Lords Sitting of 6 June 1951

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

  BUSINESS OF THE HOUSE
  2.36 p.m.
  THE PAYMASTER-GENERAL (LORD MACDONALD OF GWAENYSGOR): My Lords, I beg leave to make a brief statement on behalf of my noble friend the Chief Whip, who is detained, to inform the House that it is proposed to interrupt our business at a convenient point between 3.45 and 4 p.m. in order to enable a Statement on operations in Korea which is being made in another place by the Minister of Defence to be communicated to this House by my noble friend the First Lord of the Admiralty, Lord Pakenham.

  COMMUNISTS AND SHIPPING INDUSTRY
  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 whether the attention of His Majesty's Government has been drawn to a letter issuéd by the Shipping Federation, covering a specimen of a detailed Communist directive to ships' crews to cause damage and subversion aboard; whether the source of this document has been found, and what action is contemplated in the matter.]
  THE PARLIAMENTARY SECRETARY, MINISTRY OF TRANSPORT (LORD LUCAS OF CHILWORTH): My Lords, the attention of His Majesty's Government was called to this document some time ago. The source of the document has not, so far as I am aware, been traced, and His Majesty's Government do not consider that any action lies with them that would be at all helpful or effective. The document has already been brought to the notice of owners, officers and men by their own organisations, and it is not at all likely that British seafarers, whose loyalty
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  to the interests of this country cannot be doubted, will be misled by the suggestions which this document contains. His Majesty's Government consider that in putting all concerned on their guard the most effective action possible has been taken.
  LORD VANSITTART: My Lords, may I point out that copies of this document have been found in all ships touching at Mediterranean ports, particularly Marseilles and Genoa? I should have thought that that would have provided some clue as to where the documents came from. This is a matter which I regard as of some gravity. In an article in the February number of The Seaman, Mr. Thomas Yates, General Secretary of the National Union of Seamen, says:
  "I regard it myself as one of the most subtle forms of sabotage to which the Communists have got down in their studied and calculated service to Soviet Russia."
  I should have thought, therefore, that there was some justification for calling in our Intelligence Service.
  LORD LUCAS OF CHILWORTH: My Lords, I was not aware that this document had been found in all ships in the Mediterranean. We know that it was found in one ship in the Mediterranean, but if the noble Lord has any further information beyond what I have, I shall be glad to bring it to the attention of the appropriate authority for such action as that authority may think desirable.
  LORD VANSITTART: My Lords, my justification for saying that the document has been found in all ships in the Mediterranean was the statement in the article in The Seaman by Mr. Thomas Yates, in which he says:
  "In plain terms, copies of this document have been found in all ships touching the Mediterranean ports…."
  LORD HAWKE: Are His Majesty's Government going to publish the document, in order that the British working man can see what attempts have been made by a foreign Power to sabotage his efforts?
  LORD LUCAS OF CHILWORTH: The document has already received wide publicity, and I do not think any useful purpose will be served by republishing it.
  LORD WINSTER: My Lords, while not in the least minimising the importance

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  of the remarks of the noble Lord, Lord Vansittart, may I say that the association representing the officers of the Mercantile Marine are well alive to the effects of attempted Communist infiltration? We have no reason whatever to think that this Communist propaganda is having any effect upon the officers of the Mercantile Marine, for whom alone I am able to speak. I cannot speak for the men.
  LORD VANSITTART: My Lords, I fully accept that, but I should like to see something done about the matter.

  THE ECONOMIC SITUATION
  2.43 p.m.
  LORD CHERWELL LORD CHERWELL rose to call attention to the Economic Situation; and to move for Papers. The noble Lord said: My Lords, there have been many changes in the Government since we debated the economic situation last year. To the deep regret of all, the country has been deprived by death of the services of Mr. Bevin, who literally wore himself out in our cause. The Government have also for the time being, lost the advice and guidance of Sir Stafford Cripps. His indefatigable industry and clarity of mind are badly needed in present circumstances. The scientific contempt which he so obviously had for the sloppy thinking of some of his more emotional colleagues must have been a most valuable corrective in the Cabinet. I am sure we all wish him a speedy recovery. Other Cabinet changes have been perhaps less unfortunate. After a trial of strength and a period of hesitation, during which the promptings of the inner light seem to have wrestled with the terrors of the outer darkness, the Minister of Labour and some small fry have given up their offices. We shall see, in due course, whether it has been a case of dropping the pilot or of shedding the load.
  We all to-day especially regret the absence of the noble Viscount the Leader of the House, Lord Addison. Like many other members of your Lordships' House, I have received many marks of kindness from him, and I am sure I speak in the name of us all when I say how glad we are to learn that his operation has passed off successfully, and how much we hope that he will soon be with us again. In his place there is the First
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  Lord. I expect to be pulverised by the full impact of the First Lord's broadside, directed no doubt by radio from the Treasury predictors and computers, if not in the bowels of the ship at any rate in some other suitable box. We will wish him well in his new post, which may offer so much legitimate scope for his natural pugnacity, which has peeped out occasionally, even in this House. I can only trust that Lord Samuel's forecast will not be fulfilled, that this Chamber will reward rhetoric rather than reason, for the scientist is not trained to be what I believe is known in professional circles as a "tear jerker." Anyone who remembers Lord Pakenham's peroration last year must realise how much I should be handicapped if eloquence, rather than facts and figures, prevailed. As we all know, the noble Lord refuses to see any spots on the Socialist sun. Perhaps he is blinded by the effulgence of his colleagues, seen nearby in the mass. I trust that he will forgive me for giving the impressions of one who regards these matters from outside the sacred circles. I can assure him that any intrusions of reality which I may bring to his rosy dream world do not imply any disrespect.
  What really amazes the unbiased observer most is, I think, the Government's extraordinary complacency. They honestly believe that they are doing extremely well. I hope noble Lords opposite will not take it amiss if I venture on a slightly deflationary (perhaps I should say "disinflationary") operation. This is not the occasion to examine their many disasters in foreign affairs. To-day, I propose to deal only with economic questions. In this field, of course, the Government's great boast is the success of "our policy of full employment." Anybody with any sense knows what rubbish this claim is. The Socialist Party have no secret nostrum for preventing unemployment. If they had, surely they would not have allowed it to double, as it did when last they were in office, between 1929 and 1931. Everyone, except perhaps their deluded constituents, knows that there has been such a demand for reconstruction since 1945 that the only thing which could have caused unemployment would have been the lack of raw materials, to which matter I shall allude later.
  We have been saved from this during the last five years by the gifts and loans provided by our warm-hearted friends and countrymen overseas. But for these, on the Government's own admission, we should have had an extra 1,500,000 unemployed. Since the war we have received no less than 8,300,000,000 dollars in the form of loans and gifts from abroad—about 1,660,000,000 dollars, or nearly £600,000,000 a year. This is more than the total value of our visible exports in 1938. With this £600,000,000 we have financed a large part of our yearly imports. It represents a great quantity of goods. Broadly speaking, it means that roughly 1,000,000 men overseas, mainly in America, have during the last five years, by their toil, sweat and effort, been producing goods which have been handed to this country free of charge. Never in the whole of history has there been such an example of generosity, and I feel bound to say that the ingratitude of those members of the Socialist Party (I hope only a minority), who so evidently prefer the Communists who are killing our men in various parts of the world to the Americans, who are keeping us and them going, is absolutely nauseating. So much for our policy of full employment. Given the raw materials —and we were literally given a large part of the raw materials—full employment was assured, whatever Party was in power.
  Then the Government often boast: "Look at our success in preventing strikes which did so much harm in the years after the First World War." Ministers can really claim no credit for this. In 1919 and 1920 the Socialist Opposition were sitting on the sidelines egging on the strikers. The Conservative Opposition have been too patriotic to take such a course. We do not claim credit for this; but we do blame the Socialists for their share in causing the trouble in the 'twenties, when they urged the workers to strike, instead of advising them to negotiate. In any event the boast is somewhat empty, for more man-days were lost in strikes in 1950 than in 1938. Now let me turn to what I think even Government supporters must admit have been some of their fiascos. In 1945 they boasted that they would get the people homes. In 1946 Mr. Bevan said:
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  "When the next Election occurs there will be no housing problem in Great Britain for the British working classes."
  Yet the housing lists are longer than ever. Before the war, 350,000 new houses were built in a year. To-day, with a greater labour force, the Government are aiming at only 190,000. If, as Mr. Bevan told us, some 200,000 houses need replacing every year, there seems little chance at this rate of ever catching up with obsolescence. Yet the Government seem quite content with that ghastly situation.
  I will not to-day discuss in detail the Government's lack of success in providing the country with adequate food. The noble Lord who is to wind up has such curious views on this subject that it would take a whole debate to clear up the matter. He told us recently that in 1950 we obtained two pounds of meat a week per head. I have yet to meet the housewife who would admit this. But even on the Government's figures we have been consuming in the last three months barely half the fresh meat that we used to consume before the war —and this in a country known formerly everywhere for its addiction to "rosbif." Is this not a miserable result of so-called planning? We have been promised, of course, a great increase in the meat ration in August and September, when the home-killed meat comes into the market. I hope this proves to be true, if only because it will presumably indicate an early General Election.
  Another Government fiasco has been the breakdown in our nationalised coal supply. It has been left to a Socialist Government literally to carry coals to Newcastle—and, what is more, bring them right across the Atlantic Ocean. On September 18, the Minister promised that our stocks would reach 16,500,000 tons by October. He seems to have been 1,000,000 tons short; so that having exported 13,000,000 tons of coal at about £3 per ton, he had to import 1,500,000 tons at about £6 per ton, or, rather, about 16 dollars a ton for I believe the coal came mainly from America. Even worse, the resultant call upon shipping has resulted in our being unable to import the normal amount of iron ore, so that for the first time since the war our steel output threatens to drop—not a very good start for the nationalised steel industry; nor for that matter a very good advertisement

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  for "planning." I need not labour the hardships caused to domestic consumers by the coal shortage. The Government claim that 5¼ cwt. was delivered per month for domestic consumption in the first quarter of the year. In my part of the world the small householders—and after all they are in the great majority— were lucky if they got half that amount. If the Government coal monopoly expect people to be satisfied with 10 lb. of coal a day or even their boasted 20 lb., with which to heat their houses and do their cooking in the coldest quarter of the year, they must be singularly out of touch with realities.
  Allied with the failure to supply coal is the failure to provide us with electricity. Here we are, nearly six years after the war has finished, and in the middle of our so-called English summer, subjected to constant electricity cuts of 10 or 15 per cent., which not only inflict hardship on the domestic consumer but definitely interfere with industry. This sort of thing never happened before the war, before Whitehall took over. The Government, of course, blame it all on the wicked consumer. They say he is using so much more electricity than he used to do. But whose fault is this? About the only articles in abundant supply after 1945 were electric fires. Short of coal, and with the gas pressure reduced, who could blame the housewives for buying them? In any case, why could not the supply be increased to meet the demand? In the first few years we were told that we must go short because it took five years—as against two years in America—to build a generating station. Now, after six years, we are told that we must not expect much easement until 1954. Really, it is difficult to call to mind an equal example of incompetence. Some Government spokesmen shelter behind the excuse that the electrical industry could not produce sufficient generator capacity to meet our requirements. But in the five years of Socialist misrule we have exported £14,000,000 worth of generating machinery—32,000 tons—to Russia. No doubt that is very useful to her in her armament factories, but I should have preferred to see it remain here.
  The Government's worst failure of all, the fact that prices keep on rising, I will
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  discuss in more detail later. I mention it here only because it exemplifies once more Ministers' tendency to shift the responsibility when things go wrong. When anything goes well, like the employment situation, they claim the credit and boast of "our policy of full employment"; but if things go wrong it is always somebody else's fault. Houses could not be built for lack of softwood. But who failed to buy the wood? I gather, incidentally, that there is now abundant softwood. It seems to me that some of the noble Lord's followers have been putting their heads together. Meat could not be obtained because the wicked Argentines did not like our devalued currency. Whose fault was it that it was devalued? We were short of coal because we started the year with stocks too low. But who exported 13,000,000 tons abroad, when 1,000,000 more tons at home would have made all the difference? Really Ministers remind me of the gentleman of whom it was said:
  "He took his troubles like a man; he blamed them on his wife."
  I turn now to the Budget. Frankly the broad general impression it makes is that the present Chancellor of the Exchequer does not expect to introduce next year's Budget. It looks rather like a caretaker's Budget, if not an "Après moi le deluge" Budget. It is interesting to note the extraordinary change which has come over the whole conception. Formerly, the Budget was designed to find the money required to meet necessary Government expenditure. The idea was to mulct the taxpayer as little as possible. To-day, the whole argument centres around the question, how much money should be taken out of the citizens' pockets lest they have too much to spend, should most improperly spend it, and should thus cause inflation. This approach is reflected in the enormous volume of Government expenditure—4.7 times what it was in 1938–39, and one-third greater than in 1945–46 when Mr. Dalton brought in the first Socialist Budget. In the coming year the Government intend to spend £11,600,000 a day—in two days as much as was spent in a whole year on the pre-war Air Force. They are spending £8,000 a minute, and have spent about £150,000 since I began to speak. That is a formidable proposition.
  I see the noble Lord opposite underlining in his brief the threadbare gambit, "On what would you save?" I will spare him the hackneyed reference to ground-nuts, or to the report of the Colonial Development Corporation. I think there is a rod in pickle awaiting for the noble Lord there. These items are too obvious and perhaps too painful. Nor would I dilate upon the incompetence displayed and the losses incurred in providing what that fine flower of Trinity College, Cambridge, the Lord Privy Seal, so elegantly described as "slap and tickle" at Battersea. The short answer is that they could save something on almost everything. Everywhere one investigates one finds things done on a lush and lavish scale. I will give one example—a couple of dozen more can be found in Hansard for April 12, columns 1263 to 1269. In 1938, the precursor of the Ministry of Fuel and Power, the Mines Department, had a staff of 442, and spent £250,000 a year. We then had all the coal, gas and electricity that we wanted. To-day, the Ministry have a staff of 7,222 and cost £6,000,000 a year. We are short of coal, the gas pressure is low and electricity is periodically cut off. And to add insult to injury, the price of all three has gone up.
  If another example is needed, one can take Government telephones. These cost £12,000,000 a year; that is, £5,000 every working hour. The number of calls made is 200,000 an hour, if one reckons them at 6d. each. Would anyone claim that this is really necessary, and that this expenditure could not be reduced? We shall be told, no doubt, that these are only small items. Of course, they are, but you find them everywhere you probe. The contemptuous way the Government brush aside a possible saving of a few million pounds in one or other Department shows how utterly unfit they are to run an economy drive.
  THE FIRST LORD OF THE ADMIRALTY (LORD PAKENHAM): My Lords, may I break in for one moment? I am sorry to interrupt the noble Lord when he is scintillating away, but I wonder if he can give us any kind of idea of the magnitude of the order of the total savings which he thinks we could effect by judicious economies?
  LORD CHERWELL: Without detailed examination no one could tell what the
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  effective savings could be. Two years ago we were told that there was no room for any saving whatever. But the Government afterwards explained that they had saved £100,000,000. In view of that experience I think that very probably there is a great deal more that could be saved.
  I was just going to turn to another item. Why should we choose this moment, of all others, when our economy is stretched to the utmost, to change all our rifles to a 280 bore, especially as the rifle has long ceased to be a decisive weapon in European war? It might have been intelligible if we were going over to a standard Atlantic calibre. But to spend tens of millions—for it will certainly cost so much—in order to change to a new calibre, different from that adopted by the United States and Canada—and also, so far as I can make out, the other Western Allies—must seem the very acme of extravagance, besides being doubtful policy, remembering the difficulty of balancing ammunition supplies in war time. I fear that I have disappointed the noble Lord; he would no doubt have liked me to attack the social services. No one on this Bench has ever done that. If the people want the social services they should have them. But the services are costing £1,600,000,000 a year—£2 10s. a week out of the wage packet of every family in the land. Parliament has assumed the responsibility of taking these enormous sums out of the people's pockets, it is, therefore, its supreme duty to see that the money is not frittered away, and that every—I repeat "every" —economy is made, compatible with reasonable efficiency. I have no doubt that the Government will pay lip service to this principle. But I think that many of us, not without reason, hold that their performance does not match the good intentions with which we are willing to credit them.
  Perhaps the most interesting aspect of the Budget is that the Chancellor is aiming at a much smaller surplus than last year. He apparently counts on making up for this by running down the gold and dollar reserves which he piled up in 1950. It seems questionable whether this will suffice to prevent inflation, if he actually reckons to spend in this financial year £690,000,000 more than last year on armaments, without materially reducing other Government expenditure. I could

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  not help wondering, as I listened to his speech, whether he had not at the back of his mind some doubt as to whether the Government would really be able to spend on armaments this year the £1,490,000,000 which is quite properly ostentatiously paraded. The immense increase in projected expenditure this year, £940,000,000, is due only as to three-quarters to the Government's belated rush to rearm after their over-hasty stripping of our defences. Of the rest, £210,000,000 is for rising civil expenditure which goes up year by year, seemingly by force of habit. Therefore, even to provide his reduced surplus the Chancellor has found it necessary to increase taxation by £285,000,000.
  More than nine-tenths of this increase is direct taxation—three-quarters in the form of income tax, and about one-sixth profits tax on distributed dividends. The other main change is that he proposes to sweep away the allowances of 40 per cent. on new equipment, and 10 per cent. on industrial buildings, which were made to encourage industry to keep its plant up to date. As I have often stated, I am no advocate, in these difficult times, of excessive capital investment; but to start by cutting the equipment needed to keep our industries efficient—after all, only one-fifth of our annual capital investment —is surely to begin at the wrong end. Government supporters who have not looked at the facts may ask: How can you reconcile this attack on capital investment with your increased housing programme? The answer is quite simple. Less than one-seventh of the capital investment programme is earmarked for housing. It is nonsense to say that if capital investment were reduced the cuts would have to be borne by housing. If to Socialists the word "profit" is like a red rag to a bull, the word "dividend" is like a flaming banderilla. The very idea that anyone should be rewarded for postponing the enjoyment of the fruits of his labour, or for risking it in some new enterprise, makes them foam at the mouth. Though, according to Command Paper 8203, wages and salaries have increased by £1,500,000,000 in the last three years, whilst dividend and interest payments have gone up by only £3,000,000, this is the item they have singled out for attack. This is the fifth time they have raised this tax, which
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  stands now at ten times what it did in 1947.
  Even more inexcusable is the doubling of the tax on undistributed profits which have to be set aside to replace, at inflated prices, plant as it becomes obsolete. Socialists seem incapable of understanding that their constant attack on profits de-feats its own ends. In every one of their Economic Surveys they say how necessary it is to save, but there is little encouragement to do so when a "one-time" levy threatens your capital and 50 per cent. taxes on distributed dividends assault your investments. Small wonder that annual personal savings have dropped by no less than £414,000,000 in the last four years. An even more fantastic result of the attacks made on anyone who does not work at a loss, not only by Somerset House but by Socialist demagogues and their tied Press, is the fact that it is no longer worth anyone's while to strive after profits. This is a great disservice to our trade balance. For the exporter, apparently, does not bother to get the best price he can for his wares; he would only be pilloried as a profiteer if he did. Hence the unbelievable statement made in the Economic Survey and repeated by the Chancellor that it might be quite a good thing if costs of manufacture went up, be-cause then we could charge and get higher prices for our exports. That the same result might be achieved without inflation, by giving the exporters some incentive to make greater profits, does not seem to have occurred to the enervated intellectuals in control. Or is this another case of the Socialist dogma of envy and hate overriding economic common sense?
  A symptom of this, if only in a small way, is the Chancellor's refusal to remove restrictions on travellers' funds for journeys to France and Italy. Notoriously there is no economic reason whatsoever for this. But the Chancellor was congratulated by Mr. Churchill on the lack of hatred and malice displayed in his Budget Speech, and perhaps he had to do something to reinstate himself in the good opinion of some of his less benevolent colleagues. I hope the Government will tell us to-day what is their attitude towards convertibility. Do they wish to achieve it, or do they not? Surely they must have an objective, even if they have not a policy. And surely the country has a right to know what it is. Last year,

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  for the first time since the war, we had a considerable favourable trade balance, and our gold and dollar reserves increased by a substantial amount. The Socialist Party, needless to say, is walking about as proudly as a dog with two tails; and I suppose, strictly speaking, the Socialist Party has two tails, one to the right and one to the left of the rump which controls the meagre Parliamentary majority. The country is concerned, of course, as to which will wag the dog. Sometimes it seems to be one and sometimes the other, which accounts for the oscillating course the Government have been steering.
  Naturally, we are all pleased that there has been a substantial improvement in the balance of trade. But it is by no means as spectacular as it appears at first sight and, indeed, seems somewhat mysterious when we endeavour to analyse it. If we begin with visible trade, it seems that we imported the same volume as in 1949, but we exported (again by volume) 16 per cent. more. We were £153,000,000 down in 1950, exactly the same sum as in 1949, so that to get the same imports and be left with the same deficit we had to do 16 per cent. more work. This is, of course, a natural result of devaluation; indeed, the discrepancy may well grow. But no one can rejoice over it. The improvement which enabled us to secure a satisfactory balance is entirely due to the invisible trade, which is £200,000,000 up. Some of the items are intelligible and very satisfactory, such as shipping, interest, profits and dividends; but by far the largest item, accounting for more than half the improvement, is shown under the portmanteau term "Other," which this year amounts to no less than £315,000,000 net. Again and again I have complained about this Government habit of camouflaging major changes in this way. It is impossible to judge the cause of an improvement, or to estimate whether it is likely to continue, when items are concealed in this manner.
  Nor are the terms even consistent among themselves. Under the heading "Other" for 1947 we find in one White Paper "minus £20,000,000"; in the next, "£3,000,000"; in the next, "plus £20,000,000"; in the next,"£32,000,000"; and in this year's White Paper, "£98,000,000"—all these for the same item or what purports to be the same item. Surely our account must be kept
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  in a very odd way if what purports to be the same item changes in the course of three years from minus £20,000,000 to £98,000,000. Perhaps the noble Lord can tell us whether the £315,000,000 announced this year, which alone converts an £85,000,000 deficit into a £230,000,000 surplus, can this time be trusted to be the final figure, or whether again it is liable to be altered by scores of millions of pounds, as has happened in previous years. Unless we can discover why "Other" was last year £106,000,000 greater than in 1949, we shall not be able to tell whether there was some compensation brought about by devaluation to make up for the hardship it inflicted on those engaged in visible trade.
  Above all, what of the future? In the first four months of this year, our visible balance seems to have been £175,000,000 down on the corresponding period last year, which would make £525,000,000 in a full year, if it continued at this rate. Can we count on making up for such an immense increase in the deficit by an equally great rise in invisible earnings? The country ought to be told. An even more striking improvement is shown, on the surface, in our gold and dollar reserves, which improved by no less than 2,300,000,000 dollars during the year. It is interesting to see how this total was made up, and to try to discover whether it was a result of devaluation. About 500,000,000 dollars were saved in imports, partly by running down stocks. Right or wrong, this could of course have been achieved without devaluation. About 300,000,000 dollars were gained by so-called capital transactions, whatever this may mean. Instead of paying 276,000,000 dollars to O.E.E.C. countries and other non-sterling area regions, as in 1949, we received in 1950 23,000,000 dollars from them, a net improvement of some 300,000,000 dollars. This, I believe, was due to the old arrangements being superseded under which we engaged to pay certain balances to certain countries in gold. But it had little to do with devaluation. Some 900,000,000 dollars were contributed by the rest of the sterling area.
  I asked last year, and I ask again, for an analysis of this item. Surely we should be told what are the imports and exports, visible and invisible, of the rest of

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  the sterling area, and not just the net figure. I would guess that the rise was partly due to a reduction of their purchases from the dollar area induced by devaluation and partly by increased dollar prices for their raw materials. I hope that to-day we may be vouchsafed a few more details. These items account for about 2,000,000,000 dollars improvement. Only 300,000,000 dollars were due to improvement in our exports to the dollar countries, which presumably can be attributed to devaluation. Thus, only one-eighth of the improvement was brought about directly by devaluation; seven-eighths of the improvement was due to other causes, many of which had very little to do with devaluation. Surely we ought to be given the material to form a balanced judgment about these matters. So far, the only thing that is quite clear is that we have raised our reserves by running down stocks and by increasing our overseas debts by £332,000,000.
  Whatever the future may hold about the balance of payments, no one can claim that the Government have been successful in preventing inflation. Between 1946 and October, 1949, wholesale prices rose by 35½ per cent. By March this year, devaluation had begun to take effect, and they rose by another 32 per cent., nearly 80 per cent. in all. Eighty per cent. in five years is a lot. Wholesale prices rose only 73 per cent. during the whole war. If the retail prices have not risen so fast, this is due to the inevitable lag, to the curious cost-of-living index, and to the subsidies which conceal, though they do not ease, the situation, since they are reflected in rising taxes. But even the Government admit a rise of nearly one-quarter in prices since the war. Fancy what an outcry there would have been, if five years ago, anyone had proposed to cut pensions and benefits by one-quarter! Yet this is what the Government have done, silently, inexorably, by letting prices rise. Can the Government be blamed for this? I think undoubtedly they can. In their first period of office they positively took pride in their inflationary financial policy. The Chancellor of the Exchequer reduced interest rates and splashed money about as though there were no limit to the nation's spending power. Sir Stafford Cripps, when he went to the Exchequer, did his best to put the machine into
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  reverse; but it was too late. Enormous commitments had been entered into, and Ministers in the spending Departments took as a personal affront any suggestion that they might exercise and impose a measure of economy.
  We have been told ad nauseam that inflation is caused by too much money chasing too few goods. One would have thought that, having grasped this kindergarten explanation, the Government would realise that the one sure way of precipitating this undesirable state of affairs was to send goods out of the country without securing anything in return. Yet this is precisely what they have been doing. As I explained last year—and the facts were not denied, still less controverted—between June, 1947, and December, 1949, two and a half years, we exported something like £1,000,000,000 sterling, which was used to purchase our goods, without our receiving anything, save perhaps moral satisfaction in return. Anything more calculated to raise inflationary pressure it is hard to conceive. The Government, of course, true to their principle that when anything goes wrong it cannot possibly be their fault, blame the rise in prices on the cost of imports. To some extent this is true. But it is largely the Government's fault that these prices have risen. For not only were prices at home forced up by this enormous unrequited export of goods but it had the consequential effect of forcing the United Kingdom to devalue its currency, and thus push up the prices of imports.
  In 1948 we had a favourable trade balance of £232,000,000, and in 1949 of £284,000,000, with the sterling area countries, and a favourable balance with other non-dollar countries. If they had not been allowed to draw down their London balances, and to demand dollars from the United Kingdom to meet their needs, sterling would have been a very hard currency. The main reason it was not so was that we had flooded the world with free sterling—£1,000,000,000 in two and a half years, as I have said. People overseas had as many pounds as they wanted, and were not prepared to give four dollars for one pound. In consequence, the Chancellor had to devalue the pound, a step that would never have been necessary if only he had stopped all these unrequited exports from going abroad. I have complained before, and

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  I repeat the complaint, that the arrangements by which countries overseas were allowed to draw down these so-called sterling balances, and thus obtain these unrequited exports, were made without Parliament having a chance to discuss them. It is beside the point for the Government to say that we have discussed them in general terms. Each agreement as it was negotiated should have been made subject to Parliamentary approval. Instead, we have never even been told exactly what has been settled, and these huge vital financial commitments which have distorted our whole economy have been made secretly without consultation with Parliament.
  Naturally, if you devalue the pound by 30 per cent., you have to give 42 per cent. more pounds for the same imports. And though this rise may be delayed by a good many months, because contracts have been made ahead, and so on, in due course it is bound to take place. I do not deny that the scramble for goods in con-sequence of the Korean war, owing to our failure to concert measures with our Allies, both in purchasing our imports and in restricting imports of strategic materials to potential enemies, has played some part in the 47 per cent. rise in import prices since devaluation. But the major part, in my view, was a direct consequence of this ill-conceived devaluation. The disheartening feature, with all this rise of import prices, is that there has been no corresponding rise in export prices. This, of course, is what one would expect if the rise is due to devaluation. If it were due merely to excess demand created by the Korean war, or to some other cause, one would expect those benefiting by the higher prices of their exports to be ready to pay higher prices to us for our exports. In fact, export prices from the United Kingdom have gone up only 19 per cent. since devaluation, as against the 47 per cent. extra that we had to pay for our imports.
  The greatest alarm caused by the Chancellor of the Exchequer's Budget speech was created not so much by something which he said as by something which he did not say. No mention was made of raising production. According to the Economic Survey, productivity in the manufacturing industries has risen on the average since 1946—admittedly a bad year—by 6½ per cent. a year. Usually this
  1074
  is taken into account in planning the year's economy, and so far, according to the Government's own showing, industry has not let them down. The Chancellor's ominous silence this year has given rise to the fear that we cannot count upon any such rise in 1951. If we do fail to increase output, this can be only owing to shortage of raw materials, which the Chancellor himself said gave rise to anxiety. Surely this is a most appalling breakdown of planning. One does not have to be a very experienced business man to know that it is no use building factories and allocating space and labour unless there are available the necessary raw materials. Yet in the first half of 1950, despite warnings by the trade, the Government allowed our stocks to run down. One excuse is that we could not afford the dollars. But our reserves rose by 734,000,000 dollars in the first half of the year. Another excuse is that the materials were simply not available. But this was certainly not the reason which led us to abandon our long-term contract with Canada by which we obtained 50,000 tons of zinc a year. And exactly the same applies to the cancellation of the arrangement by which we were to get 100,000 tons of newsprint. The fact is that in the first half of 1950 the Government were so obsessed with the need for gold and dollars that they cut down imports from the Western Hemisphere, regardless of the consequences.
  One of the most serious shortages is sulphur—just common or garden brimstone—which we import mainly from the United States. Surely, a Party which constantly protests against any dependence on the United States should have taken earlier steps to provide for a supply from home sources of this indispensable element. The Government are not usually backward in hustling and jostling industry. Surely, they ought to have encouraged industry sooner to build plants to produce sulphuric acid from anhydrite. The least they could have done was to warn industry that they could not guarantee supplies of rock sulphur. But perhaps they were looking too far ahead. In the infernal regions, I gather, there is no shortage of brimstone. Nor do the Government seem to have been very clever about their purchases of raw cotton, which they took away from the Liverpool Cotton Exchange. Here again, a serious shortage

  1075
  seems likely. And their diplomacy seems almost as unsuccessful as their bulk purchasing. For it appears that the United Kingdom has been allocated by the United States less than one half the amount it imported last year, while Germany is to get two-thirds, Italy three-quarters and Japan practically the whole of her 1949 imports. Meanwhile, alternative suppliers are making hay while the shortage lasts, and are clapping on export duties. We are paying something like 60 per cent. export tax on all cotton from Pakistan.
  I cannot help thinking that one of the reasons for the Government's remissness was that they hoped prices would fall; indeed, Mr. Morrison hinted as much in a speech last October. Possibly they might have gained a few million pounds if the prices had fallen. But it was not a good bet. For by letting our stocks run down the Government, on their own showing, expose us to "unparalleled industrial disaster." Even a hardened gambler would recoil from such odds—a fraction of one per cent. on the cost of imports if the gamble comes off, and "unparalleled industrial disaster" if it does not. The Government, of course, blame all this on the enormous American demands caused by the Korean war. But why did they not make some arrangement with America and our other Allies to concert purchases and prevent competitive buying? If we are to have the disadvantages of bulk buying, we might at any rate have some of the advantages. Captain Lyttelton suggested this to the Government last September, but apparently no action was taken until February this year, when prices had already rocketed. How can anyone have confidence in an Administration which has been so remiss in such a vital matter? In financial matters confidence is every-thing. Unless England regains the world's confidence, the pound will continue to fluctuate in the exchanges. But will this be possible as long as our present Government is in power?
  LORD PAKENHAM: May I break in once again? Since the right honourable gentleman, Mr. Oliver Lyttelton, has been quoted as an authority—which I feel sure he is in many ways—may I ask the noble Lord whether he recalls what Mr. Lyttelton said in November, 1950, rather later than the month mentioned by the
  1076
  noble Lord? On November 16, 1950, Mr. Oliver Lyttelton gave us this advice:
  "The purpose of my argument is to try and show that, until we can calculate the effect of a rise in prices of raw materials, we should be slow to rush in to very much relaxation of dollar purchases."
  I am afraid that that hardly supports the suggestion that Mr. Lyttelton was at all forward in desiring to go ahead fast last year with the purchase of raw materials from dollar sources.
  LORD CHERWELL: I do not think the noble Lord can have listened to what I said. I did not say that Mr. Lyttelton suggested we should make purchases. I said he suggested that we should make arrangements with the United States and our Allies in order to concert our purchases, and should not go in for competitive buying, which would only force up prices.
  In its early days, the Labour Party was led by simple straightforward working men, intent, as was their right and duty, on improving the lot of themselves and their followers. But times have changed. The cloth cap of Keir Hardie has been ousted by the mortar board of the economist, as was recently plaintively remarked by a retiring—or perhaps I ought to say, resigning—Minister. The horny hands of the sons of toil have been replaced by the horn-rimmed spectacles of the scholarly but sometimes unpractical "do-gooders." Usually, they are well meaning. Sometimes they are quite able. But they are almost invariably doctrinaire, and not seldom entirely remote from reality. All too often, if I may use an Americanism, it is a case of the ivory dome in the ivory tower.
  LORD PAKENHAM: Do not Meadow Buildings qualify?
  LORD CHERWELL: Unfortunately, they are not made of ivory. In the economic field their distinctive contribution is the principle that it is better to reduce the total amount of goods available for the community than to accept large differences in the rewards of the individuals forming that community. They do not mind if the poor become poorer, provided they can make certain that the rich do not become richer. Instead of arranging our affairs so that the self-interest of the individual is harnessed to the welfare of the community, they make plans which can work only if all our countrymen

  1077
  sprout wings and haloes and turn into a choir of angels. Pending this, we are to be kept on their idea of the strait and narrow path by restrictions, controls, regulations and penalties, imposed by our complacent masters who, on their own admission, do not care a "tinker's cuss" for any one who does not vote the Socialist ticket.
  And look at the result of their planning. Our economy is balanced on a knife edge from which it is apt to topple if there is the slightest change in American demand. In 1949 the Americans stopped stockpiling and there was a slight recession in their requirements. At once, so we were told, this created a terrible crisis in the United Kingdom. Ministers wailed and gnashed their nationalised teeth and the pound was devalued by 30 per cent. Last year the American demand increased. Immediately we were told that we faced "unparalleled industrial disaster" because we might not be able to get all the raw materials we wanted. Apparently all the Government's planning and all our efforts can give us stability only if the Americans purchase just exactly the right amount of our goods—not too much and not too little —to suit Britain's economy. The terms of trade, which were practically the same as pre-war when the Socialists came into power, have deteriorated about 40 per cent. In consequence, we have to do two-fifths more work than in December, 1945, to get the same imports. Meanwhile, prices at home continue steadily to rise and our savings, our pensions and our covenanted benefits are gradually, silently, little by little, filched away. Surely, noble Lords opposite cannot really be content with this state of affairs and, what is worse, with this sinister trend. I do beg them to consider the possibility—remote though it may be—that some of our troubles, at any rate, may be of their making.
  An appeal to the country cannot be delayed very much longer. Naturally, Socialists are concerned to put a good face upon things and not to make admissions which might lose them votes. I am not asking them to make admissions. I am asking them to mend their ways. I appeal to them to cease preaching the class war, to stop trying to set one half of the nation against the other. Without industrial peace and national unity,
  1078
  we cannot hope to survive. Our whole future is at stake. Let them consider the next generation rather than the next General Election.
  Not so long ago, London was the financial centre of the world. The solidity and integrity of our institutions was the envy of all, and foreigners rushed from every corner of the globe to invest their capital in the heart of the British Empire. How different are things to-day! Unheard of rates of taxation, combined with Socialist economic acrobatics, have caused such a loss of confidence that people's one idea is to get their money out of the country. Instead of being a magnet for investors, London has become a concentration camp. Instead of having to erect barriers against the hordes rushing to enjoy the Welfare State, stringent regulations and ferocious penalties have to be imposed to prevent those inside from getting out. Surely, nobody can be satisfied with this situation, and this House least of all. For that reason, my Lords, I beg to move for Papers.
  3.37 p.m.
  VISCOUNT SAMUEL: My Lords, this Motion has become an annual occasion in the proceedings of your Lordships' House. During the last five years, we have had each year a debate on the Motion, "To draw attention to the economic situation and to move for Papers." In 1947 and 1948 I had the honour of moving that Motion, and during the last three years the mover has been the noble Lord who has just addressed us, as usual in a speech vigorous, comprehensive and marked by incisive humour. I think I heard him say that the Government were spending £8,000 for every minute that he was speaking. This, therefore, is the only occasion upon which I would have wished from him a. greater brevity.
  My noble friend Lord Layton would have taken part in this debate from these Benches had it not been that he has been detained in the United States and Canada, where he is fulfilling a mission of great importance. For my own part, I shall not emulate the noble Lord, Lord Cherwell, in making a comprehensive survey of the whole subject, but limit myself to a single point, with a little digression at the end—or what would seem to be a digression, but what I hope to convince your Lordships is not a digression but highly relevant. My one point is that which is uppermost in the minds

  1079
  of people of every class, but particularly amongst the poorest men and women in every Parliamentary constituency— namely, the cost of living. It is the subject which arouses throughout the whole of the nation the greatest concern. It affects directly a large class as deserving as any, more helpless than any; all the elderly people who have retired from their labours and are living upon their savings or upon pensions; old members of the Civil Service and people from all origins who have fixed incomes and no means of increasing them. It affects directly in a greater or less degree the whole of the working class and, indirectly, the whole economy of the country, because it tends to increase the costs of production and thereby the costs of the goods which we have to sell abroad; and so it affects our international position.
  During all the previous debates noble Lords from all Parties have deplored the high cost of living, and have sought for remedies. But while Parliaments debate and deplore and seek for remedies, while the people are discontented and protest, the prices go on rising remorselessly, almost continuously; and some of them never with greater rapidity than within the last few months. Since we last discussed this subject the Korean War and the military measures necessitated have upset some of the principal markets; and, as a consequence, there has been another wave of claims for higher wages, which again has resulted in higher costs. Some figures I have seen show that in four months—November to February—in this country 8,000,000 workers secured, on the grounds of a rise in the cost of living, increases of wages amounting to a total of £2,500,000 a week, or £130,000,000 a year. And the irony of it is that after they had obtained that increase probably few, if any, of them were any better off than they had been a year ago. Such increases of wages are both the effect and the cause of rises in prices. That £130,000,000 is the consequence of the last rise in the cost of living, and it will be a cause of the next rise in the cost of living.
  The fact is that the economic system, not only in this country but in the whole of the Western world, is such that the forces that make for continual rises in the cost of living are stronger than any force that can reverse it. The work of the trade
  1080
  unions is essential to the welfare of the working people. The great improvements that have taken place in the last century in the conditions of the people have been due, first, indeed, to the discoveries and application of science in engineering, chemistry, and physics, but, next, to the work of the trade unions. The mentality of the trade union movement, however, has been concentrated until lately simply upon maintaining the amount of wages, the size of the pay packet. That they regarded as their concern—how to keep pace with the rising cost of living. That was their duty to their members. Greater productivity was not their concern. Larger sales of goods were not their concern. Recently there has been a change, but until then the whole force of the trade union movement was devoted continuously in all trades, at every opportunity, to getting more and more pay—as much as the industry could legitimately afford. That was natural, and it had great and beneficial results.
  Now in the United States the spirit is somewhat different. There, with the strong individualistic spirit that prevails, the workpeople and the unions have realised that every effort should be made to obtain greater productivity. They do not resent, indeed they approve of, labour-saving devices of every kind. And they see that this policy has resulted not in less employment for the working-man, but in more employment; not in lower wages, but in higher wages, through increased sales. They are not afraid of over-production. Although there may be over-production temporarily and locally, taking the world as a whole and in the long run there can be no such thing as over-production: there is only under-consumption. Therefore we have had as a simple device in our economic system a linking of wages with the cost of living. The agreements in the great industries, or very many of them, have been based on that principle; and whenever the cost of living index rises, the wages must rise. If there is a fall in the cost of living, the wages should fall. In many of the great industries this principle is acted upon without strikes or special bargaining. And if it is acted upon in those cases it must be spread over all the remaining trades and industries. If you have two men belonging to similar trades—not to the same trade—accustomed to having the same wage level, who live in the same street,

  1081
  whose wives shop at the same shops and buy the same articles at the same price, it is impossible that one should have a wage rise on account of the increased cost of living, and the other be denied it. There is this automatic increase in wages; and because of the wages going up, not long after prices go up once more.
  The employers, too, have been trained in the last century in the very simple economics of buying cheap and selling dear. That was a simple Ricardian principle. The trader was always taught to buy as cheaply as he could and sell as dearly as possible, so that he would make more profit. There have been more enlightened and progressive companies who have not adopted that rule but who make it their business to sell as cheaply as they can. But as a general rule, with the present system of price regulation and sales maintenance, although a firm might be quite ready to sell more cheaply and not reap the enormous profits which come to others, owing to their obligations to their trade they cannot do so. Great for-tunes have been made for many years from this source. It is said that this money is taken away in taxation; that the manufacturer is only a tax collector for the Government. But it does not work out that way because there is a process of considerable capital appreciation; and the person who has been accustomed to live at a certain standard will find it necessary to realise only a small part of the accretion of his capital to be able to carry on in much the same way as before.
  All these forces, both among the workpeople and among the manufacturers, work one way. There is no possibility of return. Goods and services become dearer and dearer—and, to look on the other side of the medal, currencies become cheaper and cheaper. The French franc, which, as we all know, was once nearly the equivalent of a shilling, is now worth a farthing. The Italian lira which was worth about the equivalent of a franc, has now sunk to a great deal less. We ourselves have not experienced such inflation as that, but when we put a 2½d. stamp instead of a 1d. stamp on a letter, that is an object lesson in inflated prices and depreciated currency. This economic system, so badly adjusted, has to face the shocks and the stresses of an international political system that is even worse adjusted. The Korean war, with fear widespread over the world, and particu-
  1082
  larly acute in America, that it may lead to another world war, has upset the economics of our supply and demand. The people and Government of the United States, determined not to be caught unprepared as they were at Pearl Harbour, immediately made provision for the possibility of a general war, and, fearing that their armies and navies might be engaged in a winter climate in Arctic regions, bought up all the wool available at any price in order to provide uniforms for their Services. Other commodities similarly will be required for rearmament. In other countries the same conditions prevail.
  I do not wish to trouble your Lordships with any statistics except just these figures. They are so striking and so relevant to the whole situation at this moment that I would ask your Lordships' leave to give them to you. They are taken from the current number of the Lloyds Bank Review. They show the effect of the Korean war upon some main commodities. Within a short period, lead has risen 48 per cent., cotton 31 per cent., wool 120 per cent tin 147 per cent., rubber 219 per cent. I am always rather suspicious of percentages. Percentages, like averages, may be very misleading. I remember something that Bernard Shaw once wrote to a friend about his early novels. When he was a very young man he wrote two novels, Cashel Byron's Profession and An Unsocial Socialist— not at all good novels and they had practically no sale. But he wrote to a friend that he was encouraged by the increase in his royalties during the previous two years, 1889 to 1891. He said that his royalties had risen by 170 per cent, but, he added, "That is even an understatement, because in 1889 they were 2s. 10d. and in 1891 7s. 10d." I will therefore give your Lordships not the percentages but some actual figures.
  I will go back now, not to the beginning of the Korean war, but to pre-war, 1939. Mark these points. These were dollar commodities, and the figures are in cents per lb. Lead (I am leaving out all the fractions and the figures on the right-hand side of the little dots) was 4 cents per lb. in 1939; it is now 16 cents per lb. Cotton was 9 cents per lb.; it is now 45 cents per lb.
  LORD PAKENHAM: At what date was it 9 cents?
  VISCOUNT SAMUEL: In 1939. Cotton was 9 cents and a fraction per lb.; it is now 45 cents per lb. Wool, which is quoted in pence per lb., was in pre-war years 19 pence per lb.; it is now 308 pence per lb. Rubber was 8 pence per lb.; it is now 72 pence per lb. Tin was £227 per ton; it is now £1,457 per ton. Jute was £30 per ton; it is now £182 per ton—and there are many other commodities of the same kind that could be quoted. That is catastrophic. Some of it may be temporary. It may be that there will be a fall soon. That may be so but, while it lasts, the effects are disastrous. Furthermore, owing to the fear of a greater war, great numbers of men are being withdrawn from the production of commodities that are really wealth-making commodities, and are being devoted to making munitions of war and the equipment of armies. This lessens production for the rest of the community and thereby injures our whole economic system. The Government are entitled to take credit for various actions that have been taken and have been taken successfully. The dollar exchange, which was a source of great anxiety not very long ago, has been much relieved. The dangerous unbalance between the gold and dollar resources of the sterling area has been greatly improved, thanks largely to an intense effort and vigorous and effective support from the United States.
  Then the trade unions, in answering the appeal from the Government, have shown great restraint in not pressing for wage increases until the higher cost of living following the Korean war made their position untenable. There has been a voluntary freezing of dividends also in answer to the appeal of the Government. But that, again, shows signs of giving way owing to the conditions of the present moment, and the wave of higher prices has largely swept away those restraints. One obvious measure has been taken, but taken too late—very late: that is, co-ordination among the Atlantic Powers in the purchase of raw materials. All of them went into the market simultaneously. There was competitive bidding and almost a cornering of certain commodities. The Governments of Britain and the United States acted by suspending wool purchases for a time, which caused an immediate deflation of the market, but the prices there are still most excessive.
  1084
  Now the Government have appointed a new Minister, the Lord Privy Seal, Mr. Stokes, whose special charge it is to concentrate on this particular problem. But that has been done very late, and drastic measures have been taken causing a great deal of discomfort and even hardship, difficulty and loss. Those measures might have been much less drastic if they had been taken much earlier. Furthermore, the Government, with the assent of all Parties, have passed into law the Monopolies Act, but the action of that Statute for restricting the activities of monopolies, price rings and the like, has been limited and very slow. The machinery is ponderous and it has, as yet, made no impression upon the situation.
  I am not going to-day into the question of taxation, a subject into which the noble Lord, Lord Cherwell, went in some detail and on which I spoke on the last occasion that I addressed your Lordships on this matter. I would only repeat the view that I expressed then, from which the noble Lord, Lord Pakenham, dissented, that as regards the whole theory of taxation for the sake of taxation, apart from luxury taxation or balancing the Budget or trying to remedy the gross injustices of our social system, the theorists have urged that what is called the surplus purchasing power should be withdrawn in order to prevent inflation. That is a theory which has been acted upon and to which I, for my part, have never subscribed. It results in the accumulation of hundreds of millions of pounds in Budget surpluses and it has the effect very often of making people draw upon their savings to buy anything they want. It does not really prevent the purchasing of a great many luxury and semi-luxury commodities. One cannot say whether it has done more harm than good, but certainly I believe that it has probably caused more inflation than it has prevented. It is rather like the 16th and 17th century practice of blood-letting. Whenever a person had fever they practised phlebotomy and rid him of so much of what was regarded as surplus blood; and the worse the fever the more blood they had taken away. They cured the fever, but they killed the patient.
  What, then, is needed at the present time? I believe that what is needed above all is throughout the nation a lower cost of living campaign; that the

  1085
  whole nation, led by the Government (and this should not be regarded as a matter of Party controversy), should be-come cost-of-living conscious; should not accept this rise as inevitable and merely devote itself to measures for meeting the rising cost of living, which is the usual phrase; but that the search should be for measures to prevent further rise in the cost of living and to reverse the trend. This can be done by reducing costs. And that, in turn, can be achieved by cheaper production. I think that greater efficiency of production, together with freer competition in supply, is the essence of the whole matter. Given these two things we may have the prospect of a general fall in prices. At present we have very large margins on which to work. Your Lordships will have from time to time seen reports, all too brief, of the Anglo-American productivity teams, consisting of employers and employed, of Americans and British, who have been examining the working conditions in one industry after another. So far as I know, all of them in their reports say the same thing —namely, that the fault in this country, compared with America, is that we have so much obsolete machinery; that wherever this country has up-to-date machinery it is worked too few hours— it is not, as it should be, working two, or even three, shifts—and that there are inadequate incentives to the individual working men and women to do their best and produce to their utmost. The reports say that the workman in America works no harder, that he often works shorter hours; but in trade after trade they point to the actual fact of a much higher production per man-hour in American industries as compared with British industries.
  A few days ago, I had a long conversation with one of the largest manufacturers in the Midlands, a man who has for many years adopted progressive principles, by paying high wages and ensuring lower prices through efficient production and up-to-date methods. He is a manufacturer of tractors, especially agricultural tractors. In 1948, a time of rising prices, his firm reduced their price for a tractor by £50, and they maintained that price all through this period of rising prices until the end of last year, when an in-crease in the cost of materials, especially of rubber, compelled them to increase it by £35. But still their tractor
  1086
  is selling at £15 cheaper than four years ago. Thanks to this system of extreme efficiency of production and continual reduction of price wherever possible, his firm are now supplying nearly 80 per cent, of the whole of the British market. There is the main line of progress for the future. That is our chief hope. We must come up to American standards. If it is possible in America, it is possible here; and the example of firms such as that which I have mentioned shows that it is possible. We must get rid of the restrictions on supply and price maintenance, and sell as cheaply as the articles can be sold; then the cost of living will come down.
  There is one other point in this connection. We must concentrate to the utmost on the development of our trade with the Dominions and the Colonies. There are there immense possibilities of the supply of materials which are not nearly sufficiently realised at the present time. We have good will and certain connections which will enable us easily to develop our trade. I do not propose that that should be done by the crude, primitive and inefficient method of imposing customs duties, and especially not by imposing hindrances on our trade with foreign countries merely for the purpose of exempting our Imperial and Commonwealth trade from similar restrictions; but by such means as the Colombo plan and Point Four of President Truman's international policy. Those are the methods by which we ought to increase our supplies. I am sure the Government will agree heartily in all of this, but I do not see the sense of urgency, the sustained and unremitting effort on the part of Ministers and the public departments generally, which the imminence of our difficulties and the urgency of the whole problem essentially demand. When a crisis arrives, there is a spurt of intense activity. If the dollar exchange seems to be in peril, if there is a scarcity of essential raw materials, and if suddenly there is no coal in the cellars and no meat in the shops, then drastic measures are taken and everybody gets busy. But when the immediate crisis is over we relax again into the rut. We have a Government of spurts and scrambles, and we want a national lower-cost-of-living campaign in order to ensure that whatever is needed is continuously pursued.

  1087
  I come to my last point, and my digression: to my mind, it is more important than any of the others, because the others I have dealt with are needs of the moment, but the point I am about to touch upon is permanent. It does not affect only the present Government. Much that I have been saying could be applied to any other Government, of any Party; or even to a Coalition Government. The fault lies in the governing machine. It is an example of obsolete machinery, of 19th century methods extending into the 20th century. The present Cabinet system, the old simple 19th century single Cabinet, of anything up to twenty members, cannot cope with the enormous complexities of a Welfare State in a world which is in turmoil. At the present time we have a Cabinet of seventeen members, most of them with heavy departmental duties. Outside the Cabinet there are sixteen other Ministers, ten of them heads of Departments which have no proper co-ordination. I believe that the main cause of our failures is the lack of any proper system of thinking ahead, and the shocking cases of administrative inefficiency that we have seen from time to time—the groundnuts scheme in East Africa, the Gambia poultry scheme, and also, I would add, the failure of the Government to meet the needs of the people in the matter of housing, and the financial muddle at the Ministry of Health in the establishment of the National Health Service. I believe that if we had a proper administrative system of control and co-ordination, all these mistakes, and many others on a smaller scale, about which we know little, might have been avoided.
  More than thirty years ago, this vital matter was examined by a Committee appointed by the Government of the day to consider the machinery of government. The Committee which sat under the chairmanship of Lord Haldane, advocated that there should be a small policy-forming Cabinet of some ten to twelve Members. When I first raised this question of the economic situation in your Lordships' House in 1947 I then urged reform of the Cabinet system as essential if we were to be well governed. I wrote an article, which was published in The Times in September of that year, in which I advocated a Cabinet of ten mem-
  1088
  bers, of whom five should be Ministers without any heavy departmental responsibilities. I suggested that there should be five groups of departmental Ministers, one group dealing with commerce and financial subjects, one with production and labour, one with the social services, one with the Commonwealth and Foreign Affairs and one with defence. Each of those groups, I suggested, should have a chairman who should be a member of the Supreme Cabinet—one of those five members without heavy departmental responsibilities. These five groups would, in effect, constitute five sub-Cabinets. Each should have its own secretariat, and each should have powers of action, subject, of course, to Cabinet direction and control. Each Minister should retain, as now, his own statutory responsibilities within his own Department. The interrelationship between these live sub-Cabinets should be elastic, not rigid, and should develop as experience required.
  This course was adopted—at all events a small Cabinet, with members having few departmental duties, able to think ahead and to deal quickly with urgent matters—has been formed three times when we have faced a great emergency. During the First World War, in 1916, in the economic crisis of 1931, and during the Second World War, in 1940, we saw that the ordinary Cabinet system would not suffice. On each ocasion a small working Cabinet was formed, and departmental duties were dealt with by the Ministers for particular Departments. But each time there has been a relapse. When the emergency has come to an end, we have slipped back to the Victorian system. It is true that with regard to the Defence Ministries the principle has been adopted. The three heads of the Defence Services—the First Lord of the Admiralty (and may I take this opportunity of congratulating the noble Lord, Lord Pakenham, on having such a post of such great national importance as that conferred upon him?), the Secretary of State for War and the Secretary of State for Air, form a group under the Minister of Defence who himself represents the whole group in the Cabinet. That is the proposal which I made in the article in The Times. I must confess that it received little support from any quarter, except in The Times newspaper itself. Before long, however, we shall have a

  1089
  General Election; and I make this very earnest plea. When a new Government is formed after that Election, whether it be a Party Government—a Government of one Party or another—or a Coalition Government, the Prime Minister of that day should give most careful consideration to this proposal. I venture to-day once more to submit it to your Lordships, for I firmly believe that it is the only way to deal effectively with complex and intractable problems such as those with which we have been dealing to-day.

  OPERATIONS IN KOREA
  4.15 p.m.
  LORD PAKENHAM: My Lords, with the permission of your Lordships' House. I beg to interrupt our business in order to read a further Statement on the course of operations in Korea. This Statement is being made in another place by the Minister of Defence It is as follows:
  "The position on May 2, when the last Statement was made, was that the first phase of the Chinese spring counter-offensive had been halted north of Seoul. The skill and courage displayed by the British 29th Brigade and the British Commonwealth 27th Brigade played a major part in breaking up the massive Chinese attacks against the United Nations Western and Central Corps, and in enabling these two Corps to withdraw in safety. The magnificent action fought by the 1st Battalion the Gloucestershire Regiment at this critical period was decisive in preventing a major enemy breakthrough and ensured the safety of our whole force in the west. It may be appropriate at this stage of my statement to give the House further information about this action, and also some details of the fortunes of the other units in the British 29th Brigade of which the Gloucesters form a part.
  "The 29th Brigade, with the Belgian Battalion under command, was disposed on a wide front just south of the Imjin river guarding the approaches to Seoul. The Belgian Battalion was on the right, the 1st Battalion Royal Northumberland Fusiliers in the centre and the 1st Battalion the Gloucestershire Regiment on the left. The 1st Battalion Royal Ulster Rifles was in reserve.
  1090
  The battle opened on the night of Sunday, April 22, when the Chinese began a series of attacks across the shallow Imjin River in brilliant moonlight. The heaviest attacks fell on the Gloucesters and the Royal Northumberland Fusiliers. The Belgians were cut off but were able to withdraw around the right flank into Brigade reserve. One company of the Royal Ulster Rifles was brought up to stabilise the position.
  "Throughout Monday night all battalions were subjected to heavy and prolonged attacks in which both sides suffered severe casualties. By daylight on the morning of Tuesday, April 24, the Gloucesters, to whom were attached C Troop of 170th Independent Mortar Battery of the Royal Artillery, had become cut off from the rest of the Brigade. Later that morning a Battalion of the Philippines Combat Team, supported by a troop of Centurion tanks of the 8th Hussars, attempted to reach the Gloucesters. When within about one and a half miles of the Gloucesters' position the leading tank of the relief column caught fire and blocked the road and the remainder of the force was compelled to withdraw. Early on Wednesday, April 25, a tank force from the American reserve brigade attempted to relieve the isolated battalion but failed to get through. On the same morning the 29th Brigade were ordered to withdraw. The withdrawal of the Royal Northumberland Fusiliers and the Belgians was largely successful. The Royal Ulster Rifles, however, got into difficulties and retired to the east.
  "Meanwhile, Lieut.-Colonel Carne, commanding the Gloucesters, split his battalion into three groups with instructions that each group should attempt to infiltrate back to our own lines. Noble Lords will by now have heard that Peking Radio has announced that Colonel Carne and about 100 officers and men are prisoners in Chinese hands. For their action, the 1st Battalion the Gloucestershire Regiment, and C Troop of 170th Independent Mortar Battery, Royal Artillery, received a Presidential Citation. I should like to read to the House, and I am sure the House would wish me to read to them, the concluding sentences of the Citation, which shows how this fine exploit

  1091
  appeared in American eyes. This is the passage:
  'The 1st Battalion, Gloucestershire Regiment and Troop C 170th Independent Mortar Battery displayed such gallantry, determination, and esprit de corps in accomplishing their mission under extremely difficult and hazardous conditions as to set them apart and above other units participating in the same battle. Their sustained brilliance in battle, their resoluteness, and extraordinary heroism are in keeping with the finest traditions of the renowned military forces of the British Commonwealth, and reflect unsurpassed credit on these courageous soldiers and their homeland.'
  "During the first week in May the enemy pulled back their forces to a distance of some ten to fifteen miles along the entire front in order to regroup and re-equip for the second phase of their counter-offensive. The 8th Army reacted vigorously by patrolling forward in order to maintain contact with the enemy and by the middle of May had reached a line running a few miles south of the 38th parallel in the West and a few miles north of it in the east. Thus a "buffer" had been constituted in front of the main defensive positions. The Chinese attacked again on the morning of May 17, and two main thrusts developed—one against an American Division in the west, and the other against an American Division and a South Korean Corps in the east.
  "Throughout the month His Majesty's Naval Forces and the Sunderland squadron of the Royal Air Force have continued their successful operations on an intensive scale. There have been no casualties in the Royal Navy or the Royal Air Force.
  "The situation at present is that the Chinese and North Korean armies have been considerably disorganised. General Van Fleet's timely counteroffensive, brilliantly executed by troops of fine fighting quality, undoubtedly took the enemy by surprise and threw him off balance. He has suffered heavily, and the fact that his troops are surrendering more willingly than heretofore and are abandoning large quantities of equipment, may be an indication that the morale and will to resist of at least the forward troops is wavering. Nevertheless, I would remind the House that there is no evidence that the huge
  1092
  Chinese man-power potential has been to any great extent affected, and it would be most unwise to assume that the enemy is permanently crippled. We should be thankful for the success which has attended our arms so far, and we should look forward with hope and cautious optimism."
  VISCOUNT SWINTON: My Lords, I am sure the House will be grateful to the noble Lord, the First Lord of the Admiralty, for his statement. I think we shall all be particularly satisfied that this complete account of the magnificent action of the Gloucesters and the Independent Mortar Battery of the Royal Artillery will be recorded always in the records of both Houses of Parliament.

  THE ECONOMIC SITUATION
  4.24 p.m.
  Debate resumed.
  LORD LUCAS OF CHILWORTH: My Lords, we have listened to two speeches, one by the noble Lord, Lord Cherwell, and the other by the noble Viscount, Lord Samuel, both of whom have excited our respect by the great contributions they have made, each in his own way, to the economic thought of your Lordships' House over many years. We have listened to the noble Lord, Lord Cherwell, with amusement and admiration—with amusement at his carefully prepared, over-night rehearsed sallies, gibes and quips, which, as usual, we have taken in the best of good part, as we know the noble Lord intended them to be, and with admiration for his continued ability to manipulate figures and facts to sustain a case which receives very little support from any noble Lord on this side of the House. The noble Viscount, Lord Samuel, made a speech of great moment. I know that he will agree with me that his concluding passages, which were perhaps the most important, deserve careful consideration, and I can promise that they will be so considered, because everything which the noble Viscount says in your Lordships' House is treated with the respect that it deserves.
  I had not intended to go back into the past and recount the triumphs of the British people over the last few years, triumphs that have culminated in the economic victory of 1950; but in view

  1093
  of some aspects of the speech of the noble Lord, Lord Cherwell, I am tempted to restate the magnificent achievements of 1950, which came about in spite of the gloomy prognostications of the noble Lord. What have these achievements been? Full employment has been maintained. Production was further increased, mainly as the result of an additional improvement in national productivity. There was a surplus, the largest for thirty years, in the United Kingdom balance of overseas payments. The sterling area dollar gap was closed. The gold and dollar reserves were doubled during the year. At the end of the year further E.R.P. allotments to the United Kingdom were suspended. Once again, one-fifth of the nation's income was devoted to investment in industry, transport, housing and schools. There was a further improvement in the level of consumption. By means of a Budget surplus and a continuance of voluntary restraint over wages, salaries and dividends, price increases due to higher import costs were not reinforced by pressures at home. That was an economic victory that astonished the world, and drew commendation from all sides. Some American comment was so eulogistic that to modest folk like ourselves it proved somewhat embarrassing. With that statement of fact, I leave the achievements of the past, as I think it would be more agreeable to your Lordships if I addressed myself not only to the tasks which confront us now but to those which lie ahead, and to what we can do towards accomplishing them.
  I do not intend to cover much of the ground already travelled by my right honourable friend the Chancellor of the Exchequer in the two magnificent speeches which he made in opening and closing the debate upon the Budget and the Economic Survey in another place. The speeches were masterpieces of lucid exposition, and were acclaimed as such on all sides. Doubtless, noble Lords have given these speeches close study. In the observations that I shall address to your Lordships I shall assume that the Economic Survey also has received your Lordships' attention, and I will not weary your Lordships with many figures. But may I say at once that the figures given in the Economic Survey were the best estimates that could be made when that survey was compiled at the beginning of the year? No effort was made
  1094
  in any part of that survey to disguise the plain truth that many of the estimates were tentative and conditional.
  We have now about arrived at the middle of the year, a year in which economic events have happened with astonishing rapidity; and as a result, some of the forecasts made at the beginning of the year have been falsified by those events, some in one way and some in another. The Economic Survey, however stands unaltered as a signpost clearly pointing the road along which we must travel, and at the same time it erects many warning signs of possible dangers ahead. In consequence of world events the present demands the rapid achievement of a much larger armament programme. This has now become the first objective of Britain's economic policy—the first but not the only objective. But even to achieve this we must keep clearly before us that our industry requires to be well-equipped and developed; our ability to purchase essential supplies from overseas must be sustained; and our people must have a reasonable standard of living. The economic programme, therefore, must provide for the arms to defend our way of life against possible aggression, and at the same time it must take care of the dire necessity to provide this country with the wherewithal to bring to its shores the raw materials for our export trade and essential home consumption and also food for our people.
  The figures of our rearmament programme are well known—a total of £1,300,000,000 this year, as a first instalment of a three-year defence programme of £4,700,000,000. This year's contribution represents somewhere in the region of 10 per cent, of our estimated gross national product, and may well reach from 13 to 14 per cent, in 1952 and 1953. That £1,300,000,000 excludes any strategic stockpiling of food and raw materials which world avail-ability may allow us to obtain.
  VISCOUNT SWINTON: AS the noble Lord takes us through these figures, I take it that he will say where the Economic Survey has proved erroneous, in one way or the other. For example, now that we are half-way through the year, does the £1,300,000,000 still stand as the figure?
  LORD LUCAS OF CHILWORTH: Yes, at the present time. Our import bill of £3,200,000,000 for the current year—which again does not take care of stockpiling—is necessary to sustain our productive effort. This must be matched by our exports and invisible earnings. It was estimated that our invisibles should be of the order of £450,000,000, and so, even if this figure is achieved, it leaves something like £2,750,000,000 to be earned by exports if external balance is to be achieved. Such are our major tasks: they are tough; and no attempt was made anywhere in the Economic Survey to show them in any other light.
  I should like now to deal with the problems arising in their fulfilment, and I will commence with the balance of payments. As I said in the opening of my speech, last year there was a surplus on our balance of payments which was the highest for thirty years. With imports at approximately £2,374,000,000, and exports, both visible and invisible, at £2,603.000,000, we enjoyed an overall surplus on balance of £229,000,000. As the noble Lord, Lord Cherwell, quite rightly pointed out, some of this was due to a shortfall in our imports, which necessitated a running down of our stocks—stocks which it is most desirable we should build up. But the rise in world prices accounted for an increase in our import bill last year of £400,000,000 over 1949, for the same volume of imports; and since June last the upward movement of world prices has increased, both in violence and in scope. As the Economic Survey points out, by February of this year the prices of our imports were already 25 per cent, above the average for 1950. With no further rise, that would add £600,000,000 to our import bill. Unfortunately, during March and April the upward trend has continued, and if it still follows the same course it may Well be that the £700,000,000 estimate in the Economic Survey will prove to be on the low side. We watch the position with concern and anxiety. The prices of imported raw materials rose by some 25 per cent, between devaluation and the outbreak of the war in Korea, and have risen by 75 per cent, since that conflict commenced.
  I feel that this would be an appropriate moment for me to deal with the comments of the noble Lord, Lord
  1096
  Cherwell, upon devaluation. The Government have never made the slightest attempt to disguise the fact that a major repercussion of devaluation would be a sharp rise in our import prices, especially in goods bought from the dollar areas. But what of the other side of the picture? The falling off in the volume of our exports in 1949 was arrested and reversed. The noble Lord used the words "this ill-conceived devaluation." But at the time of devaluation the chief complaint of noble Lords representing the Party opposite was that it had come too late, and that it was not enough; that was the complaint of the Conservative Party. Noble Lords may shake their heads, but I spent many a long hour sitting in the gallery of the other place listening to the complaint that they had been agitating for devaluation twelve months previously.
  LORD CHERWELL: If I may interrupt the noble Lord, I believe the argument was that if it was a good thing, it should have been done earlier; but that if it was not a good thing, then it should not have been done.
  LORD LUCAS OF CHILWORTH: That sounds a good argument, but per-haps there is still some logic in the old saying, "Better late than never." And very likely, if it had been done when the noble Lord says it ought to have been done, the noble Lord would have found one of those charming arguments against its being done at that time, because he is a past master at being wise after the event.
  LORD CHERWELL: Since the noble Lord challenges me, may I say that we did warn the Government that these un-requited exports would lead to devaluation?
  LORD LUCAS OF CHILWORTH: The noble Lord reminds us of so many things that never happen, and so few things that do, that I am afraid he cannot blame us for not taking his warnings as seriously as he would like. To say that the present high prices of our imported raw materials is due to devaluation is simply not true. I have said that prices rose 25 per cent, before the Korean war, and that they have risen 75 per cent, since. This rise is not peculiar to this country. I will give the noble Lord some figures, reinforcing those given by the noble Viscount, Lord Samuel, of the repercussion

  1097
  of this higher material cost in America. I have taken these figures from official United States statistics, and they show beyond any doubt the extent of the increase of American production, the growth of American buying and the in-crease in prices which have had to be paid.
  United States production rose from March, 1950, to March of this year by almost 20 per cent.—a gigantic increase in the world's greatest industrial economy. The volume of United States imports increased by over 10 per cent. in the last half of 1950, and the unit value of United States total imports rose by over 25 per cent. from June, 1950, to February, 1951. United States imports of crude materials —which are the nearest to our own group of raw materials—increased from a monthly average of 175,000,000 dollars between March and June, 1950, to over 300,000,000 dollars in January and February, 1951. Wholesale prices in the United States rose by 15 per cent. from June, 1950, to March, 1951. The higher material cost has affected the American economy and, therefore, as I have said, it has affected our own and, indeed, is one of the major causes of the rise in prices.
  It is very difficult to estimate the effects of devaluation in increased world prices, but I say quite definitely that the statement that devaluation has been the major factor in the rise is not true. From the picture I have given, it will be seen that the effect on our balance of payments is bound to be substantial, and that we must work, and work very hard, for an overall balance. Even though our reserves may be used, without serious consequences, for stockpiling essential commodities, it is a fundamental objective that we pay fully in exports for what we need for current use and consumption. Any sizeable and sustained external deficit would threaten the restored place of sterling in the world's markets.
  World prices and their effect upon our import bill bring me to what is an equally serious matter—the availability of raw materials. Although our inability to obtain all the raw materials we require would cut down our import bill, the consequences of that upon our productive effort and, therefore, upon rearmament would be serious almost to the point of disaster. Our raw materials position has
  1098
  been the subject of much adverse comment, a good deal of which has been levelled at our partners, the United States of America. These criticisms appear to have overlooked two factors. First of all, it has been clear for some time that world rearmament would lead to raw material difficulties, but those difficulties have been accelerated and intensified rather than caused by that rearmament. Even before the Korean war, the production of many raw materials was lagging behind the output of manufactured goods. The level of world production, and industrial production at that, has risen sharply. By 1950 it was 48 per cent. above the 1946 level and 56 per cent. above that of 1937. Secondly, I would ask those who so freely criticise the United States of America to review American policy over the last few years. Since the war, the United States has poured out its wealth in the form of U.N.R.R.A., loans and Marshall Aid— 2,694,000,000 dollars to this country alone —in nursing Europe back to health. Do these critics believe that the United States will be prepared to risk all they have built up through these generous policies by not helping us to get the raw materials we need to play our part as the front line of defence against aggression and to sustain our economy—one which is not only vital, if we are to be independent of outside aid, but also is a sure shield against the insidious enemy, Communism?
  I suggest that that is impossible, and this view has been strikingly confirmed by the statement issued in May last by Mr. Charles E. Wilson, United States Director of Defence Mobilisation. This is what he said:
  "We appreciate the difficulties our allies have been experiencing in obtaining essential materials and machine tools. We recognise that scarce materials and machine tools must be reserved primarily for defence production and other essential needs. We are determined that there shall be an equitable distribution of these goods among all of us for these essential purposes. We are working now on the concrete steps to be taken to carry out this objective. Among such steps are adequate export quotas along with priorities and/or directives to producers whenever necessary. We recognise that a proportion of our resources must be devoted to sustaining the strength of our allies. We have no desire, for instance, to see the largest industrial mechanism in Western Europe—that of the United Kingdom—not fully employed for want of raw materials when every bit of it is so vitally necessary to produce arms and other essential goods."

  1099
  This has been followed by the statement issued by the American Government last week, which can be regarded only as a step in the right direction.
  While the machinery of international discussion upon this subject moves slowly and is taking longer than we had hoped —and these problems can be resolved only by international action—may I counsel patience? You cannot build up a policy of mutual help on mutual recrimination, and in time of peace it is very difficult to build up a near-war economy. The International Materials Conference cannot, in the nature of things, produce results as quickly as the Combined Raw Materials Board during the war. That Board had far fewer members and had effective sanctions at its command. While raw materials supply, like world prices, is outside our control, we feel justified in relying upon the United States, as our partner in the North Atlantic Treaty Organisation, to see that we are not prevented by avoidable shortages of raw materials from making our full contribution to the general effort of that Organisation.
  But, having said that, I would emphasise that our first task is to take all possible steps to help ourselves. This is a challenge to industry, a challenge which it has met before, and met successfully. It demands from industry major and long-term adjustments in methods of production, designed to overcome the shortages which now exist or are expected. It is of the first importance that industry should continue and, wherever possible, intensify its efforts to avoid waste of raw materials; to work out methods of substituting materials which are available for those which are scarce, and to adjust the specifications of products so far as possible to avoid using materials which are in the shortest supply. Industry well knows from its experience in the last war how effectively adjustments of this kind can be made. Substitute materials will have to be used as much as possible, and new substitutes will have to be developed with all speed. We have not yet touched the fringe of that problem. In the debate in your Lordships' House the other day on the mundane subject of waste paper, noble Lords on all sides stressed this fact and pointed to many examples of what could be done by converting waste into useful material. Efforts of this kind
  1100
  should be treated as a long-term and not as a short-term policy. I would give industry this warning: that raw material shortages are likely for some time to be a limiting factor in raising the general level of production in this country.
  I should like now to say a word about steel. As noble Lords are aware, we are aiming at a steel output of at least 16,000,000 ingot tons this year. The capacity is there and, notwithstanding the shortages of raw materials, particularly scrap, we should come very near the tar-get. To compensate to some extent for the substantial fall in the availability of scrap from abroad, we are organising an intensive scrap drive at home; but this cannot possibly make up all the deficiency. We are also arranging to make the maximum use of home ore and to bring in all the rich iron ore we can import. As the noble Lord, Lord Cherwell, rightly said, unfortunately the imports during the first quarter of this year were below requirements, principally because of the shipping stringencies which then existed. Imports during the next few months will be on a much higher scale, reflecting not only the normal improvement during better weather, but also the increased volume of chartering which has been and is being effected.
  Tribute should again be paid to the United States Government for the steps they are taking to alleviate the general shipping shortage by bringing out ships from their reserve fleet, and for the material help they are giving to our iron ore import programme by permitting ships to carry ore from North Africa to the United Kingdom instead of returning direct in ballast to the United States after taking bulk cargoes from North America to the Mediterranean. The United States Government were most sympathetic to the appeal made by my right honourable friend the Lord Privy Seal on his recent visit to Washington, for shipping assistance for iron ore imports. In addition to helping us by shipping ore from North Africa, they are considering how they can assist in lifting ore from other areas. With this help, and provided there is no unexpected deterioration in the shipping situation during the next few months, we should be able to bring in all the rich iron ore we can handle. Contracts have been placed for 9,300,000 tons. We may not be able to obtain all this, but if we

  1101
  get within striking distance our target should reflect the same result.
  Allied to this problem of raw materials is that of machine tools. The present estimate of machine tool requirements for the defence programme is 35,000 to be installed by June to October, 1952, if the programme is to be fulfilled on time. It is hoped that 19,000 to 20,000 of these will come from abroad. Upwards of 10,000 have been ordered from Germany, and over 7,000 special machines, only obtainable in the United States and valued at about £53,500,000, have been ordered from that country; and we expect to place orders for another 2,000 from the same source. We have obtained United States Government priority rating for practically all our orders, and we hope to secure equal treatment for orders we place in the future. It will be necessary, however, for our home industry to supply 15,000 to 16,000 machines, and steps are being taken to expand the output as quickly as possible. Defence contractors have already placed with home makers orders for some 8,000 tools, leaving 7,000 or perhaps even more to be obtained by diversion from existing customers. There is little scope for diversion from export orders—first, because of our need for exports, and secondly, because about half our machine tool exports go to Commonwealth and N.A.T.O. countries who are relying on them for their own defence efforts. And so home civilian users must expect a cut of about one-third in deliveries in the next eighteen months. Consultations have been proceeding with industry by the Ministry of Supply with the object of securing that available machine tools are used to the best advantage, both for the defence programme and for other essential purposes.
  There is little fresh I can say about man-power and production. I listened with great interest to what the noble Viscount, Lord Samuel, said about the lessons in productivity which we can learn from America. I think industry will have to look to incentives of a very material kind. The increase in British industrial production from 1949 to 1950 was 8½ per cent. At the time the Economic Survey was published it was estimated that raw material shortages would prevent a similar increase this year. A possible rate of increase seemed to be about half of last year's rate, possibly 4 per cent., and we have no reason at
  1102
  present to change that estimate. But the clouds of doubt are hovering around.
  Now, my Lords, under this heading I cannot refrain from drawing attention to the adverse effect of unofficial strikes upon our tightly-stretched economy. They impair our productive effort and discount the energies of the hundreds of thousands of loyal workers who are putting their backs into the job. The present time demands, in the words of my right honourable friend the Minister of Labour:
  "… the highest degree of concentration by-management and workers on the problem of how to secure increased productivity."
  My right honourable friend, in a speech he made the other day, expressed his unhappiness at the rising trend in the number of disputes that had been manifest this year. They are disturbing. In the first five months of this year the number of days lost in disputes was 50 per cent. higher than in the comparative five months of 1950. My noble friend Lord Samuel expressed his dislike of percentages, and I feel tempted to say that the hard arithmetic of the matter is that this year the figure for the first five months exceeded 750,000. Last year for the comparative period it was just below 500,000. This matter should be pondered very carefully by all engaged in industry in this country.
  I now come to that vital part of our economy—exports. It was said at the beginning of our great export drive that we must export or die. That saying has lost nothing of its truth. The terms of trade are set against us. Our extreme dependence on external trade exposes us to the full force of the rise in primary commodity prices. I have already dealt with our import bill, and also the serious problems of raw material supply, which will curb the rate of growth of our industrial production. I have also placed before your Lordships the gravity of the balance of payments problem and, in spite of the large deterioration in our terms of trade, the absolute necessity to maintain a balance in our external accounts. The words of my right honourable friend the Prime Minister, when he announced to the nation the Government's determination to undertake the £4,700,000,000 defence programme, cannot be bettered. He said:
  "We must see that we carry as much of the load as possible ourselves, now, and refrain

  1103
  from mortgaging the future by running into debt abroad."
  We know that our import bill must be far larger than ever before, and at best our export earnings will have to rise by several hundred million pounds if we are to keep in overall balance. But we know very well that the brunt of the new tasks must fall on our visible export trade. Even if our defence programme were much smaller than it is, we should be facing an extremely difficult task in the export field in the coming years. But we must face the facts of our defence programme which, at its peak, may well claim considerably over one-quarter of our engineering capacity; and our engineering and metallurgical industries have been more than ever the mainstay of our export trade during the post-war years, accounting in 1950 for 50 per cent. of our total exports. The policy of His Majesty's Government is, so far as possible, to shield the whole export trade from the repercussions of the defence programme, even if this means, as it will, sharp reductions in supplies to the home market. It would, however, be quite unrealistic to ignore the heavy claims of defence upon our metal and engineering industries, and the best that we can reasonably hope for is that by their redoubled efforts these industries will be able to maintain the 1950 volume of their exports. It will be seen then that we can secure increased earnings from these industries only through coming increases in export prices.
  A further important section of our export trade consists of raw materials and semi-manufactures. The present problem of raw materials supply will compel us, much as we regret this, to reduce the volume of these exports; but our duty must be to safeguard the flow of essential raw materials to our own industries. Already steps have had to be taken to curtail exports of non-ferrous metals, iron and steel, textile yarns and some chemicals and, of course, coal. This means that our renewed export drive must bear most heavily on our consumer goods industries —above all, on the textile industries which alone accounted for roughly one-fifth of our total exports in 1950, and which have produced the goods which have proved so attractive to the home market. There are, of course, many other industries which must play their full part
  1104
  in the renewed export drive. To mention only a few, pottery and glass, leather and leather goods, footwear and rubber manufactures, can together with the smaller industries in this field, make a substantial contribution. There is bound to be a heavy demand for many of these goods, especially in the primary producing countries of the sterling Commonwealth, whose incomes have been greatly increased by rising world prices for their primary commodity exports.
  Our export industries will no doubt face new selling problems. The Japanese and German economies have made great strides, and their industries are now reaching out once again into the world markets with substantial effect. The corollary of an increased volume of consumer goods exports is, of course, in a good many cases, a reduction of supplies in the home market. We must strive to increase total production, but we cannot ignore the limitations of raw materials supply, and it is idle to think or pretend that there is any painless way to the achievement of our new objectives, especially in the ex-port field. Some people may think that we can cover our needs by means of increased export prices. Rising world prices for raw materials, and rising internal costs, must mean a large and rapid increase in our export prices, and we may fairly expect to secure a large proportion of the required increase in export earnings by this means. But we shall still have to secure a substantial increase in the volume of our consumer goods export, and this must mean shortages in the home market. His Majesty's Government leave the determination of export prices to industry, knowing that it is only the individual exporter who can determine a reasonable price policy, having regard not only to his new costs picture but to his short and long-term commercial connections and good will overseas. Our exporters are obviously alive to the realities of this new situation, and are doubtless revising their price policies accordingly.
  His Majesty's Government have also given a firm and clear lead to exporters about the relative importance in the national interest of our principal export markets. All I need do to-day is to emphasise yet again the tremendous importance of our exports to the dollar area and the sterling Commonwealth countries. We must not lose ground already won, especially in the American

  1105
  and Canadian markets where it has been won by the sustained efforts during the past few years. I need not remind your Lordships of the vital importance of our trade with the sterling Commonwealth. In 1950 we drew almost two-fifths of our food and little less than one-half of our raw materials, from the sterling area, and we sent to them a little under one-half of our total exports. A great expansion of our trade with the rest of the sterling area has been a buttress of our post-war economic recovery, and no efforts should be spared to reinforce this vast structure of trade, the greatest in the world.
  His Majesty's Government have played their part in promoting conditions in which a healthy and expanding export trade could be re-created after the eclipse of exports during the war. The Government have tried, not unsuccessfully, to give special help to exporters, especially to all those engaged in the vital dollar export drive. I have only to mention the great success of the Export Credit Guarantees Department as one example. I can give another, not widely known, of the almost phenomenal increase in our exports of agricultural machinery. In 1946, the total output of this industry was £26,000,000. In 1950, it was £80,000,000, of which 50 per cent. was exported, whereas before the war our exports of agricultural machinery were negligible. This has been largely due to the careful nursing and encouragement of the Agricultural Departments.
  In the situation now facing us we must also create—and this is one of the greatest responsibilities of His Majesty's Government—what I might call "a favourable climate for export trade." Inflation at home must be held in check to prevent the drain on our resources which would deprive exporters of the increased volume of goods needed to expand our export earnings. In the last resort, the success of our renewed export drive must rest on the efforts of management and labour engaged in the export industries. New targets are wanted, and they are now being worked out between the Government Departments and industry. Your Lord-ships have always shown a great interest in the export trade, and therefore, I feel, will forgive me for having dealt with this matter at some length.
  In this country we are fortunate in having a population far better informed
  1106
  about the true nature and importance of our export trade than is that in any other country. "Export first" has not been an empty slogan in these post-war years, and the housewife has seen the evidence of its reality in her daily shopping; to her forbearance we pay tribute.
  My Lords, I have of necessity left out much. I have said nothing about taxation in all its forms, the urgent need for savings, and other fiscal matters. Time and consideration for your Lordships' patience are my reasons. There are many matters which your Lordships in all parts of the House will wish to raise, and with which I have not attempted to deal, and my noble friend Lord Pakenham will deal with them later. But the question inevitably arises: can we accomplish these tasks? The answer can be given in the words of my right honourable friend the Prime Minister, in his statement of January 29 last on the Defence Programme. He said:
  "We intend to carry out this production programme to the limit of the resources under our control. The completion of the programme in full and in time is dependent upon an adequate supply of materials, components, and machine tools. In particular, our plans for expanding capacity depend entirely upon the early provision of machine tools, many of which can only be obtained from abroad. The effort we are making is an integral part of North Atlantic defence, the success of which will depend upon our defence preparations which in their turn will depend upon the mutual availability of machine tools and raw materials."
  All this will mean heavy sacrifices on the part of the British people. They will have to face shortages, endure increased prices and exercise restraint in increased income demands, which can be real only if they are matched by increased production. The standard of our living will receive a temporary setback. But we have faced similar tasks before and the alternative is too horrible to contemplate. So, my Lords, let us face our tasks with cheerfulness. The difficulties are tremendous but they need neither be exaggerated nor used as a means of creating despondency. Let us hear more of what we are doing. I liked the speech of Sir Frank Spriggs, the head of the Hawker-Siddeley group, who the other day gave to the world some impressive figures of aircraft and engine production. I liked particularly his phrase that
  "the British lion has a new lease of life, and this time it is jet propelled."

  1107
  We could do with more speeches like that from our leading industrialists. Let us go forward with the knowledge that no power can prevail against the free peoples of the world if the available material resources are shared so that the physical energies of all can reach their peak.
  5.14 p.m.
  LORD BRAND: My Lords, I do not wish to strain the patience of your Lord-ships too much, but I have a certain amount that I wish to say now, mainly on subjects hitherto hardly touched upon in this debate. First of all, in referring to the three excellent speeches to which your Lordships have listened, I should like to make two comments, one on the speech of the noble Viscount, Lord Samuel, and the other on that of the noble Lord, Lord Lucas. With Lord Samuel's speech I agree almost entirely. Nobody can doubt that much greater production is the way out of our difficulties; whereas, of course, production can take place only slowly, our difficulties are upon us now. We cannot expect in-creased production alone to overcome the great rise in prices due to the Korean War and to devaluation. But still, it is to production that we must look, in the end. I was interested in the noble Viscount's reference to the need for a new Cabinet system to deal with all the difficulties which now face a Government in looking after their multifarious duties. I should like to make a simple additional suggestion—namely, that those duties and activities should be greatly reduced; that the Government should not constantly add to their responsibilities and duties, for instance, by taking over the steel industry one day and something else the next, when they are already labouring enormously—often ineffectively—under the burdens they have already. Let us see whether we cannot reduce what the Government have to do, rather than re-create the Cabinet system.
  I should like now to refer to one point in the speech of the noble Lord, Lord Lucas. He gave us a series of records achieved by the Government in the last year or two. I would add one or two to his list. I think the present British Government hold a record in the amount of their expenditure in relation to the national income, and also a record in the height of the taxation levied. I think
  1108
  those two ought to be added to the list of other records—and I may say that I rather doubt some of the other records. I think the Report of the Economic Commission for Europe put our record in production, in increased exports and so on, at about the same level as those of other European countries, or not very much more; and as regards the effect of devaluation, they say also that the exports of the United Kingdom increased as a result of it rather less proportionately than the exports of other countries, due probably to an increased consumption at home. I do not at all wish to belittle what has been done by our country, because it has been very fine. I wish only to put things perhaps a little more in proportion, and while we should boast of what we have done, we should not boast too much where we have not done so much as we think.
  Now I should like to deal with certain other general questions. It seems to me that the economic policy that we want is one which gives satisfactory employment, on the one hand, and a rising standard of living on the other. In my view, the first priorities of any Government, in order to reach these two ends, should be the maintenance of a strong currency, and strong external reserves, both for ourselves and for the rest of the sterling area, and the maintenance of conditions tending, as other speakers have said, to the greatest possible production. These are platitudes, but they have not always figured prominently in the Socialist programme. It was because the Government did not concern themselves sufficiently with the strength of our currency and our other external problems that in the end we had an unparalleled devaluation. I am doubtful what priority they would give to a stable currency. I would put it ahead of full employment. I think full employment results from a stable currency, rather than a stable currency from full employment. I regard monetary stability as the greatest blessing and serious inflation or deflation as the greatest curses that a country can have. I have seen them at close hand, and I may say that when the noble Viscount, Lord Samuel, spoke of the French inflation, I remem-bered the time when in Germany the old mark, the Reichsmark, was worth 1/1,000,000,000th of its original value; and when I went to a German bank to get my change I took a rucksack in order

  1109
  to take home the bundles of notes I had to carry. I have seen the dreadful results which follow from that sort of inflation, results which, in my opinion, ended in the last war. Particularly for this country, currency stability is highly desirable. I do not mean, necessarily, a rigidly fixed exchange, but an exchange possibly fluctuating within limits though under our own control. We must be strong enough financially to be able to control it.
  The importance of stability to us can be shown, I think, in various ways. First of all, while I do not want to give your Lordships many figures, I should like to point out that the White Paper estimates our imports this year at £3,200,000,000, and our visible exports at £2,700,000,000. The White Paper also puts the total gross value of our industrial production in 1950 at £4,418,000,000. It therefore seems to me that we have to export—and it is an immense task—more than half our total industrial production, and presumably go on exporting that sort of percentage until our production is much greater. In order that this foreign trade should be prosperous, suitable monetary conditions and exchanges are, to my mind, of the greatest importance. But further than that, if we are to remain, as we still are, the world's greatest financial centre, and bankers to a large part of the world, with sterling deposits of nearly £4,000,000,000, owing to others, we cannot always be changing our exchange and altering the value of those deposits. A banker can-not write often to his clients saying, in effect: "I have cut down the value of your deposits with me by 30 per cent." It would be impossible to remain a banker very long on that basis.
  All this is particularly important as regards our position as bankers to the sterling area. That position involves obligations. We saw that just before devaluation, when a little recession in the United States reduced their purchases of goods from these countries, and when this proved one of the nails in the coffin of devaluation. But we saw also its great advantages recently, when very large increases in our gold and dollar reserves came mainly from the rest of the sterling area and from the increased exports of that area to the dollar area. But, as I have said already, we cannot expect that we can at once get over this difficulty of the great rise of prices which is taking
  1110
  place here. In these circumstances, talk of revaluation of sterling is not surprising.
  I was given this morning a report of the Economic Commission for Europe, which has just been published, and in that report the Commission do make a recommendation that all European currencies should be revalued. I cannot say that I have an instructed opinion on this point. I have not yet had time to read the document, but I am bound to say that I think it might be very unwise at this moment to revalue sterling. We cannot make alterations of' this kind lightheartedly; we must do it only with extreme caution, when we are dealing with a currency so important to so many other countries. Devaluation was a very serious matter, to other countries as well as to our own. Before we do anything further, we must be very sure of our ground. This time circumstances are entirely different and I doubt whether we could—certainly we should not—take unilateral action. Any decision we took would, in my opinion, have to be taken after consultation with many countries. Revaluation of sterling would certainly not at all suit South Africa, for instance, and many countries would be affected by it. In the second place, I regard our dollar reserves as still inadequate for the purposes of the whole sterling area. If we revalued sterling I believe that our exports would be hampered, and I think it likely that our balance of payments would be greatly affected. On the whole, I think that substantial revaluation must have that effect.
  Finally, I believe there is one general and important objection, from the nature of the Welfare Stats itself, in not risking any over-valuation of sterling. It is a common and growing belief, which I share, that the existence of the Welfare and Full Employment State, plus huge taxation, plus reluctance to use any monetary measures of control, means continuous pressure towards inflation, and, therefore, a weakening of our currency. Particularly, I believe, huge expenditure and taxation will inevitably lead in future in an inflationary direction, apart altogether from the rise of prices which we are undergoing now. I believe that, through all sorts of means, that patient donkey, the taxpayer, will take measures to shake off some of the load, if it becomes too heavy. These tendencies of

  1111
  the Welfare State will make generally and continuously for a weak currency and will be intensified so long as the Government are reluctant to make use of monetary instruments. I am in favour of our authorities maintaining stricter monetary control than they do at present—namely, some raising of short-term as well as long-term interest rates, and less freedom in the creation of money supplies.
  I can almost hear the noble Lord, Lord Pakenham asking, when I come to the question of reducing expenditure: "What would you do?"
  LORD PAKENHAM: That is quite right.
  LORD BRAND: What Party is going to reduce expenditure? Well, I am bound by no strong Party ties, and if the Government are prepared to alter policy to some extent, I think there are ample steps that may be taken. The noble Lord knows that I always thought it a great mistake—and I think so now—to add £400,000,000 to our taxation in order to create a "free" Health Service. Personally, I think that £400,000,000 in the pockets of the people would be much better for them than £400,000,000 taken from their pockets for this purpose and affecting our currency through too heavy a burden of taxation. I think big changes in taxation could be made if the Government were prepared to make big changes in the present system. I know that that is not agreeable to my noble friends on either side. I agree with what has been said about the great opportunity for increased production, if only we can get the raw materials. Indeed, much the greatest and soundest reason for optimism is the possibility of a great increase in production. I know of cases where very big increases are being made by really modernised industries, and these increases could be equalled and rivalled by other industries if they were to pursue the same course. I believe we could do a great deal of what the United States does.
  One question of importance is whether we shall have enough capital available to provide for the needs of industry if production is to be greatly increased. The Government say that the gross capital formation they have carried out has been very great. That is true. In 1950, it was
  1112
  £2,280,000,000. That is financed by the Budget surplus, which is derived from taxation, to a still larger extent by depreciation of reserves and undistributed profits of companies and to a smaller extent by personal savings. But the important question before us is whether the capital required for maintenance, improvement and modernisation is going to be available. Inflation always drains away working capital. I think it will be found that the liquid resources of industry have been diminishing rather rapidly. The Federation of British Industries have recently made an inquiry into this matter. Their report has not been published, but when it is published, I believe it will show that the liquid reserves of industry are diminishing rather rapidly. It is often forgotten that all capital reserves diminish automatically in value day by day, as prices rise—in other words, all costs of maintenance, replacement and modernisation increase.
  It may be argued that if we increase production we automatically provide increased incomes and increased savings, if our consumption habits and taxation remain the same. This is true, but our production has been increasing for years, while personal savings seem to be falling. I think it is doubtful, therefore, whether we can answer in the affirmative the question whether supplies of capital for industry will be sufficient. That is a question I should like to put to the noble Lord. Critics may say that if this is the danger, companies should not pay dividends. Certainly, no dividends should be paid unless profits are real. And in these days companies sometimes think they have profits when they have not. But if profits are real, I think companies should pay increased dividends up to a moderate amount. We must do justice to the shareholders; they suffer from rising prices and rising costs just like anybody else; and if we want to raise capital we must give a decent return on the capital which they have already provided. Nobody helps shareholders in bad times, when dividends fall off. It must be remembered that the Chancellor of the Exchequer increased the rate of interest on National Savings from 2½ to 3 per cent.—I think rightly. If he was right in doing that, directors of companies are right in paying moderately increased dividends to their shareholders.

  1113
  I come now to what is the rather dull but important question of the amount of personal savings, which are the other main resource of capital for industry. On the face of it, it is likely that these savings will diminish. There is no guide to what they are, except in the White Paper on national incomes. The figures there are residual figures, which the authors of the White Paper make clear are precarious. The gross personal savings are put at £334,000,000, but in reality the figure may be more or it may be less. This figure then has to be reduced by £188,000,000, representing capital taxes—death duties and the re-mains of the old Special Contribution; therefore, the net figure is £144,000,000.
  It may surprise your Lordships that death duties have to be deducted from personal savings, but I understand the argument—and it seems to be a reason-able one—is this. In order that death duties may be paid, assets have to be sold by the executors of an estate. Somebody has to buy those assets and the persons who buy them are spending their savings, directly or indirectly, in doing so. The money then goes to the Government. Therefore, to the extent that death duties are paid, personal savings are called upon. Certainly, if the savings are used in making payment to the Government in respect of death duties, they cannot be available also to be lent to industry. I take it, therefore, that the net figure of £144,000,000 is right. That figure has to cover the whole amount available from persons for the Government, for public authorities, for industry, commerce, shipping and mining, either here or abroad, for private unincorporated businesses, for new businesses, and for investments like the recent issues of the International Bank or the Nairobi Municipality.
  LORD PAKENHAM: My Lords, may I break in to remind the noble Lord of something of which he may be aware? However much it weighs with him, his point would not be accepted by the highly expert gentlemen who drew up this particular table.
  LORD BRAND: I do not know whether it would be. Last year it was staled by them, and I was interested to see that all mention of it disappeared this year. Last year the White Paper indicated that
  1114
  figure for net personal savings; this year net personal savings are not shown at all, and we are left in doubt whether those who compiled the Paper are following the practice of last year or not.
  I recently put this point to an eminent economist, and he believed that I was right. If I am wrong, I should like to know what are "net personal savings." We know that the gross personal savings are £334,000,000. Perhaps the noble Lord, Lord Pakenham, will enlighten me. If savings are handed over to the Government in payment for death duty assets, how can they be used twice? In any case, even the figure of £144,000,000 is not all available for industry. It includes all personal savings, through investment in life insurance, deposits in building societies and national savings—in fact, all that part of personal incomes not spent. As we all know, insurance companies do not spend all their funds as they come in on buying ordinary shares; a large pro-portion is spent in buying Government securities. Moreover, a great many trustees are not entitled to buy ordinary shares, and have to invest their funds in trustee securities. Until the noble Lord has shown me that I am absolutely wrong, I shall continue to take the figure of £144,000,000. I compare that figure with the 1938 figure in the White Paper, which was also exactly £144,000,000. The pound was worth double in 1938, and the national income was about half. There-fore, if we saved £144,000,000 in 1938, and are now saving £144,000,000 we are saving only half what we did in 1938.
  I do not think these figures need surprise anyone. I do not know whether your Lordships know many people who are saving; I certainly do not. At the moment I do not' think there are any net national savings. If that is so, it looks as if total personal savings may not be sufficient. If I am wrong about this, I should like to hear from the noble Lord. I believe the Chancellor said that he saw no signs of insufficiency yet. I agree with that, so far as the market is concerned; but I doubt whether one can judge from that. Shareholders of nationalised industries—who, after all, owned ordinary shares before—would want to sell their transport stock, or whatever it may be, and buy shares. A great many people, moreover, are worried about the value of money, and about

  1115
  inflation. A great many people, and many institutions, are selling fixed interest securities and buying shares. For these reasons the share market has undoubtedly been good in the last few months, but I do not think that that necessarily shows that savings are very great. The total public company issues on the London market in 1950, from figures in the Economist, appear to be about £150,000,000; that is, excluding conversion issues. Therefore, it appears as if at least that amount of new money would be wanted.
  If I do not weary your Lordships, I should like to give you another figure which strikes me as interesting. I notice that there is another table which appeared in the Report of the Commissioners of Inland Revenue last year but which does not appear this year. That table showed that the total net personal income of the country was £6,750,000,000. The total net income of those with £2,000 a year net, or over, was £231,000,000, out of the total of £6,750,000,000. If you go lower down the scale and take the net incomes between £1,000 and £2,000—and £1,000 is now equivalent to only £500 at the beginning of the war—then you have to add to the £231,000,000 the figure of £481,000,000. In other words, all the net incomes held by people with incomes from £1,000 a year upwards amounted to £712,000,000, as against a total of £6,750,000,000. If you take one-fifth of £712,000,000 you arrive at, roughly, £144,000,000. On the assumption that people with incomes below £1,000 a year buy national savings, and do not buy shares, industrial debentures, and so on, and that the £144,000,000 of net personal savings are all made by individuals with £1,000 a year or over—because at the moment there are no net national savings —then it means that each of those individuals is saving one-fifth of his income. I certainly do not think they are doing that. Therefore, it may be that even the figure of £144,000,000 is too high. That is a matter which I particularly want to put to the noble Lord, Lord Pakenham.
  I should like to make one or two further remarks, because I was very much struck recently by a memorandum of the Trades Union Congress which has been published and which came into my hands a day or two ago. It was a summary, as I understand it, of the evidence which the T.U.C.
  1116
  either has given or will give to the Royal Commission on Taxation of Income and Profits. It shows, I think, how a good many differences which arise between the Socialist side and those who think as I do derive from the different views as to the accomplishments in the last few years. This Paper says:
  "Risk bearing. Other things being equal, a high and progressive rate of taxation will reduce the willingness and ability of individuals and corporations to invest at risk."—
  The next words are important:
  "But the use of the resulting revenue by the Government to promote full employment, and the consequent reduction in the risk of investment generally, must also be taken into account. The available evidence does not suggest that there has yet been a marked change of risk capital for enterprise. It is possible, however, that continuing high taxation will reduce the proportionate amount of savings forthcoming from private individuals and companies for risk investment, and the General Council consider that the Government should and could undertake to provide risk capital where necessary."
  I would interpret those sentences in this way. It is true that taxation may reduce savings, but the British Government, by their use of taxation, now ensure full employment. Therefore, there is now very little risk in investment, and the world is entirely changed.
  I confess—and perhaps the noble Lord, Lord Rennell, will agree with me—that this is all new to me. I had not realised that British taxation had eliminated the trade cycle. That is what the argument appears to be. I fear however, that I cannot accept that interpretation. But for those who do accept it the world must look quite different and most encouraging. If there is no further risk in investment, clearly everything has changed. I do not think anyone or anything can altogether overcome the trade cycle. Nor can the British Government by themselves prevent unemployment. If the conditions for our exports were wrong, no British Government could make the world take £2,700,000,000 exports from us; and there would be nothing the British Government could do to replace them merely by increasing demand in this country. Indeed, if these exports were not sold abroad, you would not be able to buy food or your raw materials to make any-thing. Therefore, in such a community as ours it is quite impossible for the British Government alone in bad times to pro- vide full employment.

  1117
  I now come to the second T.U.C. opinion, that the Government can and should provide risk capital if personal savings cannot do it. This also seems to me very surprising. Where does the money come from? Not, I suppose, from the net incomes of Government Ministers. Does it come from new issues of Government bonds, from inflationary advances obtained from the Bank of England, or from taxation? It has to be saved in some way. If persons do not save enough, how do the Government save, except by borrowing or taxing more? But this is only one problem. Supposing a Government can find the money, are the British Government, year in and year out, to invest the taxpayers' money in a thousand and one industries, competitive and non-competitive? That seems to me a very long step towards the Russian system. I do not think we are as yet sufficiently satisfied about the industrial efficiency of the Government, or its efficiency in new enterprises, to be sure that if they took a large share in a great many miscellaneous industries, big and small, those industries would be likely to be very effectively administered. The plan would seem to mean that the City should gradually move up to Whitehall. This seems rather a topsy-turvy suggestion.
  However, I certainly welcome the statement of the T.U.C. that they think that income distribution by taxation has gone about as far as it can" I fully agree with that. I may add that in giving the figures I did just now, about net personal in-comes, I did not give one very interesting, though not highly important, figure— namely, that the people in this country who receive over £6,000 a year net now number eighty-seven. Their gross income is about £12,000,000. The Government take from them £11,350,000, and they are left with £650,000. This means that the income of each is between £7,000 and £8,000 a year. You may say, "Serve them right for having incomes like that," but anyhow it is clear that there is not much more to be got out of them. The Government have already got £11,350,000, and can get another £650,000; but that will be the end of it Spread among the population. £650,000 would not go very far. The fact is that private enterprise requires personal savings. Without personal savings, there is ultimately no private enterprise. If the T.U.C. view, that
  1118
  redistribution by taxation has gone as far as it can, is accepted, not only by the Government but by the population, we may get a more reasonable view of the Welfare State. When it is clear—as it ought to be clear—that further expenditure by the Government and the extra taxation involved, will fall on the masses, and that the people who are supposed to be rich have very little left to contribute, then I think the electors will see to it that in time Parliament shall become the guardian and not the spender of the public's money.
  5.55 p.m.
  LORD WINSTER: My Lords, I think there is general agreement that we benefit greatly by these periodical reviews by Lord Cherwell of our economic situation. I feel that the noble Lord has constituted himself the mentor of the Government in these matters, although from an occasional remark which creeps into his lectures I do not think he is altogether satisfied with the intellectual ability of his class. I try to test these matters out from the starting point of the main economic idea with which this Government is associated—the idea of a planned economy, associated with the corollary of nationalalisation, controls and full employment, all of which rest upon a fundamental assumption that "the gentleman in White-hall is always right, and knows best." Unless all these ideas are working out satisfactorily, our economic position cannot be good; and therefore an examination of these ideas may lead us to some conclusions about that position.
  I approach the matter of course as an individual, or perhaps I ought to say, in the modern Whitehall jargon, as a statistical unit. But I have not always a feeling that I am living in a planned economy. The world economic tides do not always seem to obey our planning Canutes. I feel sometimes rather that I am in the hands of that type of maiden aunt whose idea of bringing up a boy is to say to the nurse: "Go and see what he is doing and tell him not to." I sometimes feel that my liberties and initiative are curtailed, while the resultant advantages to me are not always apparent. I find it difficult to understand how a planned economy can exist without a planned wages structure, but the only approach that I have seen to a wages policy was the unsuccessful wage-freeze policy which

  1119
  landed our trade unions in an almost impossible position.
  Again, I feel that one cannot have a satisfactory planned economy unless the Ministry of Labour and the trade unions can together operate negotiating machinery in the case of industrial trouble and difficulty, and can ensure respect for negotiated agreements. It must be very difficult to do this if, as has happened, trade unions sometimes have to try to represent the employer and employed at the same time. It must also be very difficult for the executives of our nationalised boards to operate if the Minister of Labour, as sometimes happens, settles disputes by coming down on one side of the matter, against the advice of the executive. It seems to me that until such questions as these are straightened out, we have an interfered-with but not a planned economy. Nationalisation, as we have it so far, is of course a step towards the official Government policy of the public ownership of all the means of production, distribution and exchange. I have some-times felt lately that that policy has perhaps lost a little of its early glamour. Unlike Colonist II, that particular horse does not seem to have been winning all its races, and is not now regarded as a very good bet.
  The nationalisation of some industries was, of course, inevitable, and so far as we can see, there can be no question in the future of denationalising those industries. But what is quite certain is that the technique of administering a nationalised industry has not yet been fully mastered. If my memory serves me aright, I think the Minister of Defence, Mr. Shinwell, once went on record to that effect: that we had still a great deal to learn about how these nationalised industries should be run. The action and reaction inside the nationalised industries yields very unpleasant results. The planners urge consumers to use more nationalised electricity, and when there is a shortage of nationalised coal the power stations are blamed for using too much coal, because people have taken the advice of the planners to increase their consumption of electricity. Then we have to import coal —and it will not surprise me if the steel industry finds itself in difficulties because ships which ought to be bringing to this
  1120
  country the raw materials which the steel industry requires, are instead being used to haul coal from America. Again, when one nationalised industry makes a loss, or puts up its prices to recoup a grant of higher wages, other State industries are forced to put up their prices, because none of them has a profit margin or reserves out of which to meet losses or higher costs. So each of these industries ends up where it began, except that by that time it finds itself confronted with new wage claims.
  Consider the position of the railways. I believe that they are statutorily charged with the duty of paying their way, but in 1950 I believe they were expected to lose £30,000,000—although at that time some grades in the industry were earning very poor wages indeed. So far as we can see at present, there is no prospect whatever of the railways paying their way. They must either raise freights and fares until all traffic will have been driven away, or else the Government will have to subsidise the railways. I ask, with all respect, whether the Government see any prospect of the railways paying their way and so fulfilling the order statutorily laid upon them. We have now reached a point, I understand, when goods depots are so congested that the jam can be cleared only by cancelling or suspending passenger services. If the railways cannot run freight and passenger trains at the same time, no doubt we shall reach a point when the Post Office will say that they cannot clear the letter boxes because the postmen are handling the parcels. Transport is vital to the national economy, and I hope that, in view of these facts, we may very soon get the report on the review of working conditions which is being undertaken by the Railway Executive and the trade union leaders.
  Now, by way of contrast with the affairs of railways, I should like to turn to a bright spot in our national economy —another great transport service. This service is doing very well indeed and avoiding the difficulties which, it appears, confront the railways. A Labour propaganda sheet, which I read yesterday, says:
  "We have recaptured our place as a great shipping nation. British ships are again earning foreign cash by carrying the world's goods across the seven seas. British shipyards build over half of all the world's new ships That is something to talk about."

  1121
  It is, indeed, something to talk about, and it is such a satisfactory result that I hope it will stop the talk there has been of nationalising those two great industries of shipping and shipbuilding—two industries upon which our national economy very largely depends. The ship-owners have rebuilt their fleets with magnificent ships, while at the same time the railways are short of locomotives and of rolling stock. The shipping industry is paying good wages and giving to officers and crews first-rate conditions. The ships are carrying their cargoes, regularly, punctually and speedily. Delays occur only when the ships reach the docks where, apparently, it is impossible either to end the labour troubles or to make a searching inquiry into the deepseated grievances which I believe are at the bottom of these troubles in the docks.
  LORD PAKENHAM: May I suggest to the noble Lord that in order to be quite fair to the nationalised industries he should refer to civil aviation, which he was responsible for starting off on the right lines?
  LORD WINSTER: The noble Lord's acquaintance with civil aviation is so much more up to date than mine that I should prefer to leave it to him to explain to your Lordships the great advantages which are being derived in that industry at the present moment.
  Something has been said about full employment. I am afraid that, in my ignorance, I cannot fully grasp the basis on which this, or any other Government, could claim to control it. In fact, the Foreign Secretary, Mr. 'Morrison, once told us that but for Marshall Aid we should have had 2,000,000 unemployed. If that is so, it appears that the Government are not really able to control this matter of full employment. Of course, control of investment has a bearing—but surely full employment must depend on the willingness of foreign customers to buy our goods; and that, in turn, must depend upon quality, price and delivery dates being right. Can the Government control these factors of quality, price and delivery dates? Also there is the question, can these matters in any case be controlled in face of coming Japanese and German competition? Surely, success in maintaining full employment must depend on increasing productivity
  1122
  by increasing efficiency and so decreasing production costs.
  The policy of full employment seems to me to have one weak spot. For many years now the essential industries have been short of labour, while the inessential industries have had no difficulty whatever on that score. Littlewood's Football Pools have no shortage of labour—but the railways cannot get engine crews to move goods and passengers at the same time. Our rearmament programme, we know, is already being impeded by lack of technical and skilled workmen. But the main point is that full employment must depend on successful competition with foreign manufacturers, and that involves complete up-to-date renewals requiring capital investment out of savings or profits. To-day, too many industries seem to be unable to face that demand for constant renewals and the introduction of up-to-date plant.
  May I say a word or two—and in this debate on the economic position I am trying to speak with economy of time— about the Budget and rearmament? I think the rearmament programme is the "Beecher's Brook" which lies ahead of our economy. We have to rearm, maintain welfare, maintain and add to our capital, pay our way and maintain 50,000,000 people by foreign trade. All these things must be done at the same time. They constitute a very heavy burden to impose at one time on the national economy. By desperate efforts no doubt we shall reach a state of preparedness. I have no doubt that the rearmament programme will succeed and that we shall reach that state of preparedness. When we have, there can be no easing up. We shall have to continue to run very fast indeed in order not to slip back and to keep abreast of the technical developments of the enemy.
  A cold war involves very different problems indeed from those of a hot war. In a hot war all you worry about is winning it, and that dominating motive becomes the driving force of the economy. In consequence, controls are willingly accepted. Civilian consumption falls, without complaint. Production techniques are stimulated. Some civil production firms close down, others go into war work. People gladly do what they are told. But a cold war arouses no enthusiasms, and therefore its continuance is infinitely more difficult. It becomes far harder to devise and to steer the national economy in a cold war than

  1123
  in a hot war. The worker sees his standards falling, while the employer cannot expand his business. Worker and employer are asked to make tremendous efforts, while the one has no incentives and the other sees no very obvious objective before him. The cold war goes on. If what has been derationed has to be rerationed, if controls which have been lifted have to be reimposed, if licences which have become easier to get become once again difficult to get, if inroads are made upon civilian consumption and welfare, inevitably the effects can be only very depressive indeed and militate against the great efforts which a cold war imposes upon the nation in order to carry through the rearmament programme.
  At the beginning of my remarks I referred to "the gentleman in Whitehall who knows best". I believe that gentleman to be at the root of a great many of the difficulties from which our economy is labouring at the present moment. I think that his self-satisfaction and his self-assuredness are the cause of many of our difficulties at the present moment. I believe that this doctrine that "the gentleman in Whitehall knows best" is one of the most pernicious doctrines ever propounded by a Government. Let us look at some of the triumphs of this hypothetical gentleman in Whitehall. He is the gentleman who knew that groundnuts would grow where all the experts told him they would not grow. He is the gentleman who knew that eggs could be obtained in a locality where you could not grow the food that the hen which lays the egg requires. He is the same gentleman who knew it was best not to buy meat because the price was too high, and later decided that it was best to buy the same meat at a higher price. He is the gentleman who bought the Algerian wine, amongst other of his triumphs. He is the gentleman who knew that it was right not to devalue, and then a little time later knew it was right to do so because only in that way could we be saved.
  When he turned his attention to rearmament, this gentleman knew it was right not to stockpile, and he also knew it was right, for instance, to let the design of the chassis of a certain type of Service vehicle fall three years behind
  1124
  the design of the engine for that vehicle. In a lighter moment, he is the gentleman who got busy about wedding announcement cards and decided that if you use an arrow to pierce the name of your in-tended bride the purchase tax is 33 per cent., but if the arrow pierces the representation of a peal of wedding bells, then the purchase tax is 100 per cent. In spite of his failures, he still goes on pontificating, and I really believe that one of these days we shall get a White Paper on how to teach grandmothers to suck eggs—the eggs of course being supplied from Gambia. No doubt, there is a perfectly good reason for many of the mistakes and setbacks which I have quoted. I am not criticising them in themselves. I am only criticising this doctrine that "the gentleman in Whitehall always knows best."
  I feel that the time has come when our economic policy ought to be thought through de novo. Inevitably, in such difficult times as we have passed through since 1945, many things have gone askew because nobody could have predicted how things would go. It is not right as well as being unfair to blame everything on the Government. World events would have defeated any Government on many occasions during the past six years. But I did notice in the speech of the Government spokesman to-day that, whilst recounting to your Lordships that very impressive and well-founded list of Government achievements, he concluded by paying tribute to the housewife on the fortitude with which she—
  Lord LUCAS of CHILWORTH: Since the noble Lord wishes to quote me, I know he will pay me the compliment of wishing to quote me accurately. The tributes I paid were to the British people, for the British people's achievements. I studiously—because I did not want to cause the noble Lord, Lord Cherwell, any offence—did not attribute the slightest thing to His Majesty's Government.
  Lord WINSTER: I would not misquote the noble Lord for the world. I was speaking from memory, and I thought that the noble Lord paid a tribute to the housewife on her fortitude.
  LORD LUCAS OF CHILWORTH: I did—for her forbearance.
  LORD WINSTER: I quite agree. But whilst I entirely agree about that, and whilst, as I say, I feel that no Government could have avoided many of the difficulties and troubles with which we have been confronted, yet I do feel that there has been many times a too rigid and doctrinaire adherence to preconceived ideas, and a reluctance to be taught by experience. I believe that, by a new approach, by thinking out again the economic policy which we should pursue, without any slavish adherence to these preconceived or doctrinaire ideas, much could be done now to set our national economy upon a foundation which would see us safely through the great problems with which the rearmament programme will confront us.
  6.18 p.m.
  LORD BLACKFORD: My Lords, when I first had the pleasure of meeting the noble Lord, Lord Winster, some twenty-eight years ago, he was then the Liberal Member for Basingstoke in another place. Many members of the Liberal Party find it necessary to make changes. He changed to the Socialist Party, to which Party he has rendered some considerable service. But anything less Socialistic than the speech to which we have just listened, I have seldom heard. I hope yet that we may have the benefit of his experience on this, the only sensible side of the House.
  I came here to-day having thought up a speech designed to last about half-an-hour, solely on inflation. However, your Lordships are very fortunate in the fact that that speech has been made for me already by the noble Viscount, Lord Samuel—of course, with far greater erudition than I could hope to make it myself. The noble Lord, Lord Brand, in his able speech, made considerable reference to inflation as well. So your Lordships may very well say: "Then why on earth do you speak at all?" My only answer to that is that I feel it to be the duty of every person connected in some small influential way with finance or industry to draw attention to this danger. I regard the growing inflation as the greatest danger to this country— far greater than the possibility of war with Russia. If carried to extremes, the
  1126
  results of inflation are well known to your Lordships, and have been fully described by Lord Samuel and Lord Brand in their references to the franc, the lira and reichsmark. Indeed, Lord Brand's reference reminded me of a friend of mine who is a very big industrialist in the Midlands. The other day he was telling me how, way back in 1923, his industry had a subsidiary in Germany, and how at the height of the inflation he received a letter from the people in charge of that subsidiary to say that the whole value of the assets in Germany were now less than the stamp which carried the letter, and therefore they had confiscated the lot. As your Lordships know perfectly well, un-controlled inflation leads to revolution, to totalitarianism, to everything that is absolutely ruinous. Therefore it is a danger which it is the duty of us all to call to the attention of the nation.
  Is anything being done to control inflation? I venture to think that little is being done—certainly not nearly enough. Mr. Gaitskell's contribution in his Budget this year was to take a considerable extra toll from company profits, an extra toll from the income tax payer and from all those who still have something to invest. Some contributions were also demanded from the mass of the people, but one cannot help noticing that below a certain grade of salary it is taken for granted that every fresh rise in the cost of living will be met by a rise in salary or wage. That process is going on, and so long as it continues so long will inflation go on. Mr. Gaitskell's only small effort towards deflation—namely, to ask us to pay half the cost of our dentures or spectacles—was met at once by the resignation of two senior and one junior Ministers and by an adverse resolution from the Trades Union Congress.
  Lord Samuel spoke about the need for more efficient work. There, again, the trade union leaders have never been very helpful. We know that many of them have been and still are averse to the introduction of labour saving devices, and that the general policy of the trade union leaders throughout their history has been towards less work and more pay. Nor do I feel that the Government are much imbued with the danger of inflation. I hope I do not do my noble friend Lord Lucas an injustice, but in the course of his interesting speech I

  1127
  recollect only one sentence on that subject, in which he said, "Inflation must be held in check." That does not seem to me to convey a great sense of urgency. To my mind it is an urgent necessity that inflation should not only be held in check but decreased.
  What should be done to decrease inflation? My Lords, I do not speak for any Party; I speak only for myself. In every economic debate in which I have taken part I have reduced that remedy to four words—namely, "More work, less pay." I cannot help noticing that other speakers who may not be quite so blunt or may have Party ties often say the same thing but dressed up in more concealing words. Indeed, last year the Prime Minister himself caused advertisements to be posted all over the country asking for ten per cent. more work. The response was not noticeably encouraging, but evidently the Prime Minister thinks that more work is necessary. There can be no doubt that although a large number of the working classes and salary earners in this country are doing a good job of work, there are others who might do a great deal better than they are doing, and whose work, I am afraid, com-pares unfavourably from the point of view of enthusiasm with that of workers from other countries.
  Attention has been called by almost every speaker this afternoon to the terrific burden which we are, and shall be, called upon to carry. If we are to carry that burden successfully we must be, not trailing behind anybody in regard to efficiency, hard work and enthusiasm, but actually leading them. In regard to enthusiasm and really hard and efficient work, I think it can be argued that not all the working classes and salary-earners in this country are doing as well as they might. As to the question of less pay, I do not of course mean that wages should be lowered, but it is a question whether we can afford the services which are now available. I noticed that Lord Brand was of the same opinion. He did not think that we could afford all these services. He said openly that he thought that the amount spent on the National Health Service was more than we could afford. No leader of any political Party says anything of this kind. We know quite well that the Labour Party are determined to main-
  1128
  tain to the full the services which are now available, and, if possible, to increase them. Mr. Oliver Lyttelton, the spokesman of the Conservative Party, in his speech in the Budget debate, talked about economies totalling £50,000,000. What is £50,000,000 against a Budget of over £4,000,000,000? Lady Megan Lloyd George spoke for the Liberal Party in another place on the Budget, and her concluding words were.
  "Hands off our Welfare State."
  That shows that no Party is really ready to do what I believe to be necessary—that is, to make gigantic economies which can only be made by a change of policy.
  A year ago I ventured to outline in your Lordships' House a scheme for reducing expenditure by £600,000,000 a year, with corresponding reductions in taxation. I must say that it did not go down at all badly. I had quite a good Press, even from the Daily Herald. But, of course, nothing was done about it. Since then this new gigantic expansion in rearmament has put that kind of thing out of court. Of course, above all I blame the Government for their extravagance in many directions. I should like to be assured that any Government taking their place would really grasp the nettle— not talk about reductions in expenditure of £50,000,000, but get down to something that is really worth having.
  One must remember that we are all extravagantly minded. I notice that some companies send out annual reports, beautifully got up with pictures and things, costing about 5s. each. I often wonder whether it is really worth their while to send those out to their shareholders, and I do not believe that they would do it if they did not know that the expense is charged against the costs of the company, and is therefore not liable to tax. Only the other day, a friend of mine told me that one of his workmen took his family —he has a wife and two children—to the Fun Fair at Battersea, and afterwards the man said: "We took £14 with us, blew the lot in, and had a jolly good day." No one grudges that less than I do; but is it possible to afford that sort of thing nationally in the long run? I venture to think that all of us, from the top to the bottom, have got into a very extravagant way which tends to further and further inflation, and until that tendency is reversed the outlook is extremely

  1129
  gloomy. That is really all that I have to say to your Lordships. I believe the inflation danger to be a very great and still-growing one, and I hope that the noble Lord, Lord Pakenham—I am glad to see that he has been able to snatch a few hours to come ashore from his new life on the ocean wave—will devote a substantial part of his speech to dealing with this outstanding danger.
  6.30 p.m.
  LORD ROCHDALE: My Lords, I wish to confine my remarks this evening to one point—at first sight it may appear that there are two points, but to the industrial executive who is trying to run his business on imaginative and up-to-date lines I think it will appear very much as one single problem. It can be put shortly in this way: "How am I, during the next few years, going to find the money to maintain my plant and equipment in the most up-to-date and efficient form, and my working stock of raw materials at such a level that my real output can be maintained and my staff—which has been carefully picked and trained—kept fully employed?" That seems to me to be the problem which I know is confronting a large number of business executives. It is no new problem. One has only to read the annual reports of company after company to see that hardly a chairman does not refer to it in some form or another. That has been the case for the last few years. So, there is really no need for me to emphasise the seriousness of the present trend which has often been described as the trend by which industry is being drained by current taxation of its capital resources.
  I should, however, like just to under-line it by mentioning two figures which I take from the Government's own White Paper, the Economic Survey, 1951. These figures, I think, emphasise my point. One of them has already been mentioned by the noble Lord, Lord Lucas of Chilworth. In Table 26 of that docu-ment—"The Finance of Investment"— there was a column headed "Forecast, 1951." Your Lordships will remember that two figures are mentioned. First of all, there was provision by companies for stock appreciation which was put at £700,000,000, and secondly, there was the figure for undistributed profits of £780,000,000, leaving no more than £80,000,000 to finance any re-equipment
  1130
  or expansion beyond mere replacement. The noble Lord, Lord Lucas of Chilworth, has already mentioned the figure of £700,000,000, and he very rightly made the point that that figure now looked as though it might be an under-estimate. That fact merely emphasises the point I am stressing. If we see that the increase in distributed profits tax and the suspension of initial allowances are estimated in a full year to mean a further demand on industry of something in the order of £236,000,000, it is obvious that industry cannot fail to be short of liquid resources to a very considerable extent indeed. I do not see how anyone can argue other-wise than that unless this gap is made good from outside sources, industrial plant, machinery and output must, in the course of the next few years, gradually deteriorate. I also fail to see what encouragement the owners of a firm can offer to shareholders to provide increased funds, when any returns they get on those increased funds are going to be charged at something like fourteen shillings in the pound, when one takes into account both income and profits tax.
  Many of us had hoped that the Millard-Tucker Committee—who considered this point—would, when they published their Report, have pointed the way to-wards reversing the dangerous trend that industry was coming up against. I would remind your Lordships that there were two particular suggestions put to that Committee from very authoritative quarters. The first was the revaluation, by reference to present-day prices, of plant and machinery in order that firms could arrive at a more realistic basis on which annual balancing allowances for depreciation should be given. The second was that there should be permitted some tax free stock reserves to provide for the financing of working stocks at presentday fantastically high levels. These levels have already been referred to in to-day's debate. If that suggestion had weight behind it when it was put forward to the Millard-Tucker Committee in the middle of 1950, how much more must it have weight to-day, in view of the rise in the prices of raw materials which has taken place since? I would not, for one moment, wish to give the impression that the Millard-Tucker Committee had not given those two proposals the fullest and most careful consideration. Indeed, from

  1131
  a study of their Report it is clear that they considered them with very great care indeed. So all one can say is that it is all the more unfortunate that, to use their own words, they:
  "did not think that any of the suggestions satisfies the test of being both equitable as between different classes of business and practical in administration."
  That was their view. What is surely even more remarkable is the sequel. Having come to this conclusion, the Committee very rightly looked round for some alternative method of achieving the same end, and, as I read their Report, they came back to what could perhaps be described as a flexible development of the initial allowance scheme. They went to considerable trouble in their Report to show how, in their view, this scheme would go a long way towards providing a satisfactory alternative to the revaluation scheme which they had turned down. That recommendation having been made, is it not all the more remarkable that, only a few weeks after the publication of the Report, the Chancellor of the Exchequer should announce that he proposed to suspend the initial allowances altogether? The excuse put forward, as we all know, was that he wanted to discourage replacement of plant and machinery in order to relieve pressure on the engineering industry which, as he pointed out, should be fully occupied at the present moment on defence orders. That was a very plausible argument but I question whether it was entirely wise at this time. Surely, for the next twelve months, at any rate, the announcement could easily, in a number of cases, have exactly the opposite effect. Manufacturers who have already placed orders for delivery by April, 1952, would obviously go out of their way to get delivery before April 6, 1952, and so get the initial allowance before it ended, even if they had to take delivery of the machinery in a slightly different form from what they originally ordered. In the same way, others who have not placed orders will do so at once if there is any chance at all of getting delivery before the initial allowances come to an end.
  On the other hand, if the suspension of the initial allowances achieves its end, if manufacturers do not find it possible to continue the constant modernisation of their plant and machinery, their competitive power is bound to be adversely affected. Then, when the initial pressure
  1132
  of defence orders is eased—and I am inclined to think that in the course of years it is bound to be eased unless war itself intervenes; and eased not only in this country but in all others taking part in the rearmament programme—then, surely, the British manufacturer is bound to find himself in an adverse position and at a serious disadvantage. If it is really necessary to control the extent to which the engineering and allied industries may work other than for the needs of rearmament, as obviously it must be, then let it be so. And I say that, however much the position may have been aggravated by the improvidence of the last six years. But do not let us attempt to achieve this aim by anything quite so unselective and unimaginative as complete suspension without even a return to the original 20 per cent. initial allowances.
  The point I have tried to deal with is not an obscure financial problem; it is a very real problem to the executive in industry to-day. It is a worry that is constantly before him and is growing. We ought to remember that industry has either to go forward or go back: it cannot stand still. We must remember that to purchase a comparable modern machine to replace one coming to the end of its useful life, a manufacturer may have to pay two, three or even more times what he has at his disposal from depreciation of his old machine. And with such liquid resources as he thinks he has, including any reasonable bank advances, becoming rapidly fully absorbed in financing his raw material working stocks at presentday levels, he has either to consider drawing in his horns and postponing much of the programme he has set his heart on, or to seek fresh outside capital which, whatever may have been the position up to now, I should think would become increasingly difficult to obtain as it became the general demand of industry as a whole.
  It has been estimated that something like 56 per cent. of the productive capacity of industry comes from smaller and medium-sized firms, of the order of anything between 11 and 500 employees. However difficult it may be for the large firms to get increased capital, it will be far more difficult for the smaller firms, who have not the same backing and are often little known. It is these smaller

  1133
  firms who are making such a tremendous contribution to our production. They produce more than half the country's production and it is to them we ought to give more serious consideration. Yet, so far as I can see, there is no Government action to-day by way of some suitable taxation provision to meet this problem, which is generally admitted, on both sides of the House and throughout the country, to be one of the most serious problems industry has to face.
  6.45 p.m.
  LORD RENNELL: My Lords, it appears to be almost a tradition of this House that either I should follow the noble Lord, Lord Pakenham, or that he should follow me. It gives me great plea-sure to think of the number of stones he will be able to throw at the "King Charles's heads" which he usually accuses me of producing. This evening I have only a few points, and only one that really matters. That is the question of the capital available in this country, a matter which has been touched on with figures by my noble friend Lord Brand, and I would not dream of going again into the details which he has given. I wish to emphasise what I believe to be the real problem of the future economic development of this country—namely, that the available resources are inadequate. The noble Lord, Lord Brand, in particular spoke about that part of the available capital resources which is derived from personal savings. Theoretically, it does not matter whether the available resources come from personal savings or are collected by the Government by taxation and replaced in industry, commerce and the development of the country. So I would prefer to take together the larger figure of the amount collected and used by the Government and the amount of personal savings, rather than differentiate between the two.
  Before leaving this point, I would add that there is one thing which seems to me important. As I understand the paper recently published by the T.U.C., from which the noble Lord, Lord Brand, read, and which in parts is, frankly, rather obscure, it is suggested that, as now, the Government should be prepared to put up risk-taking capital and that apparently it is no longer necessary for private investors to do so. I believe that that is a fundamentally wrong conception of the
  1134
  functions of Government investment and private investment, even under the theories which govern the views of noble Lords opposite. It is only too true that the Government have devoted sums collected by taxation in risk-taking schemes and, so far as we have been able to see, the results up to date have been almost entirely disastrous. We have seen the investment of money in risk-bearing schemes in Tanganyika and in half a dozen miscellaneous projects of the Colonial Development Corporation; and nobody can feel any confidence that that is the right way in which risk-bearing capital ought to be provided. What is much more important, to my mind, than the distinction about who ought to provide risk-bearing capital is to realise that the total amount of capital available for any of the laudable purposes which noble Lords opposite and other members of your Lordships' House would like to see brought into being is completely inadequate.
  The noble Viscount, Lord Samuel, for instance, spoke about the necessity for reequipping industry in order to obtain greater productivity; and the noble Lord, Lord Rochdale, touched on much the same subject. Money for the re-equipment of industry must come out of capital; it does not come out of air. It comes out of the total savings; that is, the difference between national production and national expenditure, which items are referred to in various tables of the White Paper quoted so frequently this afternoon. That total sum seems to me to be grossly and entirely insufficient. One of the reasons why industry has not been able to re-equip itself as it should have done is precisely because too much of the resources which industry had itself collected has been removed in taxation, and therefore industry has not had this available for re-equipment.
  Figures have been published recently in several studies made of the relative amounts of capital set aside for depreciation and obsolescence in the United States and in this country. It is perfectly clear from these figures that, on the present scale of taxation for income tax and profits taxes, even if no dividends were distributed, the total amount which industry could set aside for depreciation and replacement would be wholly insufficient even for depreciation, much less for the re-equipment of industry with modern machinery. If industry is not to

  1135
  be allowed to have that money, it is no good urging industry to re-equip itself: it is a desideratum, but one which cannot be achieved. The reason why it cannot be achieved is largely because of the record weight of taxation to which industry and everybody else in this country is at the present time subjected.
  I should like to mention a few figures— they are not statistics, but just one or two examples to show the trend of events in this respect. The crude fact of the matter is that the liquid resources in this country are running down very rapidly. In 1938, the current assets of industry in this country, covering stocks, cash and receivables, represented 47 per cent. of the turnover. In 1949, that proportion fell to 42 per cent. In the course of the last few years, current assets in the form of cash have fallen from 13 to 7½ per cent. It is observable all round the countryside that concerns which had accumulated cash reserves for replacement and development have expended, or are expending, their reserves so rapidly that by the end of this year, or possibly by next year, most industrial concerns will be faced with what might be called a "crisis of liquidity." They will not have the cash as working capital to carry on their business of carrying stocks, manufacturing from them, and paying wages.
  What is the consequence of that under our present régime? It is clear that these concerns will have to borrow money. To-day they cannot raise money by the issue of share capital—the profits tax has killed that. To take only one example, to-day, if a company wished to issue a preference share, carrying a rate of interest of 5 per cent., it would cost that company, because of the profits tax, 7 ½ per cent. The only cheap way of raising money is by borrowing it. The only way it is possible to borrow money is from that reserve fund of capital which is supposed to be avail-able for re-equipping industry—that figure of £2,000,000,000-odd to which the noble Lord, Lord Brand, referred—but which includes not only private savings, but also that major part which is extracted by the Government, in the form of taxation, and which finds its way into the Treasury. The only answer to that particular problem is by the borrowing of money by concerns that ought to sell
  1136
  share capital. They will have to borrow money on debentures and mortgages, because that is the only cheap way of doing it. That money will have to be found by the Government, because that is the only place where it is. Are the Government prepared to face having to take over, as the lender to industry in this country, the loans which formerly came out of the market? If they are, it means merely that in a comparatively short time that private industry which so many Government spokesmen have said they would prefer to see continue in private hands must fall into Government hands. That may be the purpose, and certainly it is the effect, of the present method of taxation.
  Of all the vicious taxes which have recently been introduced, the profits tax, both on undistributed and on distributed profits, from the point of view of industrial development and re-equipment in this country, seems to me outstandingly the most pernicious. It has deprived companies of the resources which they have earned, and which they wish to set aside. It is idle to say that those resources would still remain with the companies if they did not distribute dividends. That is not a possible alternative, even if the figures involved justified it. In the present state of our economic structure, the distribution of dividends is not only a desirable thing but is a necessity. Half of industry in this country is financed on cumulative preference shares, on which profits tax on distributed earnings is paid. To cease paying dividends on preference shares would upset the whole economic structure of this country, and that is not a solution which can be contemplated, even for a few minutes. The alternative, that of refraining from paying any dividends whatsoever on the ordinary share capital of companies, would make it impossible for those companies ever to finance themselves, except by running into debt, an equally vicious and impossible situation to create. As I see it, all people—private people, industrial companies, commercial companies and traders—are entitled to borrow for two reasons only. They are entitled to borrow at short term because of the seasonal aspect of their trade, or in order to make the turnover or movement of goods more rapid; or they may borrow when times are bad because they have to tide over a difficult period. To borrow at any other time is

  1137
  to put on industry and on production a burden which makes it impossible, when the bad time comes, for those industries to survive; and it is precisely into that position that the profits tax, on both distributed and undistributed earnings is driving us.
  What flows from that is perhaps even more interesting, and more serious. The weight of taxation in this country has now become such that every effort is being made to remove from the incidence of that taxation the industry which ought to be here. There are countless American concerns to-day which will not come and operate in this county the processes and patents which we would welcome and ought to have, and which would save us dollar imports, because they will not face the burdens of taxation which they would have to pay here. Moreover, both they and industrialists in this country are unwilling under the present regime, to face the iron curtain which is being drawn round them and which removes from them the liberty of extending their business as they would desire. It may be that I am treading on delicate ground, but this is something that needs saying. It is a matter of common knowledge throughout the country at present that steps are being taken which will not only have the effect of preventing concerns from transferring their domiciles from this country to other countries, where they will not incur that same burden of taxation—and they include countries in the British Common-wealth—but also will prevent them, without permission, from either creating subsidiary companies to carry on their own businesses abroad—again including countries within the Commonwealth—or transferring assets to existing subsidiaries. That is the equivalent of removing people's passports in the commercial and financial world; and it is doing precisely what we complained about the Germans doing before the war, and what the Russians are doing now. It is putting the whole of industry and private economy into a straitjacket, which will be governed not by Statute but by administrative regulation.
  The provisions to cover this are at the present moment under discussion. With all respect to the draftsmen, in the form in which they are those provisions are impossible of execution. As a matter of fact, if one may use a vulgarism or
  1138
  jargon, I should say that of all the "hamhanded" pieces of drafting in the last five years the regulations under discussion take the prize. I hope, and presume, that they will be altered; but if they are not altered, I think it is necessary to say, with whatever seriousness I can induce your Lordships to put into my words, that it will stop industrial and commercial development in this country and within the Commonwealth, and that it will stop foreign concerns from America coming to operate here. In other words, so far as capital is concerned, it will cut us off from that very necessary contribution to our slender resources, and it will put industry under the dead hand of "staying put" and not thinking of where it can go to develop things. That is the principal point. I know that the noble Lord, Lord Pakenham, will say that the profits tax has been one of my "King Charles's heads." It has, and so long as it remains on the Statute Book it will remain one of my "King Charles's heads." If he wishes to throw stones at it, I will do my best to ward them off or to catch them before they hit the target.
  The other two points are small points which, at this late hour, I do not want to elaborate. I cannot, however, refrain from the pleasure of drawing the noble Lord's attention to what I consider a small point but a very happy development in the set-up of Government accounts, and, in particular, the treatment of the Treasury contribution to the National Insurance Fund to which the Chancellor of the Exchequer referred in another place. The noble Lord, Lord Pakenham, will no doubt recollect saying on December 12 that certain proposals that I had made to incorporate the National Insurance Fund surpluses in the below-the-line account were tantamount to appropriating the surpluses out of the Fund, which would be grossly improper. I am glad to think that perhaps the Chancellor of the Exchequer does not entirely agree with him, because he did decide, and so stated in his speech on April 10, that he proposed not to continue paying over the Treasury contribution but to keep the surplus, such as it was, static. That, obviously, is the right answer. It is the first step towards doing what I hope will be done with the Insurance Fund as a whole, which is to put the money into

  1139
  the general classification of below-the-line Government accounts. What has been happening is obviously rather an Alice in Wonderland affair—to pay a contribution which is not needed, and then to borrow it back by investing it in Government securities.
  That leads me to one small point about the Crick Report of which I have given the noble Lord, Lord Pakenham, notice, and to which I should like to know the answer. I have been out of the country for three months, and it may be that the answer has already been given. In the course of a debate on Government accounts last winter, before I went to Australia, the noble Lord said:
  "I can state in general terms that a considerable number of the recommendations have been accepted, and either have been, or will be, implemented as soon as possible. Examination of the Report has now proceeded so far that I hope it will be possible to announce detailed decisions on a large number of recommendations as soon as Parliament reassembles after the Recess."
  I should be glad to know whether an announcement has been made, because— and I bring this point in here—those who have studied the White Paper on the economic situation and forecast, and who try to follow the vagaries of Government economics and policy, find it extremely difficult to reconcile any of the many figures which appear in so many publications. At the same time, I should like to urge that a proposal which was made by the Crick Committee should be implemented—that is, to group all Government accounts and statements in one place where they can be found, without having to look up half a dozen papers at various times of the year. Those are two quite small points, more of a personal nature. The point I want to leave with your Lordships—although I did not finish my speech with it—is the extreme gravity of the insufficiency of capital accumulations, and the danger of the diversion of those capital accumulations away from channels in which they could most readily fructify.
  7.6 p.m.
  LORD PAKENHAM: My Lords, I think everyone will agree that the debate has been, as usual, well worth while, and we are all indebted to the noble Lord, Lord Cherwell, for once again inaugurating it in such a sparkling and audacious fashion. Perhaps he,
  1140
  and other noble Lords, will forgive me if I pause for a while before coming to some of the main themes which have been discussed during the debate, and deal first with one or two points which seem to stand more on their own.
  The noble Viscount, Lord Samuel, in a general call for production—in which I am sure all wish to share, and the Government at least as much as anybody else —raised a fairly broad constitutional issue to which I should like to give him a provisional reply. He will understand that I have not had time to obtain the highest kind of authority for this statement, but I think he can take it as a general indication of the Government view. Frankly, we cannot agree with the noble Viscount. And I gathered from his still hopeful, though in some ways rather disconsolate, remarks, that he had not found very much agreement outside the Government for his views. We cannot agree that the Cabinet, to be an effective instrument, should consist—I was going to say "mainly," but I think the noble Viscount would say half and half—of supervising Ministers without portfolio.
  The noble Viscount concedes, no doubt, that the Foreign Secretary, the Chancellor of the Exchequer, the Home Secretary, and other Ministers who spring to mind, must be members of any Cabinet. These are all departmental Ministers, so I do not think the noble Viscount would argue that his case can be pressed upon any severely logical lines. He must ask us to consider it as a matter of practice. At the present time, the Cabinet are assisted by a system of standing ministerial committees, a system which has been greatly developed while the present Administration have been in office although, of course, it was originated by earlier Governments. These committees are responsible for advising the Cabinet on particular aspects of policy, and by virtue of delegated authority they are responsible for taking decisions on behalf of the Cabinet. The Ministers who act as chairmen of these committees, as the noble Viscount is perhaps aware (and if he was not aware before, Sir John Anderson reminded him of the fact not so long ago), are given the task of coordinating policy of particular groups of subjects—I stress that particular form of

  1141
  words—and to that extent the system has some resemblance to that advocated by the noble Viscount.
  There is, however, one important difference—and there would appear to be more than one difference. These Ministers are responsible for supervising groups of subjects, not groups of Departments, and decisions are taken not by some supervising Minister, not by a Minister raised on a higher level than his colleagues, but by committees over which the Ministers preside. In that way a collective decision on important points is secured; but the personal responsibility of the Minister is retained. I cannot expect to convince the noble Viscount, Lord Samuel, this evening, but I think most noble Lords will attach supreme importance to retaining this personal responsibility of the individual Minister. Once he ceases to possess that, he becomes, in effect, an Undersecretary and the great tasks placed on his shoulders are to that extent downgraded.
  VISCOUNT SAMUEL: I fully agree with the noble Lord on that. Each Minister must retain his own responsibility for the actions of his own Department—in fact, he is obliged by Statute to do that, because, as a general rule, he works under authority conferred upon him by various Statutes. A Minister on this Committee is a member of the Cabinet as a whole, the central Cabinet, and works within his own Department on his own responsibility. That must remain under any system.
  VISCOUNT SWINTON: The noble Viscount, Lord Samuel, cited as one of his three authorities the Cabinet of 1931, in which he and I both served. I think that in that Cabinet every single Minister was a departmental Minister.
  LORD PAKENHAM: I assume that the noble Viscount, Lord Swinton, prevails on that point, and for once it seems to me that he and I are locked together in closest alliance. I am grateful to him for his support.
  VISCOUNT SAMUEL: The fact remains that in these crises the Cabinet of from seventeen to twenty members disappeared. There are two proposals involved. One is that there should be some policy-making Cabinet—not seventeen to twenty
  1142
  people around a table discussing all major issues. The other is that there should be sub-Cabinets dealing with particular groups of subjects.
  LORD PAKENHAM: I should have thought that the present system harmonised at least to some extent with what the noble Viscount has in mind. I do not feel that, because certain steps were taken at a time of great crisis, we should necessarily take those steps now. I do not wish to minimise the gravity of our problems, but I do not envisage a permanent crisis.
  VISCOUNT SAMUEL: I am grateful for what the noble Lord has said.
  LORD PAKENHAM: I realise that many noble Lords have engagements and, equally, that noble Lords will expect a full reply from me—and those two objects may be incompatible. The noble Lord Lord Blackford, raised the question of the precise political views of my noble friend Lord Winster. I believe that Lord Winster is a Socialist, like myself, and that Lord Blackford is a Conservative, like Mr. Oliver Lyttelton—and the relationship seems rather similar at the present time! At any rate, he said that remarks of his had been favourably treated even in the Labour Press. I venture to think that his remarks will receive as much publicity in the Press of the Left as those of Lord Winster will receive in the Daily Express and The Daily Telegraph. I do not know, of course: that is a matter of conjecture, and I am very innocent in these things. But, if I may say so, Lord Blackford was, as usual, most enjoyable to hear.
  May I turn to one or two very large issues that were raised by the noble Lord, Lord Brand? He will be as well aware as I am that one can carry a discussion so far and no farther, even if the hour were earlier. One knows that figures may be altered from time to time, but one must say in fairness to the statisticians that we know the figures much better since these White Papers began to be issued.
  LORD BRAND: If I may interrupt the noble Lord, may I say that I have the greatest admiration for the people who prepare these White Papers, and particularly for setting out the figures fairly. I should think they have many headaches,

  1143
  but, generally speaking, the publications which they produce are admirable and absolutely necessary.
  LORD PAKENHAM: I am sure that those concerned will find the noble Lord's tribute very acceptable. Lord Brand raised the question of shortage of savings. I cannot carry that matter very far tonight, but may I just put on record, for the benefit of your Lordships' House and of the public, one or two figures that anyone who discusses this subject should have in mind? Taking investments—and we are regarding savings not as a form of masochistic abstinence, but as a constructive act in the real world—the figure of investment has increased from 13 per cent. of the gross national expenditure before the war to 18 per cent.
  LORD BRAND: May I ask the noble Lord where we can find those figures?
  LORD PAKENHAM: I will certainly supply the noble Lord with the source of these figures. The total investment at home and abroad has increased from 13 per cent. of gross national expenditure before the war to 18 per cent.—and of course the national product itself is a good deal larger, whether in money or in real terms, than in 1938. The noble Lord would, I am sure, expect it to be a great deal larger after this lapse of time. At any rate the proportion is, as I have shown, considerably larger than before the war. And I want to emphasise that there has been a corresponding increase in saving as compared with the years before the war. That is the first substantial point I want to make.
  Here we pass from figures to a matter which I think will be common knowledge, and on which noble Lords who are immediately concerned will be closely in touch with the facts. So, naturally, is a Government spokesman. Frankly, I am surprised to hear the noble Lords, Lord Brand and Lord Rennell, talking once again about the shortage of financial resources for the purposes of real investment, because, as they know, throughout the post-war period, and particularly now, when it is so essential to rearm and to devote a proportion of our resources to rearmament, the problem has not been one of somehow or another enabling business men to obtain resources to launch out
  1144
  and set up factories or embark on construction; the problem has been one of restraining them so as not to interfere unduly with the essential export and rearmament programmes. So the picture which has been presented to the House does not tally with the experience of the Government or of those who are advising us. I can only leave it there so far as the House is concerned. The problem before the Government, which I should have thought was common knowledge, has been to restrain those excessive investments which would have taken place, had there not been some restraint, to the detriment of the rearmament programme and the export trade.
  Before passing from that field, may I say a word about gross personal savings and net personal savings? I had rather hoped to avoid this subject and to be able to discuss it privately with the noble Lord, Lord Brand. Possibly we could have had a day devoted to it when your Lordships were going to Ascot, or wherever your Lordships disport yourselves, when the noble Lord and I could have had this discussion to ourselves. But may I just give the noble Lord a short definition of gross personal savings and net personal savings and then once again leave it for the moment? "Gross personal savings" is what the ordinary man means by the savings of individuals, the amounts which individuals save out of their incomes during the current year; and, in so far as particular items of saving are relevant, that is undoubtedly the important figure. "Gross personal savings" is the relevant figure for these discussions. "Net personal savings" is simply gross personal savings minus the death duties.
  LORD BRAND: Yes.
  LORD PAKENHAM: That, simply, is how it is arrived at, and the noble Lord may well ask how this concept of net personal savings was ever invented to plague us at all. I regret that in its origin the gentleman who thought it out must have been one of the least happy statisticians.
  LORD BRAND: Could the noble Lord make his meaning clear? Are gross personal savings all available, if the owners of the gross personal savings want to buy shares? It is not the net personal

  1145
  savings that are available; it is the gross personal savings?
  LORD PAKENHAM: It is the gross personal savings. Perhaps we can pursue that on another occasion. I repeat that "gross personal savings" is what the ordinary man means by savings. "Net personal savings" is simply that, minus the death duties. If I am asked why this concept was ever developed—we may possibly regret its emergence—the answer is that it is necessary and helpful for various bookkeeping purposes.
  LORD BRAND: I do not want to pursue the conversation further but I should like to ask this. I have, say, £10,000 gross savings. I decide to go to Christie's and buy something from the estate of somebody who has died, and that money goes to the Government. I buy it for £5,000, the money goes to Christie's, they pay the money to the executors of the estate, and it goes on to the Government. I am left with £5,000. Can I still invest £10,000 in ordinary shares?
  LORD PAKENHAM: Is the noble Lord asking me what he personally would do, or what? Perhaps he is pursuing a line of his own. In reply to his question, I would inform him that it amounts to this: that net personal savings are simply gross personal savings minus death duties. It is considered to be helpful for bookkeeping purposes. Also it gives some measure of indication of the growth of personal wealth from year to year. It is not in that way a complete indication, but it does give some indication of whether people are getting better off or worse off. It does not really throw any light at all on the new funds which people can make available for investment. That is the advice of the gentlemen who drew up these tables.
  LORD BRAND: It is not plain, but perhaps it would take a day to explain it.
  LORD PAKENHAM: It would take me a day; it would take the noble Lord half a day. It has taken me already more than a day. It is most complex. We can for the moment forget "net personal savings" and perhaps possibly regret its appearance on the scene.
  The noble Lord, Lord Rennell, once again attacked the profits tax. Of course,
  1146
  one can dislike all taxes. I wonder if the noble Lord is aware of the widespread feeling throughout the country—I do not pretend to be in closer touch with the ordinary man and woman than is the noble Lord; he may be closer in touch than I am—that the increase in profits indirectly as a result of world-wide rearmament is most disturbing—I will not put it any higher than that. I wonder whether the noble Lord is aware of that widespread feeling. You can hardly pick up a newspaper without seeing that profits have been very much increased. I myself take leave to doubt whether any Government would have felt it just, when profits were increasing so fast, not to put some higher tax on them. The noble Lord is probably aware that the percentage of corporate profits taken in tax is the same as in the United States. I suppose one alternative to the imposition of a higher profits tax would have been a statutory limitation of dividends, which the noble Lord, I should imagine, would be the last man to desire.
  I do not want to detain the House with personal recollections, but I am bound to say that when, shortly after the Budget, I visited the City and had lunch with three old friends who have no particular respect, I am sorry to say, for Ministerial status, I was welcomed with arms flung much wider than I had ever anticipated. There is no doubt about it, at any rate speaking from my own experience of the City, that a great sigh of relief went up when this Budget was introduced. I know that is a dangerous thing to say because I shall probably be told by my own political friends that possibly the Budget was not sufficiently severe. That can be argued very forcibly, as the noble Lord argued his point very forcibly; but I would say that, taking it by and large, the Budget pleased the country. The Chancellor of the Exchequer said that he did not expect it to be popular. I should say it was a popular Budget because, by and large, it was felt to be a just Budget, preserving the balance about evenly between the claims of various sections of the community.
  I will say one word now about the Crick Committee. The noble Lord is quite right to harry me over that, because I told him there would be a statement. I will tell him that a policy has now been

  1147
  formulated and a statement is expected shortly; so, whereas before we were in a condition of awaiting a statement, we are now in a condition of expecting a statement shortly. So no one can say that progress does not take place. I can assure your Lordships that, when the statement is ready, I hope to have the pleasure of delivering it in this House and discussing it with the noble Lord. I will not say very much now—I hope your Lordships will forgive me—about Clause 32 of the Finance Bill. We shall come to the Finance Bill and no doubt discuss all those matters at the appropriate moment. Most of us (certainly the noble Lord) have read the spirited defence of his own attitude which was offered by the Chancellor of the Exchequer on Second Reading. The matter is at this moment again under discussion in another place. I should like to make plain that Clause 32 is certainly not intended to restrict genuine investments of profit capital abroad—for example, in the Colonies— and we certainly do not accept the view that the clause will deter foreign capital from coming here. But if the noble Lord feels that he is able to assist with the drafting of the clause, as always I am at his disposal for conveying his views to other and more responsible quarters.
  The noble Lord, Lord Rochdale, tackled the suspension of the initial allowances. There, again, I hope he will forgive me if I do not linger at any length on what the Chancellor of the Exchequer has said elsewhere. Quite shortly, we feel that to stimulate industrial investment past a certain point at this time would endanger too much the defence and export programmes. For that reason, and for the reason that the allowances can always be restored in more propitious circumstances when it is felt that they will more usefully serve the purposes for which they were originally intended, I hope the noble Lord will realise that there is a great deal in the argument for withdrawing them. The noble Lord shakes his head. I did not expect him to nod. But we will pass on. The whole matter has been discussed more than once in another place, and he will at least realise that there is a strong argument, shall I say, even if he does not think it is overwhelming, for withdrawing the allowances at this particular moment.
  1148
  May I come on to the remarks of the noble Lord, Lord Cherwell, and perhaps to one or two more general themes? My noble friend Lord Lucas has dealt so thoroughly with the noble Lord, Lord Cherwell, that I do not know that there is great occasion for me to attempt to belabour him. The noble Lord has once again deployed all his remarkable and unique combination of talents to provide us with a depressing caricature of British achievements during the last year. We have known him in the capacity of Oscar Wilde before, and he has never been seen to better advantage in that role than to-day. Now he has imported the craft of David Low. I say that with no disrespect, because Low is the leading Socialist caricaturist, and that is intended to be a compliment. But I would beg the noble Lord to ask himself, applying the very high scientific standards that he usually applies, whether he really regards his speech as objective or judicial, or whether he regards that question as being slightly otiose in a debate of this character.
  Curiously enough, the noble Lord wound up with an attack on academicians. Coming from the noble Lord, that seemed to be one of the oddest developments in the history of this House. I think most of us would agree that we do not hear the noble Lord speak often enough; he is so busy with his academic duties that he has not the time to address your Lord-ships as often as we should wish. So far as I know, he is the only active professor in the House, and yet he comes here and denounces the Government and others for wearing mortar boards and gowns. I was a little puzzled by his reference, though I took it, of course, in the most kindly spirit. I feel that the noble Lord has grossly understated British achievements in the year 1950. I should have thought he could have paid tribute to what was accomplished in that year without placing any laurels on the brow of the Government, if he felt reluctant to perform that latter feat.
  I cannot help but turn back, late though it is, to his peroration of last year, as he made some reference, a little obscure, to mine. The noble Lord doubted very much whether the estimate in the Survey would, in fact, be achieved last year. That reference appears in column 405 of

  1149
  Hansard of May 23 last year. He says there:
  "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."
  That was a rather sombre expression of sympathy offered us last year by the noble Lord. Taking the best comparison for the industries which come under the industrial index, the increase for the year rose from the estimated 5 per cent. to 8½ per cent. That does not compare with the noble Lord's 2½ per cent.; but whether you take it as 2½ per cent. or at the estimate of 5 per cent. for the industries coming under the index, there was this very big increase— an increase which far exceeded what was expected last year. That is something that is perhaps worth pondering at the moment, and we had rather hoped that the noble Lord would come down to the House just once and say that he was being too pessimistic last year—as, indeed, he was.
  Take exports. I am informed that though there was no actual target for exports in the Survey last year, it was hoped that receipts would increase by £200,000,000. In fact, they increased by £400,000,000; and though there was some slight increase in price contained there, obviously the increase in exports was much greater than anybody expected when the Survey was drawn up. Those are two of the most essential aspects of this matter, and, there again, the achievements far exceeded the expectation. The noble Lord seemed worried with what I think he called our "obsessional interest" in the growth of the reserves.
  LORD CHERWELL: At the beginning of the year.
  LORD PAKENHAM: Yes. But the noble Lord, Lord Brand, I know, attaches the greatest possible importance to those reserves. He called them "the thermometer" last year, and I am sure he still looks upon them as such. Indeed, he told us this afternoon that he hoped to see the reserves go higher. So he is not going to ally himself at all with the noble Lord, Lord Cherwell, on this particular point of accusing us of an undue interest in the reserves. In fact, the gold and dollar reserves were doubled during the year, and they have nearly trebled since devalu-
  1150
  ation. Those were some of the points that might have slipped, quite obscurely perhaps, into the objective survey that we were all hoping for from the noble Lord.
  LORD BRAND: Those reserves were considerably balanced by increased sterling debts.
  LORD PAKENHAM: Yes, but as the noble Lord agrees, there are the reserves, and no doubt he is very much encouraged by them. Of course, there was also the suspension of Marshall Aid; and the fact that we were able to stand on our own feet during the year was a remarkable achievement. I must not go on too long along that line, because the noble Lord, Lord Lucas, has dealt with it all very thoroughly. But in case the noble Lord. Lord Cherwell, implies that this improvement in the sterling-dollar position was not to any great extent a United Kingdom achievement, I would point out that half the improvement was on the United Kingdom current and capital account. It may be that that should go on record alongside some of the points made by the noble Lord, Lord Cherwell.
  The noble Lord asked me a number of rather detailed questions, and if he presses me for answers now I can supply them; otherwise, perhaps I may give them to him by correspondence. I am referring to certain queries that he raised regarding invisible items and so forth. Would the noble Lord like the answers?
  LORD CHERWELL: I do not wish to detain the House, but I should like to have them on record in Hansard.
  LORD PAKENHAM: They could be given in answer to a Non-Oral Question, but I am delighted to give the noble Lord the information for which he has asked. Now, as to the first question—the noble Lord will correct me if I am not answering the precise question which he put, but he was travelling a little fast at that point. He gave advance notice of questions which he intended to put, and I am assuming that the questions which he asked in his speech are those of which he gave advance notice. He pointed out that the dollar surplus in this sterling account is really derived from the rest of the sterling area. Without arguing further about that, I will answer some of his other points. He asks: Can a breakdown for the rest of the sterling area be given, country by country?
  LORD CHERWELL: I am afraid that the noble Lord is a little behind the times. That was what I asked last year. This year I asked whether the 920,000,000 dollars—I think that was the amount— that we gained from the sterling area could be given as imports and exports, visible and invisible. All we had was a net figure of some 900,000,000 dollars. It is important to know how much is imports and how much is exports, how much is visible and how much invisible.
  LORD PAKENHAM: The noble Lord will realise, I am sure, that I cannot give answers offhand to questions of that nature, and I certainly would not attempt to do so. I can give only the answers with which I have been furnished, and which I understand are to questions of which he gave notice.
  LORD CHERWELL: But that is a question of which I gave notice.
  LORD PAKENHAM: As regards the noble Lord's question whether a breakdown for the rest of the sterling area can be given, country by country, the answer is that a breakdown cannot be given country by country, but only for the Colonies and the rest. He also asks for a breakdown into visible and invisible imports, and visible and invisible exports for the United Kingdom and the rest of the sterling area. These details are as follows. For the United Kingdom they are to be found in tables 3–9 of Command Paper 8201. For the rest of the sterling area, trade (not payments) figures are given in the Report on Overseas Trade, May issue, table 22. Invisible receipts are small on the whole; payments are mainly for freight.
  The next question was what are invisible exports.
  LORD CHERWELL: I never asked that.
  LORD PAKENHAM: I am sorry, but these are the questions that have been imparted to me as coming from the noble Lord. Some of them seem to possess devilish simplicity, whilst others are very complex.
  LORD CHERWELL: The subject of one question was the item referred to as "other."
  LORD PAKENHAM: As regards the question of "Other," the breakdown of "Other (net)" invisibles cannot be given, except for the film element which is shown on page 32, item 12, of Command Paper 8201, where the other constituents are also listed.
  LORD CHERWELL: It makes up £315,000,000 does it not?
  LORD PAKENHAM: If my recollection is right that is correct. The other constituents are also listed there. The item "other exports" consists of food, drink, and tobacco, which amounted to £135,000,000 in 1950, raw materials other than coal—
  LORD CHERWELL: This is invisible is it not?
  LORD PAKENHAM: The items for "Other exports" I had better give to the noble Lord as I have them here. I am afraid that these are the answers to the questions as they were handed to me; I do not know whether the noble Lord supplied them in writing. The item "Other exports" comprises food, drink and tobacco—£135,000,000 in 1950; raw materials, other than coal, £66,000,000; animals not for food, £6,000,000; and parcel post, £42,000,000. If the noble Lord has not been able to reach me with the questions he wished to put I will gladly answer them in a reply to a Non-Oral or an Oral Question, just as the noble Lord desires.
  The hour is late but I must make just a few general observations before I close. We have the record of 1950 before us. It was a year, I suggest, of great achievement. Circumstances, however, have now completely altered. The noble Lord did not foresee, and none of us foresaw, the outbreak of the Korean War within a few weeks of our debate. None of us, I am sure, would wish to pretend that we foresaw that regrettable event. In the last year, there have been all sorts of changes in the world, and though in one or two respects they have helped us, by and large they are bound to impose sacrifices upon us. That would be true whatever Government was in power. The world—particu-larly when there is full employment— cannot become richer by devoting a large number of its resources to arming itself, necessary though that is—at any rate it is very necessary on the part of the

  1153
  Western world, in view of the menace from the East. The world cannot become richer; it is bound to have sacrifices imposed upon it. Whether those sacrifices are in the form of higher taxation or higher prices, the price clearly has to be paid somewhere.
  The noble Viscount, Lord Samuel, made reference, very naturally and forcibly, to the rise in the cost of living. That is a symptom of the period of strain and extra burdens that must now be borne. While on the subject of the cost of living—and the noble Lord, Lord Lucas of Chilworth covered this ground to some extent—may I give the House some facts concerning the rise in retail prices since September, 1949—that is, since de-valuation? In the United Kingdom, between September, 1949, and June, 1950, the rise in retail prices was 2 per cent. Then between September, 1949, and March of this year it was 6 per cent. In April of this year it was 8 per cent. So there has been a rise of 8 per cent. in the cost of living since that time. No one, whatever his political views, will seriously deny that that has been caused almost entirely by the rise in import prices. If we look at these we see that against a total rise of 8 per cent. in the cost of living since September, 1949, the rise in general import prices here has been 136 per cent., and the rise in raw material prices has been 169 per cent. Those figures were brought out very effectively by the noble Viscount, Lord Samuel, and I could not help thinking that in doing so he answered Lord Cherwell to a great extent. We have had terrific rises in import prices and that has been the cause of the trouble.
  The noble Lord, Lord Cherwell, says— and up to a point, he is entitled to say so—that devaluation has been a factor. The noble Lord is skilled in distinguishing the influence of one element from an-other in scientific analysis. He would be a bold man who attempted to distinguish very dogmatically the elements which are here concerned. May I, whilst on the subject of devaluation, remind your Lordships of what Lord Lucas of Chilworth said? The rise in price of raw materials was 25 per cent. between devaluation and the outbreak of the war in Korea, and has been more than 75 per cent. since the outbreak of war in Korea. What seems to me would be a very telling
  1154
  point, if one were trying to show the dangers of exaggerating the influence of devaluation, would be to point to any greater rise in retail prices here as com-pared with the United States, where, of course, there has been no devaluation. We have not the United States figures for April. But taking the March figures we find that in this country, retail prices rose only 6 per cent. after devaluation, where-as in the United States they rose 9 per cent. That seems to me a point which the noble Lord should turn over in his mind very often.
  The problems confronting us are undoubtedly very grave. They arise far more from the diplomatic situation than from any other factor in the world problem. Surely we can all agree about that. We all agree on the absolute necessity for this rearmament. We all agree that it is necessary to impose additional burdens. We all agree in calling for more production, while recognising that production last year was considerably greater than was expected. I know that on these occasions the noble Lord, Lord Cherwell, interprets his duty very seriously, and feels that he must play the part of the devil's advocate before he will allow even a minor degree of beatification to be conferred. There are very sound theological precedents for that role. I cannot help concluding with the reflection that the things which divide us in this hour are less than those that unite us. We all agree that somehow or other, we must stand together with our Allies, both in the economic sense and in the diplomatic sense, so that we can win our way to peace, which will make a solution to all these economic problems so very much easier of achievement.
  7.52 p.m.
  LORD CHERWELL: My Lords, I am sure we all welcome Lord Samuel's fight for lower prices and a lower cost of living. No doubt we also all enjoyed Lord Brand's criticism of what appears to be the T.U.C. thesis: that the higher the taxation the less the risk of investing capital. I also very much enjoyed Lord Winster's description of the failures of the gentlemen of Whitehall, who are supposed always to know best; and naturally I agree with what the noble Lords, Lord Rochdale and Lord Rennell, said about the danger of reducing the accumulation of savings for risk capital. At this late

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  hour I will not deal in any detail with what the noble Lord, Lord Lucas of Chilworth, said. He seemed to me an example —I will not say caricature—of Government complacency. He listed the Government's achievements of the past year with all the mystical enthusiasm of St. John of the Cross. He also gave us a description of the benefits of devaluation, which showed at any rate that he enjoyed simple faith. Yet there is something very curious about a brief. For one thing, it is never very brief.
  Nobody can say that the noble Lord, Lord Pakenham, fortified by a number of notes, or should I say signals, from the computers' box, ever bores us. He is always lively and interesting, and I am always glad to hear his version of the wonders that have been achieved by the Socialist Government—I will not go into them in any detail. He said that early in 1950 I accused the Government of having a complex in favour of collecting gold. Only yesterday or the day before, the Lord Privy Seal was talking about the "precious metals," and then went on to define them by saying that he meant the more useful metals and not the stuff buried in Fort Knox—that is, gold. While we were buying up gold and not any of the other "precious metals", as the Lord Privy Seal calls them, other countries were collecting them and they are now selling them back to us at enhanced prices.
  I will not go into the argument about retail prices. They are so complicated by subsidies that I do not think any reasonable comparison can be made. Nor will I go into the comparison the noble Lord made between the Survey's predictions and what actually happened. He seemed to take great credit for the fact that the Survey had been wrong on several occasions, and that the facts were better than the prognostications. That may be
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  fortunate, but it is not a great compliment to the writers of the Survey.
  LORD PAKENHAM: The noble Lord has been very polite to me, but the point was that last year the noble Lord appeared to assume that the Survey was on the optimistic side.
  LORD CHERWELL: Last year I said that the Survey said that we should just get through, if five different things happened. Of course, that is not a very good bet. An accumulator on five winners is very profitable, if it comes off; but it is not one on which you can reckon. I know that the noble Lord regretted that I did not pay tribute to the Government and I know that one has only to do that to be told, "What a statesmanlike speech you have made!" Much as I value the noble Lord's compliments, we know one another well enough not to have to do that sort of thing. The noble Lord said that I was not quite objective. No doubt he thinks he is when describing the Government's achievements, though the listener would not always reach that view. He condemned me for having referred to the academic people. What I referred to was the economists in the Government, who—to put it mildly—are always a little apt to be unduly theoretical; and I think the noble Lord him-self must admit that. He said that I had given a caricature of what had happened last year. Well, a caricature notoriously often displays the truth more effectively than an accurate, dull, down-to-earth statement. But I will not continue to deal with all his points. It is late; I do not wish to keep the House any longer; and, therefore, I ask leave to withdraw my Motion.
  Motion for Papers, by leave, withdrawn.
  House adjourned at two minutes before eight o'clock.