Lords Sitting of 23 May 1950

Preamble
The House met at half-past two of the clock, The LORD CHANCELLOR On the Woolsack.
Prayers
The Earl of Minto—Took the Oath.
NORWICH EXTENSION BILL [H.L.]
  DONCASTER CORPORATION BILL [H.L.]
  Read 3a, and passed, and sent to the Commons.

BRITISH SUBJECTS AND INTERESTS IN HUNGARY
2.36 p.m.
LORD VANSITTART: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask His Majesty's Government whether commercial negotiations with Hungary have already been suspended owing to the maltreatment of British subjects and interests; whether another such case has just occurred, and whether in view of the Hungarian refusal to pay compensation for British property that has been nationalised, His Majesty's Government will now sever commercial relations with the Hungarian Government.]
THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR FOREIGN AFFAIRS (LORD HENDERSON): My Lords, negotiations for a trade agreement with the Hungarian Government were broken off on December 19 last because the Hungarian Government refused to allow a British Consular officer to visit Mr. Sanders, who was at that time in gaol awaiting trial. Recently, another British subject, Mr. Lamerton, was held incommunicado for three and a half weeks and then expelled from Hungary. A protest has been made by the British Minister but no satisfaction has been received. This repeated ill-treatment of British subjects in Hungary is a regrettable reflection of the conditions of life in that country.
382
As regards the last part of the question, His Majesty's Government have consistently maintained that no commercial agreement could be negotiated with the Hungarian Government which did not include provision for the compensation of those British subjects and companies who have suffered loss by the nationalisation of property in Hungary. So far as I am aware, the Hungarian Government have not actually refused to pay compensation. Their position is that they will be unable to compensate British subjects so long as they are unable, as at present, to earn sterling by regularly selling goods to the United Kingdom. This is not an unreasonable attitude on their part and it is certainly not such as to warrant the drastic action suggested by the noble Lord.
LORD VANSITTART: My Lords, may I ask the noble Lord whether it is a fact that in 1948 we took 40 per cent. of Hungary's exportable agricultural surplus, which represented.4 per cent. of our imports? Is not the margin between 40 per cent. and.4 per cent. the measure of our capacity to enforce respect for British interests and British subjects? I should be glad if the noble Lord would verify that figure.
LORD HENDERSON: My Lords, I was going to say that the noble Lord would not expect me to answer a question on details of that sort. I shall be very glad to look into it.
LORD VANSITTART: There is one other point I should like to put arising out of this question. The trouble began by Hungary expelling two British representatives. We then expelled one Hungarian. They now expel three British subjects and we expel one Hungarian. If we always—
THE LORD PRIVY SEAL (VISCOUNT ADDISON): My Lords, I rise on a point of order. I must point out to the noble Lord that it is against the Rules of the House to make anything purporting to be a speech on a starred question. He can only ask questions arising out of the answer.
LORD BARNBY: My Lords, arising out of the reply, do I understand the noble Lord to suggest that exports from Hungary to this country are being pre, vented? Am I to understand that the

383
existing trade relations between the two countries prevent Hungary making exports to this country?
LORD HENDERSON: My Lords, there is no trade agreement between the two countries at the present time.
LORD VANSITTART: My Lords, I was asking a question. I was asking whether it was a fact that this began by the expulsion of two British subjects and one Hungarian and then three British subjects and one Hungarian. The point of my question is this: if we continue to get the worse of the exchange, will it not operate as putting a premium on less and less respect being paid to us?
LORD HENDERSON: My Lords, I cannot admit that we are getting the worse of the exchange.

BRITISH CZECHOSLOVAK FRIENDSHIP LEAGUE
LORD VANSITTART: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask His Majesty's Government why retaliation has been enfeebled by allowing the British Czechoslovak Friendship League to continue to function.]
LORD HENDERSON: My Lords, the British Czechoslovak Friendship League is not an official Czechoslovak organisation but a British institution with British executive officers. It is therefore in a different position from organs of the Czechoslovak Embassy. His Majesty's Government consider that the Czechoslovak Government's action in suppressing British cultural and information activities in Prague, despite the terms of the Anglo-Czechoslovak Cultural Convention, has abundantly revealed their true attitude towards Anglo-Czechoslovak cultural collaboration. They trust that all British subjects associated with the League will draw appropriate conclusions from this fact. A close watch is being kept on the activities of the League.
LORD VANSITTART: My Lords, was not this the organisation from which Sir William Lawther resigned on the ground that, as he put it, it was a "stooge of the
384
Cominform"?—in which I think he was right. And was not the secretary fairly recently expelled for illicit activities? Is it not also subsidised by the Czechoslovak Government? And finally, does it not distribute an organ called Czechoslovak Life, when we have no such facilities in Czechoslovakia at all? In all the circumstances, does this really amount to retaliation at all?
LORD HENDERSON: My Lords, I have said that the British-Czechoslovak Friendship League is a British institution and I should doubt very much whether action could be taken against it unless it committed a breach of British law.
LORD VANSITTART: But, my Lords, this is still not retaliation, because they have something here which we have not there.

ROYAL PATRIOTIC FUND CORPORATION BILL
Brought from the Commons; read 1a; and to be printed.
STATUTE LAW REVISION BILL [H.L.]
Returned from the Commons, agreed to.

CROP ACREAGE PAYMENTS (ENGLAND AND WALES) ORDER, 1950
CROP ACREAGE PAYMENTS (SCOTLAND) ORDER, 1950
CROP ACREAGE PAYMENTS (NORTHERN IRELAND) ORDER, 1950
2.44 p.m.
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE AND FISHERIES (THE EARL OF HUNTINGDON): My Lords, these Orders authorise acreage payments for 1950 crops of potatoes and rye, for which similar Orders were made last year. As your Lordships will be aware, these payments form part of the system of guaranteed returns for these crops. The rates of payment are those which were announced on March 17, 1949, following the February price review. The terms of the three Orders vary in some

385
measure to meet local circumstances. I beg to move that these Orders be now approved.
Moved, That the Special Orders, as reported from the Special Orders Committee on Wednesday last, be approved. —(The Earl of Huntingdon.)
On Question, Motion agreed to.

AGRICULTURE ACT (PART I) EXTENSION OF PERIOD ORDER, 1950
THE EARL OF HUNTINGDON: My Lords, the object of this Order is to extend the operation of Section 4 of the Agriculture Act, 1947. Unless the period is extended by a year at a time by Order made by the Ministers no Order under that section can have effect after the expiration of three years from the passing of the Act; that is to say, after August 6, 1950. The only Orders so far made under Section 4 (1) of the Act have been Crop Acreage Payment Orders, and the immediate need for this Order is to ensure the validity after August 6, 1950, of the Crop Acreage Payments Orders for England and Wales, Scotland and Northern Ireland. I beg to move that this Special Order he now approved.
Moved, That the Special Order, as reported from the Special Orders Committee on Wednesday last, be approved. —(The Earl of Huntingdon.)
On Question, Motion agreed to.

MEDICAL BILL [H.L.]
Read 3a (according to Order), and passed, and sent to the Commons.

THE ECONOMIC SITUATION
2.47 p.m.
LORD CHERWELL LORD CHERWELL rose to draw attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, every Spring since the war your Lordships have been accustomed to discuss the country's economic position in the light of the Budget and the Government's Economic Survey. Unfortunately for your Lordships, it has fallen to my lot each time to weary the House on these topics. Each time for five years now my speeches seem to have run
386
on similar lines: on the one hand, a warning about the precarious state of our balance of trade, and, on the other, a warning about the danger of inflation owing to high taxes, unrequited exports, excessive capital expenditure and so on. Every year the noble Lord, Lord Pakenham, replies, with his accustomed charm and distinction, telling us how happy we ought to be about the great progress made under the guidance of the Government in the face of unexampled difficulties, and how wrong it is of me to call attention to the dangers which surround us instead of trusting the Chancellor of the Exchequer, whoever he may be.
In this respect, at any rate, the noble Lord reminds me very much of the charming air hostesses he employs, who trip up and down the gangway when the aircraft is in peril, assuring the passengers that there is nothing to worry about and that they are quite safe in the charge of their gaunt, austere pilot. Doubtless we shall hear much the same sort of speech to-day, and if it does not entirely reassure noble Lords on this side of the House, no doubt it will cheer the noble Lord's supporters, who are anxiously seeking some sand in which to bury their heads. I trust they have returned refreshed from their week-end at Dorking, and relieved, at any rate for the moment, of the fear that the Aneurism, whose ominous pulsations have recently plagued their Party, is going to burst.
Since we last discussed these questions there has been one great change: we have a new Parliament, and although the people have not entirely succeeded in shaking off their shackles, the result of the Election has evidently shaken the Government's complacency. Various petty restrictions have been lifted, as we have always advocated; the petrol ration has been doubled; points rationing has gone; steel has in the main been freed, and even Mr. Dalton has graciously consented to allow the citizens of this country to carry out trivial building operations at their own expense without first presenting innumerable plans and forms for his approval. It is true that he described this as "an experiment in freedom," and warned us that if we abused it the restrictions would be reimposed. Cromwell in his heyday would scarcely have dared to use such language. Still, I suppose we should be grateful for the kindly condescension of a Socialist Minister who grants

387
us this chance to show how well we can behave and to prove that we would never do anything that Nanny would not like.
Though the changed Parliamentary situation has brought home to the Socialist Government that they can no longer ride roughshod over the British people, it has not yet convinced them of the error of their ways in the economic field. I will begin by considering the Budget. This is, or should be, the chief instrument by which the Government intervene in the country's economy. No one can say that much has been done in that direction this year. The only real change the Budget makes is to cut income tax on all incomes over £500 a year by about £10, at a cost of some £80,000,000, and to mulct the users of petrol by a corresponding amount. We are told, of course, that this switch is not intended to help the railways, whose deficit now that they are nationalised must be rather a headache to the Government. Naturally we, take the Government's word for this, and congratulate them on the fact that the only major change in the Budget is not part of a well-considered plan—it just happens to help the railways, by a surprising coincidence.
But if the Government did not intend to help the railways, what was the object of making these changes? Both the new taxes are bound to increase the cost of transport, and therewith the cost of production and the cost of living. It is no good the Government saying that the rise in prices will be set off by the reduction in the income tax, for the drop in the income tax will help the lowest-paid workers very little, and those below the exemption limit not at all. Yet they will have to bear the rise in the cost of coal and other things, just as much as the rest of the community. A fortiori, the new taxes will handicap our exports, for we shall have to charge the foreigner more for his goods. So far as he is concerned, this will in no way be offset by the fact that the people in England earning more than £10 a week will pay less tax. And with the revival of German and Japanese competition, this may be a serious matter. Unless this switch in the burden of taxes from the income tax payer to road transport was designed to help the railways, it is difficult to see why it was made, and since the Government repudiate this, the
388
only sensible interpretation of their action, it will be interesting to learn on what grounds they justify these two taxes.
There is one other point which I cannot resist mentioning in this connection. When Conservatives adumbrated the possibility of increasing the British petrol ration a couple of months ago the Daily Herald appeared with a banner headline, "Petrol or Food?" Although sterling oil is being sold all over the place for soft currency, and indeed in some cases without our receiving any cash return at all, the Minister of Fuel insisted in acrimonious terms that we in Britain could not possibly be given any more petrol since this would cost dollars. That seems to have gone by the board, and the ration is to be doubled. The nation's vote still means something.
But what are we to think of the Government's frenzy of indignation when an increase was proposed by the Conservatives? I do not complain in the slightest about the doubling of the British petrol ration—I believe that it was long overdue. What I do complain about is that Ministers should say one thing one day and do exactly the opposite the next. The country was deeply shocked last year that leading Government spokesmen should have denied categorically that there was any prospect of devaluation and then brought it into effect a few days later. Their behaviour concerning the petrol ration is another instance of the same sort of thing, on a much smaller scale of course, but with far less excuse. One used to be able to take Minister's words at their face value, but like our currency they seem to have been devalued in the last few years.
The only other point in the Budget which calls for comment is the retrospective clause which has the effect of imposing a fine of something like £100,000 each on two individuals who had entered into a perfectly legal financial agreement with the firms who employed them. Whether it was desirable or proper to make these arrangements, is neither here nor there. By common consent they were within the four corners of the law, and it is a most dangerous precedent, especially on such a trivial matter, to punish individuals retrospectively for actions which were perfectly legal when they were committed. As the noble Lord, Lord Winster, has pointed out,

389
this action flagrantly contradicts the Declaration of Human Rights. Life will become intolerable if everybody has to regulate his actions, not by the letter of the law but by reference to what someone may think ex post facto would have been proper. What would the Minister say if a new Government, retrospectively disallowed expenses and demanded payment of income and surtax? What seemed to me particularly nauseating was that this special clause was the only one which invoked an enthusiastic burst of applause from the Socialist Benches. Unlike Macaulay's Puritans, people with that sort of mentality would probably have approved of bear-baiting, just because it gave pain to the bear.
As usual, Socialist speeches in the Budget debate were punctuated with the irrelevant and misleading phrase "our policy of full employment." Every intelligent man knows, and every honest man admits, that this is the policy of all Parties. Equally, everybody with the intelligence quotient of a boy of five knows that the full employment which the country has enjoyed since the war is not due to any act of policy of the Government but to the fact that demand everywhere outstrips supply; and nothing could have prevented it except the failure to obtain the raw materials that we require. And from this failure we were saved, not by any stroke of policy but, on the Government's own admission, by the generous gifts and loans which were received from the United States and the Dominions. If we attack Socialism it is precisely because we believe that their policy—or rather their conduct, for it is difficult to discover in their actions anything coherent enough to call a policy—may end in our not being able to buy raw materials and thus bring about widespread unemployment. It is because we desire to maintain full employment that their flounderings cause us so much anxiety.
Let us glance at the Government's own estimate of what they are pleased—I suppose they are pleased—to call their policy. The Chancellor who I understand is considered by noble Lords opposite, to enjoy the special confidence of the Almighty, has himself described it. He said:
"Ever since the war we have tried to overcome our difficulties Sy a series of expedients which led to a series of crises as each expedient became exhausted."
390
Is that a policy? It is more like a sort of undulant fever, and one very exhausting for the patient. Government speakers oscillate so violently in their appreciation of the situation that lucid discussion is by no means easy. When things go wrong they are in the depths of despair and warn us of the danger of a tragic fall in our standard of life, and of widespread unemployment, and that our civilisation may fade and wither away. When an Election impends, or if the immediate danger seems to have passed, they go gay and tell us that there is no crisis—as the noble Viscount the Leader of the House did last week or a fortnight ago.
In February last year the Government spokesman told us to stop talking about Britain's recovery; that we had long passed that stage. He said:
"We are no longer interested in recovery but in new social and economic experiments."
A few months later another Government spokeman told us in lachrymose tones that it was a time of "supreme gravity"; that it was impossible not to feel disheartened after what we have done that we should again be facing such grave difficulties. He said:
"I hope you will forgive my emotion. We are at such a critical stage."
I suppose that is what Hollywood calls "the tear behind the smile." But this sort of hysterical instability, Himmelhoch jauchzend zu Tode betrubt, makes serious analysis rather difficult. Surely from a Government of planners we might expect some sort of consistency, some sort of endeavour to remove the fundamental disharmonies which they have created instead of piecemeal attempts to cure the symptoms by a succession of expedients.
Let me turn to the Economic Survey. There is a note of disillusionment about this year's Survey. Gone is the fine fresh enthusiasm with which the earlier numbers pretended to plan our future, distribute our man-power, allocate our materials and set us tasks or targets for the year. True, the Survey probably had to be drafted before the Election, which must have made things rather difficult for anyone not mentally ambidextrous. And all the Government had time for was to give themselves a pat on the back in italics in the final paragraph. This may be why the Survey is little more than a record of what has happened. Even this

391
record is not easy to disentangle. The man-power targets so hopefully set in the earlier issues do not seem to have been achieved, and apparently the Government have given up hope of achieving them. Admittedly, the progress made in providing labour for the under-manned industries is difficult to discover from the digest, so that it is not possible to be certain. This, I think, gives rise to just cause for complaint. Your Lordships may remember my mentioning last year that a new table had been inserted in the digest in which all the man-power categories had been changed. I expressed the fear that this might presage the disappearance of the old table, so that what had really happened would be hidden from public view. I understood the noble Lord to say that the old table would be continued parallel with the new. But, not for the first time, I was right and the noble Lord was wrong. The old table has vanished, and the well-known statistical device of changing all the categories has once more been allowed to cloud the issue.
Very properly the Survey bases its calculations upon the national production. Comparison between one year and the next may, I hope, not be too far out. And by selecting as the starting point the year 1946, when many men were still in the Forces and industrial production was only just turning over from war to peace, the Government have been able to give an impression of rapid progress. But I am glad to find that Government speeches are marred less often than they used to be by figures like 128 per cent., 135 per cent., and so on, purporting to give an exact comparison between present-day and pre-war productivity. They were based on a pamphlet from the Central Statistical Office which began by saying:
"It is impossible to obtain an exact measure and difficult to obtain even a rough idea of the comparative level of production before and after the war."
It is a pity that Government spokesmen who insisted so often on the accuracy of these figures should have overlooked this vital qualification.
No doubt your Lordships will have seen a very able analysis of this question by Professor Devons in Lloyds Bank Review, in which he shows that productivity figures varying from 105 per cent. to 124
392
per cent. may be derived with equal validity for production in 1949, compared with 1937, according to the weighting of the categories and so on. Having regard to the drop in productivity in mining, building and other industries, where it is easy to get a fairly accurate comparison, I am regretfully inclined to think that the lower figures are more likely to be correct. For certain pre-war periods, of course, we can measure the rise of national productivity with reasonable accuracy; and in the eleven years between the census of production in 1924 and 1935 we can make a reliable comparison. Despite the coal strike in 1926, and the slump in the early 1930's, productivity in this period went up by 34 per cent. But as all this happened during the so-called terrible years of Tory misrule, when the wicked capitalist was supposed to have swallowed all the profits and to have failed to re-equip his factories, when he is supposed to have restricted output in order to raise prices and so on, noble Lords opposite may prefer to forget it.
I will not detain the House many minutes discussing our general trade balance. The Chancellor congratulates himself that the total value of our exports in 1949 was within 10 per cent. of the value of our imports. But it would be sad if it were not so, seeing that more than 10 per cent. of them were given away. He boasts that our export prices are still fully competitive. After a 30 per cent. depreciation it would be strange if they were not. But he recognises, as we all must, the resurgence of the German and Japanese competition, and the dangers that this brings in its train. On the whole, however, the trade balance, like the political balance, shows a welcome improvement. We are still, unhappily, slightly "in the red." The Chancellor hopes to reverse this mischance—at any rate in the economic field: I do not know about the political field—before the next Budget. I am sure we all agree in congratulating management and labour, and all concerned in the export drive, on their great efforts.
The invisibles, as usual, require some elucidation. I have often pointed out the error so persistently repeated, that the fall in our invisible exports since the war is due to the sale of our foreign assets before Lend-Lease took effect. Actually, barely a quarter were sold; and the fall

393
in our dollar income due to this was very small. The deterioration in the position is mainly due to the extra interest we have been paying on the so-called sterling balances and, to an even greater extent, to the gigantic increase in Government spending abroad. Between 1945 and 1948 this last item had shrunk. But in 1949 it rose by £53,000,000 to £231,000,000, if we discount the non-recurrent war disposals which only confuse the issue. This is an ominous sign, which augurs ill for our future invisible balance. Once again we are mystified by the item headed "Other (net)." In 1947 it was £32,000,000; in 1948, £107,000,000. In 1949 it is given as £152,000,000. These are rather large sums to be treated in this cavalier fashion. Can we expect this welcome rise to continue? It is extremely important to know. Last year's figure was four times as big as the loss on receipts from interests, profits and dividends, about which we hear so much. I hope the noble Lord will be able to reassure us about this and tell us that the prospects are good.
I now turn to the economic condition at home. I realise how much noble Lords opposite like potassium oleate—I am sure they prefer the chemical formula to the vulgar term "soft soap." I regret that I am unable to offer the Government that warm meed of approval which they seem to expect the Opposition to ladle out to them. We all agree, I believe, that one of our principal objectives all along has been to avoid inflation. In war time, of course, this was very difficult. Everybody who was not positively bedridden was at work or in the Forces. And practically everybody was working overtime if his health permitted. In the last war, over 40 per cent. of the national effort was devoted to defeating the enemy. Consumer goods, therefore, were very scarce and in great demand. Yet in the last four years of the war the purchasing power of the pound fell less than in the first four years of peace. It really is rather shocking that the rate of inflation, which had risen only 4 per cent. a year between 1941 and 1945, should have risen at a rate of 5 per cent. a year between 1945 and 1949. And this applies only to retail prices. Wholesale prices have increased even faster. It is certainly not very reassuring that Socialist Chancellors in peace time should have been
394
less successful in resisting inflationary pressure than Conservative Chancellors during the war.
One of the things which has contributed greatly to the inflationary pressure has been the Government's vast capital expenditure. Everybody agrees that capital expenditure which tends to increase output is good, provided it does so within a reasonable period. Conversely, capital expenditure may be inevitable where there is a crying need—as, for instance, for houses to-day. We heard a good deal about housing in the 1945 Election. The Socialists were going to show us how to set about it; they were going to solve the problem in no time. Sir Stafford Cripps claimed that the housing problem would be clarified within a fortnight. Mr. Strachey said:
"A Labour Government is the only one that will get you that house."
Mr. Greenwood said:
"You want a home—Labour will do the job."
Even as late as 1946 Aneurin Bevan said:
"I give you this promise: that by the next General Election there will be no housing shortage."
Contrast these optimistic promises with the miserable performance. After five years of undisputed power, the building rate is scarcely half the rate achieved by private enterprise without any of this parade of drive and efficiency. And the waiting lists for houses are longer than ever.
It is astonishing whit what complacency the Government regard this failure. They actually planned to cut this derisory building programme this year, and no doubt would have done so had they been returned with a working majority and were it not that another appeal to the country has become inevitable. The housing fiasco is explained, I think, partly by the Minister's doctrinaire insistence that houses should be built only by the local authorities, with all the complications and red tape that this involves, and partly by the terrific rise in man-hours needed to build a house, as revealed by the Minister's own working party in their recent report. To pretend that the proposed cut was made in order to reduce capital expenditure is not convincing, as the whole of the housing programme accounts for less than one-fifth of the planned capital investment.
Though we all approve investment calculated to increase output, I wonder whether proper consideration has been given to all the factors involved. Everywhere one hears of new machinery capable of saving labour being installed which the workers refuse to use lest it lead to redundancy. Only the other day, I was told about a machine in the dockyards which enabled one man to do the work of eight. In fact, one man was working it, and seven were sitting there looking on. Your Lordships will have seen the reports of the difficulty a tobacco firm had recently merely to get a new labour-saving machine tried in their factory. Capital expenditure on new labour-saving machinery which does not save labour is really not profitable.
The same sort of argument applies to the factory buildings which are being put up in what used to be called distressed areas. To diversify industry in these regions so that when there is a slump in heavy industry employment can be provided by other industries in the district is excellent in theory; but have the Government assured themselves that it will work in practice? Will the trade unions allow men to transfer from heavy to light industries in this way? Will the men agree to be transferred? I hope the Government have examined these questions before investing such a large part of the national effort in these buildings. Experience at Moston Colliery, where the Coal Board planned to transfer a few hundred workers from one pit to neighbouring pits, is not reassuring. It is always easy to make out an excellent case for expenditure, but unless a strict check is kept upon the enthusiasts—like the threat of bankruptcy in private enterprise—their enthusiasm is apt to get out of hand. And excessive capital expenditure is a potent cause of the inflation we all are struggling to avoid.
The staggering rate of taxation is one of the worst features of the Budget. Even more depressing, however, is the fact that this year, for the first time, I think, the Socialists have come into the open and admitted that they do not ever expect to reduce it. People are not allowed to do what they like with their earnings. Eight shillings in every pound is taken away from them and spent by the Government. "The gentleman in Whitehall knows
396
best," as Mr. Jay said. I really wonder that people put up with it. I doubt whether they would do so if they knew what was happening. Since the war, the Government have taken nearly £20,000,000,000 from the taxpayer and spent it—that is, £1,800 from each family in the land. I wonder whether they think that they have had value for money? Government supporters have been taught to find their emotional satisfaction not so much in what they get as in what they can stop other people having. Under the hypocritical slogan "fair shares," they march into battle not knowing exactly what they seek, but happy in the thought that they can punish and destroy people who have been more successful than themselves in building up the country's industry and trade. They resent anybody being rewarded for contributing to the material welfare of the country. Curiously enough, this resentment does not extend to crooners, boxers, entertainers or anyone of that sort. A man who has built up a great business, giving employment to tens of thousands of men, is pilloried as a profiteer if he gets £20,000 or £30,000 out of it in a year. But a film star or entertainer, who may make six times as much, is feted as a hero.
This mentality seems even to have spread to the Treasury. It is very hard to get permission to change a few pounds into dollars in order to buy American scientific instruments, or worse still to visit an American university. But boxers or entertainers from across the Atlantic are paid hundreds or thousands of pounds a week, and presumably they are allowed to take a good part of it back in dollars. Only the other day I saw that a lady had landed here who specialised in "Leering Lyrics." I should not have expected this to appeal to Sir Stafford Cripps, even though her manager boasted that she had "the trimmest midriff on Broadway." But I suppose it is no use looking for logic in the Socialist philosophy. A particularly vicious, and for that matter foolish, aspect of our enormous taxation is that it seems deliberately designed to prevent great industries from being created. Private individuals are prevented from accumulating any capital by prohibitive taxation of income, enormous death duties, one-time levies and the like. Anyone wishing to develop a new idea knows that if he makes a profit it

397
will be taken away, and if he makes a loss he will be left to bear it. Great concerns like the Nuffield and Austin works could never have been built up under our present system, when even capital ploughed back into the business is heavily taxed. Yet it is on these businesses and their like that we rely for the greater part of our exports.
The Government, of course, take the view that expenditure is a fixed datum and that taxation must be adjusted to meet it, no matter how harmful in the long run. It is a line of argument that has landed many people in the bankruptcy court. When challenged, the members of the Government have evolved a standard but rather elementary gambit which they have all been trained to employ. They say, "If we are to reduce expenditure, tell us what to cut." Such would-be slick methods are, of course, merely intended to fool the electorate. Ministers are clearly not genuinely seeking ideas; they are merely trying to lead us on to say something they can exploit against us at an Election. Shareholders who see that their board of directors are making a mess of things and losing money are quite entitled to tell them to cut down expenditure. If the board replies, "It is for you to ten us where," the shareholders at the next annual meeting would throw them out, for clearly nobody could reply to such a question who had not,been given full insight into the books, allowed to see the wages sheets and the costing accounts and all the details of the business, Yet it is with this absurd gambit that the Government always try to confront the Opposition. Sometimes, even without seeing the books and knowing all the details, it is still possible for the shareholders to discover, from the small day-to-day transactions they can observe, that a business is being run in a wildly extravagant manner. That is our position. All the minor details of administration display an outlook in which economy evidently has no place, and we do not believe that people who are penny foolish are therefore pound wise.
A few days ago we were told in a letter to The Times that three grown-up women were sent down to inspect an infants' school containing fifteen children—one from the Home Office, one from the Ministry Health and one from the Ministry of Education. After a full day's
398
inspection, it seems they recommended that the children should not be told to put away their toys in evening, that they should be allowed to have meals whenever they liked and that they should not be taught to say "Please" and "Thank you." Well, that may be the way to make good Socialists—I do not know. But I do know that it is a way to waste the taxpayers' money. I will refer to another small instance. Not long ago a woman was sued for helping out her neighbours by giving or lending them a pound of tea, and her husband was accused of aiding and abetting (her in this terrible offence. The magistrate, I am glad to say, dismissed the case. But the fact that officials were encouraged or allowed to waste their time and the country's time about such a trumpery matter shows how little regard is paid to economy in Government offices to-day. If this is the sort of mentality that pervades the Civil Service, it explains why there are nearly 2,250,000 people in Government and local government employ, and it certainly justifies us on our side of the House in believing that great economies could be made, if this extravagant outlook could be altered.
The great change that has come over the picture since last year has, of course, been the devaluation of the pound from 4 dollars to 2.80 dollars. Up to the end of July last year we were assured by Government spokesmen that devaluation would be disastrous. After September 23, it was represented as a great stroke of policy. We are now in a position to examine a little more closely whether it has helped us or At first sight, any normal person would judge that an act which compelled us to pay 43 per cent. more pounds for our dollar imports whilst giving us 30 per cert. fewer dollars for goods we export to dollar markets must be most deleterious to a country which is in deficit with the dollar area. And in most respects the normal person would not be far wrong. The Chancellor boasted that in the first quarter of this year we had earned more dollars than in the quarter before devaluation, but that is a misleading comparison, Apart from seasonal variations, the dollar earnings in the quarter before devaluation were low because people held off buying, expecting devaluation. The proper comparison is between the first quarter of this year and the first quarter of 1949, and

399
that comparison is anything but reassuring. In the first quarter of 1950 it seems that we exported £45,600,000 worth of goods to the United States and Canada as against £36,000,000 worth in the first quarter of 1949. This looks splendid. The tragedy is that we received only 128,400,000 dollars for these goods in 1950 as against 143,700,000 dollars in 1949.
It is difficult to estimate the effect of devaluation on the sums we received for raw materials whose prices in dollars changed in the interval. As might be expected, Scottish exporters seem to have managed to maintain the old dollar prices for whisky, which accounts for nearly one-tenth of our dollar earnings. But we seem to have sold our manufactured goods, the great bulk of our exports to the dollar area (probably over three-quarters) at the old sterling prices; so that since devaluation we have had to export over 40 per cent. more labour and worked-up raw material than before for every dollar we received. In other words, as far as manufactured exports to the dollar area are concerned, in order to earn a given number of dollars we have to-day to do ten hours' work as against seven hours' work before devaluation.
Even more disastrous, because more widespread, has been the general worsening of the terms of trade by 10 per cent. since devaluation, which the Chancellor himself announced. This applies not only to our dollar imports but to all our transactions. Here we can see what happened and what awaits us. In the first quarter of 1950, we exported over 10 per cent. more by volume than in 1949. But the terms of trade have gone against us to the extent of 10 per cent. All our efforts, the devoted work of management and men, which resulted in our increasing our exports by one tenth, have not given us any increased imports. For our exports in 1949 we received £1,790,000,000. In order to get merely as much next year as last year (and the Chancellor is banking upon getting £120,000,000 more) we shall have to export £180,000,000 worth more goods—the output of some 200,000 men. Nor could the Chancellor even promise that this was the end. Could anything be more deplorable? Is this the last word in Socialist planning?
How is it, then, that the Chancellor was able to tell us that in the first quarter of this year the dollar gap had been closed. The Government, I hope, will give us a quantitative explanation of this pleasing phenomenon, but in the meanwhile I will hazard my own provisional interpretation. The noble Lord will no doubt correct me if I am wrong—and very likely if I am right. In the first place, I imagine that the import cuts from the dollar area which were imposed last autumn are beginning to take effect. That naturally is an easy way, though not a very comfortable one, to save dollars. Apparently, the cuts since 1948 amount to 900,000,000 dollars a year, almost equal to our 1949 deficit of 1,084,000,000 dollars, nearly twice the value of our earnings. Probably it was far the most important step on our road to achieving a balance. But it could have been taken without devaluation.
In the second place, I suppose the Americans, as arranged in the Conferences in Washington, had resumed buying raw materials from the sterling area; and the increased demand has pushed up the price. How much of this demand was for stock piling and how much of it will continue year in and year out the Government ought to be able to estimate. And I think the country ought to be told; otherwise we may again find ourselves landed in trouble, with the excuse that it is all due to a recession in American demand. From the published figures, we are able to follow the rise and fall and balance of United Kingdom imports and exports to the dollar area. We can only infer the corresponding figures for the sterling area as a whole. I should like to ask the noble Lord, Lord Pakenham, to give us figures for the last few years showing the imports and exports of the various parts of the sterling area, and if possible of the O.E.E.C. countries, to the dollar area, and to tell us how they compare with pre-war times. It will be impossible to discuss all the extremely important and promising proposals for European union, as the House will no doubt wish to do in the course of the summer, unless we know the details of the balance of payments of the various sterling area countries with the E.P.U. nations.
The third effect of devaluation, and in my view the only useful one, is the reduction which it seems to have caused in

401
the demand from the rest of the sterling area for dollar goods. Notoriously, the United Kingdom has always had an unfavourable dollar balance. Before the war this was made good by the gold and dollars we received in return for our exports to sterling countries outside the United Kingdom. Since the war, these sterling area countries, far from having a gold and dollar surplus have had a deficit. Instead of being a help to the United Kingdom in its dollar transactions they have become a burden. At first sight this would seem difficult to explain, but the reason, according to my information, is not far to seek. I am told, though it seems hard to credit, that ally country in the sterling area, which has been authorised to draw upon sterling, could use such drawings without restriction for dollar purchases. If so, this would explain the enormously increased purchases by the sterling area from America. For, as I shall show presently, we have released hundreds of millions of sterling balances which ought to have been blocked until long-term arrangements had been agreed. This is one degree worse than unrequited exports. It means giving countries, many of which we saved from the enemy, a free hand to run us into dollar expenditure for which the United Kingdom receives nothing in return.
In so much as it caused countries in the sterling area to reduce their demand for dollar goods devaluation has had a good effect. If the Government insisted on releasing these vast sums in sterling from the blocked balances without setting any limit to their use for dollar purchases, the rise in the price of dollar goods caused by devaluation has at any rate discouraged expenditure in the dollar area. In no other respect, so far as I can see, has it helped our dollar balance. But to achieve this advantage we in the United Kingdom have had to pay a heavy price. For we have to work much harder to pay for our own direct imports, not only from America but from the rest of the world. We have to do ten hours' work instead of nine to get the same amount of goods. This is a grievous burden to endure merely in order to induce countries with dubious claims from the war period to take unrequited exports from us instead of buying dollar goods and leaving us to foot the bill.
Some Government spokesmen, of course, say that whether devaluation was
402
good or bad is beside the point; it was inevitable; it was simply the recognition of existing facts. But is no one responsible for these facts? Did they just happen? This is a queer conception of democratic planning. What were these so-called facts? Quite simply, that people the world over were not prepared to give four dollars for £1. One reason—probably the main one—is very simple. People did not need pounds sterling to pay for our British goods. One reason for that was that we were giving away our manufactures in the form of "unrequited exports." This was one of the main facts in question. It was not a sort of act of God; it was the result of the orders of the Socialist Government. That this was one of the main causes of the weakness of sterling is clear. In 1949, we are told, our overall trade was in balance. With the dollar area, of course, we were in deficit. Therefore we must have had a surplus with the sterling area. Hence, by all rules of economics, sterling should have been a hard currency in strong demand in the sterling area. As I have said, this was not so, simply because the world had been flooded with sterling, in large part by the direct action of the Socialist Government.
I will not weary the House by explaining once again why we should have blocked these balances at the end of the war. I have stated often enough that they rose to these vast heights in the main because work done in countries we were defending, which these countries should have shouldered themselves, was charged against us; because the contracts were often placed by the local authorities at extravagant prices; aid because the costs were converted into sterling at pre-war rates of exchange, although the currencies in question were usually grossly inflated. Instead of blocking them, scaling them down, and setting off our counterclaims, the Government seem to have accepted at their face value all the sterling claims without further examination. And instead of funding what remained on reasonable terms, the Government evidently released enormous sums out of hand and, apparently, paid interest on the rest at something like 2 to 2½ per cent. This improvident behaviour is in large part the cause of our difficulties. Moreover it continues. More and more of these "phoney" balances are unblocked. In 1948, apparently, £1,600,000,000 were

403
blocked and £1,750,000,000 were free. Last year, another £250,000,000 were unblocked, so that we may be called upon to pay £2,000,000,000 at a moment's notice. How can we expect to return to stability with such an incubus overhanging our economy?
In the two and a half years from June, 1947, to January, 1950, as Mr. Harrod has shown, over £460,000,000 was pumped out by these releases of these sterling balances and the interest paid on them. This can have been done only by the authority of the Chancellor. The responsibility, therefore, lies squarely on the Government. And I do not suppose that they will seek to evade it, for they boast that since the war they have given or lent £1,500,000,000 from United Kingdom resources. The extraordinary thing is that these vital, or perhaps I should say fatal, decisions could have been put into effect without Parliament being allowed any opportunity to discuss them. When one remembers the weeks and months of debate in Congress which precede the granting of their generous gifts and loans, it is quite amazing that actions of such magnitude and importance can be taken in this country—for compared with the national incomes of the two countries, the figures in question are comparable—without Parliament or the public being allowed to know what is happening.
These sterling balances which overhang the whole of our economy are so important that I must press the noble Lord to give the House a list of the major items, say those over £10,000,000, stating how much was blocked, how much has been released or promised for release, how much they have been drawn down and how much interest, if any, has been or is being paid. Quite apart from these sterling releases, hundreds of millions of pounds seem to have been transferred from the United Kingdom to the rest of the sterling area. This happened not because the Government decided to do it, but simply because people do not like to invest their savings in enterprises which are liable to be hampered by Socialist interference or even seized and nationalised by a predatory Government. Exchange restrictions prevented a flight from the pound, but nothing could stop the flight of sterling from the United
404
Kingdom to other parts of the sterling area. The noble Viscount the Leader of the House told us last week that we must expect Socialist Ministers to be Socialists. Of course we do. By the same token we expect mad dogs to be mad. What we deplore is that they seem to be incurable. Similarly, we must expect capitalists to distrust Marxists. Whether or not they should do so is beside the point. They do and always will.
As Mr. Harrod has shown, something like £470,000,000 seems to have been moved out of the United Kingdom in this way in the last two and a half years. Together with the sterling releases, therefore, over £900,000,000 has been pumped out into the world within thirty months without any solid return. No wonder the sterling area could afford to take our exports and thus produce the surplus of which Ministers boast, without of course emphasising that we supplied the pounds to provide it! No wonder that, despite this export surplus, sterling became a soft currency for which there was no demand! This is the principal reason why sterling had to be devalued, despite the obvious disadvantages of this course of action. It was not a proud result of planning. It was just the result of lack of foresight.
For the time being there is no denying that our economic future lies almost entirely in the hands of America, and unless we can not only bridge the dollar gap by 1952 but earn a surplus to service our dollar debts this dependence will persist. America seems to have four choices. She can cut down exports, to the detriment of her exporting industries. She can continue to export and accept imports in payment—a course which will meet with resistance from her industries manufacturing for the home market. She can continue to send exports abroad as gifts, as she is doing now, a course which spreads the burden over the whole community, which pays in the form of taxes. Or, lastly, she can continue to export and postpone her claim on debtor countries by investing her credits there. This is what we did in the nineteenth century and in many ways it would be the healthiest way of dealing with the dollar gap. The trouble, of course, as I have said, is that capitalists very naturally hesitate to entrust their money to a country dominated by Socialist economics. And this is one of the main reasons why I think the

405
position would be eased by a change of Government.
Economically, the country is to-day in a more vulnerable state than it has been in all its history. Before the war our gold reserves were sufficient to pay for more than nine months' imports. The loss of £100,000,000 or £200,000,000 was nothing to worry about. To-day our gold and dollar reserves would barely pay for three months' imports. The smallest efflux brings us to the edge of risk. The reason we have got into this position was clearly stated by Mr. Attlee. "We have tried," he said "to do too much." That is the real origin of our troubles; it is this fatal Socialist habit of embarking on projects without making sure that we have the resources to undertake them. In many cases it is because their emotions dominate their intellects; their hearts rule their heads. In private life this is an amiable thing, but in public administration it is most dangerous. "The worst of madmen is a saint run mad.
As the Survey very honestly points out. everything depends upon a number of contingencies. The first is that production should rise by 2½ per cent. We must hope that, despite restrictive practices and the lack of incentives, this may occur. The second is that savings may increase by 25 per cent. This can happen only if the trend towards a fall in profits is reversed, and if restraint is practised on private spending—Government spending, of course, no one dares to touch. The third is that our prices should not rise and that goods should remain competitive with German and Japanese production. This requires that wages should not rise faster than output. The fourth is that there should be no deterioration in the terms of trade. They have fallen more than 10 per cent. in the last year. We must hope they are now stabilised. The fifth is that America should continue prosperous. This is most important, for any slackening in American demand for raw materials means a general fall in prices, as well as in sales.
If all these requirements are fulfilled, the Chancellor of the Exchequer reckons that we shall be able to increase our exports by the 18 per cent. needed to give us a surplus of £50,000,000, despite the worse terms of trade. The reward we are offered, if all these provisos are happily fulfilled,
406
is not very enticing. Everything is earmarked for one purpose or another. The Chancellor said explicitly,
"There will be no margin whatever for increases in personal consumption."
So that is what we have come to. If all our hopes come off we may just about be able to hold our own. I suppose it is what we might have expected. Every year for the last four years we seem to have been told at some season or another that we are just rounding the corner. Well, of course, after you have rounded four corners you are pretty well back where you started from—at any rate if you Keep Left!
I cannot believe that the noble Lord, Lord Pakenham, can feel proud of this result of five years of Socialist planning when he compares our state with that of other countries. Our economic strength and stability used to be the envy of the world. Now we have been reduced to such a pass that unless all these independent contingencies come to pass we shall experience a grave fall in our standard of life. Never has our situation been so vulnerable. Never before have we depended so much upon events over which we have so little control. Even though many of us consider that the Government have contributed largely to the difficulties which face them, we wish them well in the anxious task ahead, and all of us, I am sure, will bend every effort to retrieve the position and to try to regain for our country the economic independence and security which we used to enjoy in the past. I beg to move for Papers.
3.47 p.m.
THE MINISTER OF CIVIL AVIATION (LORD PAKENHAM): My Lords, the House will have recognised many qualities in the comprehensive address to which we have just listened—the original wit, the industry, the untiring tenacity and that combination of personal urbanity with political fanaticism which makes the noble Lord so lovable a figure in the life of your Lordships' House. I recognised towards the end in the last sentence something that I can almost agree with, but that was a drop in the ocean. One thing that none of us on this side recognised, and I should fancy very few not directly associated with the noble Lord will have recognised, was any picture of Britain to-day or of Britain over the last twelve months.

407
The noble Lord has asked whether I am proud of the Government of which I am a humble member. The answer to that is emphatically, "Yes." I am proud of the achievements of this Government and I am proud of what the British people have achieved under the present Government. While the noble Lord kept most of his purposes up his sleeve, as he is fully entitled to do, he did give me advance notice of two points. The noble Lord differs in that respect from the noble Viscount, Lord Swinton, whom we are glad to see back with us to-day. The noble Lord sent me a list of questions about sterling balances. The answers are rather detailed and unless he insists on having them now I should prefer to write him a letter on the subject, because the answer to some of his questions is "Yes" and to some of them "No."
VISCOUNT SWINTON: My Lords, this is a very important subject, upon which as yet we have had no detailed information from the Government. If it is to be dealt with in an epistolary manner, may it be done by Written Question and Answer, which will appear for all of us to read?
LORD PAKENHAM: I have no objection at all to the course suggested by the noble Viscount. I am afraid I have much to say and it would take some time to give the answers in detail now. I would say at once that while we shall be able to give the noble Lord some information all of which may have been disclosed already at different times, we shall not be able to give him the individual amounts of sterling balances held by different countries, for reasons stated in public on more than one occasion. I would say this about sterling balances. As the whole House knows, discussions are still going on in Washington, and in the circumstances I do not know that anybody, least of all those who have just returned from the United States, will wish or expect me to gay anything definite. But we entirely repudiate the attitude of the noble Lord in this matter. We repudiate the suggestion that these sums were paid out without any proper attention or care—that they were, as it were, just thrown to anybody who happened to want them. There has been nothing of that kind. I would place this thought before the noble Lord and other members of the House
408
who are so concerned, as we all are, about the Empire and about resistance in Asia to Communism, which is a very present threat in these days. The payment of these sums has played a vital part in restoring life in many parts of the world, and particularly in Asia, and it is difficult to measure the disasters that would have occurred if some such sums had not been paid out during that period.
LORD CHERWELL: I am suggesting merely that Parliament might have had an opportunity of discussing and considering those payments.
LORD PAKENHAM: We have been having debates on these topics for five years now.
THE MARQUESS OF SALISBURY: If I may say so, the noble Lord has said that he could not give any of the detailed figures. We feel that Parliament and the British people ought to know those figures.
LORD PAKENHAM: I appreciate the point put by the noble Marquess, but, if I may say so with respect, it false to suggest that it has been impossible for Parliament to discuss the issue. I can say now that the largest individual holders are India, Australia, Egypt, various Commonwealth territories and the Irish Republic. These facts have been fairly well known for a long time, and it has been perfectly possible to discuss them on a number of occasions when questions have been put in this House and elsewhere.
The noble Lord was good enough to give me notice of another question he wished to raise. He said that he would ask this afternoon for figures of trade between different parts of the sterling area and O.E.E.C. countries, on the one hand, and the dollar area on the other. I believe that this afternoon the noble Lord further asked for a comparison with pre-war figures, but I cannot remember off-hand whether he gave me notice of that question. What I have to say does not apply to such a comparison with pre-war figures, which may not be possible. The noble Lord will appreciate that the figures for which he asks refer in the vast majority of cases to trade between independent Governments, and that His Majesty's Government are not directly responsible either for the preparation of

409
the figures or for their authenticity. In fact, there is nothing I shall be able to tell the noble Lord that cannot be secured from a study of the Canadian and United States figures already published, or from the Report on Overseas Trade published monthly by the Board of Trade. However, as the noble Lord is of such eminence, and as he has been good enough to give me notice, I will make sure that certain extracts which have been prepared from those documents are communicated to him. As distinct from what I was saying about the sterling balances, the Government cannot take responsibility for those figures. Therefore I must communicate them to the noble Lord, or to any other noble Lord who wishes to have them, without accepting responsibility.
LORD BARNBY: Since all these figures from these countries have recently been published in the financial Press, is it to be understood from the noble Lord's refusal to indicate that they will be published officially that the financial Press have published them inaccurately?
LORD PAKENHAM: Not at all; but we cannot take responsibility for the figures published by other Governments or for the deductions drawn from them. I do not feel that any difficulty will arise over this matter. If the noble Lord, when he has seen these figures, feels that I am being unduly careful, I am perfectly ready to talk over the matter with him. But I should not think that this question, whatever may he the position in regard to others, will be one on which we shall find ourselves in disagreement.
LORD BARNBY: I apologise for interrupting the noble Lord again, but in view of the importance of the matter to overseas countries with whom these balances are in question, is it not advisable that a démenti should be published?
LORD PAKENHAM: I am afraid that I have not made myself plain. The noble Lord, Lord Cherwell, is asking me to collect these figures that have already been published by various countries and pass them on to him in a convenient form. I am quite ready to do that, but clearly His Majesty's Government, as noble Lords will appreciate, cannot take responsibility for those figures. I shall be delighted to discuss the issue with the
410
noble Lord, Lord Cherwell, or the noble Lord, Lord Barnby, and I do not think there will be any difference whatever, between us on this point.
Before dealing with the figures for last year (and I want to deal particularly this afternoon with last year, because we have dealt with the last five years so often in this House) I wish to submit to the House six propositions which, to the best of my belief, summarise what has occurred in this country since the war. I feel that the first four must, on reflection, be regarded as incontrovertible statements of fact; but the last two are undoubtedly more controversial, and noble Lords are entitled to their own opinions regarding them. First of all, Britain has been afflicted by severe economic handicaps compared with pre-war, through no fault of our own. Secondly, the dollar gap—again arising through not fault of our own—has been the harshest of our problems. We must continue to strain every nerve to close it by 1952, when Marshall Aid comes to an end. Thirdly, in the face of immense difficulties, our people have done much better than before the war. We have maintained full employment and a very high degree of industrial peace; we are producing much more than ever before; the standard of life of the great mass of the people has been considerably improved—the most extreme forms of poverty have been virtually abolished—and,at the same time (I will return to this in more detail later on), we have added substantially to the real capital wealth of this country in catching up with the destruction and dilapidation caused by the war. Fourthly—and I am still dealing with what should be beyond argument—the policy of the Government has been distinguished throughout this period through certain novel principles, some of them non-controversial.
But the two fundamental principles, whether or not noble Lords opposite agree with them, have been those of planned economy and fair shares for all—that is to say, a much more equal distribution of wealth. The noble Lord chuckles—I could almost use a less attractive term. We do not chuckle over the idea of promoting social justice in this country. We do not chuckle over the fact that before the war one man in every seventy owned as much wealth as the other sixty-nine put together—and I am using very conservative figures in that

411
comparison. We do not chuckle over the fact that we are doing a great deal to mitigate that gross inequality.
LORD CHERWELL: For elucidation, would the noble Lord tell me what is the difference between social justice and ordinary plain justice?
LORD PAKENHAM: Yes. I should say it was the difference between social credit and credit
LORD CHERWELL: Exactly—that is a very good comparison.
LORD PAKENHAM: The point about social justice is that it means a juster distribution of the national wealth.
LORD CHERWELL: At the expense of ordinary justice.
LORD PAKENHAM: I cannot conceive why the noble Lord should say that. I am afraid I have a long speech to make, and I hope the noble Lord will not keep up his intermittent commentary. "Social justice" is a term which I should have thought was well understood in all Parties. I should have thought there was a difference between Parties about how you secure social justice, but to begin quibbling at this time of day as to whether there is such a thing as social justice seems to me to be fantastic. If I may return to the comparison, the noble Lord has made a number of rather odd statements about our mentality—what was it, an intelligence quotient of a child of five years?
LORD CHERWELL: I would give the noble Lord himself many more.
LORD PAKENHAM: Perhaps we may pass from the personal plane and continue the argument. I now come to what is undoubtedly more controversial. The Opposition policy has been clouded in obscurity—no one can deny that. They felt it was wrong to be asked to disclose their policy, because we might use it against them (the noble Lord said it again to-day) at the General Election. But they have consistently attacked both the last two principles which I have mentioned. So far as we can judge, if a Tory Government had been in power England would have been quite a different place, I am glad that the noble Lord has given up that chuckling, because it was beginning to get
412
a little on my nerves. There would have been no planned economy by now and wealth would have been far less equally distributed. That, I am sure, is a statement of fact. We ourselves are convinced that the planned economy and the principle of fair shares have been indispensable conditions—denied before the war—of full employment and of all the great achievements of the British people during these strenuous years. Going back again to this allegation of childhood and the intelligence quotient of five. I would point out that the noble Lord has argued that it was child's play to provide full employment and that it would have provided itself in some peculiar fashion. I can only remind the noble Lord that it did not provide itself after the previous war, when there was a great shortage of things in the world, and I cannot see why it has been automatically provided this time.
THE MARQUESS OF SALISBURY: The noble Lord knows perfectly well that there are only three countries in which employment has not persisted after this war. I think they are Germany, Italy and Belgium. In all other countries the level of employment has been exactly the same. It is not the slightest good making comparisons with the last war, which was completely different.
LORD PAKENHAM: I am afraid that I cannot accept the noble Marquess' intervention at all. He may not think comparison with the last war is the slightest good, but it is to me.
THE MARQUESS OF SALISBURY: The noble Lord would not dispute what I said about the other countries after this war?
LORD PAKENHAM: I would agree with the noble Marquess that three important European countries have shown high degrees of unemployment.
THE MARQUESS OF SALISBURY: But a far larger number of countries have shown the same degree of employment as we have. The noble Lord cannot escape from that—it does not do him credit.
LORD PAKENHAM: The noble Lord seems to impute some personal motive to me when he says that it does not do me credit. I can only inform him that the full employment in this country has been striking. There was no such full employment after the last war, and I was under

413
the impression that noble Lords opposite adopted a different argument from that which the noble Marquess has now submitted. The noble Marquess has not caught up with the latest developments. The argument was that there had been a great economic revolution which affected all Parties, and was so expressed in what was called the White Paper of 1944. That, in fact, is the argument, but the noble Marquess does not seem to be aware of it. I am simply recording the fact that in our own view we have secured full employment as it would not otherwise have been secured. We are surely entitled, after one and a quarter hours of the noble Lord's—if I may call them "leering lyrics" or whatever phrase he would prefer, to state our point of view with equal force and clarity. We believe that the continuance of these principles is indispensable if we are to surpass, as we must, our recent achievements.
Now let me come to the last year. The noble Lord did not give any idea that in many ways this was a remarkably good year. I do not think that anybody coming to our councils from outside—some intelligent person who had been ill for a long time, and wanted to know how England was getting on—would have grasped that from the address to which we have listened. However much we may differ in our views, there are three facts which surely stand out clearly. I have tried to clear the ground as it were and approach the last year without becoming too much encumbered with the details of the previous period. These facts stand out clearly and they summarise the progress we have made in the economic field during the last twelve months. First, as regards production, we have had a line year. I do not know whether anybody would have grasped that from the speech of the noble Lord. Secondly, we have held back the pressure of inflation at home; and, thirdly, together with the rest of the sterling area, we have made substantial progress, in spite of serious intervening setbacks, in improving the dollar balance of payment and strengthening the general position of sterling.
May I take first the heading of production? In order not to detain the House at enormous length, in view of the fact that there are three gifted speakers to follow me, I will concentrate on three
414
central contentions. Production during this last year surpassed all our expectations. There was no allusion to that from the noble Lord. We estimate (the noble Lord knows this quite well, and I do not think he challenges the figure) that the total output in real terms increased by rather more than 5 per cent. which, when allowing for the increase in employment over the same field, gives an increased output per man year of nearly 4 per cent.—increased productivity as one might call it, and this is the interesting figure—compared with the increase of 2½ per cent. for which it was thought prudent to budget when the Economic Survey for 1949 was prepared.
LORD BARNBY: Does that make allowance for the reduction in hours?
LORD PAKENHAM: If I may put it bluntly to the noble Lord—because I think the House wants to get on—hours do not come into the subject at all. Taking the population of this country there was an increase per head of nearly 4 per cent., whereas we had expected an increase of only 2½ per cent. In the narrower field of the industries covered by the index of industrial production, the increases seem to have been over 6½ per cent. in production and about 5½ per cent. in productivity per head.
We had not dared to hope that the unexpected rate of increase achieved in 1949 would be fully maintained this year, and it is all the more gratifying to observe that so far the indices suggest that the expansion is continuing unchecked; and in fact the average output in what I call the narrowing field during the first quarter of this year was about 40 per cent. greater than in 1946, or about 9 per cent. greater than last year. I know that in our hearts, at any rate, we all want these figures to go up, and I think we are entitled to draw very great solace from these facts. This increase of 9 per cent. compares with the increase of 6½ per cent. last year which I have just mentioned, and it shows that in these industries, at any rate, progress this year has been even faster than last. Moreover—and I think this is a significant point—this further increase would appear to represent not just a few large advances by certain industries, as was to some extent the case previously, but steady progress over a wide area and over our

415
whole industrial field. As the noble Lord himself implied, these increases will deservedly elicit from all of us the warmest congratulations to all those concerned, whether employers or employed. That is undoubtedly one moral. Here is another: Such rates of increase give little support for those who would argue that high taxation and so-called Government interference are drying up the springs of enterprise and killing the will to work. Whatever the House may think of that second moral, this third moral will surely be accepted. None of these achievements points the way to a relaxation of effort, but rather to a redoubling of exertion, whether in productive industry proper or in ways in which we feel we can be of assistance to those who are so engaged.
Now may I turn to my second contention, that in the past year we have held back inflation? The Chancellor of the Exchequer is not likely, I think, to be accused of being blind to the inflationary danger. He said quite clearly in his Budget speech that
"the greatest internal danger to the success of our external policies has been and still is inflation."
The House will therefore pay all the more attention to his statement in the same speech, that
"our internal situation is, on the whole, less inflationary than at any time since the war."
There will be many who prefer that statement to that of the noble Lord who, with equal sincerity of course, said that our position is more vulnerable than it has ever been.
Your Lordships recently discussed the cost-of-living index in detail. I replied to that debate, and I do not propose to go over the same ground again. I would just point out what the noble Lord appeared to overlook in his comparison between the rise of prices during the war and since the war, that in fact since the war there has been a very much greater rise in import prices, which, of course, affects our index. In short, there has been a rise in prices everywhere. Our rise is part of a general movement. I will not go further into that now, except to point out that since devaluation there has been a rise of only two points—that is, from 112 to 114, and that some very misguided hilarity which was displayed at the time
416
in certain quarters has been completely falsified by the course of events. The commendable restraint shown by all sections of the community—I stress, all sections of the community: I am not making any Party point—in personal incomes has been a foremost factor in the very small increase in retail prices that has occurred since last September. Speaking for the Government, but on a matter which is in no possible sense a Party issue, I call for the continuance now of an attitude that has served us so well, and indeed without which we might well have been overtaken by extreme disaster.
To-day, however, I should like to turn to another aspect of this particular matter about which there has obviously been profound misapprehension in certain illustrious quarters. The noble Marquess the Leader of the Opposition on November 3 in this House said:
"It is always possible to live in comfort or even in luxury for a limited period by trenching largely on one's capital."
I think that is the meaning of the noble Marquess's argument, but I will read further if he desires me to do so. The noble Lord, Lord Brand, in the same debate, making some different point but linking it with the other, said:
"I do not believe the public privately are saving anything at the moment."
Again, if the noble Lord wishes I will read more. The implication of these two statements was, clearly, that as a country we were living on capital and were failing to save and invest enough for our economic well-being in the future. On the contrary, we are investing more, both absolutely and in proportion to our national income, than in pre-war years. I should have hoped that these facts were more widely known. Last year the proportion was 22 per cent. of our national income to investment against 15 per cent. before the war. Comparable figures for net investment are, I think difficult to come by; but the London and Cambridge Economic Survey, in their Bulletin published to-day, estimate the net investment for the years 1946 to 1950 to be £4,920,000,000, with a pretty steady level of investment throughout the period.
It may be said "What of Marshall Aid?" I am sure the House will not suppose that I am underestimating the vital service of Marshall Aid to our economy if I point out that Marshall Aid

417
in 1949 was about 2½ per cent. of the national production of the United Kingdom. Even this figure, however, in view of the aid we ourselves have given to other countries, exaggerates the total extent of our dependence during that year 1949. When estimating the extent to which our domestic resources have been supplemented from outside, the appropriate figure to take for 1949, as for any other year, is that for the balance of payments deficit on current account—that is, on visible and invisible items. In 1949 this was £70,000,000, the equivalent of about one-half of one per cent. of the gross national product; whereas the London and Cambridge Economic Survey estimates that during the year in question our net investment at home was £1,000,000,000 at the prices of 1945–46, or somewhere near one-tenth of the national income. That would be something like twenty times the balance deficit upon current account. Taking into account, therefore, the sums borrowed or received from abroad, and also the aid we ourselves have given to other countries, the figures I have read show that the postwar period has been one of substantial increase in the real wealth of the country and not, as the noble Marquess, Lord Salisbury says, one in which this country has been living a gay life by "blowing" its capital.
THE MARQUESS OF SALISBURY: I am sorry to interrupt the noble Lord, who has been extremely courteous in letting me know that he was going to read this quotation from my speech. I rise now because I am not going to intervene in the debate. I must say that the impression which the noble Lord has given to this House is that our situation is far more favourable than it was in pre-war years, that we are investing more, and that our position is stronger and generally more satisfactory. If he had gone on to the next paragraph of my speech he would have shown that I quoted the Chancellor of the Exchequer who used these words
"… unless we can quickly produce more and get our costs down we shall suffer a tragic fall in our standard of living, accompanied by all the demoralising insecurity of widespread unemployment."
That does not quite fit in with what the noble Lord has just said.
LORD PAKENHAM: I was reciting facts which no one will be able challenge,
418
in this debate or at any other time. But the noble Marquess made his statement about living on capital and the facts are as I have mentioned. I hope the noble Marquess will allow me to use a phrase which he himself has handled with great effect in the past: to suggest that we are really living on our capital, as the noble Marquess has done, can be described only as "economic ballyhoo."
Now I come to savings and the source of savings, an aspect of which has particularly troubled the noble Lord, Lord Brand. Let us first take the total figures, made up of savings by the Government, by public authorities and by firms and private individuals. This sum is clearly larger than before the war, and the proportion of our national income saved in 1949 showed an increase of about 50 per cent. on 1938, when less than 14 per cent. of our national income was saved. Some of your Lordships may argue that to-day it is the Government who do the lion's share of the saving. We might go into that some time if necessary. But private saving—that is, saving by firms and individuals—represents 16 per cent. of our national income, compared with about 14 per cent. in 1938. Finally, if we take gross personal savings, to which Lord Brand may have been referring—that is, saving by individuals as distinct from firms—we find that exactly the same percentage of the personal disposable income was saved last year as in 1938—namely, 4.8 per cent. The figures I have given give little support to those who say that high taxation has dried up the wells of saving.
VISCOUNT SWINTON: Is that net or gross?
LORD PAKENHAM: That is gross. Critics may fall back on the argument that what is really lacking is something called "risk capital." I find in various quarters a good many different definitions of that phrase, in which I will not attempt this afternoon to involve either myself or the House. The view that risk capital has virtually disappeared is strangely at variance with the present voracious and, in its way, very laudable demand by private industry to increase its investment in real capital. The great problem has been not to induce firms to carry out capital work but to find some means to restrain such work going forward at a rate beyond that which we as

419
a nation can afford. So I really cannot accept that there is all this shortage of resources in the sense that the noble Lord, Lord Brand, has in mind. I know that in these matters nobody can establish an absolute chain of cause and effect. No one desires high taxes, except to meet necessary expenditure. No one likes high taxes as such. But we on this side are entitled to point out, and to point out more than once, owing to the widespread misconception, that not only employment and production but investment and the demand from industry to embark on still more investment are to-day at very high levels and showing no signs of decline.
I had to say all that because there seems to be so much genuine misunderstanding on the matter. I need hardly say, however, that the need for savings is as great as ever it was and, in view of the increased temptation to spend, now that more goods are becoming available, the task of the National Savings Movement becomes more urgent than ever. The tendency to confuse national savings, as the term is normally used, with personal savings, as they are defined in our Economic White Papers, is very natural. It is a mistake into which a great many people fall, not having all the assistance which some of us are allowed. The truth is, of course, that if we take the net increase or net decrease of national savings, or even the total of national savings outstanding, which includes accrued interest and has slightly increased during the last year, we are still not discussing the total figure of personal savings which is the ultimate relevant figure from the point of view of the national economy. But, of course, what happens in national savings is of great importance to the total of personal savings. We do undoubtedly require an increase of personal savings this year. At this point, therefore, I desire not only to call on everyone who can save to do so in whatever fashion his circumstances permit but, in particular, to congratulate all those responsible for the National Savings Movement on their magnificent achievements, their self-sacrficing persistence, often in the face of apparent discouragements, and to urge the overwhelming importance of all of us doing everything we can to play our part or to encourage the movement in every way.
420
I now come to the external balance of payments which I think the noble Marquess had particularly in mind. The year 1949 ended with a United Kingdom deficit on current account—that is not just imports and exports as we understand them, but counting visible and invisible items together, with the world as a whole—of only £70,000,000. That is the same in money terms as the figure for 1938, but naturally it is considerably less in terms of goods. Even so, in my opinion, too little has been said of this achievement. Here again, I do not think this is a Party matter. The interest and concern which we all concentrate on the dollar balance should not blind us to what we have achieved over-all, to our trade with the world as a whole. By stern self-restraint and increased production at home we need to import much less than pre-war, while our exports to-day are well over 50 per cent. above the pre-war figure. The noble Lord quoted some export figures for volume that appear to refer to the first quarter of the year. As I understand it, the volume figures for the first quarter have not yet been released.
LORD CHERWELL: The Board of Trade returns.
LORD PAKENHAM: Not the volume figures? The noble Lord has for once anticipated me. I was not aware that these figures had already been released. Exports have increased in value during the first quarter by 12 per cent. The rise in prices has not been as great as that, but there was a rise in volume in exports as compared with last year. Despite the loss of such a large proportion of our overseas investments during the war, despite the worsening in the terms of trade, and despite the need to remedy the destruction and dilapidation caused by the war, we have to-day, in the fifth year of peace, brought our overall accounts into equilibrium, and in 1950 we hope to show a small surplus on the year.
But it is the dollar balance of payments, not only for ourselves but for the whole sterling area, which has caused this country as the banker of the sterling area the greatest difficulty since the war. I do not intend to weary your Lordships with a detailed analysis of how this deficit arose, but I am not sure that even yet sufficient study has been given to the

421
differences—in some case it has not been possible for those without access to official sources—between to-day and the pre-war period. Broadly speaking, before the war the United Kingdom dollar deficit on visible accounts was covered partly by a surplus on invisible account, partly by the dollar surplus of the rest of the sterling area and partly by the sale of newly-mined gold, about which we have not heard very much in recent times in this House. To-day, the worsening terms of trade have increased the United Kingdom's visible dollar deficit, although alone among the O.E.C.C. countries by 1948 we had actually increased our volume of dollar exports and diminished our volume of dollar imports compared with pre-war; and in that sense the increase in our dollar deficit was certainly no fault of ours. Be that as it may, the surplus we ran on invisible account had disappeared partly owing to the war-time loss of our investments. I will not pursue that particularly statistical refinement today—perhaps we may return to it tomorrow.
The major items of change—and this is not always realised—have been the much greater volume of dollar imports now taken by the rest of the sterling area, and the fact that the gold, which is seldom referred to, now produced in the sterling area, does not yield nearly as much in terms of real purchasing power as the gold produced before the war. The deterioration in the United Kingdom visible account with the dollar area—that is in actual trading—caused, I repeat, largely by the movement of prices against us, represents only a small proportion out of the total deficit of the sterling area against which we have been struggling and shall continue to struggle. That is a fact which, in justice to ourselves, quite apart from politics, we are all entitled to remark and to digest.
It is against this background that we should examine our struggle with the dollar problem. We had already brought down the sterling area gold and dollar deficit from 4,131,000,000 dollars in 1947 to 1,710,000,000 dollars in 1948, our own United Kingdom dollar deficit being about two-thirds of the whole. Even so, a year ago our gold and dollar reserves were decreasing at the rate of over 1,000,000,000 dollars a year, in spite of Marshall Aid and our drawings on the
422
Canadian credit. At the same time, in addition to the export drive, we were doing various things, which I will pass over rather lightly but which are of great importance. We were searching the non-dollar world for food and materials which could be bought in substitution for some of the dollar goods which we had had to cut out. We were taking a leading part in rebuilding the European economy, through the detailed discussions in Paris in the Organisation for European Economic Co-operation, and in the so-called drawing rights which we gave to other participating countries in order to finance their sterling deficits. And we (and when I say "we", I mean the Government and private firms) were helping to build up production in other sterling area countries.
All this has borne fruit in the last year or so, when we see a great expansion of imports and exports in our trade with Europe and with the Commonwealth, and the re-establishment of prosperity in many countries that were in a bad way in 1947. But, in spite of all this, we were last year still unavoidably dependent upon the dollar area for a large section of our imports, and so, of course, were other countries which banked through London. Furthermore, the maintenance of our dollar earnings, and of those of the raw material producing countries of the sterling area, depended, and still depends, on a high level of activity and demand in the United States. We shall never get away from that fact and none of us has any desire to shirk it.
A year ago this level was dropping, definitely though not severely, and sales by sterling area countries and by those in Europe fell sharply. This led to a heavy drain on our dollar resources, particularly since our imports were seasonally rather heavy during the summer. Other countries were affected in the same way. In those circumstances the United Kingdom, as an international banking country, was naturally most affected, and the drain on our very modest reserves became so great that the Government, after full and serious consideration, decided to devalue the pound in terms of United States dollars and gold. As everyone remembers it very clearly, I need not remind the House that this took place on September 18. That is in the minds of us all. At the meeting of Commonwealth

423
Finance Ministers in July we had already taken emergency action to reduce dollar imports to a yearly rate of 1,200,000,000 dollars; other Commonwealth countries agreed to take action comparable in its effects with this.
To-morrow, Lord Lucas, who speaks in this House for the Board of Trade, will deal much more exhaustively and more authoritatively than I with the actual progress of exports. I would just point out that since devaluation our competitive power has been much greater—and not only in the dollar markets themselves, in which the exports to Canada have been particularly gratifying. There has been a steep increase in exports to Australia, to the Colonies and to some Western European countries, which has helped to neutralise the increased sterling value of our imports. As a result, there is at present a small surplus in our general balance of payments, as indeed there was at the beginning of last year, and at the end of the year. I could have hoped that the noble Lord would take more pride in this, because it seems to be one of the finest things that has happened since the war.
On the dollar side—and this is a point which I feel we can regard with considerable though very guarded satisfaction—our own imports are at present running within the agreed rate of 1,200,000,000 dollars, compared with 2,263,000,000 in 1947, when they were nearly twice as much. Other Commonwealth countries have followed suit and their earnings have, moreover, been at a high level. Our improved competitive position has meant less loss of gold and dollars to Belgium, Switzerland and Persia, and the total result has been that in the six months since devaluation the net gold and dollar deficit has disappeared for the time being, and has become a surplus. I say that with all the possible qualification and reservation which the Chancellor himself has attached to it, but it is a notable fact. I said before, and I am afraid, speaking from this place, I must attach all the proper qualifications, that the maintenance of our earnings depends on a high level of American economic activity. This is certainly the case at present, and our earnings are seasonally rather high and our imports rather low. One must maintain consider-
424
able caution in interpreting the results, but we can draw much encouragement from what has occurred. Nevertheless, we face a long period of consolidation and, we hope, progress in the remarkable degree of co-operation which has been attained with the Commonwealth, with the great and generous peoples of North America, and with our European neighbours.
I come finally to the figures of our gold and dollar reserves, which are a pretty good reminder alike of our performances, our reverses and the duty in front of us. On March 31 last year they were 1,912,000,000 dollars; on September 30 they were down to 1,425,000,000 dollars; on March 31 this year they had climbed back to a figure higher than last year at 1,984,000,000 dollars, but they are not yet back to where they were when Marshall Aid began on March 31, 1948; and the Chancellor of the Exchequer is the last man in the world who would suggest that we can rest content or breathe with safety until we have worked the figures a long way above their present level.
My Lords, three other Government speakers are to follow me, and the House will therefore forgive me for not attempting to cover some of the very important factors raised by the noble Lord. I have not said anything about the Budget; I have not mentioned housing; I have not referred, except very indirectly, to Government expenditure. We have two full days before us and all these matters will, no doubt, be threshed out. Far-reaching events, some of them sombre, some vastly encouraging, have taken place since our debate early last year or our similar debates in the Autumn. On the one hand, the attitude of Soviet Communism has confronted the Western world ever more starkly with the necessity of making full preparations to defend ourselves and the cause of peace. All this, of course, has grave economic implications. On the other hand, the recent Atlantic discussions and decisions; the striking progress connected with Western Union, which our own Foreign Secretary initiated; the proposal of M. Schuman—that sublime act of Christian statesmanship—its aceptance in the same spirit by the German Chancellor and its warm welcome, still in the same spirit by our own Prime Minister, all hold out new

425
promise and new hopes which cannot be weighed in the balance this afternoon, or perhaps for some time to come. On our own national sector, though our fortunes are bound up so intimately with those of others we are by this time aware of our duty, whatever Government is in power. If any of us can perform more valuable work, if any of us can show more initiative or imagination in business, we must do so; while the need for restraining our claims on the national income, whether in the form of wages or dividends, remains as great as ever it was. I am convinced—we are all convinced—that our country will pull through these material difficulties, whether or not at the precise moment or under the precise arrangements now proposed.
This is my final point, and I hope it will not be thought inappropriate. Are we not all conscious that when we have done all this we shall still have facing us the far deeper, the far more subtle problem, in this mechanised industrial age, of giving dignity and personal meaning to every human life in Britain? On that subject I hope and believe that all the political Parties are searching their minds afresh. It is true that no political Party, not even my own, will ever completely solve it. As the noble Lord, Lord Quickswood, once said in a very different connection many years ago:
"So much depends on the religious bodies."
But for all of us here this issue is never far, I fancy, from the background of our thoughts, even when in the course of our duty we are most absorbed in technical or economic calculations. We are prepared to disagree and dispute with vehemence with one another regarding the material pattern and material framework. But is that not so, my Lords, just because we are all at one in the conviction that the material framework and material pattern exercise a profound influence over the character of the spiritual opportunities provided, and that the spiritual opportunities are what alone ultimately matter in achieving the ends of our society and country—those ends about which there is no disagreement, it seems to me, within this House, and very little within this country at the present time? I am most grateful to the noble Lord for bringing this immense topic before us this afternoon.
4.39 p.m.
LORD BRAND: My Lords, I think I voice all your Lordships' feelings in thanking my noble friend Lord Pakenham for all that he has said, and particularly for the latter part of his speech, which I certainly echo. Before I come to any general remarks of my own I should like to deal with the comment he has made on a speech that I made in November last. I was then referring, as he says, to risk savings. I used the words "private savings," although I ought, perhaps, to have used the words "personal savings" because the White Papers, if I am right, distinguish between "personal saving" and "private saving." So far as I could see, we were making no personal savings at that time. I said so, and I was in very good company. The White Paper on National Incomes for 1948 put the total of net personal savings at £6,000,000. I also noted that at that time net small savings had fallen from £79,000,000 for the period from January to October, 1948, to £9,000,000 for the same period of 1949. If you put these two facts together—the £6,000,000 which the White Paper set clown as the total of personal savings, and the great fall in the small savings figures, I think you will see that I was perfectly justified in following those people, the civil servants who prepare the White Papers, in whom I have a great faith and for whom I have a great respect. Unfortunately, they decided a little later on that they had been wrong. In the next annual income figures, they changed £6,000,000 of personal savings to £195,000,000.
VISCOUNT SWINTON: In the same category?
LORD BRAND: In the same category. The figure first given was £6,000,000, and it became £195,000.000. I do not want to bore your Lordships with a lot of figures but I may explain why the change was made. Those who prepare these White Papers take the total personal income of the country, and deduct from it expenditure on total personal consumption and also on total direct taxation. All these underlying figures happened to be wrong. The net result was that the savings were £195,000,000, instead of £6,000,000. As usual, I am quite prepared to accept the word of the Civil Service as being right, and now accept that the figure should have been

427
£195,000,000 instead of £6,000,000. And I am very glad it is so.
I would, however, draw the attention of your Lordships to the fact that in the White Paper there are two figures—one for gross personal savings and the other for net personal savings. Gross personal savings this year are given as £427,000,000. It may surprise your Lordships to know that considerably more than half that, £253,000,000, represents death duties. Death duties are regarded as gross personal savings. I do not know who regards them as savings; I think the Government do, perhaps because the Government know that the former owner is now beyond any possibility of spending. Therefore I suppose they regard these duties as savings. If you regard them as savings of the individual who owned the property, it may be that he saved last year or that his family saved them a hundred years ago. Or possibly the saving may have started when Henry VIII was kind to his family in the time of the dissolution of the monasteries and the abbeys. On this basis, I suppose, you can say that anything which anyone possesses in the form of capital is savings, either by himself or by his family—or anything which has accrued to him through fortunate speculation. I personally, therefore, ignore the figure of gross personal savings. I regard it as an abuse of language to call death duties "personal savings." Therefore I think we should take it that the real personal savings of the country this year are not £195,000,000, because that was the figure for 1948, but £174,000,000, which the White Paper says is the figure this year.
Sir Stafford Cripps, the Chancellor of the Exchequer, in the speech to which the noble Lord, Lord Pakenham, referred, made certain statements to the effect that there were more personal savings this year than in 1938. I have gone into that matter, and while I do not want to repeat all the relevant figures I think it is correct to say that while net personal savings were £144,000,000 in 1938, in 1949, they were, on the same basis—that is at 1938 prices—£110,000,000. On the other hand the national income in 1938 was £4,638,000,000, which is nearly £1,000,000,000 below the figure for 1949—calculated also on the 1938 basis—namely, £5,522,000,000. Therefore the fact that personal savings were less by
428
£34,000,000, on my calculation, than they were in 1938, is intensified by there having been a much bigger national income in 1949 than in 1938.
Now I come to company savings. Of course they are also private savings, but when I spoke in November I did not mean to refer to company savings. I believe that everyone who knows industry will agree that depreciation allowances, which amount to £865,000,000 this year, are too low. We all know that depreciation allowances should be enormously greater now, since costs have gone up so much. I think that everyone agrees that the figure of £865,000,000 is too low. Additions to free reserves are £530,000.000, which is no doubt bigger than the figure for 1938. But, after all, the circumstances are totally different. There have been enormous losses in the war. Moreover, we did not, in my view, spend enough capital on modernising industry before the war. There is great need for new capital. Hitherto, this great need of industry—and I should like the noble Lord, Lord Pakenham, to listen particularly to this—has been covered up, partly by cash resources arising out of the war, which are now more or less spent, and partly by the fact that hundreds of millions of pounds have been paid in the form either of cash or Government stocks to those people who held securities in what are now nationalised industries. A very large number of these people no doubt did not want to keep these stocks. They wanted to put their money again into equities, and no doubt that money coming from the nationalised industries has gone to a great extent into industry, while the Government stocks which they held have been bought by Government or other institutions. I was looking to the future and considering how funds can be provided for industry in the future.
I believe that you must rely to a great extent on personal savings. It is true that industry can put by a lot of money for its own purposes if times are good. Times have been good, and therefore it has been putting a lot by. But industries cannot themselves subscribe new capital for other industries. New capital for industry has always been found through issues on the stock market, which can be subscribed only by persons and investing institutions. Institutions like trust companies subscribe a good deal, but

429
other institutions, like insurance companies and building societies, to which most of the small savings (the £174,000,000 we are talking about) go, do not subscribe very largely to risk capital. I should like to ask the noble Lord what class of the community he thinks will subscribe on a large scale to capital issues of ordinary shares issued on the market by companies in future. I do not believe that small savers should subscribe to ordinary shares, because they are too risky. What other savers are likely to do so? I repeat my view that we shall find there is a shortage of risk capital in future. I am not talking about undistributed profits, but about new investment in industry; therefore I do not withdraw anything I said in my November speech.
I should like now to come to the few general remarks I wish to make on our internal situation. The noble Lord, Lord Pakenham, gave us a satisfactory view of the present situation, following in that respect the Chancellor of the Exchequer, who said that everything on the economic front is now well. Gold reserves are greatly up, production is up, and so are personal savings, but I think real personal savings are not up.
LORD PAKENHAM: I do not think I said that exactly.
LORD BRAND: The further claim has been made that the Budget surplus will just about eliminate inflation, notwithstanding the large capital programme. On the other hand, the Economic Survey admits that more personal savings are needed, and I think the noble Lord echoed that statement. Why is it then that most students of our problems are still seriously concerned? We knew that a great many things in the garden were lovely before devaluation, and yet devaluation took place. Whatever advantage it might have had—and it has had considerable advantages in reducing the dollar gap—it would be fatal ever to do it again. Therefore, we must try to avoid anything that produces such a result.
In my opinion, devaluation was due in the main to two causes. One was the enormous Government expenditure and the fact that we were generally over-trading. The second was due, not as the noble Viscount, Lord Alexander of Hillsborough, said the other day, to
430
"wicked lies" but to the fact that the trading world watches every country and considers whether it will hold a particular currency or not. The countries of the world look, not at what wicked people may say but at the figures, and on that basis they decide whether a currency is good or not. Unfortunately, they thought that we were getting into deep waters. They thought they saw the symptoms they had seen in many countries in the last thirty years and that sterling was not a currency to bold in very large amounts. That this was their view was proved by the enormous addition when devaluation came. All the people who had been holding off sterling came back to holding sterling.
The main question we have to decide is: are we going to eliminate inflation? That is to say, are we to stop export costs, from rising? If not, there will again be a danger to the balance of payments. That is the critical question. What concerns most observers is that we appear to have no margin anywhere. Government expenditure is at top-notch; taxation is at top-notch; labour is pressing for higher wages; prices are rising. The noble Lord said that retail prices had risen by only 2 per cent. Every month I see a statement of wholesale prices since devaluation. I can only hope that retail prices will not rise much more, but looking at the wholesale prices I cannot think that we shall not see a further rise in the cost of living. What we have to realise is that we are spending our national resources on three main objects. We have to provide, first of all, for our population as consumers, secondly, for our very large capital programme, which is rightly stated at about 20 per cent. of our total resources, and thirdly, for the truly huge current Government expenditure. Even allowing for an increase in production this year, can we produce enough, and can we save enough?
There are some economists who would like to cut home consumption further by more restrictions and controls. I believe that to be too difficult and not desirable. Other economists consider, as I do, that the central problem is the fact that public authorities are now taking just 40 per cent. of the gross national product, and that is too great. The increase in Government expenditure has been extraordinary. In other directions we have

431
had great austerity, but not in this direction. Between 1948 and 1949 the increase was £342,000,000, and this year it is to be £183,000,000 more—a total of £525,000,000 in two years. Moreover, the Chancellor constantly warns us that social services are going to cost more, and revenues are more likely to fall than stay as they are when bad times come. This leads me to interject one other comment. All this being so, what do we feel able to do for the Atlantic Pact and for more defence?
What has led to this enormous increase? The Economist recently estimated that expenditure on social services, including education and subsidies, rose from £1,048,000,000 in 1946 to £1,800,000,000 in 1949—that is, by just under £800,000,000. While social services are very desirable, it is necessary for the country to realise that social service expenditure must be kept within the country's resources. I believe that taxation represents too large a percentage of our total resources and it is this which renders the avoidance of inflation very difficult. The Chancellor, however, sees no serious harm in it, though I cannot think he wished to see the enormous increases in expenditure which have actually taken place. We have to consider how this increase affects our most vital interests.
I should like to quote one or two figures, based on the Economic Survey. It is expected that the national income in 1950 and at 1950 prices will increase by £500,000,000. We want £120,000,000 out of that £500,000,000 to improve our balance of payments, as this means increasing exports and replacing imports. The public authorities are taking £180,000,000 more, and together that comes to £300,000,000. The capital programme is reduced by £38,000,000. This leaves for public consumption in this coming year £238,000,000. But, as the Economic Survey assumes, probably rightly, an addition of 2 per cent. increase in prices, that takes £160,000,000, which leaves for additional real consumption in this next year £78,000,000. I consider that that is a very small sum, and I am doubtful whether we shall be able to keep our increased consumption within those bounds, particularly because incomes will considerably increase through the increase of the total national income.
432
This is all very important, as your Lordships know, because inflation must be avoided; inflation puts up export costs and our exports are vital. It is not only that we need to maintain the present rate of our exports, but that we need a great increase. I admit that we have made great progress, but times may be more difficult and we want to increase our exports greatly for several reasons. As the noble Lord has said, we are still restricted in our imports to, I think it is, 87 per cent. of 1938 volume. We should like to get back to free imports. Then we have to repay debt. The repayment of the American-Canadian debt has to be started shortly. As the noble Lord, Lord Cherwell, pointed out, our sterling balances are now higher than they have ever been, although we have paid off many hundreds of millions. Of the total, £2,000,000.000 are absolutely free, and quite rightly so. They represent the balances of Australia, New Zealand, South Africa and many other countries in the world. We cannot take goods from those countries, let them deposit the sterling in our country and then say that they cannot use that sterling. Therefore, we have to be ready to pay out very large sums, if our creditors call upon us to do so. I feel also—perhaps this is not quite consistent with what Lord Cherwell said—that we shall probably have to be a considerable exporter of capital to the Commonwealth and other countries. I do not think we shall be able to avoid that. More important than all, we have to increase our reserves. Until we greatly increase our reserves, we shall always be on the edge of something serious happening: if anything happens in the outside world we topple over, because we have no reserves. I fully agree with the noble Lord, Lord Pakenham, that our gold and dollar reserves are the thermometer by which we tell our health, though it may be a peculiar thermometer because it is when it falls that we are in danger.
To my mind, all this means that we shall want something like 200 per cent. of 1938 exports instead of 150 per cent. For so large an increase as that, we must produce more, unless we can rob one of the three existing claimants to our resources to which I have referred. But the Government deny any possibility of decreasing their expenditure. And how can we reduce the consumption of the public? To

433
my mind, it would not be practicable to do so by putting more taxation on them or by additional controls. Possibly, as an alternative, we might have to cut our capital programme. But I hope that we shall not cut the capital programme for manufacturing industry, which according to the Economic Survey is only £450,000,000 out of a total of something like £2,500,000,000, and compared to which fuel and power and transport take £518,000,000, or more than is taken by the whole of the rest of manufacturing industry.
In my view, it was quite apparent from 1945 and earlier that this external problem was the great problem we should have to face. It was on restoring our external strength that any Government should have concentrated. In other words, the whole of our internal policy should have been guided by our external needs. There are not two problems, but only one, because what we do internally more or less determines what happens to us externally. Ever since 1945 the external aspect required A.1 priority—and by "external aspect" I mean the restoration of sound money, making sterling a strong currency and increasing our gold and dollar reserves. On this depends our internal stability, our standard of living and our freedom from unemployment—everything that a Welfare State is considered to denote. Mr. Attlee said the other day that his Government had given as close attention to our overseas trade position as the Coalition Government gave to the progress of the war. That may be true, but his definition should have been widened, and the Government should have given the same attention to our external problem as a whole as the Coalition Government gave to the progress of the war. It is difficult to accept Mr. Attlee's statement as meaning that, because it would mean that the Government should never have allowed Government expenditure and taxation to rise to its present height. Even the Chancellor of the Exchequer, who is the greatest opponent of inflation, has been compelled to swallow huge increases of Government expenditure. I say "compelled" because I feel he must have understood the consequences. While on the one front he has made a gallant fight against inflation, he has let in the enemy by another door by immense increases in the demands on the Government. I
434
realise all the political difficulties that existed in 1945, but I feel that we might have conquered them by 1947 or 1943, since when there has been a great increase in expenditure.
If costs are not in future competitive because of inflation, we are likely to be back in the difficulties of the 'thirties, particularly with Germany and Japan coming into the field. There is no solution for us by the popular, what might be called, Keynesian remedies—Budget deficits and other methods of increasing internal demand. That would merely add to the difficulties of our case by putting up prices internally. It is a total illusion, in my view, to think that the Government's policy has given us security, and particularly security against unemployment. I do not think any Government can give this country security against unemployment, certainly not unless it increases our external strength. The Welfare Stare depends, first of all, on our capacity to reach external stability. We are just like a ship at sea exposed to every storm. Our ship has been badly damaged in the war, and our first task after the war should have been to make it shipshape, even ahead of making the cabins and the crew's quarters much more comfortable. I feel that to some extent our policy has also been like building a house and putting in a lot of furniture, but forgetting to put the roof on and the windows in.
We cannot make ourselves shipshape by more taxation; nor can we reduce taxation without a reduction in Government expenditure. Therefore we always come back to the same question: If we are going to leave the capital programme as it is, can we reduce Government expenditure? The noble Lord, Lord Pakenham, has asked—as I knew he would—"What would you cut?" Well, I am not a politician, but I have said in the past that I would gradually cut subsidies and that I would certainly make the public pay something towards the health system. In both cases the Government could probably save a large sum of money. Another answer is that if Government expenditure is too great it will be cut, because it will cut itself. When the burdens are too great, as history shows by endless examples, the burden is reduced by inflation; and if the burden is too great, that is what will happen.

435
Despite the dangers of inflation, I fully agree that we see some encouraging symptoms. The increase in our reserves is striking; the improvement in our balance of payments is great and the increased production is also encouraging, though I personally am not so enthusiastic about what we have done as the noble Lord. I think people forget the war-time years. War-time is a period when methods of increasing production of wealth are inclined to grow faster than at any other time in history. We must go back, not to 1946 and say that there has been a 40 per cent. increase, but to 1938 and say that it is twelve years at 2½ per cent. per annum, which amounts to 30 per cent. I believe that wealth increases, so to speak, by compound interest, and therefore I think 30 per cent. is rather low.
I do not believe that there is any insuperable difficulty to much more production than we have now. That is the real hope for the 50,000,000 people in this country. It is not because people must work harder or better, but because the methods of wealth production improve year by year. Moreover, we have spent an enormous amount of capital since the war, and we have a larger labour force. Therefore, personally I think that our production ought to have been up to quite as much as it is now. Unemployment, of course, may come in future. The danger of its being serious will be magnified enormously unless by that time we have really strengthened our external position. And that is what I come back to. If the Government cannot reduce expenditure, we must look to greater production. In that case I think we may go through a very dangerous time. In present conditions I do not expect to see inflation entirely eliminated this year, and this would be a serious matter. But I do expect to see production up by more than 2½ per cent.—which is what I think the Economic Survey estimates—unless we get blows from outside. If we do get blows from outside, of course, everything may be different.
My main object in the remarks I have made is to impress upon your Lordships that it is the remedying of our external weakness which must have first priority with any Government; that any Government which aims at the maintenance of full employment only is living in a fool's
436
paradise, unless it gives the external question precedence—and giving first priority does not mean simply the boosting of exports, but involves the conduct of our whole economic policy, internal as well as external, towards the same end. From this point of view it is evident how wholly irrelevant to our problems—indeed, how harmful—further nationalisation would be. But it means more than that. It means steps to remedy our over-extended position and to reduce the Government's internal commitments. This is no doubt dangerous, but everything is dangerous. Particularly dangerous is that our Ship of State should meet a storm from outside while we are in the condition in which we are. The Government recognise that they are betting on quite a lot of things to go right if serious trouble is to be avoided. We are entitled to ask them what they have in mind to do if some of the bets go wrong.
5.17 p.m.
LORD PETHICK-LAWRENCE: My Lords, we have listened, as we always do, with great attention to the noble Lord who has just sat down, I think there will be a large measure of agreement on all sides of the House with much that he has said, though some of us will naturally not be able to accept all his conclusions. I do not propose to deal with many of his points in detail, though in the course of my remarks I want to question one statement of fact which I understood him to make. I think I heard him correctly, and if so I think it was a slip of the tongue to which he committed himself—but I will cone to the point a little later in my speech.
I propose to deal very shortly with four or five main subjects. The first point relates to the facts. My noble friend Lord Pakenham, speaking for the Government, has given your Lordships' House a number of facts about the increase in production and other matters. I have a feeling that some noble Lords think these are ex-parte figures, intended to prove a certain point and that a little analysis would show that some of these figures were unreliable. I should like to draw your Lordships' attention to the fact that only last week a very great economist, Mr. Reddaway, read a paper to the Royal Statistical Society in which he analysed the figures relating to production. No

437
doubt he started to a large extent with the Government official figures. He shows, after a complete analysis and a full discussion in the course of his paper, that are conclusions which he reaches go almost entirely with the Government figures.
The next subject with which I want to deal is the question of inflation. The noble Lord, Lord Cherwell, held up to some derision the fact that the inflation in this country during the first two or three years which followed the war was much greater than in the last few years of the war itself. Well, the answer to that is perfectly clear to anyone who takes the trouble to discover it. The reason, of course, is that during the war we had the full benefit of Lend-Lease, which covered not only munitions of war but also food and the other necessities of the population. Therefore, inflation in this country was rigidly kept down by the full efforts of Lend-Lease. The moment the war ended Lend-Lease stopped absolutely short with a jerk. Not only were no further goods sent on the way, but even those goods which were already in the pipeline were suddenly cut off; and, of course, the effect of that was to create inflation, because there was more money looking for goods than there were goods which money could purchase.
LORD BRAND: I think the pipeline goods were released afterwards.
LORD PETHICK-LAWRENCE: I was in the Government at the time, and I can assure the noble Lord that the goods in the pipeline always had to be paid for.
LORD BRAND: Paid for—yes.
LORD PETHICK-LAWRENCE: They were all part of the expenditure. The goods kept on coming from the United States all the time, but during the war they came free under Lend-Lease. The main fact is that the generous gesture of Lend-Lease, which meant that during the war we received vast quantities of goods free, ceased suddenly when the war came to an end; and, so far as the goods were concerned, that position was never altered. Mr. Truman himself, President of the United States, said only a few weeks ago that he regretted very much that he had taken that decision.
LORD BRAND: I carried on the negotiations in Washington and I know the
438
position. The noble Lord is right when he says that the goods had to be paid for. Nevertheless, as regards his point about inflation I must point out that some 5,000,000 dollars or more from the U.S. and Canada went some way to help to do what Lend-Lease did before —and we received that amount.
LORD PETHICK-LAWRENCE: I think we are agreed on the facts, but I draw a slightly different inference from that which the noble Lord draws. But I think that he, out of his knowledge, and I, if I may say so, out of mine, agree on the facts.
Now with regard to inflation at the present time, the suggestion is that the Government have been lax. Judging by the standards of all previous Chancellors of the Exchequer, I think it is a remarkable situation that the present Chancellor of the Exchequer budgeted in two successive years for a very large above-the-line margin and balance. I doubt whether any Government would have budgeted for so large an above-the-line balance. Last year, however, we had not only an above-the-line balance but also a considerable below-the-line balance—a thing that had never been dreamed of in years gone by. I challenge noble Lords opposite to say that if the present Government had been defeated and a Conservative Chancellor of the Exchequer had taken the place of Sir Stafford Cripps they would have seen a larger below-the-line balance than we have at the present time.
I now come to sterling balances. I understood the noble Lord, Lord Brand, to say that sterling balances were standing at a higher figure to-day than they had ever stood before. What I think he must have meant was that they have gone up during the last year. I have here what I think is a reliable journal, Barclays Bank Review, in which they give the total sterling balances for the whole of the last six years. I find the balances were £3,663,000,000. On December 31, 1946, they rose to £3,701,000,000. In the following December they fell to £3,572,000,000. They were £3,359,000,000 on December 31, 1948, and they had fallen by June 30, 1949, to £3,234,000,000. It was only in the last half of 1949, according to these figures, that they saw a rise; they saw a rise of £110,000,000 in the last six months. Nevertheless, this

439
figure at which they stood on December 31, 1949, is lower than all the figures at the end of successive years.
LORD BRAND: I accept the noble Lord's figures, though I think he has made a slight mistake: the latest figure, so far as I know, is £3,550,000,000. They were slightly higher at one time—they were, I believe, £3,700,000,000. I think we have paid off between £500,000,000 and £600,000,000.
LORD PETHICK-LAWRENCE: The noble Lord says there is some slight misunderstanding. But, surely, a great part of his argument was based on the fact that the figures were higher than ever before.
LORD BRAND: I did not base my argument on the total of £3,550,000,000 but on the £2,000,000,000 free sterling balances which we had to meet. The remainder are blocked in some form, and therefore do not matter so much. But the £2,000,000,000 free balances are naturally a very serious weight on our economy, because we do not know when we may be called upon to meet them.
LORD PETHICK-LAWRENCE: The point I was making was one of fact. I will quote the comment by the writer in Barclay's Bank Review:
"It will not escape notice that the sterling balances of sterling area countries increased appreciably in the second half of 1949, this being a partial measure of the increase in the dollar earning power of the rest of the sterling area and of the readiness of the countries concerned to remit those earnings to London and accumulate the proceeds in sterling."
In other words, the vast increase in the last six months to the end of 1949, and the further increase in 1950 to which I understand the noble Lord, Lord Brand, was referring, are mainly due to the increased confidence in sterling which has recently taken place.
It is there that I want to make my strongest case against the noble Lord, Lord Cherwell. This is not the first time that Lord Cherwell has attacked what he calls the "indiscriminate handing out of money" to other parts of the sterling area. I think he is wholly wrong, both in his facts and in his inferences—in his facts because there was no such indiscriminate handing out. I can tell your Lordships that during the period when I was in the
440
Government the utmost effort was made to prevent other countries unnecessarily being paid what the noble Lord has called "unrequited exports." I am sure that the noble Lord, Lord Brand, will agree with me when I say that we are the bankers of the sterling world. Does the noble Lord seriously imagine that if we were to adopt the policy of buttoning up our coat and saying to these countries "In no circumstances are we ever going to pay you a single penny of your credit balance at our bank," we should in that way add to the confidence in sterling or in this country? Of course not. It would be the exact reverse. We have to use discretion. We have to say in effect, "We cannot let you have all that money at once." But if we took the view that in no conceivable circumstances were we going to pay these people any money I am sure that that would be the most disastrous thing we could do. I am glad that our Government have not adopted anything like so foolish a course.
What part have the Government played otherwise in helping to improve the position with regard to the sterling area? As the noble Lord, Lord Pakenham, pointed out, it is essential, if we are to keep South-East Asia going as a paying concern, to enable it to resist Communism, to give to the countries of South-East Asia freedom and yet retain them in our confidence, that we should not be too negative in placing sonic resources at their disposal. We are bound to take that course. As the central country of the Commonwealth, we cannot refuse to pay out money. Of course, we have to take every care in view of our difficult position. We must not be reckless, or even as liberal or generous as we should like to be. But we have to be generous up to a point, or we may lose the whole confidence of the Commonwealth and of the world outside.
What the Government have done in the field of finance they have also done—and it is commonly approved—in their political attitude towards the countries of South-East Asia generally. We could not have taken the attitude that some people think we should have taken. We have had to take a liberal attitude, and it is only by taking a liberal attitude that we have saved not only the prosperity and strength of the Commonwealth but also at the same time our financial strength. In that connection, there is one thing I

441
want to say. I want to repeat what a very prominent Malay said to me only a few weeks ago. He said: "We are spending an immense amount of money on this Malayan civil war. Part of the reason is that we have taken the wrong line." What did he mean by that? He meant that if we continue to say to the rebels: "Unconditional surrender. When you come in or we capture you, we are going to slit your throats," we shall never get peace. When a war is proceeding, it is a common thing to preach the doctrine of unconditional surrender; but we have had in the last few months expressions of regret by prominent statesmen that they ever adopted the phrase "unconditional surrender" during the last world war. This man said to me: "If you would say to these rebels" (they are nearly all Chinese, not native Malayans) "We will deport you back to China and get rid of you. We do not want you in this country. We will spare your lives and you can go'—if you would take that view, you would bring the war to a much earlier end." I am not an expert on Malaya. I report that suggestion to this House because I think it is a very important one which ought not to be entirely disregarded.
I have taken up long enough. I do not want to occupy any more of your Lordships' attention. I want only to make a final quotation from the same writer in the Barclays Bank Review that I quoted for another purpose earlier on. I commend the quotation to the noble Lord, Lord Cherwell, who is always deprecating the efforts not only of the Government but also of the British people in their magnificent fight to hold their end up since the war. Speaking of the dollar gap, the writer winds up with this statement:
"On all this evidence, therefore, it will be seen that a clear answer can he given to the question whether the United Kingdom has paid its way since the end of 1945. It has not. But in mitigation of that negative, it may be said, firstly, that the abnormal deficits incurred in the early part of that period were in large measure the tail end of the financial profligacy with which the war had to be waged in order to achieve victory; and secondly, that the trend shows a marked improvement which has clearly continued into the current year and which has enabled the Chancellor of the Exchequer to claim in his recent Budget speech that 'we are at the moment in overall balance—indeed, almost certainly in overall surplus—with the rest of the world.'"
5.35 p.m.
LORD LAWSON: My Lords, I have listened to the debates in this House for some weeks. I confess that from time to time I felt very much like David Copperfield on one occasion, when we are told he felt "very, very young." I therefore ask your Lordships' indulgence for this, the first speech I make in this House. I listened carefully to the remarks of the noble Lord, Lord Cherwell, in opening the debate. Like many others, he attacked planned economy practically all the way through his speech. As I heard him speaking (and I confess it was not the first time I had been in this frame of mind since I came to your Lordships' House) I wondered whether or not I lived in the same country as he, because, as a result of planned economy, I have seen take place in this country probably one of the greatest and quietest social revolutions of which history has record.
I have seen meanly clad, meanly shod, meanly fed people practically disappear from Great Britain. To speak intimately of one great industry that I know very well and in which my life has been spent, I have seen a change not only of material standards but also of temper that I should have thought was almost impossible under any system at all. The Minister of Labour in another place was recently asked to give comparative figures of the days lost as the result of strikes since the war finished in 1945, and he stated that 10,750,000 days had been lost through strikes. That seems a very large figure, but he also told the country that the number of days lost by strikes in the comparative period after the First World War was 170,000,000. Those are very striking figures indeed. Noble Lords on both sides of your Lordships' House who were in another place after the First World War, as I was myself, will remember those stormy years. But to me the greatest change that has taken place is in the attitude of the men working in that great industry which was at the root of much of the trouble —at least, it was the advance guard of a good deal of those troubles between the wars—namely, the mining industry. To me the most moving thing about the change that has taken place under a planned economy is that men often come to me and say, "You know, we are respected now." Nationalisation has brought back to the men in that industry

443
a sense of self respect which they had almost lost.
I listened to the speech of the noble Lord, Lord Cherwell, to find out what was the alternative he, and those for whom he speaks, proposed. Do they stand for an unplanned economy? I have heard them speak a good deal of the old days of freedom and liberty. Speaking at first hand, I must say that in my own community there is more freedom and happiness to-day than I have ever seen in my lifetime. Those of us who love this country, whatever criticisms we may have of the particular mechanics of the Government's policy, ought to make it known to the world, with pride, that meanly dressed, meanly fed and meanly shod children, and great areas of unhappy people, no longer exist in this country.
If I may be personal, may I say that, as most people know, I worked in the mining industry for long years and I was very proud of my craftsmanship. In those so-called halcyon days described by the present Leader of the Opposition in his book on his early life, when he speaks of the time when the rich were rich and the poor were poor, I had regular work, and I was not, I think, a bad craftsman. The House will forgive me for being personal. I did not drink or smoke; all I wanted was a good book now and then. But how difficult that book was to get! Life was a very poverty-stricken thing in those days which many people think were some of the best days in this country's history. It was that that made deep dissatisfaction run through great communities in this land and it was that which made some of us fight for national ownership of the mines. I am not going to say that the national ownership that we have is the last word in perfection. No clear-thinking citizen would claim that, least of all any miner. He is very conscious of the shortcomings, and I frankly confess to the House that I should never be satisfied with that old wooden thing that on the Continent was sometimes called nationalisation.
However, I think that the National Coal Board have proved to the country and to the world that an industry can be nationalised to the advantage of the industry as well as of the people of the country. The Coal Board had a terrible heritage, and it was inevitably a terrible
444
heritage. The Reid Report revealed the evils of disorganisation in the mines, but some of us could have written an even more acute report. The National Coal Board have to re-organise the mines on a great scale. It will take years to put the industry into shape and make it the great asset which it ought to be to the people of this country. The Board have to make roadways and put the mines into modern condition. I remember very well their condition in hundreds of cases before the war. In the mines of Great Britain, sometimes in mines owned by great companies, there were roadways through which the men said a rat could not have passed. The Board have to make those roadways safe.
Once upon a time, when there were about a million men employed in the mining industry, something like 1,200 lives were lost each year. I remember how I used to watch the figures. I was very glad to see, in the latest figures, that from the 868 killed in 1938, when there were about 750,000 men employed, the number had dropped to 468 last year. That is an achievement that ought to be known and underlined. Every good citizen ought to find pleasure in the thought that this dangerous calling is being made safer. There was a time when if men were injured and did not quickly recover—perhaps they had a broken leg—there was no work for them; they were what were called light-rate compensation men. They were to be seen about the place for years and they became useless. But now hardly a man is injured but that arrangements are made to train and rehabilitate him, so that he may go back into his industry and become a useful citizen again.
I understand that a Royal Commission is to be held in a few minutes, and your Lordships have been so kind to me that have been carried away and have missed out a good deal of what I intended to say. What I should like to say in conclusion, however, is this. This great thing which we call industry is like a world within a world. It has grown to vast proportions in my time. We older ones have seen a second industrial revolution brought about by oil, whereby the light industries have come into being. That has affected every country in the world and is at the root not only of national but of great international problems. I sometimes think with pride of

445
the contribution which this country has made to the world's well-being in such matters as government, law, literature, social conduct and in many other ways, and I ask myself: Is it not possible that, by reason of this Government's planned economy, which may be adopted by other Governments in years to come, we are now making a great contribution towards the solution of the great industrial problems that trouble the world? May it not be that just as vie have led the way in many other matters, so out of our experience as the nation which was struck by the first industrial revolution we shall be in the van in facing these problems? This, at least, I will say: I am very glad to have lived to see a day, whether under this or any other Government, when men, women and children who once were broken and helpless have gained new hope and greater happiness. There is now an essential freedom which have not previously known in my time. I thank your Lordships.
5.59 p.m.
LORD SHEPHERD: It may be convenient if the House now adjourns during pleasure. The debate will be resumed immediately after the Royal Commission by the noble Lord, Lord Blackford.

DIPLOMATIC PRIVILEGES (EXTENSION) BILL
Returned from the Commons with the Amendments agreed to.
House adjourned during pleasure.
House resumed.

ROYAL COMMISSION
6.0 p.m.
The following Bills received the Royal Assent:

High Court and County Court Judges,

Newfoundland (Consequential Provisions),

Statute Law Revision,

Diplomatic Privileges (Extension),

St. John's Chapel Beverley,

Gun Barrel Proof,

Tees Conservancy,

City of London (Various Powers),

German Potash Syndicate Loan.

House adjourned during pleasure.
House resumed.

THE ECONOMIC SITUATION
6.10 p.m.
Debate resumed.
LORD BLACKFORD: My Lords, when the noble Lord who had just resumed his seat before the intermission and I entered another place on the same day in November, 1922, I am sure it cannot have crossed the mind of either of us that nearly thirty years later it would be my privilege to congratulate him on his maiden speech in your Lordships' House. It would be an impertinence on my part to comment upon the matter of the noble Lord's observations. He has spent a lifetime in public controversy and passed through many ministerial appointments, finally ending up as a Cabinet Minister. Therefore, obviously on any subject, and particularly on that subject which is dearest to his heart, he has a contribution of value to make. I should not like this occasion to pass without saying that during the seventeen years that he and I sat opposite to one another in another place I never heard about him, from any member of any Party, any word other than of admiration and affection. I have a specially warm feeling for him, because some years ago he was very kind to my eldest son when he spent three months working in the Durham coal mines. Needless to say, we shall have the pleasure of hearing from the noble Lord on many future occasions, and we can be quite certain that every time he will speak with great sincerity and integrity.
My Lords, the difficulty of any actor trying to play Macbeth is that he has to be absent from the stage for twenty minutes during the tribulations of the Macduff family and, therefore, has to re-create the atmosphere which was there before he left. Now after an intermission we have to re-create the atmosphere of our economic debate. Anyone who votes Conservative, I venture to submit, desires above all things a substantial reduction of taxation, and a favourite adjective on the lips of all Conservative spokesmen in this connection is the word "drastic." "We must have drastic economy," they say, "leading to drastic reduction of taxation." That remark is invariably met by the retort which the noble Lord, Lord Pakenham, made this afternoon: "Show us where you will get it." This retort is by no

447
means popular with responsible Conservative spokesmen. They are apt to say: "Put us in power and we will show you how"; or, "I cannot commit myself without knowledge of the inside figures," or something of that sort. One can thoroughly sympathise with responsible Conservative spokesmen in these somewhat evasive replies, because naturally they are afraid that if they commit themselves to anything definite the words they use may be taken out of their context and used in propaganda against them; and, moreover, their words may be held to commit the official policy of the Conservative Party. But in the dim obscurity of this Back Bench I am not handicapped by any of these inhibitions and, with your Lordships' permission, I propose to attempt for a few minutes to give you my idea of the definition of the word "drastic."
One of the commonest illusions under which the devoted electorate suffer is the idea that all these social benefits which they enjoy are obtained by the congenial process of "soaking the rich." This idea is carefully fostered by Socialist spokesmen—as witness Mr. Douglas Jay in the penultimate sentence of his speech in moving the Second Reading of the Finance Bill in another place. He said that the Welfare State has to be paid for, and we are paying for it by high taxation of companies' profits, of big incomes and of large fortunes. Let us examine that. The first point to be settled is what constitutes a rich man. I have often been intrigued by this, particularly in connection with the National Savings Movement about which Lord Pakenham spoke this afternoon. At what point in the eyes of the Socialist orator does an individual cease to be a deserving citizen who is unselfishly putting aside part of his hard-won earnings in order to lend to the Government and become instead a hard-faced capitalist hoarding his ill-gotten gains and grinding the faces of the poor? There must be a dividing line, and perhaps the noble Lord who is to follow me will devote a moment or two to clarifying the point.
At any rate, we must assume that anybody who pays surtax belongs to the latter undesirable class. It is all the more disappointing, therefore, to find that we get only £120,000,000 a year from
448
surtax, a mere 2½ per cent. of our total expenditure. Then let me turn to death duties, from which we get £195,000,000, representing about 5 per cent. of our total expenditure. It cannot be said that anything like the whole of death duties is culled from rich men, because death duties start on estates of £2,000, and a person who after a lifetime of effort has not saved, say, between £2,000 and £8,000 has not been extremely successful except of course in a certain walk of life, and it cannot be argued for a moment that a person who leaves under £10,000 is a rich man, As the estates of those persons vastly outnumber the estates whose spectacular leavings are thought worthy of printing in the popular Press, I submit that it would be generous to assume that £130,000,000 of death duties are culled from rich men. Add that to the surtax, and it gives a total of £250,000,000.
Let me now turn to the profits tax, which brings in £270,000,000. Sir Stafford Cripps himself tells us that £60,000,000 is found by the undistributed profits tax, though that can be put back by companies to make good deterioration and depreciation. What of the odd £210,000,000? Reflect, my Lords, that in the Midland Bank there are 73,400 shareholders, and of that number no fewer than 38,000 hold £100 of stock or less, and a further 24,000 hold between £100 and £300 of stock. I venture to think that, in due proportion, that remark is true of any other public company. Therefore, it is obvious that a very large number of shareholders are by no means rich people; and so I submit that if I allow £150,000,000 of the profits tax as attributable to rich men that would be an over-generous estimate. Add that amount to the others and you get £400,000,000.
Now let us tackle the income tax figure of £1,406,000,000. We have a useful figure here, culled from Whitaker's Almanack for 1948. We find that in 1948 20,000,000 people paid £455,000,000 in pay-as-you-earn income tax. Straight away, that reduces the £1,406,000,000 to £1,000,000,000. But what of the remaining £1,000,000,000? There are 9,000,000 people whose incomes are between £250 and £500 a year; there are a further 1,500,000 people whose incomes are between £500 and £750 a year, and there are a further 1,000,000 with incomes between £750 and £2,000. Therefore I

449
submit that if I agree that £600,000,000 of the income tax return is culled from rich men, that is a generous estimate. Add that to the others, and you get £1,000,000,000. What is the object of all these calculations which I have been submitting to your Lordships? It is that the idea that all these social services are paid for by rich men is entirely inaccurate. £1,000,000,000 will pay the interest on the National Debt—£537,000,000—and about half the cost of the Armed Forces—£781,000,000. That is right and proper because, as we know from a thousand Socialist platforms, rich men have always encouraged past wars because of the profits they made out of them, and will encourage future wars with the same laudable object. Therefore, the whole of that £3,000,000,000 of our annual expenditure is found not by rich men but by the devoted citizens whose votes all Parties so sedulously solicit.
I have rounded the corners, and am getting into the straight to deal with this word "drastic." Before I get there may I make two points? The first is that it is not possible to "soak" the rich any more—at any rate, so far as their incomes are concerned. Socialist politicians admit that themselves, and that is why the younger and brighter intellects among them are now so keen upon another capital levy. It is important that we should pay great attention to the opinions of these younger rising men, because, of course, Messrs. Attlee and Bevin and so on, after long and honourable service, are obviously on the way out. Whether they will in due course join the noble Viscount in these restful regions remains to be seen, but it is the younger men whose opinions are of growing importance to us.
Such younger men as Mr. Douglas Jay, Mr. Gaitskell and Mr. Crossman—two of whom, by the way, have been gathered to the breast of Sir Stafford Cripps at the Treasury—are openly in favour of a capital levy, and always advocate it under the ægis of their prophet, Kingsley Martin, of the New Statesman. They have not in mind a 5 per cent. affair, such as that inflicted by Sir Stafford Cripps—they talk about a large capital tax. So also do the twelve bright young men who wrote that pamphlet known as Keeping Left shortly before the Election. I am not seized of any pronouncement by the noble Lord, Lord Pakenham, on this subject, but of
450
course he is of that vintage. As I have said before in your Lordships' House, he is the only bud in bloom in an otherwise somewhat blown bunch. I3ut it is only reasonable to suppose that if he is to keep in step with leis contemporaries in their march towards the heights of Olympus, then it is highly likely that he shares their views on this point.
LORD PAKENHAM: If I may interrupt the noble Lord, I would point out that I am much more likely to share the views of the Minister of Town and Country Planning and the Secretary of State for War, having been educated at the same school as those Ministers, Eton College, while nearly all the gentlemen mentioned by the noble Lord were educated at Winchester, which I believe was the home of the noble Viscount opposite.
VISCOUNT SWINTON: I understand that all the more reputable representatives, in both Houses and of both schools, repudiate those theories, but that those who have attained to wealth and distinction on the Government Benches from both schools join in support of what my noble friend is now expounding.
LORD BLACKFORD: I will not enter into this inter-school business. I cannot help thinking that it is designed to put me off my stride, so I had better get on to the other points which I was making, one of which was with regard to the word "drastic." That is a very important point—namely, that no drastic reduction of taxation can be made without a drastic reversal of policy. Now if you meet any average Conservative in the street, he will ask: "When are you going to get rid of this wretched Government?" I always say, when I am asked that question: "Well, what do you expect a Conservative Government to do for you?" Ten to one, he will say: "I expect a drastic reduction in my taxation." I always say to him: "Now how would you bring that about?" He will say: "I would get rid of half of these blasted civil servants."
Now I want to quote Mr. Benson, the honourable Member for Chesterfield. Mr. Benson, it is true, is a Socialist, but he is a highly respected one and a very moderate one. He has been for many years a member of the Public Accounts Committee. In his speech on the Budge Resolutions in another place he said, in

451
effect, that high taxation has come to stay because of the Welfare State, and that no substantial reduction can be made without a reversal of policy. He went on to deal with this question of the Civil Service. He said that there may be some waste in the Civil Service, but that under existing policies it would be quite impossible to reduce the Civil Service by 25 per cent. Even admitting that it could be reduced by 25 per cent., taking the average salary at £400 a year, there would be a possible saving of £44,000,000 a year. I do not despise £44,000,000 a year, but it is equal to only 4d. off the income tax—and that is not my idea of the word "drastic."
Now, my Lords, I am on the uphill to the post in dealing with this word "drastic" and it is here that I come under the whip. If I have a herd of one hundred cows and insufficient food to feed them, what constitutes the word "drastic" in relation to the reduction of my herd? Obviously, only such reduction as will cut down the number of cows to tit the food. Let me apply that to taxation. The taxation in this country is 8s. 4d. in the £ of the national income. The taxation in the United States, which is the next highest taxed country, is equivalent to 5s. 6d. in the £ of the national income. The taxation in all other countries is considerably lower than that. Is it thought that, in the long run, we can succeed with taxation 25 per cent. higher than that of the United States—the next most highly taxed country? If it is apparent that we cannot, then, of course, a reduction of something like £1,000,000,000 a year will have to be made in our annual expenditure—and it will not surprise me if in years to come something of that sort is forced upon us. I am not suggesting that to-day; but I do suggest a reduction of £600,000,000 a year in our national expenditure.
How can that be effected? I should save £200,000,000 on the food subsidies. In theory, that would increase the cost of living of a family of four by 5s. 6d. a week. Even if that were so, I believe that it could be met by a reduction in taxation which would more than compensate for that. But I do not believe that, after the first two or three months when things settled down, the halving of food subsidies would lead to anything like such an increase in the cost of living as that. I
452
believe that the price of food throughout the world, so far as we are concerned, would tend to right itself. We should get on to a solid basis instead of the present fancy basis. There may be something in what Mr. Stanley Evans said (and was duly crucified for saying it in such a tactless way) that one part of the community is being unduly cosseted at the expense of another. Anyway, I should get £200,000,000 there.
I should get another £200,000,000 from the National Health Services. I do not know whether your Lordships think it desirable that a person who can perfectly well afford to pay should be able to go and get a couple of pairs of spectacles free of charge—not steel-framed, standard affairs but nice folding plastic ones—from an expensive optician in Wigmore Street, at the public charge. Only a few weeks ago I was told that a ship at Liverpool was held up from Saturday to Tuesday, unable to sail because several Indian lascars among the crew of that ship had not got their free spectacles; delivery could not be made before Monday, and the lascars would not sail without them. Is it right that anybody can get a nice wig, or dentures, or surgical boots, or bath chairs at the public expense whether he or she can well afford to pay for them or not? I consider that such action is financial insanity. I think that any nation which persists in such a course is bound to find itself on the financial rocks. These two services spend about £900,000,000. I have said nothing about the Fighting Services, which spend amongst them over £781,000,000. If there is not any waste in the three Fighting Services, then they are the only Government Department in the history of man in which that is so. It is the same with Education and in other Departments. Therefore, I should confidently rely upon getting a 10 per cent. reduction from the remaining £2,000,000,000 which is covered by the various Departments.
I have struggled past the post and now I come up to the congenial task of suggesting the manner of splitting up the prize money—this £600,000,000 which has been saved.
VISCOUNT ADDISON: This is an exceedingly interesting calculation, and we are much obliged to the noble Lord. May I ask whether we are to understand

453
that he considers he will get his £200,000,000 by knocking off the spectacles and the bath chairs and so forth?
LORD BLACKFORD: No. I ought to have spent a little longer on that subject, but I did not want to detain noble Lords. It might, however, mean that there would have to be a drastic modification of the administration of our hospitals—and I do not know that that would be a bad thing. The treasurer of one of our largest hospitals told me last week-end that the cost of running his hospital had exactly quadrupled since the hospitals had been nationalised. I was talking at lunch to-day with someone also connected with hospitals and he told me the same thing. Indeed, I was myself connected with one of the London hospitals for some time, until I had to leave it on account of pressure of other work; and I saw that the cost of running that hospital was increasing by leaps and bounds. I have taken care to say that it is not possible In effect these drastic reductions without a reversal of policy. I know that I lay myself open to criticism in making this suggestion but, after all, I am speaking from an obscure position.
Let me get back to the question of the "prize money." I should divide my £600,000,000 into four packets of £150,000,000 each. £150,000,000 represents 1s. off the income tax. If you subdivide that into two packets of £75,000,000, one packet would make a 1s. 6d. reduction on earned income, and the remaining £75,000,000 would mean a 6d. reduction on unearned income. That would be a great added incentive to all persons in employment. The second packet of £150,000,000 represents exactly half the purchase tax. I understand that the purchase tax is very unpopular with housewives, and this amount of money would certainly help towards a reduction in the cost of living by doing away with half the purchase tax. This would mean that only articles of luxury would be liable to purchase tax. The third packet of £150,000,000 represents more than half the beer duty of £267,000,000. That would mean a reduction of about 5d. or 5½d. on the cost of a pint of beer.
My last £150,000,000 could be used to knock off a quarter of the £610,000,000 which we spend on tobacco. For dollar
454
reasons I do not suggest that. We could take a choice as to what we should do with that £150,000,000. Supposing, for instance, that we were totally to abolish the entertainment tax of £46,000,000 and also the duties on tea, cocoa, coffee, sugar, matches, artificial silk and silk, that would take £36,000,000 making a total of £82,000,000. If you were to remit the £60,000,000 of undistributed profits tax, thus enabling firms to strengthen their position in the competitive field, that would add up to £132,000,000 leaving £18,000,000 to play with to make up my final £150,000,000. Perhaps that could be allotted to reducing the tax on petrol for public transport vehicles.
There are my suggestions, made on my Own, and I maintain that they would lead to a reduction in the cost of living and a great increase of incentives to all classes of the community. I do not suppose for a single instance that anybody will take the slightest notice of them, because unfortunately what I have suggested is not the policy of the Conservative Party. The policy of the Conservative Party, so far as I can understand it from The Right Road for Britain, is by no means that. What I am afraid of is that Conservatives throughout the country think that the coming into power of a Conservative Government will mean a drastic reduction in their taxation. That will be impossible unless, in my submission, the Conservative Party embrace a reversal of policy. It may be said that such a suggestion is reactionary. It is reactionary. When you see a man walking towards a precipice you do not go and push him forward; you rush to drag him back. That, I believe, is absolutely necessary in this matter of economy and taxation.
I am most anxious that there should be no false pretences in this matter. We are always told to speak the naked truth, to "set the people free." That is what I want to do—to set them free to the extent of £600,000,000 to spend their own money instead of having it spent for them by noble Lords opposite and their Party. What I have said this afternoon to your Lordships is my idea of the naked truth in connection with the question of economy and taxation. I do not believe that either Party will adopt it, but I believe it will be forced upon them, as I think either the noble Lord, Lord

455
Cherwell, or the noble Lord, Lord Brand, said, "by other circumstances," or, to use a rather pompous, pedantic phrase, "by the irresistible forces of economic reality." That I believe is the only way in which eventually economy will be achieved. I have stated what I believe to be the truth in this matter. It is for that reason that I have inflicted this speech upon your Lordships.
6.43 p.m.
THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT ALEXANDER OF HILLSBOROUGH): My Lords, may I first of all join with the noble Lord, Lord Blackford, who has just sat down, in congratulating the noble Lord, Lord Lawson, who was for so long a colleague of mine in another place, and say how much noble Lords on my side of the House, as I am sure in other parts of the House, enjoyed his contribution in his maiden speech. We shall be very glad to hear him again. There is something about his experience and way of life which commends itself to all classes in the community. He has a reserve of knowledge on questions of industry and social progress which I am certain will contribute much of value to our discussions.
In view of the lengthy statement already made by my noble colleague, Lord Pakenham, I do not propose to speak for many minutes this evening. The noble Lord, Lord Cherwell, made a very long contribution. Sometimes he irritated me and sometimes he made me feel that I should like to indulge in a real half-hour of political fisticuffs. But I do not propose to engage in that to-night. The more I listened to the phrases which were intended to lash, the more I remembered that, after all, there was a time when we were working together for the common safety and endeavouring not to cut Parties to pieces but to do our best in the work of the salvation of our country. Largely, what noble Lords on this side have to do is to justify the work which is being done, under the present representatives of the electorate, to secure salvation from our present economic troubles, just as we needed to be saved from the immediate physical menaces during the period of the war.
I think that the noble Lord who has just sat down has been a good deal more honest in his approach to this subject
456
than often is the case with others. He is to be congratulated on thinking aloud, as he has done. He is obviously speaking entirely without notes, and from a careful study of what he considers the national Budget should be. He has presented it to the House with great sincerity. I believe he is right in what he says about those who agree superficially with Conservative Party propaganda in their treatise—that a great number of them, as he suggests, are inclined to think that if they voted Conservative they would get the kind of special reliefs in taxation that he himself has worked out so meticulously and so cleverly from his own ideas on the subject. That would be a great pity. Of course, what the noble Lord said really comes into line with a comment, very much resented at the time, made by the Prime Minister. Just before the Election, when Mr. Attlee read the short version of The Right Road for Britain, he described it as "a dishonest document." It seems to me that the noble Lord, Lord Blackford, confirms the view which the Prime Minister took on the matter.
However, although we can say that we are entitled to have our own opinions, I do not believe that we can get away from the fact that in all the great international bodies which are considering the economic problems of the world and the things required to be done in order to deal with problems, the general consensus of opinion is that there is no country in the world which has made such an extraordinary contribution to its own recovery and to world recovery as this country has. You can check the reports issued in the E.R.P. publications, 0.E.E.C. publications and the like. I think it can be shown that no country in the world has made a greater contribution than our own, especially when one remembers the handicaps from which we started. It does not help very much when we are subject to the continuous denigration which goes on in newspaper, in speech, in statement and in what the Chancellor of the Exchequer allowed himself to refer to in his Budget Speech as the kind of "gossip" that preceded devaluation last year, which led me to say the things I said at Oxford (of which the noble Lord, Lord Brand complains), about it being one of the factors which led up to devaluation.

457
I am not an economist and I am not a banker. I have not the special outlook of the noble Lord who has such great experience. But, having had some connection with ordinary business, my own view is that the basis upon which you could expect the greatest confidence and growing confidence in an exchange rate would be the extent to which you could ensure from your own people such self-denial of consumption that they could afford to increase their volume of exports. Right through 1948 and up to the beginning of February, 1949, that was the position which was being achieved by the British people under the general direction of the policy of the Government in charge. Then it was that a situation was created—not I think, as was suggested just now by the noble Lord, Lord Brand, from people reading figures which were published, but from actual active propaganda against the position of the British Labour Government—that led to a holding off from the market, a holding off which grew quite naturally from business men in America. Once that starts there is an understandable feeling that if only they hold off a little longer, devaluation is likely to come and then they will be able to replace at a cheaper level their stocks that they use in the meantime. That went on over six months. I do not propose to go more deeply into that question. As I was named by the noble Lord, I wanted merely to make my personal opinion perfectly clear.
The noble Lord, Lord Cherwell, has spoken about how much more labour is required from a Britisher to provide goods which will bring back the same number of dollars. That is a perfectly fair argument to make, although if I went with a small toothcomb through all the statements of Conservatives before devalution I should find a good many people who were saying things which were likely to contribute to the hastening of devaluation. My Lords, the extraordinary thing is that, in spite of this additional handicap of devaluation in putting up the prices of what we have to import in the way of food and raw materials, the achievements in the last eight or nine months of the British people—those leading industry and those who work in industry—in meeting that situation, has been quite remarkable. Instead of having a whole series of criticisms hurled at the Government on this
458
particular point, I think that we are entitled to some credit for the fact that those in industry and commerce are doing so well in this matter.
When I listen to debates of this kind at the present time I always think of my own experience in Sheffield between 1921 and 1926. I heard the noble Lord, Lord Cherwell, talk about a comparison of rates of increase in productivity in certain years. I should want a very careful study of all the lines of production for each of the years I have mentioned before I accepted the conclusions at which he arrived to-day. If I were dealing with steel in the city which I know so well, I should want a comparison of production in 1920–21. I am speaking from memory, but I think the national production of steel in that year, under the wonderful alternative policy to Socialism, the deflationary policy, was 6,000,000 tons. Under the policy which has been adopted by the Socialist Government—in spite of all the criticisms which are hurled at us about this control and that restriction interfering with production—we have nevertheless raised the production of steel in the first quarter of this year to the equivalent of over 17,000,000 tons a year.
VISCOUNT SWINTON: May I venture to ask the noble Viscount how much of that is due to the steel masters and the steelmakers, and how much is due to His Majesty's Government?
VISCOUNT ALEXANDER OF HILLSBOROUGH: I should say first of all that if the policy adopted in 1945 had been that of the Government of which the noble Viscount was a junior member in 1921—namely, of leaving the industry absolutely free—the possibility of getting what the Government have got to-day would have disappeared.
VISCOUNT SWINTON: As the noble Viscount has challenged me, I will challenge him now to say whether or not the policy of leaving the steel industry free to carry on, whether under broad directives or not, is exactly the policy which the Conservative or National Government introduced. And is it not exactly the policy which the Government are operating to-day, and which I sincerely hope will go on operating, instead of resorting to nationalisation?
VISCOUNT ALEXANDER OF HILLSBOROUGH: There was, of course, the whole of their deflationary policy, starting with the Geddes Committee.
VISCOUNT SWINTON: I am not talking about the deflationary policy. The noble Viscount said that his Government had introduced some system of dealing with the steel industry. I am asking him whether what he calls the control of steel to-day is not exactly that which was operating before and during the war, and which my Party has said is the right way of operating the partnership—and not nationalisation. I challenge the noble Viscount to say that this is not true.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I would say on that, of course, that the partners in the steel industry are not composed entirely of those who manage. There are a vast body of people working in the industry, from the unskilled labourer to the highly skilled mechanic, whose contribution to the recovery in steel production has been immense and who start off from a feeling of confidence in the Government they have elected. I speak with knowledge in this matter, because I represented that constituency for so long, and there is not a single great steel-producing centre which has not given overwhelming majorities to Labour in the last Election, because they believe in the policy that we are carrying out.
THE MARQUESS OF SALISBURY: "Are carrying out"; not "are going to carry out"?
VISCOUNT ALEXANDER OF HILLSBOROUGH: I said "are carrying out."
I now turn to one or two of the specific points that the noble Lord, Lord Cherwell mentioned, and I particularly want to say a word or two about his references to the wisdom or otherwise of introducing the petrol tax and the purchase tax upon commercial vehicles. I am sure that he knows, from his study of economic statistics of other countries, that most countries have endeavoured since the war to ensure some economy in the use of petrol by means of increasing the price, and that this commodity still costs very many dollars, even when it is the so-called petrol from the sterling area, because of the arrangements for the distribution of oil in the two areas. Prices in France, Belgium and Italy are still higher than the
460
new price which has arisen as a result of the new tax in the Budget. During the past three or four years the consumption of petrol has been partially restrained in this country by the shortage of vehicles, but owing to the notable increases in vehicle production which have taken place this restraining factor is becoming steadily less powerful.
The rate of the petrol tax had not been increased in this country since before the war, and I therefore think it is fair to argue that this commodity, like so many others, should make an increased contribution to the revenue. It may be, too, that the new tax, coupled with the purchase tax on commercial vehicles, will lead to some saving in the consumption of commercial petrol. This might, in time, make it possible to make it a little better for private motorists; so I do not think there is any very great harm done in that direction. With regard to commercial vehicles, I would say that the noble Lord, Lord Cherwell, seemed to think that we were trying to do something surreptitiously in favour of the railways. He said that if that was so we should say boldly that we were taxing these people in order to assist the railways. I do not think that is the position at all.
LORD CHERWELL: I do not think I said that. I congratulated the noble Lord on the happy coincidence by which this tax did help the railways, in spite of the fact that it was not planned to do so.
VISCOUNT ALEXANDER OF HILLSBOROUGH: If anybody connected with the Railway Executive were asked whether he would accept that last statement of the noble Lord, I believe he would largely disagree, because of the extent to which the Railway Executive are themselves interested in road transport. The general increase in the tax upon all oils affected by the duty shows that it would be exceedingly difficult to argue that this tax is going to be of considerable benefit to the railways.
Of course, the amount of investment in the production of such vehicles must be restricted if we are to achieve maximum exports. It is clear that that must be done if we are to maintain a proper balance in the use of such production in our fight

461
for recovery and external economic stability, in the manner to which Lord Brand has referred. At, the beginning of 1949, it was expected that about 50,000 new commercial vehicles would become available on the home market. In fact 100,000 became available. In terms of money, the anticipated expenditure on this item in 1949 was £35,000,000, but the actual expenditure was £72,500,000—more than twice the target. There might perhaps have been some justification for this if the number of commercial vehicles on the road had been demonstrably below our needs. In fact, this has not been so. Before the war there were about 500,000 commercial goods vehicles in the United Kingdom. It is true that by the end of the war this number had fallen somewhat, but by the end of 1949 it had risen to no less than 800,000. The new tax, therefore, is a financial measure designed to strengthen the administrative methods that have been used to restrict this unduly large volume of home market sales.
Some remarks have been made about the use to be made of the revenue which derives from this duty. Without going into detail, I must say that I think it is of great importance to observe that the levying of this duty enables us to bring relief to that section of income tax payers by whom it was most needed. I would especially have said to the noble Lord, Lord Blackford, had he still been in his place, that it is important not to forget the considerable extent to which the reliefs given by the Chancellors of the Exchequer in the last three or four years have brought help to those in the lower ranks of Income tax payers. More than 4,000,000 people who were paying income tax during the war have been so relieved that they do not now pay any tax at all. Many other taxpayers in the lower division referred to by Lord Cherwell—that is those with incomes up to £500 a year—have had their taxes greatly reduced. By reason of this additional sum which is being raised, further relief is being brought to this section of taxpayers, and, because of its general application, it will also bring relief to those who get somewhat more than £500 a year, which was the limit mentioned by the noble Lord, Lord Cherwell.
LORD CHERWELL: I said: "From £500 a year."
VISCOUNT ALEXANDER OF HILLSBOROUGH: I should say that this relief will also be an actual stimulus to production. There has been criticism from time to time in the last two or three years to the effect that where overtime was needed in industry, in order to keep up production and the export drive, the incentive to work overtime was being killed by disinclination on the part of the workers in cases where they had to pay income tax under the P.A.Y.E. system on the extra money which they earned. There will now be a considerable relief in that direction, which will act as a stimulus.
LORD CHERWELL: I am sure that when the noble Viscount reads my speech—if he does read it—he will see that I never complained about reducing this taxation. I am delighted to and him giving such admirable and eloquent support to our view that reducing taxation is a stimulus to production.
VISCOUNT ALEXANDER or HILLSBOROUGH: I hope that the noble Lord, in further propaganda efforts, both here and in other places, will give proper credit where it is due, and will make clear to what an extent taxation relief has been brought to the people and how it is a stimulus to production. The noble Lord almost tempts me to say what I had intended to say in more detail on the question of taxation and incentives. But the hour is late and after the long debate which we have had it hardly seems necessary. I would say, however, that there cannot be serious argument against the extent to which this relief has been given in general to what I would call the working end of the income tax-paving community. There is no longer any great deterrent to extra effort by reason of the taxation which is imposed. But there is something else which is contributing enormously to the volume of production which has been attained. I hope that the noble Lord will look upon that production first of all in the light of the figures which my noble friend Lord Pakenham has given concerning the first quarter of the year. When the figures for the whole year are available, different and rather fluctuating positions according to holidays and other periods may no doubt be disclosed, but if the same general tendency reflected in the figures for the first quarter

463
continues right through the year, I think it will be a matter for warm congratulation to all concerned in keeping up this great effort.
Again, there is a tendency to forget another point of considerable importance. It is a fact that occasionally we get most irritating and suddenly projected pieces of what I call industrial insubordination—engendered very often by Communist cells. But people forget that the percentage of time which has been lost under the Labour Government is infinitesimal compared with what was lost during the reconstruction period which followed the war that ended in 1918. I think it would be just as well to mention the comparative figures at this point. The number of days lost in industrial disputes from V.E. Day in May, 1945, to April, 1950—a period of five years—was only 11,000,000. In the corresponding period from November, 1918, to October, 1923, it was no less than 178,250,000 working days. In other words, the comparison shows that less than one-sixteenth of the amount of time lost in the previous period was lost in this later period. That is very largely, of course, due to the general confidence of the working class in the Government which they have elected.
Another matter which I want to stress is the extent to which, in regard to costs of production, the leaders and the members of the great and powerful trade unions have stood behind the general policy of the Government of the country in all these matters. We have, I feel, great reason for satisfaction here. We also know, however, that if we are to achieve a victory in our struggle for complete economic freedom for this country it will not be enough to look to others for aid after 1952. A great deal more yet remains to be done. It will not be possible to achieve success unless we can continue our efforts on the lines which have been outlined to-day to prevent the dire results of inflationary pressure. It will not be done unless all classes in industry contribute of their best in
464
keeping up the drive for further increases in production and increased exports.
I believe that, if the case as to what is being done is fairly stated, the Government are undeserving of the derogatory criticism which we have sometimes heard. The critics are even beginning to forecast the need for further devaluation. That is the forecast which is being made in certain circles—I have heard mention of it myself—in spite of the increasing volume of production and the increasing volume of exports which ought to create increased confidence in the maintenance of the rate of exchange. I believe we shall come through our difficulties successfully. I feel that the Government can appeal to the nation for continued support in these efforts for economic recovery; I think we can justifiably ask employers and workers alike to stand behind that general drive.
One other thing I should say is that I support what my noble friend Lord Pakenham has said in thanking all those who have done so much and sometimes thankless work in maintaining the National Savings Movement. There are people of all Parties in every area who are doing a job in this connection, purely far the public benefit which they hope will accrue. We assure them that it is very necessary to obtain that public benefit. We would thank them and ask all who possibly can to assist us to expand the Savings Movement, because it is certain that unless we can get the proper amount of capital investment we cannot make our recovery secure. If we can get an increase in personal savings, in addition to what we provide for capital investment by taxation, we shall go all the more quickly towards ultimate recovery.
LORD SHEPHERD: My Lords, on behalf of the noble Lord, Lord Layton, I beg to move that the debate be now adjourned.
Moved, That the debate be now adjourned.—(Lord Shepherd.)
On Question, Motion agreed to, and debate adjourned accordingly.

GERMAN PRISONERS IN RUSSIA
7.12 p.m.
THE LORD BISHOP OF CHICHESTER THE LORD BISHOP OF CHICHESTER rose to call attention to the report broadcast from Moscow on May 4 to the effect that all German prisoners have now been released from Russia: and to the statement made on May 5 in Bonn by Chancellor Adenauer that 1,500,000 German prisoners of war were still unaccounted for; and to ask His Majesty's Government what steps are being taken in response to Chancellor Adenauer's appeal to the victor Powers to support by all means open to there the German request for an explanation from Russia. The right reverend Prelate said: My Lords, I ask you to turn your attention for a few minutes to a very different but very urgent field. On May 4 the Tass Agency broadcast a statement from Moscow that, except for 13,532 war criminals or persons whose war crime cases were being investigated and 14 sick persons detained temporarily, repatriation of German prisoners of war from the Soviet Union was complete. The total number of those repatriated since capitulation was stated in the same Report to be 1,939,063. This statement, so sudden and so strikingly detailed, was received with consternation by the whole German people, and this consternation found immediate expression in a statement by Chancellor Adenauer at Bonn on May 5, in which he called attention to the difference between this total of some 2,000,000 and the original total of 3,500,000 given in an earlier Tass Report at the time of the capitulation in 1945. He and the whole Assembly spoke of the profound shock with which this claim of total repatriation had been received. The Tass Agency report, Chancellor Adenauer says, "in no way tallies with the facts,", and the fate of 1,500,000 German prisoners of war is in doubt.
It is not easy to determine the exact number, whether alive or dead, but the Tass statement of 1945 is separately confirmed by the Order of Marshal Stalin to the Red Army on the occasion of the German capitulation in 1945, in which he said that 3,300,000 German prisoners of war were in captivity, and by the War News, edited by the Soviet Embassy in London, which at the same time gave the number of German prisoners of war as 3,180,000.
466
It is remarkable that in April, 1947, when the Ministers of Foreign Affairs met in Moscow, M. Molotov stated that the Soviet Union had a total number of 1,894,506 German prisoners of war, and of those, from May, 1945, to April, 1947, 1,003,974 had been already repatriated, leaving 890,532 still in captivity. There is an extraordinary coincidence here. If we look at the Tass statement of May, 1950, and subtract from M. Molotov's number of April, 1947, the number of German prisoners of war released from April, 1947, to May, 1950, we get exactly the number of 13,546 prisoners of war recorded in the Tass statement of May 5, 1950. That is to say, in the whole of that three years' period not a single prisoner of war in the Soviet Union can have died, a perfectly impossible state of affairs when we remember the very high rate of mortality in the Soviet prisoner-of-war camps. Imagine, therefore, the desolation with which innumerable families received the Tass statement. Where are the missing men—1,500,000, or fewer? A great number must be presumed to have died because of the high mortality rate which is found not in the general run bin in most of the camps, partly on account of the feeding. I think there must be very many alive: what has happened to them? I ask as a simple issue of humanity.
The claim of total repatriation is also to be linked up with the wholly new procedure adopted by the Russians regarding war criminals. Until last November, on the whole, sentence was passed on the individual war criminal in respect of a charge on which personal guilt was as a rule, I suppose, established. But in November the Russian courts launched out into group condemnations on a large scale. If a man belonged to an organisation, he is ipso facto condemned. This terrible change horrified those who had already been repatriated to Germany as well as relatives of those who remain. So far as can be established—and I have well-confirmed figures—there were during November and December between 45,000 and 46,000 supposed war criminals condemned and sentenced to between five and twenty-five years' forced labour. After such sentences, it is not likely that all but the 13,532 mentioned in the Tass statement have been released.
I remarked that the announcement was sudden as well as strikingly detailed. Up to May there had been an on-going, steady progress of repatriation, which was suddenly stopped. Yet, according to semi-official reports through Russian sources received at Geneva in the Prisoners-of-War Department of the World Council of Churches, and also in the Evangelical Churches Prisoners-of-War Department at Erlangen in Germany, repatriations were due to extend right through the summer up to September 1, at the rate of two transports a week of 1,000 to 1,500 each. During this month of May alone 60,000 persons were to have been repatriated in these transports. It is extraordinary that the whole on-going process of repatriation should have been so suddenly stopped. The hardship has been increased by the interruption, also in November, of all postal intercourse between German prisoners-of-war in Russia and their families at home.
What is the reason for this extraordinary step by the Russian Soviet authorities? I suppose that partly it is to be in exact line with Molotov's calculation of April, 1947; partly because of the great need of forced labour in Russia —Chancellor Adenauer said that hundreds of thousands of German prisoners-of-war were known to be still held for that purpose; partly also, I suppose, that they might be used as political counters to exert pressure on Western Germany in the current political situation. I am afraid that it is partly, also, because of the cynical desire to dash and raise hopes by turns, to spread terror one day and to offer presents and relief another day, and to do with prisoners-of-war in the mass what Communist agents have long been accustomed to doing with individual political prisoners charged with treason in their prison cells in Moscow, Sofia, Budapest or elsewhere.
The Russians as a people may be careless of human life, but they are not systematically cruel. On the contrary, the ordinary uncorrupted Russian is remarkable for his quality of pity, mercy, charity, as well as faith; and I am not suggesting that the Russian people are responsible for what is now going on. The soul of the true Russia is not to be found in the Kremlin; it is most surely found in religion, in music, in art, or in
468
the great champions of humanity—Tolstoy, Dostoevski, Gorky, and the old poets and story-tellers. The responsibility for the policy followed, and the motives behind it, lie with the Communist rulers, who must be totally distinguished in authority, character and manhood from the millions of ordinary peasants, workers and citizens of every kind under their sway to-day. I should like to add this remark. Now that we know the methods of the Russian Communist State in dealing with prisoners-of-war, does there remain very much justification for continuing to imprison German generals for failing to adhere to Hague regulations, which obviously did not apply to Soviet Russia?
This situation of the missing prisoners-of-war is an affront to the human conscience. Everyone here is glad that the Foreign Ministers on May 12 expressed their surprise and deep concern at what had occurred, and assured the world of their repeated and energetic efforts to secure a change. They agreed to take all possible steps to obtain information—that is the first thing. It would be very satisfactory if in this information the Russian authorities would publish a list of the dead, so that families may know their fate; it would be very good if there were a resumption of postal intercourse; and it would be very good if they would make known the names of those persons sentenced as war criminals, the charges and the punishment. A refusal to give information on such matters as these would give the impression that the Russian authorities had something to conceal.
But far and away the most important matter is the repatriation of those who are left, the release of all prisoners-of-war and internees, women and invalids as well. Be they many or be they few, that is what justice demands. I have no doubt that His Majesty's Government are foremost in their surprise and deep concern, and that they have made, and will repeatedly make, their own and the British attitude abundantly clear to the world. I appeal to the representative of the Government here to say that His Majesty's Government will work in every possible way with the other Governments concerned to secure release and repatriation for all those who can be reached and who survive.
7.27 p.m.
LORD HENDERSON: My Lords, we are all grateful to the right reverend Prelate for calling Parliamentary and public attention to the question of the repatriation to Germany of the German prisoners-of-war from the Soviet Union. I agree that this is a matter of urgency, because five years have passed since the conclusion of hostilities in Europe, and it is one which has aroused, as the right reverend Prelate has said, widespread concern and anxiety. I am sure we all believe that the quality of our civilisation depends, in no small measure, on the maintenance of human rights and the observance of common human standards. It is, unhappily, true that despite international rules, human rights and standards are soon found to be numbered amongst the casualties of war when hostilities occur. That may be inevitable; it is certainly an unfortunate fact.
It is of vital importance, therefore, that as soon as war ends there should be a universal desire and determination that the damage inflicted in this respect should be repaired as speedily as possible. For my own part I can conceive of nothing that is of greater significance in the efforts to build up a new order of peaceful cooperation than the restoration of human rights and the renewal of respect for moral and spiritual values, and I would submit that one practical test of governmental conduct in this matter is to be found in the handling of the problem of the treatment and repatriation of prisoners-of-war.
So far as the Western Allies are concerned, they completed the return to Germany of all German soldiers in their hands by the end of 1948. But it was only in the early part of the present month—that is, over sixteen months later—and after having failed twice to complete the operation by specified dates, that the Soviet Government claimed to have repatriated the last of the German prisoners-of-war from the Soviet Union. That claim, as we all know, has caused consternation and shock in Germany and has produced a feeling of deep misgiving and concern in all free countries. The plain fact is that the Soviet statement is not, and cannot he accepted as, a true statement. It has not won public confidence. On the contrary, it has rightly produced a reaction of mistrust, of suspicion, of challenge. That the Soviet
470
statement cannot be accepted as reliable, that it gives cause for justifiable anxiety, is evident from the fact that a very large number of German families are still awaiting the return of their captured relatives of whom they have had direct news during their captivity in the Soviet Union.
Moreover, there is the testimony of many repatriated prisoners-of-war, that large numbers of former German soldiers and deported civilians have been kept in Russia for forced labour. And as the Foreign Ministers stated in their recent declaration, the Soviet Government have failed to repatriate numerous nationals of German occupied countries who were taken prisoner during the war, as well as more than 300,000 Japanese nationals who still remain unaccounted for in Soviet territory. This represents human tragedy on a large scale, involving not only the prisoners-of-war and deported civilians themselves, bat also the parents, wives and children who are still denied the return of their captured relatives. Only a very callous mind could remain indifferent to it. The declaration of the Foreign Ministers to which I have alluded bears witness to sincere Western sympathy with the Germans in this issue.
That sympathy took a practical form, for the declaration ended by referring to steps, first to obtain more information, and secondly, to bring about repatriation in the largest possible number of cases. Noble Lords will recognise that the first step is an essential preliminary to the second. Instead of working on the basis of misleading or incomplete Russian figures, it will be necessary to approach the problem from the other end—that is, by way of working out details of missing persons from their relatives and friends in Germany and through reports of prisoners still in Russia given by returned prisoners.
As regards steps to bring about repatriation, it would be wrong of me to say anything that might raise false hopes. Noble Lords will, I feel sure, realise that it is too soon after the declaration was made for me to indicate definite decisions. But I want to make it clear that the three Foreign Ministers intend to press this question by all available means, and discussions are now taking place in Germany between the Allied High Commis-

471
sioners, in consultation with representatives of the Federal Government. Having said that, I hope the right reverend Prelate, to whom we are all indebted for his helpful action in raising this matter, will agree that the discussion should be left at this point for the present.

DOVER HARBOUR BILL [H.L.]
The King's consent signified, and Bill reported with Amendments.
WISBECH CORPORATION BILL [Hi.]
Reported, with Amendments.
DERBY CORPORATION BILL [H.L.]
Reported from the Select Committee, with Amendments.
GLOUCESTER EXTENSION BILL [H.L.]
The King's consent signified, and Bill reported with Amendments.

MANCHESTER CORPORATION BILL
MANCHESTER SHIP CANAL BILL
MID SOUTHERN UTILITY BILL
Brought from the Commons; read 1a, and referred to the Examiners.

NORTHUMBERLAND AND TYNESIDE RIVER BOARD AREA ORDER, 1949.
Reported from the Joint Committee, without amendment.
House adjourned at twenty-seven minutes before eight o'clock.