which were contemplated at Strasbourg for increasing productivity and trade within the group, and for developing the resources of the whole area by co-operative action. In other words, we have done something which in a sense might even be described as a hostile act. But it may prove an advantage to the world if a liberal policy of co-operation is adopted and pressed forward with the utmost vigour. But if it were to result in isolated action, then the net result would unquestionably be very much what it was in the 'thirties. After the devaluation of 1931 there was a continued orgy of rising tariffs and competitive devaluation. At all costs that must be avoided.

This brings me to my last point, and it is really a comment which was made yesterday by Lord Gifford. I regret that the action taken at Washington had—and I am prepared to use the word "had"—to be taken without adequate consultation beyond an extremely narrow circle. It is true that the Managing Director of the International Monetary Fund has publicly stated his reasons for accepting the new rate proposed for the pound. But the Executive Directors, whose concurrence was required under our Treaty, were not informed until Saturday morning, and had no opportunity of examining the rates proposed. They were, in effect, presented with a fait accompli. Almost at the beginning of his opening statement the Leader of the House said yesterday, referring to devaluation and to Britain: A decision of that kind necessarily involved a considerable amount of technical preparation. Yet a number of countries whose fate was concerned had to make an almost instantaneous decision, and were certainly given no time for "technical preparation." It is not surprising that some hard things have been said in certain of the countries most vitally affected, including our neighbour across the Channel. Whether the information was given on Friday night or on Saturday makes very little difference. It would be the greatest of tragedies if our action should result in the overthrow of the most stable Government that France has had since the end of the war. We must be very careful, even in our own interests, not to set back the movement for closer economic co-operation, and I beg His Majesty's Government never to forget the point of view of the people who are involved with us in all these great operations.

This is not the occasion to enlarge on how economic co-operation can be developed. I can only say, with all the emphasis I can command, that it must not be overlooked in the months immediately ahead, when Ministers will be absorbed in the many domestic problems arising out of the new situation. It would be lamentable if in other countries everybody tried to see how they could deal with their own internal problems and were to find that they were at cross purposes when they came together. I urge this not merely for its own sake but also—and this is my last word—because economic co-operation is closely linked with the gravest of political issues. If there was ever any disposition to regard European unity as of secondary importance, the idea must have been dispelled by the recent news about the atom bomb. In the light of that disclosure the task of strengthening the solidarity of Europe is of even greater urgency than that of bridging the dollar gap. It has been truly said that the people of this country are to-day faced with something which is both a challenge and an opportunity. It is no less true that His Majesty's Government are faced with both a challenge and an opportunity to carry a long way further than it has hitherto been carried economic co-operation over a large part of the world.

6.16 p.m.

LORD CHERWELL

My Lords, since this Government came into office the country has been lurching from one economic crisis to another. Yet they are asking us to approve their handling of our economic affairs. The Chancellor has told us: Ever slice the war we have tried to overcome our difficulties by a series of expedients, which led to a series of crises as each expedient became exhausted. This from the Chancellor of a Government elected largely on the promise to introduce a planned economy! Can they really expect us to promise our support to any indeterminate future measures which they may propose? The Minister of Health recently, intoxicated perhaps by the beauties of the Italian landscape, where every village probably still exhibits the slogan, "Il Duce ha sempre ragione"—"The Duce is always right"—has asked the people to engage in an act of faith and to believe that what the Government has done and what it proposes to do is in the best interests of the people. I find it difficult to agree with that point of view. It has been said that a man who feels no self-admiration affronts his Maker. Some Ministers, at any rate, do not seem to lay themselves open to that reproach. The form of Auto da Fe recommended by the Minister of Health will scarcely commend itself to This House. On the contrary, I hope that after our experiences of the last four years your Lordships will feel more sympathy with the Amendment moved by my noble friend Lord Woolton. Naturally we all desire passionately to help the country out of its troubles, but we cannot ignore the responsibility which the Government bear for the existence of many of these troubles. I therefore venture to hope fiat the House, by passing this Amendment, will show clearly its disapprobation of the Government's handling of our economic and financial affairs.

Just consider their record. The first financial crisis broke upon us in the spring of 1946. We were saved from disaster by the American Loan. Instead of lasting four years, as the Government had anticipated, the Loan ran out in 1947. The storm cones were run up, and your Lordships House even convened a special nicotine to discuss the economic situation. Then Marshall Aid was introduced, and the Government breathed freely once again. Only this spring we were assured that there had been a great improvement in the fortunes of the country; and we were expected to congratulate the Government on its effort. Now, barely four months after our debate, it appears that the dollar situation is so grave that even with the help of Marshall Aid we are unable to maintain our imports, and therewith our standard of life, and that a new expedient, devaluation of the pound, has to be called in aid. And what a devaluation! Thirty per cent. is to be knocked off the dollar value of the pound in one fell swoop—and this despite the Chancellor's repeated assurances that there would be no question of devaluation. As lately as July 6 the Chancellor said that the Government had not the slightest intention of devaluing the pound. Even as recently as July 25 the noble Viscount the Leader of the House—with whom I. do not always agree, though I therefore welcome it the more when I do—at the end of a cogent argument against devaluation said that this Government had no intention of entering into this rash experiment. Now, only six weeks later, the Government are trying this rash experiment—and, indeed, are parading it as a great act of financial statesmanship.

Many of us noted that on July 14 the Chancellor made a much more ambiguous statement. He said: No suggestion was made at the Conference with Mr. Snyder and Mr. Abbott that sterling should be devalued. And that, I hope, is that. I must confess that his curious phraseology struck me at the time, but when the Leader of the House volunteered such a downright statement against devaluation my doubts vanished. I think it was a little unkind of the Chancellor if he had changed his mind and was salving his conscience in this roundabout way—it was a little unkind, surely, to have left our noble Leader so completely in the dark and to have let him commit himself—I would say baldheaded, were this term not singularly inappropriate in his case—to a statement which has now turned out to be absolutely incorrect.

It is, of course, true that in such a matter no Chancellor can be expected to advertise in advance his Government's intention. On the other hand, it is certainly going to be very difficult to carry on Parliamentary business on the basis that any Minister is free to state the exact opposite of the truth if he considers it in the public interest. It would, I am sure, be greatly to the convenience of the House if we had some means of knowing when a Minister was, so to speak, talking ex cathedra, when his words were to be taken literally, and when they were merely diplomatic evasions. I will not enter into discussion of the "deep-seated maladjustment" between the sterling and dollar areas which we are told, in the Chancellor's elegant phrase, has been "high-lighted" by recent events, for the noble Lord, Lord Layton, has gone into the relevant matters in some detail, but I must examine the prospects of our selling enough goods in the dollar area to close the gap.

It is really impossible to judge them, deprived as we are of so much information which would be necessary before one could express a definite view. In the first six months of 1949, apparently, we exported to North America at the rate of £11,000,000 a month. Our imports from North America were about £35,000,000 a month. To achieve equilibrium, therefore, we shall have to treble our exports, even at the old prices. And if we are to take the same pound prices—that is to say, 70 per cent. of the old dollar prices—it will need more than four times the volume of exports in order to achieve equilibrium. The prospects of such a gigantic improvement at first sight seem remote. We must all hope that something of the sort will be brought about by the efforts of all concerned in this great adventure.

In this analysis, however, all the other parts of the sterling area have been omitted, as well as the large amount of dollars, over and above the sums received as conditional aid, which we seem to have paid to other foreign countries. If Parliament and the country are to form a just appreciation of what is happening, and to discuss the course of events usefully, it is essential that we should be given more details. According to the above figures the dollar deficit of the United Kingdom was running at £300,000,000 a year. But we have been told that our reserves are being encroached upon at twice this rate. Presumably the difference is the deficit of the sterling area plus the payments to these other countries. Surely we should have been told how much these payments are. Surely we should be told the imports and exports, not merely of the sterling area as a whole but of the various component parts. For whereas the balance of some, like Malaya, is most favourable, others, which shall be nameless, have anything but a favourable balance.

However desirable the long-term solution (that is to say, achieving over-all balance of trade on current account with the dollar area) may be—and I think it most desirable as an objective, or perhaps conforming to modern phraseology I should say "target"—I tend to agree with Lord Addison and with the Lord Chancellor in doubting whether we can attain it within a measurable period. Unless we make up our minds to forgo American imports and to reduce our standard of life, the most promising alternative, which might come into effect reasonably quickly, seems to me to be to induce the Americans to invest in the sterling area. This might be done by Government action if they were prepared to give some guarantee against nationalisation or arbitrary intervention. But it would be useless unless at the same time we could achieve some measure of convertibility. The question is whether the Government are prepared to move in this direction. I hope that the noble Viscount who is to reply to the debate will give us some indication of their intention.

That you can consume only what you produce, or its equivalent, is a truism we have been preaching from these Benches for many years. At long last the Government seem to have realised that there is no magic cruse from which wealth can be drawn without human effort. If the people wish to enjoy social services absorbing one-tenth of the national effort there will be only nine-tenths left for them to share out and enjoy and spend—unless, of course, they produce one-tenth more. As the Government are anxious to maintain the social services without reducing our standard of life, they are obviously right in seeking to impress on the public mind, by every means in their power, the need for increased production. I must confess, however, that I find it a little difficult to reconcile these impressive exhortations with the claim which the Government frequently make, that our production has already risen some 30 per cent. above the pre-war figure. For some reason, Socialists seem to think it extremely wicked to examine this figure. Noble Lords opposite have even accused me of disparaging our country because I dared to call attention to some facts which seemed to conflict with it.

I have been told that I ought to rejoice in this splendid achievement. Of course, I should rejoice, if I were really convinced that the figure was right. But as a scientist I am not inclined to indulge in transports of joy based on wishful thinking; I am concerned to discover the truth, and the Government, surely, should be equally anxious to know the facts. They will only come to grief if they have been living in a fool's paradise.

If our people really are producing so much more per head per year than they used to do it would be foolish of us to form our plans on the likelihood of a notable increase, or, as the Lord Chancellor has said, on the impression that there is great room for improvement. After all, we have only 6 per cent. more workers in the manufacturing industries than before the war. If their output has increased 30 per cent. they have made a supreme effort. This figure is so fundamental that I think the Government ought to give us chapter and verse for it, and explain how it is derived. As I have frequently said, it is not consonant with the output figures derived from those forms of effort which we can measure. Miners are not turning out as much per head per year as they used to do, in spite of increased mechanisation. Cotton yarn is not being produced in the same quantity as it was, although about the same number of people are employed spinning it. The Government's own figures show that it takes 30 per cent. more labour to build a house to-day than it used to do. Though twice as many people work for export production, we are producing only 50 per cent. more by volume than before the war.

There is another fact which seems difficult to reconcile with the claim that we are producing 30 per cent. more than before the war. According to the official statistics we are importing only 82 per cent. of the volume of raw materials which used to be brought into this country every year. It is true, of course, that a fraction of our raw materials is home produced, but, apart from coal, the bulk of it came from abroad. If only 82 per cent. of this foreign raw material was available last year, it is difficult to believe that industry could have turned out 130 per cent. of what it used to produce pre-war. Some improvement in efficiency, of course, may be expected. But the assertion that we can now make do with less than two-thirds of imported raw materials to produce a given volume, of goods is hard to swallow. As I have said, this oft quoted claim that we are turning out 30 per cent. more every year than we used to do is so vital that it should really be analysed, clarified and made intelligible. If it is true—and I hope it is—is it really reasonable without further explanation to expect and exhort all concerned greatly to increase production?

What effect will the devaluation of the pound have upon our dollar balance? Our imports from the dollar area are much greater than our exports to it. That is the root of our trouble. This being so, it must seem at first sight quite absurd deliberately to arrange that we should receive fewer dollars for every pound's worth of goods we export to America and that we should pay more pounds for every dollar's worth of goods we import. The normal results of devaluing a currency are, of course, familiar, but I doubt whether they apply to the abnormal circumstances in which we are living.

There is one result of devaluation, and so far as I can see only one, which the Chancellor can be reasonably certain of attaining. That is the one he put in the forefront of his argument—namely, that the people were beginning to lose confidence in sterling and therefore trying by any means in their power to exchange pounds for dollars or some other currency in which they had faith. Clearly, it is much less attractive to exchange a pound for 2.8 dollars than for 4 dollars. I think, therefore, we may hope that the leakages which have filched away so many dollars from the sterling pool in the past w ill be very much reduced, if not stopped altogether, by the devaluation. But what a confession, that this country with all its power and police and all its highly trained civil servants and expert bankers has been unable to stop leakages from the sterling area, and that all the controls, all the ferocious laws, have proved unavailing, in that the only way to prevent pounds leaking away is to make their value so low that it is not worth anyone's while to break the law so as to get them out of the clutches of the Bank of England!

I am much less optimistic about the other normal consequences of devaluation. The first, of course, is that the price of American goods in this country will rise by 43 per cent. Of course, this will deter people from buying from America anything they can do without. But was it really necessary to devalue the pound to achieve this? Surely, with all our import restrictions and licences and the difficulty in getting dollars to pay for anything from abroad, there has been absolutely no risk, or indeed no possibility, of anyone importing American goods that were not essential or of spending on luxuries dollars which might have been used to buy necessities.

We are told that if we reduce the value of sterling in terms of dollars, it will be very much easier to sell our goods in America, for if we can peg our costs of production we shall be able to sell the goods at much lower prices than we can do to-day. This, of course, is true. But we shall have to sell a very great deal more goods to obtain the same number of dollars. There is no advantage in selling a lot of goods to America, in exporting to America the toil and sweat of our men, unless we receive an adequate return. If the price is reduced by 30 per cent., as it would be if we stuck to the old sterling prices, as the noble Lord, Lord Rennell, said, then we should have to export 43 per cent. more goods merely to get the same amount of dollars as we are receiving now. If, as the noble and learned Viscount the Lord Chancellor said, prices are not reduced by 30 per cent., if we increase sterling prices, it will be somewhat less. But it will not make us more popular in America to increase sterling prices unless we can show that our sterling costs have gone up.

In Looking Glass Land, as the Red Queen—or perhaps it was the Red Government—said: It takes all the running you can do to keep in the same place. If you want to get somewhere else you must run at least twice as fast as that. It looks very much as if devaluing the pound means that we shall have to work as hard as ever we can merely to get the same number of dollars as before, and if we want to get more, we shall have to work twice as hard as that! I do not, of course, for a moment deny that we could sell more goods to America than are being sold to-day. But I do not think it is so much a matter of price—and here I am in complete agreement with the noble Lord, Lord Rennell—for, after all, most of our goods are luxury articles in America. It is more a question of energy and drive and commercial skill in getting into the American market.

We cannot hope to compete with mass-produced American goods to any extent, especially after paying freight and import taxes. It is upon the quality and fineness of our products and upon our adaptability and salesmanship that we must rely. In any event, was it really necessary to go through all the complications and repercussions of devaluation if all we needed to do was to reduce the price at which we could sell our manufactures in America? In that case, all we need have done was to give an export bonus of such amounts for goods going into the dollar area as would enable our manufacturers to sell them at a price which would find markets. Surely something like this could have been worked out without all the complications and repercussions of varying the rate of exchange and increasing the sterling price of our dollar imports by 43 per cent.

The other main effects of devaluing the pound would emerge if we could sell at the old dollar prices, or something like them. As I have said, I believe this to be possible, as our goods are mainly luxury goods. If so, in normal circumstances the manufacturer would see such large profits beckoning to him, if he could invade the dollar area, that he would have a great incentive to do so. With our present inflationary pressure, most manufacturers can sell almost anything they can make. The incentive to cross the Atlantic and seek markets in America is not great. In his broadcast, the Chancellor of the Exchequer seemed to be hinting that he hoped, by offering these larger profits, to induce manufacturers to make the effort and take the risk. But now it seems he is out to kill it by new taxes. In New York it seems that this action counted as only one-tenth economic and nine-tenths political. Over and above this economic hindrance, as we have seen this afternoon, his Party reinforces the obstacle by heaping abuse upon anybody who does not do business at a loss. Here also there are many simpler ways of inducing manufacturers to invade the dollar area than devaluing the pound. They could have been given a bonus or special tax relief, allowed to keep some of the dollars or rewarded in a number of different ways.

Whatever the Government's motives or intentions, one thing is certain, and that is that the sterling cost of our dollar imports will rise by 43 per cent. Unless they can peg costs of production, there is no hope of recouping this either by increased sales or by increased incentives to manufacturers operating in the dollar area. Having decided upon devaluation, the Government are, of course, bound to resist a rise in wages, even though they dare not use the word "wages" and feel constrained to wrap it up in the blessed phrase "personal income." I am glad to see that the Lord Chancellor has taken his courage in both hands, and used the piquant word. Whether the Government will succeed, with wage claims of £100,000,100 or more annually being pressed even before devaluation (I am told there is a Treasury minute which says that they must not refer to "devaluation," but only to "adjustment of exchange rates") was announced, only the future can show.

If devaluation had been part of a big scheme of free convertibility, I am sure all of us would have welcomed it. Lacking the facts and figures and knowledge that are, or should be, at the disposal of the Government, it is impossible for any member of the Opposition to advise or recommend such a step. For my part, as the House knows, I hold that one of the greatest obstacles to restoring convertibility is the uncertainty created by the sterling balances run up during the war which overhang our economy. They amounted to £3,362,000,000, so far as I can make out, at the beginning of this year. In 1947 £142,000,000 were drawn down; in 1948, £211,000,000. In addition, apparently some £80,000,000 is paid out annually as interest. At total it is nearly £300,000,000 in one year, the equivalent of the work of many hundreds of thousands of men.

The amounts by which these balances are drawn down every year are settled secretly without Parliament—still less the public—being informed. The House may remember that on top of this we have made gifts and loans amounting to £840,000,000 since the war. With these vast amounts going out unrequited, no wonder it is difficult to balance our trade. The Government, of course, are proud of their generosity, but I say unashamedly that charity begins at home, and that we should be just to our own people before we are generous to others. It is perhaps too much to expect the Board of Trade, anxious, of course, to present a good balance sheet every month, to warn against giving drawing rights and credits, and even making outright gifts. But the Treasury, surely, should insist that no exports should be sent abroad unless we are paid for them in the currency which we need. If we cannot get paid for things we make and export, we should either use them at home or cease making them. It is not right in these days, when we are behind most other countries in food and amenities, to devote a considerable fraction of the national effort to making things and giving them away.

Until they know where we stand in these matters, other people will not regain confidence in the pound. And without confidence we cannot embark on free convertibility. Old Treasury officials must be deeply humiliated to see eighteen different rates of exchange for sterling quoted in New York. And even the Government's complacency must be shaken by the reflection that the lowest rate, less than half of the official rate, was quoted for Government security sterling which is earmarked for investment in Government bonds. All European countries seem anxious to return to convertibility; we alone seem to be hanging back. I do hope that the Government have no intrinsic objection to it, and will endeavour so to arrange our affairs that we can resume at the earliest possible moment the free convertibility which we agreed to introduce when we accepted the American Loan.

I will not at this late hour embark on an analysis of the Government speeches which we have heard. Indeed, scarcely any detailed points were brought forward which require an answer. Like the noble and learned Viscount the Lord Chancellor, I greatly regret the absence of my noble friend Lord Pakenham, and I hope he will soon be completely restored to health. The Lord Chancellor's speech otherwise did not seem to me to raise any fresh point. Largely he seemed concerned to prove that the Government Resolution meant nothing and could perfectly well have been accepted. As usual he was most persuasive, but in the end I was not much wiser. Almost I suspected that he might have listened to his learned colleague the Attorney-General, who was recently reported to have recommended Ministers "to talk more and more and to say less and less." The noble Viscount the Leader of the House, in one of those cosy speeches of his which make me realise what a comforting medical adviser he must have been when he practised his old profession, appealed from reason to authority. In other words, he quoted, with not a little complacency—and he was reinforced by the Lord Chancellor—some tribute to the Government from the Economist.

VISCOUNT ADDISON

No, a statement of facts.

LORD CHERWELL

I looked out the Economist, but I must have got hold of the wrong number. It was the current issue of September 24, and the very first sentence ran: Devaluation of the pound sterling is no more than a confession of defeat by the Government. I need hardly say that I could not bear to read any further.

My Lords, the facts speak for themselves. For four long years the Government have enjoyed complete power. As they often boast, the country has been relatively free from industrial disputes. They have been propped up with gifts and loans from abroad on an unprecedented scale—some £1,500,000,000 in four years—without which, on their own admission, we should now have an extra 1,500,000 unemployed. The people have uncomplainingly put up with rations less than the unemployed consumed before the war. Yet we are once again confronted with the danger of falling imports, unemployment and a further drop in our standard of life. Whatever may be the outcome, devaluation must either be right or wrong. If it is wrong, as we were told only eight weeks ago, we ought not to have undertaken it. But if it is right to-day, it would certainly have been better three months ago. We should have saved hundreds of millions of dollars, and the Chancellor would have been saved from adding to his exiguous diet an unappetising collection of his own words.

For a year or more Socialist Ministers have been arguing that devaluation would be disastrous. Now we are suddenly asked to hail it as a great act of statesmanship. How can we have any confidence in a régime which has shown such a lack of foresight and such misjudgment? We are staggering from one expedient and from one crisis to another. There is no coherent plan, and no clear policy. Your Lordships will shortly have to decide by your votes whether to approve the Government handling of our economic and financial affairs or not. I ask you, by voting for the Amendment introduced by my noble friend Lord Woolton, to show beyond a peradventure your lack of confidence in the Government's past record and future prospects.

6.50 p.m.

VISCOUNT HALL

My Lords, I regret more than any other noble Lord the absence of my noble friend Lord Pakenham. I feel sure I can say that all of us express the hope that he will quickly recover from his indisposition. The recalling of Parliament at this time has been fully justified. Indeed, it can be said that both in another place, and particularly in your Lordships' House, the standard of the speeches and the way in which the very difficult problem with which the nation is faced has been dealt with, has been quite in accordance with tradition. I was very impressed with the speech of the noble Viscount, Lord Swinton. No exception could be taken to it, and certainly not to the way in which he faced up to the difficulties with which we are confronted. That can be said of quite a number of noble Lords who have addressed your Lordships' House during the last two days. I must say that a speech which impressed me very much by its masterly exposition and, indeed, the constructive suggestions which were made, was the speech of the noble Lord, Lord Layton. It is some time since I listened to a speech of the quality which he delivered here this afternoon. Two of my noble friends have also made valuable contributions, including my noble friend Lord Williams, who faced up to the full realities of the situation.

We have to realise the seriousness of the recent action of His Majesty's Government in lowering the exchange rate of the pound sterling, and also how important it is that all necessary steps shall be taken to enable us to maintain our present standards in this country. Whilst it is true to say that varying opinions hive been expressed during this debate as to whether the action taken was unavoidable or not, it can be said that the general opinion is that, in all the circumstances, the decision was inevitable. Now devaluation is a fact. The real urgency now is to ensure that it is made the basis of a supreme national effort and is not allowed to be regarded as too simple and painless an operation to impress its gravity upon the people of this country.

I would like to say here that His Majesty's Government were under no illusions whatsoever as to the gravity of the decision they were taking. They did not underestimate the effect it would have at many points upon the livelihood of the people of this country. In his speech the Chancellor gave all the reasons for the Government decision, together with a number of details which, of course, I would not think of repeating. I did think that, in the course of some of the speeches, I detected a lack of understanding amongst noble Lords as to the difficulties with which His Majesty's Government have been faced during the past four years. After all, it must be remembered that in four years we have completely changed from a war basis to a peace basis. Six million men and women have changed their occupations. We have restored our productive capacity and, notwithstanding what was said by the noble Lord, Lord Cherwell, I will repeat the fact—as fact it is, or so I have been advised—that the production in the first quarter of this year was 30 per cent. above the 1938 volume, and in the first seven months of 1949 6 per cent. above that for the, same period of 1948. Allowing for the, 1½ per cent. increase in the working population, the increase in production is 4 per cent. above what it was last year. I am not presenting these figures to give any indication of complacency. In the circumstances, we cannot be complacent.

The noble Lord, Lord Cherwell, rather doubted the figures, and I will give him the figures which I have been able to obtain as to the increase in production in other countries. The noble Viscount, Lord Elibank, referred to a visit which he paid to France, Italy and other countries when he found men and women almost working themselves out, so that they could restore the economy of their country. With one exception the percentage increase of production in this country is larger than that of the increase of production in any other European country, and that one exception is Sweden. With all the mechanisation and the machinery placed at the disposal of the industrial workers in America, the increase in production in this country is 2 per cent. above that of the increase of American production.

LORD CHERWELL

That, of course, is assuming that this figure of 130 per cent. is correct. The question I would like to have elucidated is how we can produce 130 per cent. more goods when we have only 82 per cent. of the pre-war imported raw materials. I do not think we can usefully hope to clear it up now, but I hope that the Government will give us chapter and verse, a detailed explanation of how they arrive at this particular figure.

VISCOUNT HALL

I must say that I was struck with the figure which was given by the noble Lord, and I did ask for some information. It was impossible to get the information off-hand, as noble Lords can understand, but I will see that we do what we can to give the noble Lord the information he requires. It is most significant, however, that this very substantial increase has taken place. I quite followed the point which was put by the noble Lord, Lord Cherwell: If this increase has taken place, then is there room for any further effort? I think there is. I am not for a moment going to underestimate the great contribution of the industrial workers of this country. Either in peace or war there are no finer workpeople in the world, with their skill, their industry and, indeed, their character. Some complaints might be made about inefficiency, absenteeism and unofficial strikes. I speak now as one who has had a long experience in association with the trade union movement. Indeed, I can say that for the last fifty-five years I have been a trade unionist. This nation owes a considerable debt to the trade union movement in this country, and I am sure that there is not a single noble Lord, or anyone who understands, but who will admit that in no country have the industrial workers—and, indeed, all workers who are associated or in membership with trade unions—been better led than they are in this country.

Talking of unofficial strikes, there has not been an official strike, so far as I can recall, since the outbreak of war. One can understand an unofficial strike occasionally breaking out. It is no use the noble Viscount, Lord Bruce, suggesting that we should try so to control the trade unions as to prevent them. No one deplores unofficial strikes more than I do. They show an utter disregard of authority. But the generations are changing. There is an entirely new generation now in the trade union movement—a different generation from that of the time when I was active in it. These young men do not realise what has gone to the building of what is the finest piece of negotiating and conciliation organisation that there is in the whole world. There are not 5 per cent. of the members of the trade unions who are not prepared to carry out the instructions of their leaders. The industrial workers of this country have not let the country down; and I have no doubt that when the call is made upon them they will respond.

I am not going to refer to the different methods which were adopted in dealing with the previous financial crisis—the one which gave rise to some few remarks across the Table between the noble Viscount the Leader of the House and the noble Viscount, Lord Samuel—but I was interested in the statement made by the noble Lord, Lord Woolton, who moved the Amendment. He said: "Give us the responsibility; let us become the Government, and then we will show you what we can do." Well, my friends—I beg your Lordships' pardon: I must have thought I was addressing a meeting of the Young Conservatives League—the noble Lord must understand the people of this country better. They usually judge men not by the words they use, but by their actions. And when I look at the record of the Conservative Party—and indeed of the Coalition Government of 1931, of which Lord Samuel was a member—I do not find much encouragement for the working people of this country to hand over responsibility to a Conservative or, indeed, to a Liberal Government. I remember 1931; and if noble Lords or members of any section of the community expect the present Government to carry out the type of administration which was carried out by the National Government in 1931 they are under an illusion.

The noble Lord, Lord Williams, dealt fully with the changes which took place—the reductions in already very inadequate unemployment payments and the operation of the most vicious means test that had ever been imposed upon the people. If this nation could fill a gap or adjust its currency only by adopting such methods, then, whilst I would be prepared to do many things, I should refuse to take the bread from the mouths of women and children as was done by the Government of that day.

VISCOUNT SAMUEL

I must ask the noble Viscount to permit me to repair an omission in his account. He has omitted to state that the cost of living had fallen before those reductions were made, so far as I remember by almost the exact equivalent, so that the people were receiving the same benefit after these deductions were made as they would have done if the deductions had not been made and the cost of living had not fallen.

VISCOUNT HALL

That is true. At the same time noble Lords do not seem to understand that the amount of unemployment benefit for a man in those days was 17s. a week and it was reduced from 17s. to 15s. 3d. a week. Noble Lords may laugh at that—

VISCOUNT SAMUEL

No one is laughing.

VISCOUNT HALL

There seemed to be some hilarity from the Back Benches.

The unemployment benefit of a married woman was 9s. a week and it was reduced to 8s. a week. And there was a wicked means test whereby if a son was earning £2 a week and had a wife and two children his father, if unemployed, would not get a single penny: he depended entirely upon the generosity of the son. Thousands of homes were broken up in this country as the result of a most vicious piece of legislation; and the Minister of Labour responsible for it himself felt ashamed of what was done. No, my Lords, that is not the way—

LORD TEYNHAM

We are not suggesting that it is.

VISCOUNT HALL

I am stating what was done by the noble Lord's own Party.

VISCOUNT ELIBANK

Was not that done by a Socialist Prime Minister and Chancellor of the Exchequer?

VISCOUNT HALL

It is true that Mr. Ramsay MacDonald and Mr. Snowden were there, but that does not justify their action. They had behind them a majority of supporters belonging to the Party represented by noble Lords sitting opposite.

The noble Lord, Lord Woolton, in moving the Amendment, said there was no useful purpose in passing the Government's Motion. May I say that I can see no purpose in passing the Amendment? I think that the Motion should appeal to noble Lords who, in all the circumstances, are quite prepared to play their part; and when we talk outside of united action, the least that can be expected of members of both Houses is that a demonstration of that united national action should be given as a lead to the people outside.

Much has been said by noble Lords, including the noble Lord, Lord Williams, to the effect that the people of this country should be told more about the effect of devaluation. I thought Lord Winster answered that point ably and fully. I should not for a moment like the people of this country to think that noble Lords or members of another place would underestimate their intelligence. The amount of knowledge that exists among many working people is rather surprising. I well remember travelling by train with a very dear friend of mine who was an old and highly respected trade union leader. He had been right through the mill. We were travelling with three or four persons, obviously of the professional class, and we heard a terrible denunciation of the miners. My old friend was Tom Richards, who is well-known to a considerable number of your Lordships. He made an offer. He said: "Gentlemen, I should disclose who I am. I am the secretary of the South Wales Miners' Federation." He went on to say: "I have heard a complete denunciation of the miners of South Wales and, indeed, of the miners of the country. I do not know who you are but I will tell you this; that I am prepared to bring six men from any colliery village in South Wales to meet any six persons whom you can bring who have had a university education, and we will choose six subjects upon which they can talk. I am satisfied that I shall get much more intelligence and common sense out of the six miners from any mining village in South Wales than we shall gel from the others." I am sure he was right. I do not underrate the intelligence of the people of this country. We are not living in the days of 1870 or 1880.

The noble Lord, Lord Woolton, suggested that the Government should have done more for agriculture. I agree with him and I agree with the noble Earl, Lord Selborne, that agriculture can make a very great—indeed, a greater—contribution to this problem of dollar-earning. But has agriculture ever been—shall I say within the last fifty years?—as well off as it is at the present time? Have there ever been greater inducements in every way to the farmer? Indeed, one of the causes of the great slump in agriculture was the attitude of the Government of the Party of which the noble Lord, Lord Woolton, is now the Chairman, though not the Leader. It is talked of in the country districts at the present time. I was in a country district a fortnight ago and I discussed with a farmer the very point which was put by the noble Lord, Lord Selborne—the question of removing subsidies. He told me that the general opinion of the farming community is that to abolish the subsidies would render to the agricultural industry the greatest possible disservice.

THE EARL OF SELBORNE

And the controls?

VISCOUNT HALL

We de-rationed a certain commodity which was to the adults, perhaps, not an essential commodity, but owing to the selfishness of certain people, we quickly had to re-ration that which we had de-rationed, so that the children of this country would be enabled to get a fair share of something which is regarded as more suitable for children than for anyone else.

The noble Lord, Lord Rennell, who took what I thought was a rather depressing view in relation to this matter, raised two points—the first in regard to the possible increase in the cost of living. It is not possible to say what the general course of other non-dollar prices is likely to be—no estimate can be given until any increase takes place—but there should not be a general or early rise. My noble friend Lord Williams, in what I thought was a realistic and courageous speech—he expressed no opinion but gave only facts—dealt with the position very well indeed. He pointed out the effect on food prices in this country if subsidies were reduced. I talked to a farmer the other day, and he told me frankly that he did not know how he could exist if it were not for the fact that he was selling a considerable amount of milk. In my ignorance I said: "Can't you make butter out of it, and get a good price for it?" He said: "Don't you realise that it is impossible?" Whether he is right or wrong, he told me that it took about 5s. or 6s. worth of milk to produce the necessary cream to make a pound of butter.

A NOBLE LORD

More than that.

VISCOUNT HALL

My Lords, I am always moderate and under-estimate, but he told me that it took about 6s. worth of milk. On that basis, your Lordships can see how difficult this problem is. The noble Earl, Lord Selborne, said the French were not notified, but that he had reason to believe they were led to expect a 20 per cent. and not a 30 per cent. devaluation. I do not know that anyone who was notified was led to expect anything less than the figure which was Oven. I understand that the Finance Minister for France has expressed his appreciation of the way in which he was approached and dealt with in connection with this matter, so I do not think there is any cause for complaint there.

VISCOUNT SWINTON

My Lords, were all the Finance Ministers who were informed that we were going to devalue also informed of the figure at which we were going to fix the pound?

VISCOUNT HALL

My Lords, I cannot say, with absolute accuracy. It would be unfair to ask me to say now, but I will check it up and let the noble Viscount know. The noble Lord, Lord Winster, raised two points. The first was the control on prices. I want to tell him that no new machinery has been set up. The Chancellor of the Exchequer said in his speech that statutory price control will continue in force and will be rigorously administered. I think that is all we can expect at the moment. The noble Lord also asked us what was being done with regard to the renewing of obsolescent machinery. The condition of allowing the renewal of obsolescent machinery was dealt with when allowances were improved under the Finance Act of 1945. The allowance was not increased but, instead of being spread over the life of the plant, a larger percentage was allowed in the year of expenditure and less in later years. It is not clear that there is any case at the moment for any further change in this matter. The noble Viscount, Lord Elibank, asked us for consultations with the Dominion or the Commonwealth Prime Ministers. The holding of a Conference of Commonwealth Finance Ministers in July showed that the Government attached great importance to consulting the Commonwealth on financial matters of common interest. That will always be the Government's policy. The short notice given to them in the recent case was surely due to the nature of the decision involved.

Now, my Lords, I come to the speech of the noble Lord, Lord Layton. As I say, I was tremendously impressed with that speech, and I do not think that I can offer much comment on it. He raised two points to me at the conclusion, the first in relation to co-operation with other countries. I would like to stress again that nothing was further from the mind of the Chancellor of the Exchequer, and indeed from that of the Government, than that there should be any weakening in our co-operation with the European countries. We have done, and shall continue to do, much to encourage that co-operation, since we recognise that it is so essential. This applies specially to the O.E.E.C. in Paris. The other point to which Lord Layton referred related to the Strasbourg recommendations. I am sure the noble Lord will understand that we cannot comment upon any of those matters at the present time, but I understand they will receive and are receiving consideration. Lord Cherwell's speech, of course—not that it did not have a considerable amount of matter in it—was typically the speech of a good scientist who has become a good humorist. It is not often that we find that combination but we have it in Lord Cherwell, and I think we all thoroughly enjoyed his speech. He raised many technical points with which, I want to say frankly, I do not feel competent to deal. With regard to some of the points he raised I can say that he will receive a reply in due course.

I want to conclude by pointing out that unmistakably this nation is faced with a serious crisis, and every section of the community ought to consider what their contribution should be. A good deal has been said about increased production. I have already given figures of the increase in production which has already taken place. I think we can expect something more, not only from the industrial workers but from the managerial staffs, the salesmen and, indeed, the employers. It is the most important way in which we can deal with the problem with which we are confronted, and I have no doubt that the call which has been made will be answered.

I am sorry that noble Lords opposite have placed an Amendment on the

Order Paper. We are about to go into the Lobby upon the Motion and the Amendment. The Motion calling for national unity was ably moved by my noble friend who leads the House with such distinction, and now noble Lords opposite have thought fit to table this Amendment. On that, let there be no mistake. Let me say at once that we on this side of the House infinitely regret it, but we do not fear its effect upon national opinion. I wish only that on this occasion we in your Lordships' House could have reached unanimity, but with an Assembly so constituted as your Lordships' House is no Labour Government can ever hope for victory. If noble Lords opposite have decided, in their wisdom or unwisdom, to divide the House in this hour of the nation's peril, when national unity is of the first importance to the nation's safety, then we on this side can but stand firmly to our stations and watch noble Lords opposite do their best to sink the ship. We should be together in facing this economic storm, but alas! it is not within our power to prevent what I consider to be the folly of such a Division at this moment. We cannot accept the Amendment which was moved by the noble Lord opposite.

7.30 p.m.

On Question, Whether the words proposed to be left out shall stand part of the Motion?

Their Lordships divided: Contents, 24; Not-Contents, 93.

CONTENTS
Jowitt, V. (L. Chancellor.)	Archibald, L.	Macdonald of Gwaenysgor, L.
	Chorley, L. [Teller.]	Marley, L.
Addison, V. (L. Privy Seal.)	Crook, L.	Nathan, L.
	Darwen, L.	Pethick-Lawrence, L.
Huntingdon, E.	Douglas of Kirtleside, L.	Piercy, L.
	Hare, L. (E. Listowel.)	Quibell, L.
Hall, V.	Henderson, L.	Shepherd, L.
St. Davids, V.	Holden, L.	Williams, L.
	Lucas of Chilworth, L. [Teller.]	Winster, L.
Amwell, L.
NOT-CONTENTS
Townshend, M.	Howe, E.	Hailsham, V.
Willingdon, M. [Teller.]	Munster, E.	Harcourt, V.
	Onslow, E.	Long, V.
Bathurst, E.	Selborne, E.	Margesson, V.
Beatty, E.	Spencer, E.	Monsell, V.
Carlisle, E.	Vane, E. (M. Londonderry.)	Samuel, V.
De La Warr, E.		Simon, V.
Devon, E.	Allenby, V.	Swinton, V.
Dudley, E.	Caldecote, V.	Templewood, V.
Dundonald, E.	Camrose, V.	Trenchard, V.
Fortescue, E. [Teller.]	Davidson, V.
Halifax, E.	Elibank, V.	Ailwyn, L.
Altrincham, L.	Hacking, L.	Polwarth, L.
Ashton of Hyde, L.	Hailey, L.	Remnant, L.
Baden-Powell, L.	Hawke, L.	Rennell, L.
Balfour of Burleigh, L.	Hayter, L.	Ritchie of Dundee, L.
Belstead, L.	Hemingford, L.	Roche, L.
Blackford, L.	Howard of Glossop, L.	Rowallan, L.
Broadbridge, L.	Kenilworth, L.	St. Just, L.
Brocket, L.	Killearn, L.	Saltoun, L.
Broughshane, L.	Layton, L.	Sandhurst, L.
Cherwell, L.	Llewellin, L.	Schuster, L.
Clanwilliam, L. (E. Clanwilliam.)	Lloyd, L.	Selsdon, L.
Clydesmuir, L.	Lyle of Westbourne, L.	Swaythling, L.
Cornwallis, L.	Mancroft, L.	Templemore, L.
Courthope, L.	Milverton, L.	Teviot, L.
Derwent, L.	Monck, L. (V. Monck.)	Teynham, L.
Dowding, L.	Monkswell, L.	Tweedsmuir, L.
Fairfax of Cameron, L.	Monson, L.	Wakehurst, L.
Gifford, L.	Mowbray and Stourton, L.	Waleran, L.
Grenfell, L.	O'Hagan, L.	Wolverton, L.
Gretton, L.	Palmer, L.	Woolton, L.

On Question, Motion agreed to.

Resolved in the negative, and Amendment agreed to accordingly.

On Question, Whether the Motion as amended be agreed to?

VISCOUNT ADDISON

My Lords, we propose at this stage to take the result of the Division of the House as indicating its wishes. Of course, we retain our own opinion.

Motion, as amended, agreed to.