THE ECONOMIC SITUATION

HL Deb 01 April 1952 vol 175 cc1168-286

2.43 p.m.

LORD PETHICK-LAWRENCE rose to call attention to Economic Affairs; and to move for Papers. The noble Lord said: My Lords, I make no apology for initiating this debate to-day. By the choice of the Prime Minister, many pivotal positions in the Cabinet are held by members of your Lordships' House, and of those several are directly concerned with economic and financial issues. Amongst your Lordships are also men of great experience and acknowledged renown in such matters. Therefore, though we are constitutionally debarred from seeking to amend the financial provisions for the year, it is highly desirable that we should review here the major implications of the Government's economic policy; and, in my view, Her Majesty's Opposition would be lacking in their duty to the nation if they did not require from the leading spokesmen of the Government in this House an exposition of their views on these matters. I should have liked to await the publication of the Economic Survey of the year, but that would almost certainly have necessitated the postponing of this debate into May. We are already in possession of the three instalments promised by the Chancellor of the Exchequer, ending up with his Budget speeches in the other place, and we should, therefore" be in a position to see and appreciate the full picture of the Government's financial and economic policy.

I regret to have inform your Lordships that having listened to, or read, nearly all that has been said by Her Majesty's Ministers in expounding and defending this policy, and having given careful thought to their remarks, I find myself in considerable confusion. If I stood alone in this I should naturally attribute it to my own limitations. But when I find that there are others, some of whom are not in my own Party, who are also confused—and among them are people with whom I frequently find myself at variance—then I am confirmed in my view that the confusion is inherent in the policy itself or in the exposition of it or, possibly, even in both. The first major discrepancy lies in the contrast between what was said earlier of the gravity of the crisis and the remedies which are to-day being put into operation to deal with it. The second discrepancy is concerned with the relative importance to be attached to the monetary weapon. Other discrepancies—some of which I shall refer to in due course—are also in evidence. I will not waste your Lordships' time by quoting the precise remarks that were made about the crisis, but, broadly, what was said by the Government was this: that when they took office they were confronted with a wholly unprecedented situation, which was very grave and which demanded terribly drastic remedies likely to cause great sacrifices to the people of this country. It was only in that way, we were told, that we could avert national bankruptcy, public and private shortage of food for consumption and shortage of materials for industry, which, if actually occurring, would mean grave unemployment, industrial ruin and stagnation. To arrest this imminent danger the whole nation must be prepared to make phenomenal sacrifices and to face new austerities. The date of the Budget was brought forward in order that the drastic remedies might be imposed in time.

That was the position before the Budget. In the event, what have we got? We have got, of necessity, certain cuts in imports, the net results of which, owing to Commonwealth and foreign counteraction, are, unfortunately, likely to fall far short of the gross gain which was immediately apparent. We have got, I understand, a raid or the stockpile, so carefully built up by the Government's predecessors. We have got an excess profits levy which was envisaged by the leaders of the Conservative Party before the Election. We have got a number of changes in taxation and benefits which, we are told, must be looked at together as a group. They do not appear to deal directly with the crisis, but all of them, taken together, are an implementation of certain Conservative predilections expressed long ago. Finally, we have a swingeing increase in the bank rate, designed for the express purpose of slowing down the creation of new capital. As to personal consumption, Mr. Butler said that he did not propose to take any budgetary steps to reduce purchasing power below that of last year. We may like the Government remedies or we may dislike them. We may, perhaps, regard them as regrettable necessities. I myself have views on some of them which are none too favourable. But the essential question is whether, taking them for better or for worse, in the aggregate they do resolve the problem set by the crisis. I do not think anybody will deny that fact. It is just here that my principal perplexity arises.

After the earlier statements, in common with the mass of the thinking public, had assumed that drastic new personal sacrifices were going to be demanded of all of us. We were keyed up to face our equitable share of then. The announcement of the Chancellor of the Exchequer midway in his Budget speech therefore came as an anti-climax, and threat and execution seemed to be directly at variance. I can suggest only three pos- sible explanations. The first is that the earlier talk about the crisis was grossly exaggerated—to express it vulgarly, that it was a kind of political ballyhoo. I do not take that view. I reject it, because the facts and figures convinced me at the time, and still convince me, that the situation was extremely serious. The second is that Mr. Butler's remedies are inadequate, or at any rate likely to prove inadequate, except on the most optimistic assumptions. That I understand to be the view of the Economist newspaper. The third is that, embedded in the Government's policy, are steps of a more serious character which mortgage the future to meet the exigencies of the present. Prominent among these is the catastrophic rise in the bank rate with the avowed object of restraining new capital investment. Between these two last explanations I hesitate to pronounce judgment, because I do not know the precise estimate, or even the comparative order of magnitude of the contributions required from each of the factors involved.

To elucidate the position, I will ask certain questions, to which I hope the noble Viscount, Lord Swinton, who I understand is replying for the Government, will give me answers. First, are we even now in possession of the full economic programme, or are other instalments still to come? Secondly, can he give us for the financial year commencing to-day the net estimated increase or decrease in the stockpile, setting this against the similar figures for last year? Thirdly, can he do the same for the estimate of internal industrial capital development from public and private sources combined? Fourthly, what increase does he expect in aggregate production? And, fifthly, do the Government hope to increase the volume of exports, and if so, by what percentage? With these figures before us, we may be able to judge how far the measures the Government are taking to meet the crisis are adequate.

My perplexity regarding the Government's policy does not end with the matter of the adequacy of their remedies for the crisis. I am also greatly concerned with the Government's action in returning to dear money. Here, also, I find it hard to reconcile what has been done with the statements made in this House in response to questions of my own in November last year by the noble Viscount and on 20th February of this year by the noble Lord, Lord Woolton. Speaking no doubt from briefs supplied to them by the Treasury, they gave emphatic assurances that money control was only to be one, and not the principal one, of the methods of keeping hold of the situation. In stating this they were in line with what Mr. Butler himself had said when he remarked: I do not believe that in present circumstances monetary policy by itself can have any decisive results.

SEVERAL NOBLE LORDS

Hear, hear!

LORD PETHICK-LAWRENCE

I quote this as showing that the noble Viscount was in line with his own Chancellor of the Exchequer.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT SWINTON)

I still am.

LORD PETHICK-LAWRENCE

That is all right. But I will now give a quotation from the Economist of March 22. It is as follows: One conclusion emerges with ever-increasing sharpness. Monetary policy appears as a central figure in the whole performance, and the part it may have to play, perhaps is intended to play, looms steadily larger. It is certainly an incomparably bigger part than anyone outside the official circle expected to see, and much bigger, too, than the Chancellor himself was envisaging when the first moves towards monetary orthodoxy were made last November. I have seen similar statements elsewhere and I agree with them. Finally, if the expectation of the Economist proves correct and the remedies put forward by the Chancellor of the Exchequer on behalf of the Government should prove in the end inadequate, what ground have we for assuming that there will not be a further turn of the monetary screw?

Now, this question of dear money was the theme of the speech that I made in this House in February, and I am certainly not going to repeat to-day what I said then. But it must be quite evident to noble Lords that the injurious consequences, in war or in peace, which I foresaw then from the rise of one half of one per cent. in the bank rate must be greatly enhanced by the further rise of no less than 1½ per cent. Moreover, the other repercussions will be much greater. To begin with, there is the question of the direct cost to the Exchequer of the increase in the service of the National Debt brought about by the increase of the bank rate. I prefer not to speculate on what that additional cost will be, and, therefore, I am going to put one further question to the noble Viscount. I would ask him to give me the authoritative estimate of the gross and of the net increases in the cost to the Budget of this rise in the bank rate from 2 to 4 per cent. Whatever it is—and it is certain to run into tens of millions of pounds—all that is an additional sum which will have to be met by the taxpayers of this country.

But, serious as that is, in my opinion it is only a small part of the injury inflicted on the public and private economy of this county. Dear money clogs the arteries of industry and commerce and hampers and hinders the captains of industry from developing the resources of the country by adding to the plant of their undertakings. This is not an incidental, unfortunate effect of dear money; it is its main purpose. The selection it imposes in so doing takes no account of the advantages to the welfare of the nation of one form of capital development as against another, as can be the case with a physical control, but is dependent solely on the monetary gain anticipated by the promoter.

I recognise, of course, that in an emergency of the kind with which we are faced it is probably necessary to make some reduction in fresh capital development—I said so the other day, following the noble Lord, Lord Balfour of Burleigh. It is, of course, as true of the nation as a whole as it is true of a single individual who, finding himself short of cash and credit, has to abandon some of his most cherished plans for development. But do not let the Government delude you into thinking that they are painlessly and cleverly averting bankruptcy, when they are merely mortgaging the future to meet the exigencies of the present; and do not let the bankers, who, however solicitous they may be for the welfare of the country, are not entirely disinterested parties, delude you into thinking that putting up for everyone the cost of borrowing is an admirable and salutary achievement.

Very likely I shall be told—perhaps the noble Viscount, Lord Swinton, following the Chancellor of the Exchequer, will say so to-day—that there is real proof of the success of the budgetary proposals of the Government in the improvement of the value of sterling in exchange for dollars on the money market. For what it is worth, that is certainly a good sign; but how much it is worth I should be sorry to have to assess. Personally, I am always on my guard against laying too much stress on these day-to-day quotations. I specially said this when the position was the other way round, last November, when the prices of securities on the Stock Exchange were falling steadily against the Government. In any case, only a very few people who are in the know—and I certainly do not claim to be one of them—are in a position to read the omens of the erratic flight of the fickle birds of "hot" money.

I do not propose to detain your Lordships much longer, or to deal with many of the financial and economic proposals in the programme of the Government. Many of them will no doubt be dealt with in this debate by other noble Lords speaking from these Benches. But before I sit down there is one group of proposals about which I must say a few words—I refer to the changes introduced by the right honourable gentleman Mr. Butler in the latter part of his Budget speech which have the effect of redistributing benefits and taxation. I described these changes earlier as not contributing directly to meeting the crisis, and I believe this to be strictly true. I am aware, of course, that the Government claim that they do contribute indirectly by increasing the incentives to production, although this seems to me very problematical. Even if there is some merit in them on this account, however, I am afraid that there is much demerit, also, in. raising food prices, which is likely to result in new claims for higher wages. However, it is not of these aspects that I propose to speak.

Conservatives have for a long time past expressed their disapproval of the food subsidies. They have based their claim for the withdrawal or reduction of the subsidies on the ground that they were wasteful, saying that while some deserving people benefited from them, they were lavished unnecessarily on others who could well afford to pay the full economic price of the necessaries of life. They said, therefore, that they would substitute for subsidies other reliefs which would be more equitably distributed. I would ask your Lordships to examine how far, in actual fact, this claim has been substantiated in the Government's policy. Food subsidies, it is true, benefited rich and poor alike; but as they were on staple foods, and not on luxuries, they were a per capita relief. Income tax reductions, on the other hand, which have been substituted for food subsidies., increase with income, so that the poorest wage earners get nothing at all out of the reductions, while those who pay larger tax draw greater benefit. Even the child allowances—which operate to help the larger families—do not discriminate between rich and poor; and they, in common with the reductions in income tax, do not accrue to the same member of the family who is responsible for expending the household money. No doubt the vast majority of good, decent folk who earn wages will pay over some of these increased reliefs to their wives; but there will be many who will retain for their own use, to be spent on smokes, drinks and other things, some part of the increases. And to the extent that this is done, the increase in the housekeeping money available for purchasing food will not be the equivalent of the increase in food prices.

There remains the question of the disregard in the Budget changes of the pledge given in his pre-Election broadcast by the noble Lord, Lord Woolton. There is no question that this pledge was given in quite specific terms. The noble Lord said—and I do not think it has ever been questioned: There is an Election story going about that the Conservatives would cut food subsidies. This is not true.

THE LORD PRESIDENT OF THE COUNCIL (LORD WOOLTON)

May I interrupt the noble Lord? I know the last thing in the world he would wish would be to be unjust to me. Would he mind reading the next sentence?

LORD PETHICK-LAWRENCE

I will read the next sentence with the greatest pleasure. The noble Lord said: There is an Election story going about that the Conservatives would cut food subsidies. This is not true. What we want to do is to get rid of the need for subsidies.

LORD WOOLTON

I thank the noble Lord.

LORD PETHICK-LAWRENCE

I have quoted the second sentence, as I was asked, but it does not detract in the least from a perfectly categorical statement. There is no question, further, but that this pledge was broken, not slightly but substantially, because no one can pretend that £160,000,000 is not a very considerable sum. I am no mealy-mouthed politician, and I have had considerable experience of public life. I am well aware that a Government is sometimes forced to disregard some of the pledges of its more ardent supporters, given in the heat and hubbub which surround an Election, and that sometimes there will be cases which concern even individuals who, after the Election, become Ministers of the Crown. But here was what I may call an ex-cathedra statement made in an official Party broadcast by a prominent member of the Conservative hierarchy. The public were entitled to regard it as constituting a specific pledge by the Party, and to imagine that a Conservative Government, formed after the Election, would be bound by that pledge. There can be no doubt that it must have influenced a considerable number of votes.

As your Lordships will appreciate from your knowledge of me, I am not one to impute unworthy motives. I assume, of course, that the noble Lord in making this statement did so in perfectly good faith, in the firm belief that he was stating the intentions of his colleagues. I assume that the future Chancellor of the Exchequer was not privy to that statement before it was made. I assume that the noble Lord, when he found his promise broken, tendered his resignation, as is a recognised practice in such cases. When he made his speech to his supporters—which is reported in The Times of March 22—in which he is alleged to have said: Neither my colleagues nor I have any regrets for what we have done. We have no apologies to make … I assume that he did not mean that he had no regrets for having unintentionally entirely misled the electorate on an important issue. The fact remains that the pledge was broken, and that an official statement was subsequently issued from No. 10 Downing Street—and, therefore, presumably on the highest authority—saying: There is no question of Lord Woolton resigning. He has the Prime Minister's full and continuing support. It only remains for me to say one thing, and I say it in all seriousness. For my part, I should not have thought that such a decision was in keeping with the honour and dignity of a great Party. I will leave it at that. I beg to move for Papers.

3.13 p.m.

LORD LAYTON

My Lords, I do not propose to follow the noble Lord who has just spoken on the issue which he raised last or, indeed, on the political implications in his speech. I think what we can most usefully do is to consider the Budget and the economic situation in all its implications. When we debated the economic situation six weeks ago there were some signs that the drain upon Britain's reserves of gold and dollars, though still very heavy, was slackening. We did not then know what steps the Government it would take in the Budget, which was to be the third step in the Government's campaign to relieve what is an extremely serious situation. The Budget, with its further import cuts and the sharp rise in the bank rate, has duly come and gone. Though there are some indications that the reserve position has shown further improvement, we still do not know how low our reserves will be at the end of the first quarter. If the expert forecasts are correct, that reserve can hardly be much above the level reached when Sir Stafford Cripps devalued in 1949. I understand—though many of your Lordships will know better than I do—that there is a short position still open in sterling, and in one sense this is a source of strength, for sooner or later it must be closed by the purchase of sterling. If, in the meantime, the reserve continues to fall, the Government will be faced with a very grave decision. Without pursuing that matter any further, I hope that the noble Viscount, Lord Swinton, will be able to give us an encouraging impression of the state of affairs in that regard.

In the meantime, there are many things to be said about the situation created by the new orientation of policy created by the Government's first Budget. For my part, and subject to certain qualifications which I will mention shortly, I welcome very much the general attitude adopted. I do so for many reasons, and not least because it is a step in the direction of bringing more flexibility into our national economy. For the first time for several years the increase in the total amount of revenue taken in taxation has been checked, and the reduction of the food subsidies has made possible some substantial remissions of taxation. If this policy of reducing both sides of the national account is pursued persistently, as it should be, we may hope that 1952 will prove to have been the high-water mark in the proportion of the national income taken by the Government in various forms of taxation. I include in that figure local taxation. So long as this figure remains somewhere about 40 percent. of the total of the national income, the economy of this country is bound to be kept in a straitjacket of control and restriction, leaving no room for the expansion of activities by private enterprise. I would add, also, the very important consideration that while the present situation persists there is no margin of taxable capacity available to meet a war or any other kind of emergency. I therefore regard this first attempt to reduce both sides of the national account as of the first importance.

The smoothing out of the income tax in its lower ranges is also to be commended, both on grounds of equity and also because it partially removes the disincentive effect of sharp rises of income tax at particular stage in the scale. The system of graduating our chief direct tax by means of allowances was never designed for a tax with a standard rate as high as the war-time level of something like 10s. in the pound. Liberals have for a very long time insisted upon the advantages of direct taxation, as against indirect taxation, since it has the great merit of being adjusted in proportion to capacity to pay. That argument loses force when direct taxation reaches a high war-time level of income. I do not want to pursue that any further, but it explains why many of us, thinking in Liberal terms, regard the modifications and the smoothing out of the income tax scale as of first importance. A very humble member of my own staff observed on Budget night that he thought that the change in income tax was the most constructive development of which he had heard since the war.

Though, on the whole, the Budget is an indication of a change in the economic climate, it is little more than a slight break in the clouds. The level of taxation and expenditure is still extremely high. On the incentive side, the effect upon overtime earnings of the adjustment of allowances goes only a very little way towards removing the grievance that the worker retains a smaller proportion of every pound that he earns on overtime than if it were earned as part of his normal wage. If we turn to the employers' side of the picture, it must be said that the excess profits levy, even in its new form, is a departure from the sound principle of encouraging enterprise. It cannot be right to make concessions to businesses which are doing no better than in 1947, 1948 and 1949, while taking away a rising proportion of the additional profit which the pushful firm is earning. It is undoubtedly true that there are many cases among the lower-paid workers where the increased cost of food will not be covered by tax or other concessions. I hope the Government will make still further efforts to meet the case of groups of real hardship.

The Liberal Party hold the view that this problem cannot be fully met except by reform of the income tax, in conjunction with modifications of the general system of social service contributions. Hard cases must be met, but the fact that there are hard cases is no reason for maintaining an excessively high level of taxation in order to pay huge subsidies. After all, expenditure on food in this country to-day, is a lower percentage of total current expenditure than it was before the war—and not unnaturally. But it is also a very much lower percentage than in many other countries. And the balance of spendable income of the average man, the average worker and the average small salaried man, includes items which are certainly "squeezable" in an emergency—and this is an emergency. I am thinking of drink, entertainment and tobacco, for example, which make up figures which probably equal much more than half of the total food bill.

I am also in agreement with that other important element in Government policy referred to by Lord PethickLawrence, the raising of the bank rate. I agree with him that cheap money is desirable as a long-range policy. But if this were made into a universal rule it would mean that we must deal with conditions (the noble Lord seemed to contemplate this with equanimity) such as those with which we are faced to-day solely by direct control. The noble Lord spoke of the degree of emphasis that the Government place on the monetary policy and other measures, but his remarks might have led us to conclude that in his judgment the monetary weapon should not be used at all. Direct controls are a clumsy way of inducing millions of people to act on their own initiative, in harmony with the needs of the time and to conform, without being told in every detail the necessities of the situation.

I would also call attention (I do not think the noble Lord, Lord PethickLawrence, has referred to this point) to the fact that a cheap money policy has a bearing on saving. I agree that it is most desirable that personal savings, as distinct from savings imposed by taxation, should be revived in our national economy or in any other economy that is in any sense free. Yet they have largely disappeared. I will not quote the figure of personal savings as given in the White Paper on the national income, for that figure seems to be a very dubious one. I will mention only the figures of small savings covered by the Savings Movement. In the "bad old days" before the war they amounted to more than 3 per cent. of the national wages bill. Last year they were less than one half of 1 per cent., and in 1949–50 they were negligible. Yet, as Britain becomes more and more an equalitarian community we must look to substantial savings from wage earners and from the medium and lower income brackets generally. If it is to be a free economy it is essential that the habit of saving should be restored. The whole economy should be designed to make it possible that savings by all classes should be resumed. But if the rate of interest is negligible, and if prices are expected to keep on rising, so that money is worth less next year than it is this year, there is no inducement to save. Savings will evoke more effort in a period of declining prices, where it is expected that goods will be of greater value later on.

That, my Lords, brings me to another matter of a general character which I wish to mention, which may influence our judgment of the impact of the various items in the Budget. I refer to the signs of deflationary factors at work which may in due course outweigh the present inflationary influences. The setback in the textile industries is one of these. This is not only affecting Lancashire but, as was pointed out many months ago, is practically a world-wide phenomenon. There are many other signs of deflation. More than once I have emphasised in your Lordships' House that severe and sudden cuts in imports, designed to correct an adverse balance of trade, tend to spread, to check our own exports and finally produce a lower volume of trade all round. The Australian cuts are a striking example to us of w hat this process looks like from the other side of the fence.

Here is another specific example. There has recently been a recession in the prices of newsprint and pulp. In this case there are many factors at work. But the change of direction was touched off by the cancellation of orders in Scandinavia by Argentina which has not been able to earn enough foreign exchange to pay for them. India, too, has recently experienced the bursting of a speculation boom which has brought clown the price of many commodity prices, and this is producing reaction in the East. Lastly, I will mention a report from Canada which has appeared in the week-end Press. It states that the Liberal Government of Canada is being urged by the Oppositions to make gifts of Canadian meat, wheat and strategic minerals to European countries of N.A.T.O. this year, in addition to mutual aid and arms shipments. The figure given is £100,000,000 sterling. The last sentence of the report reads: Farm authorities predict unsaleable surpluses to nearly this value "— that is, this value of £100,000,000— this year of beef, pork, milk products and feed grain. Now, these example do not prove that a slump is round the corner. But they do suggest that there are fairly widespread deflationary influences at work. Rearmament is a very heavy weight on the other side of the scale, but it is mainly confined to a few industries. In its early stages it is a dislocating factor, and makes its full impact on labour only after a considerable delay. That is the experience of rearmament in war time. The influence of rearmament may well be smaller and less immediate than is sometimes supposed. It is a brake. It is difficult to judge how powerful a brake it will be on the deflationary influences. But I am not on that account suggesting that we should at once rush in ane1 take counter-measures. On the contrary, a fall, not only in the inflated values of food and materials but in prices generally, is desirable. We cannot hope to get back to a healthy condition without it. We have lived in a world of rising prices so long and with so little intermission that we have almost forgotten that in recent history the periods of falling prices have been those in which the standard of living of the masses of the people has improved most steadily. They are times, too, in which it is easier to secure and maintain an equitable relationship of wages and salaries between different industries and occupations. I am sure that these long-range considerations as to what things we should aim at in the issue of prices must be present in the minds of my trade union friends.

We are considering a very difficult problem, whether there is to be restraint or whether the wage level is to be allowed to rise in this country, increasing costs at a time when we may be on the verge of deflation abroad and, therefore, going into a situation where a high wage policy would be disastrous to this country. I venture to underline once again the need for co-ordinated action with other countries. I will not repeat what I said on this subject in the debate which we had in February, but recent events have emphasised the need for keeping in step with the Commonwealth and Europe. May I first say a word about Europe? We have in being in Europe in the O.E.E.C., the appropriate apparatus for continuous consultation. Last week, I thought that in this debate I should have to say something on that matter which would he very critical of the Government, who seemed to be failing to appreciate the full importance of this instrument. But events at Paris at the week-end have taken the sting out of my attack. Like Balaam I came to curse but I have stayed to bless. Rightly or wrongly, Europe had formed the impression that Britain had decided to emasculate the O.E.E.C., and the proposed cut of 50 per cent. in the expenditure of the O.E.E.C. would have had that effect. It was proposed that it should limit its operations to two functions, the liberalisation of commerce and the European Payments Union.

It is very good for every international institution, like every Government Department, to be subject to severe pruning from time to time, but you cannot cut the cost of an institution in half without cutting out many of its functions. Europe's belief that that was the intention of Her Majesty's Government has produced fierce, bitter Press comment throughout Europe in the last two months. Fortunately, I am glad to say, the Chancellor of the Exchequer, on his first visit to the O.E.E.C., dispelled those forebodings. He made it clear that Her Majesty's Government intend to give their full support to the O.E.E.C. A great effort is to be made to strengthen the financial position of the European Payments Union before the end of its financial year in June. A steering board for trade is to be set up to consider all the problems of commercial policy of concern to all the members of the Organisation, which presumably means not only the problem of quotas and licences but also that of tariffs and export taxes.

It is also decided—and this I regard as of great importance—to continue the Organisation's functions in co-ordinating production and investment. I endeavoured in February to state the case for that policy, and I am glad to see that the recommendation of the Strasbourg Assembly, made last December, that the trade unions and employers' organisations should be brought into the closest contact in this matter of harmonising production, is, according to the decisions made at the week-end, to be carried out. How far an exercise of this kind of trying to plan a 25 per cent. increase in production in five years is of practical importance depends largely on the action of those taking part in it. If people like the Ministers, the leaders of industry and so forth, who determine policy in the various countries, are not interested, it becomes merely an academic exercise in statistics; but if they are interested, then it should certainly increase the productive efficiency of Europe as a whole.

Lastly, it has been decided that the O.E.E.C. shall be the principal body to handle the economic planning and management of the Western Atlantic Community. Mr. Porter, head of the American Mutual Security Agency in Europe, said on Sunday that this decision is based on a desire to see that rearmament does not halt progress on the economic unification of Europe. In his opinion, the Organisation had proved its ability to achieve harmony among the European nations, and the United States wished, therefore, that it should be a centralised contact between the United States and its allies in Europe in the economic field. That is a decision of great importance, shared between the United States and Great Britain, and it will have far-reaching repercussions, provided the conditions I have indicated are fulfilled—namely, that all concerned are made parties to the discussions and their active interest is enlisted behind the whole operation.

I have emphasised these prospects in Paris because I think their moral must apply also to the Commonwealth. Britain is no longer the world's arbiter in economic affairs. She can no longer rely solely upon decisions in Threadneedle Street to correct her situation when she gets into difficulties. We have consciously to try to adapt our whole economy to the new pattern of world trade to which I referred six weeks ago. Between ourselves and the Commonwealth and Colonies we need to co-ordinate our policy, not only in the matter of currency but also in regard to investment and trade. But experience in Europe shows that this cannot be achieved by occasional meetings. On the contrary, it requires continuous contact at all levels, from Ministers downward. The Commonwealth Conference in January was a promising start in this direction. My last word is to repeat what I said more than a month ago, that these methods must be developed if we are to overcome our difficulties and shape Britain's course smoothly into the new pattern of trade which lies before us.

3.39 p.m.

VISCOUNT SWINTON

My Lords, this is the third economic debate which we have had in almost as many months. I must apologise to your Lordships if I always seem destined or detailed in these debates to go in "second wicket." The noble Lord who introduced this Motion covered a certain amount of old ground but broke some new ground as well. I will try to deal as faithfully as I can with a number of detailed questions which he put to me, and then, with your Lordships' permission, like the noble Lord, Lord Layton, to whom the whole House is grateful for that wide-ranging, farseeing speech which we have just heard, I should like to ask the House to consider some of the aspects ("major implications" I think the noble Lord, Lord Pethick-Lawrence, called them) of the measures which we are taking, and to consider them against the whole background and as part of the comprehensive plan of which the Budget is the third chapter.

Unlike his claque on his left, who interrupted him too soon and cheered in the wrong place, I entirely agree with the noble Lord that the crisis has not been in the least overrated. I do not need to emphasise to your Lordships that the only way to salvation is a plan which is comprehensive, adequate and complete. I am quite content that the noble Lord should challenge the plan on the grounds of adequacy, but not—as I gather some of his friends below him do—on the ground that it is unnecessary. It is quite reasonable to discuss any and every element in the plan, but I think your Lordships would agree that it is not reasonable that the items in the plan should be discussed in isolation. If you say that any of them are wrong, then you ought to supply an effective alternative. Certainly, no one is entitled to underestimate the gap in the trade balance and the drain on the reserves, by wishful guessing. I reminded the House last time of what I think is a classical example of wishful thinking—namely, that in the very last estimates of the Socialist Government, while they were still in office, Mr. Gaitskell, the then Chancellor of the Exchequer, underestimated the gap and overestimated what he would be able to do by his measures by no less than £400,000,000. My Lords, we just cannot afford to do that again. That way bankruptcy lies.

Therefore, when the noble Lord asks me whether our measures are adequate, and whether he is to-day in possession of all the steps which the Government propose to take, or whether, as the year goes on, there will be further disclosures, I can answer him only in this way: certainly, less than we have done would not see us through. That, I think, is the answer to those who say that the remedies are excessive and to others who say that the remedies are, inadequate. It is inter- esting to have this fire from the two flanks, which really are tiring at each other quite as much as they are firing at us. Of course, no one can say with certainty whether these measures will enable us to pull through. It does not depend on us alone. We Live to remember that it is a great Commonwealth affair, in which all are doing their best. We may yet have to resort to further measures, and we shall not hesitate if we have to. All I can say is this. We have made the best estimate of the trends of trade and prices. These may move better or worse. I should not alter the estimate which has been made, certainly at the present time. Also I should certainly say that the steps which we have taken, and most of all the final steps taken in the Budget, are without doubt having a very good effect. That is so, in regard to not only the restrictions of imports, which are becoming effective, but also to the Budget, which, by its realism, its soundness and its constructive approach, has, without doubt, made an excellent impression abroad and done much to restore confidence.

The noble Lord, Lord Pethick-Lawrence, asked me a number of questions about the basis upon which we have estimated. He referred to stocks, capital investment, production and exports. Let me take stocks first. The noble Lord will not expect me, any mere than he expected his own Government when it was in power, to disclose details of our strategic stockpiles; but I will give him these two assurances. First, we intend to see that, so far as materials can be obtained in the world, the essential needs of our industry will not run short. Supplies of some materials, like nickel and copper, are scarce. But the International Materials Conference is doing an excellent job of work and I think we can say that we shall certainly get our fair share. We shall certainly strive to develop every source of supply. In regard to steel, we can look forward to a large increase from the United States, although if a strike should unhappily occur there is no doubt that supplies would be temporarily held up. The second assurance I would give to the noble Lord is that we shall not draw stocks down below what is safe and reasonable. We are much better placed than we were a year ago in this respect. Let me take from published figures one item which has been peculiarly the subject of criticism—namely, softwood timber. The last published figures showed that stocks of softwoods at the end of December, 1951, were 724,000 standards. The corresponding figure at the end of December, 1950, was only 217,000 standards. The noble Lord will therefore see that there is a considerable margin, and he need not be too anxious on that score.

Then he asked me about internal capital investment. A fairly accurate figure can be given for the past, although I do not know that it is absolutely accurate. After all, it is arrived at by collecting statistics and seeing what has been done. It you take the preliminary National Income and Expenditure Estimates and refer to Table 8, you will there see, under a number of different headings, the figures for the investment which is actually believed to have taken place in 1951. The total comes to £1,185,000,000. I do not guarantee that that figure is right to £10,000,000. I am going to be quite frank, as I always try to be in your Lordships' House. I doubt whether it is useful to try to give any accurate figure for the future. That does not in the least mean that we do not know the direction in which we are seeking to guide investments, or the measures that we are taking to make our policy effective. But I am bound to say that I think an aggregate figure is rather meaningless. It must include a very great variety of items, some of which will increase and some of which will decrease. Because I think it is more intelligent, I would rather put it in this way to the House: we know that we must concentrate our resources of money and materials where the national need is greatest. That means that both investment and materials—for example, steel—must be directed into those channels. We must learn from the past, when undoubtedly too much was attempted. That meant that too much was started not always in the right direction, and in consequence too little was finished. That is why a large number of things are held up to-day. It is much better to start and finish what you can do.

Where must we concentrate? Obviously, we have to concentrate on coalmining, which is vital both at home and in our export trade. We must concen- trate on power, which is needed in the works. Although the building of power stations has to be kept going and accelerated, there must be the maximum of economy in construction. We must save steel, money, and time; and the saving of all three goes together. We must concentrate on the development of oil resources and refineries. I do not know whether the word "Abadan" will be written on Mr. Morrison's heart, but it will certainly for many years be written on the wrong side of our national balance sheet. Then, transport must be adequately maintained, and we must continue the development of our steelworks in order to produce the necessary raw materials. As to other industrial developments, we must concentrate financial and material resources wherever it is most necessary to promote exports and defence. I really think that that is, if I may say so, a more honest and more informative answer than if I tried to give the noble Lord a figure.

LORD PETHICK-LAWRENCE

My Lords, I am afraid that I cannot accept that view. I know that when I was in the Cabinet we regularly had brought before us an estimate to enable us to judge how far we were spending too much or too little upon capital development. I do not think it is unreasonable to expect the present Government to have something corresponding to that, and to give some information about it. The point I was trying to find out was whether the Government were trying to close the gap by reducing capital expenditure. It seems to me that, possibly, it may be necessary to reduce the amount spent on capital expenditure. I think that Parliament is entitled to know whether the gap is being closed mainly in that way or only to a very small extent, and also that we are entitled to have some figures put before us.

VISCOUNT SWINTON

I am well aware of the practice which prevailed in this connection in the last Government. I am well aware that hardly a week passed without a Paper being presented, giving estimated figures down to the last decimal point, of what investment was going to be undertaken, when it was going to take place and where. All I can say is that I think most of those estimates were hardly worth the paper on which they were written. And one of the reasons for the situation in which we now find ourselves, I think, is that a good deal of activity was directed in the wrong direction because of this meticulous overestimating and over-planning. I am not saying that you should not plan; of course you plan. But you should plan in a broad strategic way, in the way in which a Commander-in-Chief in charge of a battle plans. You do not plan right down the scale so as to try to direct the operations of every battalion and every platoon. Of course we are reducing investment to what the amount of money available will allow—and not only money but other factors as well. I think one of the mistakes which the noble Lord and his colleagues were always making arose in this way. In a sense money is a symbol, but they were constantly accepting written figures in terms of money without in the least knowing whether there was going to be available the steel or the raw materials or other resources.

SEVERAL NOBLE LORDS

No.

VISCOUNT SWINTON

Yes you did. I have the chance of answering, and I propose to exercise my right of reply. Now we know the facts. They liked doing it in one way; I like doing it in another. That is what happened. You proceeded to do these sums of money, with the result, for instance, that you planned power stations all wrong. You were a million megawatts, or whatever it is called, on the wrong side because you looked at a monetary sum rather than at the real needs of industry. Incidentally, you built those power stations far too expensively and like cathedrals. In some cases it took about five years to do it. I think the House will agree that our approach is more realistic, and I am prepared to take an even money bet—if I am not using improper language—that at the end of the year we shall have shown a good deal better results than the noble Lord and his friends did.

But let me pass on; I have been diverted. I turn now to the question of production and in this connection I will give the noble Lord a figure. We aim at an increase in production of two hundred and fifty millions.

LORD PAKENHAM

Two hundred and fifty millions of what?

VISCOUNT SWINTON

Two hundred and fifty million pounds worth of production. Really, I have just been told by noble Lords that it is nonsense to talk about things, and that I must talk about money. Now when I give the noble Lord a figure in money he says: "Why do you not talk about things?"

LORD PAKENHAM

As a matter of fact I did not ask the noble Viscount why he did not talk about things. It appeared to me, and to a good many other people also, I believe, that the noble Viscount did not know what he was talking about. He just said "two hundred and fifty millions" and then had to consult his notes to see what it was.

VISCOUNT SWINTON

I did not. No doubt sometimes one makes a slip in giving a figure, and one is entitled to correct it. I think that on the whole I generally try to get pretty accurate information when I come to this House. But I will not get "hot wider the collar" yet; I shall come to some other things which I am sure will interest the noble Lord in a moment I have told the noble Lord what we propose. We estimate an increase of £250,000,000 in production. Now is that a reasonably fair amount to ask? On the whole I think it is. It depends, of course, on the materials which will be available and it depends on what, in the jargon of to-day, I have to call increased productivity—which means harder work and efficient management in the widest sense. And I am bound to say this. I think the great constructive reform in the Budget, the incentive of tax relief, will have a very great effect.

The noble Lord said that it could not be much of a crisis because people are going to have as much to consume as they had before. He entirely left out that they will have as much to consume as before only if they get this £250,000,000 worth more production, and that this does depend on harder work. In exports, we are aiming at a £50,000,000 increase. That will not be easy in a buyers' market, with increasing competition. But there is still a great unsatisfied demand for capital goods and many engineering products and ships. That is why we have to concentrate our resources on, and speed up production of, these things. If some markets contract temporarily, there are good openings in others—I think Canada is a very good example. We have good will and selling capacity, and we have our great reputation for quality. In the allocation of materials, I am learning constantly of new openings for goods, often of high conversion value which industries with ingenuity and knowledge of markets are developing. And may I say, in passing, that I very much hope that firms who are finding these new ventures profitable and worthwhile are sharing the knowledge with their workpeople—indeed with everyone in their works. I am certainly not inclined to reduce that target of an extra £50,000,000 worth of exports.

Of course, no speech from Lord Pethick-Lawrence would be complete without the "King Charles' head" of the bank rate. He asked me specifically—I am afraid I must deal a little in detail with this matter because he asked me so many detailed questions—what was the estimate of the gross and net increase in the cost of the service of the National Debt attributable to the increase in the bank rate. As a result of the raising of the bank rate to 4 per cent. on March 11, the Treasury Bill tender rate, as we know, went up on the following Friday to just over 2¼ per cent., and has remained at about that figure in subsequent weeks. But we cannot know at all whether it will stay at that rate or go higher or lower—the object of our policy is to restore flexibility to the market. In fact, we cannot tell (and if I knew I certainly should not say) whether the bank rate itself will stay at 4 per cent. for the whole of the year 1952–53. For this reason, it is quite impossible to make any estimate of the extra cost to the Exchequer over the whole year. Indeed, to attempt such an estimate would involve making some assumptions about the future course of events, and any such assumptions might themselves have an unfortunate influence on those events, since they would be taken as an indication of the Government's intentions.

It is obvious, of course, that each additional half per cent. on every £1,000,000,000 of floating debt means an extra £5,000,000 per annum. But this figure gives no clue to the total extra charge for the year when the rate itself may vary and allowance has to be made for official holdings, and income tax which is collected on all this, or on the great bulk of it, in due course. Further, any comparison with the past is also complicated by the alteration in the size of the unfunded debt brought about by the funding operation of last November. It would, therefore (I say this quite frankly) be premature and misleading to make any estimate now of the increased cost to the Exchequer over the full year of the recent increase in interest rates. Any such estimate would present a very one-sided picture. The Treasury is a borrower and, like any other borrower, it regrets a rise in interest rates. But the Treasury and the Government are bound in the national interest to take a much broader view of all the implications of monetary policy; and it is our conviction that, so regarded, that policy will produce for the community as a whole, and therefore for the Budget itself, benefits in terms of a more realistic attitude towards costs and prices which, in the long run, will outweigh any immediate short-term cost to the Exchequer in a narrow sense. That extra cost must therefore be set against the more indirect, but no less real, benefit which the Budget will derive from a general strengthening of the economy. There certainly is no doubt at all (and I challenge anybody to deny this) that the monetary policy of the Government has increased confidence at home and abroad. Certainly the success of a policy is not a signal for its abandonment.

I do not want to go over again all that has been said in debate on the necessity of bringing in the monetary weapon as an adjunct to the other measures to rectify our economic situation. No one has disputed that all practical measures must be taken to combat inflation. No one has disputed that credit must be restricted and directed into the right channels. What those channels are, I think, is indicated in what I have said about investment. No one has disputed that neither of these aims could be achieved so long as the old system operated, under which the Bank of England bought Treasury Bills from the money market and thus provided cash to the banks, to an unlimited extent, at a very low fixed rate. Nor has it been disputed by anyone—certainly not by any who has the practical job of giving or refusing credit—that it is absolutely impossible for the banks, notwithstanding all their readiness to co-operate, to restrict credit, when cheap money was available to them in unlimited quantities to meet every demand that could be made upon them.

None of our critics has attempted to answer any of those arguments or offered any practical alternatives to the flexible use of the bank rate. The whole point of bringing this monetary weapon into play is its flexibility. That is the answer to the allegation that if the Government use the monetary technique, that technique becomes the dictator of economic policy. It is certainly not, and it will not be, our master but our servant—and it is a very useful and, indeed, indispensable, servant. I will, in less technical terms, add this. Apart from the misunderstanding, genuine or assumed, of how the bank rate works, I must say—if I may be permitted to use the expression—that a great deal of bunkum is talked, if not here, outside, about its effect. To hear some people talk you would believe that every working man was living on a substantial overdraft from his bank. Most of them would never have heard of a bank rate unless they had been regaled by week-end speeches about "a bankers' ramp," or been the recipients of literature on the subject edited, perhaps, by Lord Pethick-Lawrence or Lord Pakenham. And even if they read this literature, I doubt whether they would be very much wiser.

Finally, the noble Lord, Lord Pethick-Lawrence, asked me to say what will be the effect of the higher bank rate on long-term rates. It is certainly not possible to say this. There is no automatic mathematical connection between long and short-term rates. The level of the bank rate is, as I think everyone fully appreciates, only one factor amongst many affecting the prices of gilt-edged securities and therefore the long-term borrowing rate. The object of our policy is to restore confidence, both internal and external, and the gilt-edged market reflects confidence or lack of confidence which our policy creates. I think all that is clearly borne out by what has, in fact, happened in the gilt-edged long-term market. After the bank rate was raised by 1½ per cent. (and if there were an automatic mathematical connection between short and long-term rates of interest. one would have expected an enormous decline in the price of gilt- edged securities) long-term gilt-edged securities were marked down only about two points, and since then they have shown some appreciation.

However set the noble Lord may be in his convictions or his prejudices, I think he will agree that I have at any rate tried to answer fairly and fully the rather difficult questions, which he put to me.

LORD PETHICK-LAWRENCE

I agree, but the last point that the noble Viscount has been answering, I have never pat to him. It was not in my speech; it was not in a note I sent him. It is an addition of his own. I am glad to have it and I agree to a very considerable extent with what he said.

VISCOUNT SWINTON

I think someone was speaking to me. I gathered that he had said that. At any rate, it certainly was on a note he was good enough to send me. This is not unimportant, and I hope he will pass on our common agreement on this subject to a number of his friends who ate saying quite different things about it in the country.

My Lords, I will now turn for a moment or two to the broader aims of our policy which are made effective in the Budget proposals. I should like to repeat that all our proposals are a comprehensive inter-dependent whole, and must be treated as such. Last time the noble Lord, Lord Pakenham, said that he must attack us on moral grounds because in effect our aim, or at any rate the result of our policy, was to relieve the rich at the expense of the poor. He has been good enough to tell me that he to-day proposes to seek to justify those observations, praying in aid our Budget proposals.

LORD PAKENHAM

My Lords, the noble Viscount misrepresented me last time and he misrepresents me again, but I will put him right when I come to reply.

VISCOUNT SWINTON

I am sorry if I misrepresent the noble Lord. I read his speech again very carefully, but certainly I do not wish to misrepresent him. Noble Lords will be able to appraise more fairly and accurately the true situation, and draw whatever inference it is reasonably fair to draw from it, if I remind them of certain facts. I hope that a cold douche of reality will not quench the noble Lord's eloquence or unduly cramp his style. It was said of the Bourbons that they forgot nothing and learned nothing.

LORD BURDEN

Can a cold douche cramp the noble Lord's style?

VISCOUNT SWINTON

I am sorry; I will try to come up to the high standard the noble Lord always sets us. The late Government conveniently forget most things, though I would not say that they learned a great deal. Therefore I should like to refresh the memories of the noble Lords opposite. The noble Lord, Lord Pethick-Lawrence, who opened the debate, has repeated the attack on the so-called "cuts" which we have made. I should like to ask the noble Lord who has just corrected me in my metaphor for a little enlightenment. When is a cut not a cut? That is a rather interesting question. Perhaps the noble Lord, Lord Pakenham, will tell me how I should describe it when it is done by a Socialist Government.

There is certainly no doubt about the facts. Successive Socialist Chancellors have imposed ceilings on social expenditure. I must admit that on one item, that of education, we have increased our Estimate by £8,000,000 above the Socialist Estimate of last year. Both Sir Stafford Cripps and Mr. Gaitskell put a ceiling on expenditure on the Health Services. As Mr. Gaitskell said, quoting Sir Stafford Cripps: It is clear that it is not possible to permit an overall increase of expenditure on the Health Services. Any expansion in one part of the Service must be met by economies, or if necessary by contraction in others. Similarly in food subsidies, Socialist Chancellors of the Exchequer imposed a definite ceiling. Their action over food subsidies is particularly revealing, I think, and it was on food subsidies that the noble Lord concentrated. In 1949, Sir Stafford Cripps said that the effect of a prospective increase in subsidies, if food prices were to be kept pegged, would be to raise these subsidies to £568,000,000. He imposed a ceiling of £465,000,000. A year later Sir Stafford Cripps lowered the ceiling from £465,000,000 to £410,000,000. In ordinary language, I should have thought that to reduce a total from £465,000,000 to £410,000,000 was to cut it. But I want to meet the susceptibilities of noble Lords opposite. Therefore, when they reduce the amount spent on food subsidies between one Budget and the next, we must not call it a cut, we must adopt meteorological language, and call it "a depression of the ceiling." Very well, let us call it a depression of the ceiling. Anyway, there is no doubt about the facts or the effect. I shall have something more to say about food subsidies in a moment.

From what I have said, it is clear that when Socialist Chancellors of the Exchequer and a Socialist Government had responsibility, they recognised, in a much less difficult situation than that we face to-day, that expenditure on social services must be strictly limited if we are to remain solvent. Of course, there is the primrose path advocated to us last time by the noble Lord, Lord Silkin. I have been refreshing my memory of his speech, too. The noble Lord, Lord Silkin, said he thought the right approach was to devote as much of our resources as were needed to maintain the standard of living to which our people were entitled (I do not know what the word "entitlement" means: we are entitled to the standard of living we produce, and we cannot in the long run get any other, because we are all in this together), and then to see what was left to pay for rearmament—and presumably, also, for the exports by which we live, though he forgot to mention that. Well, that is another version of the aphorism, "Let us eat, drink and be merry, for to-morrow we die." I do not know whether this is the kind of professional advice Lord Silkin tenders to his clients. If he does, I can only hope that his office is within convenient reach of Carey Street!

To do the late Government justice, that was not their policy. They said that there must be ceilings. They were right; and they were also right when they said that we can maintain our ceilings only by strict economy in administration, by reducing services if the cost exceeds the ceilings or by imposing charges. That is the only way. I think it reduces the legitimate difference between us to our further reductions in the food subsidies—our further "depression of the ceiling." Socialist Ministers are entitled to say, if they are honestly of that opinion, that while they would have refused to increase the food subsidies, they would have tried to maintain expenditure on subsidies at the existing level, however dangerous the effect on our internal and external economy. Of course, if they had done that, there would have been an increase in the price of food. It is admitted that of the estimated increase in the cost of subsidised foods of 1s. 6d. per person a week, only 1s. 2½d. can be attributed to the cut in food subsidies. In deciding whether this cut was right or wrong, we must consider it in connection with all the tax reliefs and other benefits which accompany it in the Budget.

We have always maintained in all our publications and in all our speeches—let them single out my noble friend Lord Woolton, but we are all in this together..

LORD PAKENHAM

Hear, hear!

VISCOUNT SWINTON

Certainly, I should greatly resent it if that were not appreciated. We have always maintained that food subsidies were the worst and most uneconomical way of helping the less well-off and those most in need to meet the cost of living. Subsidies are bad because they conceal the true position. As Sir Stafford Cripps said, we get "prices out of all relation with realities." But they have an even more serious effect. They are given indiscriminately, utterly irrespective of need. Rich and poor alike are subsidised. We have always maintained that we thought the right way to deal with food subsidies was by family allowances and adjustment of taxation. It is perfectly true that, though we said we had every intention of dealing with food subsidies on these lines, we did not intend to do so immediately. But until we came into office we were entirely ignorant of the terrible financial mess in which the country was. I say this: certainly we were, and so was the whole country. Never was a country more kept in the dark and more misled. I say this for myself and for every—

LORD PAKENHAM

The noble Viscount has just made the grossest misstatement that I have heard in my time as a member of this House, and my membership goes back six years. He said that the country was kept in the dark. He said that never was a country kept so much in the dark. He knows that that is not true, if he thinks it over.

VISCOUNT SWINTON

I know that it is absolutely true. I do not withdraw one word of it. I remember when Mr. Gaitskell made a speech to the bankers. Who had the least idea, after Mr. Gaitskell's speech to the bankers, that we were on the verge of bankruptcy? Go and read the Election speeches—I see the noble Lord rising, beat I am not giving way.

LORD PAKENHAM

Go and read your Election speeches.

VISCOUNT SWINTON

We have been asked to read our own broadcasts. All right. I say: "Go and read the speeches and broadcasts delivered throughout the length and breadth of the land during the last Election." Who would have supposed that during the one month when we were fighting the Election the E.P.U. situation was going to be no less than £89,000,000 to the bad, 80 per cent. of which we had to pay for in gold? Of course, the country knew nothing about it. If the country was to be informed of the truth, I will tell the House, as I did before, what the Government should have done. The answer is simple—and if they had done it, I should not be making this kind of speech to-day.

SEVERAL NOBLE LORDS

Hear, hear!

VISCOUNT SWINTON

I will tell you what it was. My justification—

LORD PAKENHAM

There is not any.

VISCOUNT SWINTON

It is quite all right. I intend to stand at this Box and say exactly what I mean to say. I will not be put off by Oxford Union interruptions. I propose to say exactly what I have in mind.

LORD PAKENHAM

Keep your temper.

VISCOUNT SWINTON

Really, the noble Lord must contain himself.

LORD PAKENHAM

That is good, coming from you.

VISCOUNT SWINTON

I am glad the noble Lord is amused.

LORD PAKENHAM

No, I am not.

VISCOUNT SWINTON

He will be laughing on the other side of his mouth presently. I should not be making this speech if the late Government had done the one honest and straightforward thing it was their duty to do—namely, to come to Parliament last September and have a one-day Session, in which they could have exposed the truth to the country, and taken those measures which we had to take last November. If that had been done it would not have been necessary to accuse them—as I do accuse them to-day; I do not withdraw a single word of what I have said. We should have been in a far less bad position.

EARL JOWITT

Perhaps I might ask a question. I may say that I very much regret the tone and temper of this debate, which is not in accordance with our traditions. I should like to ask the noble Viscount this. Has Mr. Butler, the Chancellor of the Exchequer, for whom I have a great regard, ever alleged that he was misled, that any statement was made that was untrue, or that he did not know the facts?

VISCOUNT SWINTON

I cannot quote from the speech, but I am certain that no noble Lord on this side of the House, nor the Chancellor of the Exchequer, would differ from one word of what I am saying now. I say that in the presence of my colleagues. We certainly did not know. I would say this in regard to subsidies. We should have been cowardly and guilty if we had not tackled the position now. In regard to the tone and temper of the debate, that remark comes very well from the front Opposition Bench, which has done nothing but make personal attacks on my noble friend Lord Woolton.

There is no doubt that what we have done was realistic, necessary, right and fair. Let us see how the compensations balance the cut. We must take the two together. We shall increase the family allowances; we shall increase the pensions and the insurance benefits. We are proposing large reliefs in income tax. There are, first, the increases in the single allowance, marriage allowance and child allowance. We calculated that these would relieve 2,000,000 people altogether of income tax. Then there is the improvement in the structure under which the initial rates rise less steeply. Finally, there is the great encouragement of the rate of relief on earned income. For years we have all been preaching the need for higher output, but at the same time the income tax system has acted as a deterrent. It may be that this was exaggerated in men's minds, but there was no doubt at all as to how they felt about it. It was continually said: "The harder I work, the more I pay." Now the relief is a real incentive to harder work. My noble friend Lord Pethick-Lawrence said he did not think that husbands would pass it on. Speaking from personal experience, I think that most wives will see that they get a good share of the increase.

It has been said that we exaggerate the benefits which are being given. What are the facts? There are about 20,000,000 people with incomes above £135 a year. If one takes into account the wives, children and other dependants of these people, they account for the greater part of our population. On the level of incomes at present ruling, 16,000,000 of these people would, but for the Budget, have been paying income tax. Every one of those people will receive some income tax remission under the Budget, and 2,000,000 will be exempted from the tax altogether. Of the 4,000,000 who are not liable to tax, and who will, therefore, receive no income tax relief, 2,000,000 are married people with two or more children, who will receive the benefit of the increased family allowance. Of the remaining 2,000,000 nearly 1,000,000 are single people, most of them boys and girls. These figures are based, of course, on incomes as they at present exist. The whole purpose of the relief in the Budget, however, is to encourage people to work harder and earn more; and if they do so they will benefit not only themselves but their country. I could give the House many examples of how this would work, but I will not delay. I think I can best sum up by saying this. I know that careful critics will be able to extract examples in which, by setting the 1s. 2½d. increase in food prices against tax relief, a particular man, if he works his normal number of hours at his existing rate of wages, will be a few pence a week worse off. I am not content to answer this merely by quoting the far greater number of cases in which men will be better off. But I would say that, with the new reliefs, if a man works an extra hour he will usually more than recompense himself for the extra cost.

There is one shot still left in the Socialist locker. They say: "True you are giving these great reliefs to the mass of the tag payers, but you are also relieving the rich." The total relief which goes to people with incomes above £2,000 a year is very small: it accounts for only about 5 per cent. of the total. Ninety-five per cent. of the relief goes to incomes below £2,000 a year; and no less than 70 per cent, of it goes to incomes below £15 a week. You must have it that way. For the List thirty years or more the structure of the income tax has been such that, where you give relief in raising the initial limit, or the allowances, or alter the point at which one rate of tax merges in another, you must apply the reliefs automatically all round. Income tax will not work any other way. This has been accepted by all Chancellors, whatever their complexion. It therefore follows that people in the higher range of income get a bit, too. For example—I make a present of this to noble Lords—for a married man with one child, having an earned income of £2,000 (and the relief remains constant from just above that figure) the relief under Mr. Butler's Budget is £59. Under Sir Stafford Cripps' Budget in 1948 lie got £86; and under Dr. Dalton's Budget in 1945 the same man got £98. Therefore, I do not think we have been particularly generous to the rich.

If the account is fairly cast up, it is not just barely balanced: the great majority will find themselves better off. And not only better off on present showing: they are given incentive and encouragement, in a Budget which is not only realistic, fair and just, but has shown the world our confidence in ourselves and done much to restore their confidence in us.

4.29 p.m.

LORD WILMOT OF SELMESTON

My Lords, I feel it must be a matter of general regret that the noble Viscount Lord Swinton, on this occasion should not have taken the duties which fall to him in a rather more serious vein. The country is greatly strained as to the economic outlook, and there is much bewilderment as to the effects upon our future of the economic measures which are proposed in the Budget, or otherwise. My noble friend Lord Pethick-Lawrence put before the House a reasoned and carefully considered statement of his views—views which are in accord with those of a large number of people, irrespective of Party affiliations. He asked the noble Viscount who would be speaking for the Government a number of questions which people are asking everywhere, and which the country has a right to know. They were, not frivolous Party debating points such as, if I may say so with respect, my noble friend received in reply, but serious questions, designed to throw some light upon a very dark situation. I should like the spokesman for the Government who will wind up this debate to fill in the gaps which the noble Viscount has left.

I am sorry, too, that he should have introduced into the debate in this House the slander—for it is nothing else—upon the late Chancellor of the Exchequer which he did. There is not one single word of truth in it, and the sooner it is withdrawn the better for the reputation of those who make it. The Chancellor of the Exchequer himself has several times gone out of his way to pay a tribute to his predecessor for his frankness and candour in all his doings. The fact that the country was overtaken by a balance of payments crisis due to the terms of trade swinging sharply against us—which all who take the trouble to study this question understand full well —has nothing whatever to do with the disclosure or non-disclosure of material facts. The material facts were disclosed as an ordinary matter of routine by the published Papers and also by the statements which were most clearly made. The noble Viscount has been long enough in public life to know that that is true.

Now I think we might try for a few moments to see whether we cannot get some information upon the obscurities which are still left of the Government's economic intentions. There can be little doubt that the Budget (which was received by the country with studious restraint) has, upon examination of its effects, proved a bitter disappointment. If, in fact, our economic plight were as parlous as the noble Viscount would make out—and I do not deny that it is serious—nothing has been done which will put it right. My criticism of the Budget is this: it proves to have been inadequate, and its adequacy is one of the tests. What was required? Economic measures were required which would have closed the gap in our balance of overseas trade, reduced luxury consumer expenditure and so stimulated production as to make it unnecessary unduly to depress the standard of life to maintain our export and armament production. But that is not what has happened. The Budget has had a most deplorable effect upon trade and industry, and so far from stimulating greater efforts it has taken away incentives to try and expand our export markets in the difficult places which are left. By the reduction of the food subsidies, whatever their theoretical justification, we have immediately inflated our costs, and by the raising of the rate of borrowing we have, in the long term, deflated our demand. We get an immediate inflationary effect by setting in motion the cycle of price rises and wage increases, and a long-term deflationary effect by restricting capital development and the increased production which flows from it.

That is a very serious criticism of the Budget. Let us see whether it can be maintained. The immediate effect of the alterations in the food subsidies and the taxation allowances is to give rise to widespread demands for wage increases which have hitherto been held in check. There can be no doubt about that. The immediate effect, therefore, whatever its theoretical justification, is to set in motion the inflationary spiral. Nothing could be more destructive of our hopes of increasing our export trade, and thus closing our gap in the balance of overseas trade, than a rapid rise in our costs. But the Government have done the one thing which can be absolutely guaranteed to raise the cost on every kind of export article. It is a fact that the food subsidies were, in effect, a hidden export subsidy. The foreigner got the benefit of the lower wages which the worker could accept because of them, and the home consumer paid for it in taxation. Therefore, the food subsidies were a very ingenious form of export subsidy—a subsidy which could not be made in any other way without infringing all sorts of international anti-dumping trade agreements. We are going to suffer immediately further difficulties with our export trade as a result. There is no doubt that there has been set in motion an inflationary spiral which is gathering momentum very fast.

Now let me turn to one other aspect of the Budget which I myself deplore, and which I think has a depressive effect upon the whole of trade and industry out of all proportion to its monetary importance. That is the reimposition of an excess profits tax. There is a case, in circumstances such as this, for taxing profits and for taxing high profits heavily. But there are many ways of taxing profits which are preferable to this worst of all ways. The previous Government imposed a tax upon distributed profits, and that tax upon profits arising from all sources if they are distributed is, in my view, the best form of profits tax, because it is directly anti-inflationary in its incidence and because it provides a most direct incentive to use the profits of industry for the replacement of the capital which trade and industry wear out. This tax, which in part replaces it, does the exact opposite. It is inflationary and I suggest that it has no advantages of any kind; and that it was put into this Budget and in the Election Manifesto by somebody in some mistaken belief that it was a vote catcher, regardless of its bearing on the national economy. It is a direct attack upon the marginal earnings of enterprise. What business man, whether in business for himself or as a trustee for shareholders and in a joint stock enterprise, will feel fully entitled to embark upon the risks of enterprise in the hope of, say, getting a foothold in new export markets, when he has to face the facts that by this tax 30 per cent. of any profits he makes will by it be taken in this new levy? When he has provided for the profits taxes and income tax, 80 per cent. of the earnings of the enterprise are drained off. What is left to replace the capital or to carry on the business in the years that are ahead?

A tax on distributed profits has a direct effect in encouraging company directors to keep the profits in the business, to replace as and when possible the capital wear and tear of the business. Now the expenditure of accumulated profits upon capital machinery and plant of all kinds, factory buildings and so on, is under direct Governmental control. If it is in conflict with the needs of the export market or rearmament, the Government have complete control over it; physical control by licences. You need a licence for most machinery; you need a licence for new capital buildings; and nobody can, against the national interest, spend undistributed profits upon capital goods unless it suits the Government to allow him to do so. But distributed profits flow into the volume of money pressing to buy consumer goods, and therefore I say the method by which the previous Government taxed profits was greatly preferable to this excess profits levy. Moreover, this tax discriminates against new and thrustful enterprises. It favours conservative, unimaginative, unenterprising types of business. It is the new business which has to reach out for new markets and is making the new equipment designed for technological development which pays most of this tax. In 1948 and 1949 these companies were just pulling out from the difficulties of the war. They are going to pay the maximum of this tax. These are the very industries that are expanding and that need to keep the utmost they can to buy their plant and expand their business.

Therefore I say that, judged by its effect on the situation it was designed to ameliorate, the Budget is a failure. The noble Viscount has been spending a large part of his speech telling us about the effect of the income tax allowances. All that leads to increasing the demand for consumer goods. It is a demand which ought to be restricted at this time, but the Budget has done little in that direction. It has run up our costs; it has started an inflationary spiral; it has made it more and more difficult to replace and repair the wastage of capital which is one of the most grave features of our trade and industry to-day. It has done nothing to close the gap in the balance of overseas trade, except for the crudest and most ineffectual cuts in our imports. The immediate effect of these restrictions in our imports has been the refusal of our customers abroad to buy our goods. What can have possessed those who represented the British Government at the Commonwealth Conference that they should have entered into arrangements of this sort? What is the effect between ourselves and the Australian Commonwealth? Our textile industry is badly affected. The Australians are going without the manufactured goods which they so badly need and which we could supply.

LORD BARNBY

I have just landed back from Australia, and from what I have seen I can say that the restrictions have been largely at the instigation of organised labour, who themselves are suffering from violent unemployment as a result of over-importing goods from Britain.

LORD WILMOT OF SELMESTON

I know that that is so. We should face up to these problems as a family. Our balance of trade is the balance of the British Empire in trade with countries outside. I understand that it is sterling goods more than dollar goods which the Commonwealth countries have now restricted. I hope the Government will explain to-day why it has been possible for a Commonwealth Conference to have resulted in such a mutually destructive policy. I hope that before this debate closes we shall hear from the Government some justification for what certainly appears to me and to many others to be a policy which is very difficult indeed to explain.

4.49 p.m.

LORD BEVERIDGE

My Lords, I feel I ought to begin with an apology. I have not long been a member of your Lordships' House, but I have made for myself a condition that it was not desirable for me to attend this House only upon those occasions when I intended to make a speech. I do not believe that that is the right way to treat a debating assembly. Unfortunately for me, my other activities make it impossible for me to come here regularly. I am very busy in the north building a new town. I am even more busy at the moment in the academic and, I believe, even more useful purpose of studying some of the past economic history of this country, in particular the age in which I grew up, the last ten years before the outbreak of the First World War. I believe that from that period one can draw a lesson of how to act which may be of real value to-day, not as a moral for to-day or to-morrow, but as a lesson from that age to this age. With the difficult, contentious and practical issues with which this debate has been mainly concerned up to the present I have neither the time, nor indeed the qualifications, to deal. In regard to that, I would associate myself largely with what was said by my noble friend who sits on these Benches in approval of the general line of the Budget as opening a chink, at any rate, to greater freedom of the individual in spending. For my part, if the Budget had not made that cut in the subsidies, I should have been equally disappointed. That is all I want to say on that practical point. Let me now come to the lesson which I, at any rate, draw from such studies as I have been making of the past.

LORD WOOLTON

Will the noble Lord move nearer the microphone, for I am anxious to hear what he is saying?

LORD BEVERIDGE

I am sorry. I did not realise that I was not being heard. I think that one can learn something from the last ten years before the First World War and the present age. I do not, of course, mean for a moment to suggest that the problems of the two ages are in any sense whatever the same. In those days, in the absence of any trade union organisation or minimum wage legislation, we had sweated, miserably low wages. We had want through insecurity, old age, sickness and all the rest of it; and we had unemployment. But, through all that unemployment and misery, the general standard of living, the real wages of the great mass of the people in the country for fifty or eighty years, has risen more or less continuously. That was the feature of that age, a generally rising standard of living, combined with acute poverty and want for lack of adequate provision against it. In that age, also, there was no doubt at all about the premier position of Britain in the industry of the world. Now the position is quite different. Very largely we have got rid of insecurity, we have got rid of unemployment. We have, of course, to-day got rid of anything like sweated labour. But we have not got rid of our problems; we have only changed them.

I maintain that the two main problems that we have to-day in economic affairs are, first, the problem of how to maintain and advance our general standard of living, in spite of full employment; and, secondly, how to preserve the value of money in spite of the growth of collective industrial organisation of all-embracing trade unionism, either monopolies or near-monopolies or solid bodies of employers, industry by industry, each industry separately. Those two problems, of course, are related but distinct. I am not going to say anything about the second except that I do not believe a solution to the second problem, that of preserving the value of money in spite of this collective industrial organisation, will be facilitated by speeches by any responsible person such as that to which we have listened, even from the noble Lord who has just preceded me, suggesting that it is reasonable and, therefore, that it must be right, for any rise in the cost of living to be met by a demand for further money wages. I think that problem will not be helped by that kind of attitude in any responsible quarter.

I want to speak only of the first problem, the problem of maintaining and advancing our standard of living in spite of full employment. That way of putting it suggests that there are dangers in full employment. It is obvious that our general standard of living no longer depends upon distribution of wealth. It depends upon production. The equalisation of incomes has already gone so far—some may think it has gone too far, but at any rate it has gone so far—that there is nothing further to be hoped for in that direction from further measures of distribution. When I speak of "equalisation," I am not thinking only of equalisation of incomes as between what used to be called the rich and what used to be called the poor, but of the differences between skilled men and unskilled men, which have progressively diminished. There has been a general equalisation throughout. You cannot get anything further along that line.

The general standard of living cannot be advanced materially by playing about with money wages. The greatest of all illusions to-day in the minds of our people is that the pay packet makes the worker's standard of living high. It does so only if it succeeds in raising the level of production. Of course, what we can consume each day depends on what we can produce each day. It depends upon our output per man-day compared with the output per man-day of other nations. One must mention, of course, that any standard of living that we have in this country depends on international trade. We are no longer in the position that we were in just before the First World War, with large numbers of nations not undertaking industry at all, ready to supply agricultural goods and materials for our exploitation, to our advantage. Therefore, we must make our output per man-hour as high as we possibly can. That is the right line of action for us, and only that will preserve, let alone advance, our standard of living. It makes industrial efficiency absolutely essential.

Is our industrial efficiency to-day and is our output per man-hour in every industry in the country as high as it could be and should be? That is the question we must answer—I will not say how far and how exactly: I cannot hope to attempt a survey of all industry. But let me mention just two industries, one of which I am now concerned with, and in the other of which, in another capacity, I was deeply and passionately concerned before the First World War. The first industry is building. The most growing need in these days, of course, is that of housing; and, naturally, the efficiency of the building industry is more vital than that of many other industries. We have only to look at such reports as the Gird-wood Report on the building industry to see that we have not done it. I do not know what the position is to-day (I have not the latest report), but I think we must say that, if the building Operatives and their employers are now doing all that they can reasonably be asked to do for the remuneration they receive, then they and the rest of the, people of this country must make up their minds that they will not get the homes that they want, and ought to have, at anything like the rent they feel they ought to pay. That is obvious.

Let me take another industry, one with which I was deeply concerned when I was a young man before the First World War, the industry of dock labour. It was of vast interest in many quarters because of its great social evil of casual employment, degrading men to the level of cattle; degrading them to hopeless miserable lives in the gamble for wages. The other day I read, and I daresay some of my noble friends read, an article in the Manchester Guardian called "Everything stops for tea." That was an article describing the kind of things seen in the Liverpool docks. The writer went very carefully. He did not say that what he saw applied to everybody, because he knew it did not. But there were stories of idleness, of slack ness, of indiscipline, and of widespread restrictions on the use of machinery. You can hear the same stories about other docks. If in general the people who work in our docks are doing all that they can reasonably be expected to do far the money they are getting, then we in Britain must make up our minds that we shall compete in international trade with shackles round our arms and legs, shackles of undue cost in competing in international trade. I said that this casual employment was of great interest to many people before the First World War. It happened to be the interest of a much greater and more powerful person than myself in those days, the present Prime Minister. In the first Election address which he made, when standing for re-election after being appointed President of the Board of Trade in 1908, he referred for the first time to the need for the decasualisation of the lock labourers. That was then his interest, as well as the interest of many others.

I have mentioned those two industries, and have said that I do not accept all these stories as true; I do not accept anything as yet proved. All I say is that the question of whether we are getting from the operatives and from the employers in all our industries a fair return in output for what they get as wages is a matter that needs investigation. Let us have the facts about it. It is obvious that full employment has dangers. It has the danger of endless rise of prices for the same output. It has the danger of weakening discipline. It has the danger of encouraging idleness. It has the danger of making people not mind whether or not they do a particular job. Obviously, full employment weakens the incentive to output; it removes the incentive of fear.

I wish to dissociate myself completely and utterly from the view, expressed by some people, that we shall never get the economic condition of this country right until we have a dose of unemployment. I do not want a dose of unemployment. It is frightening. I think those who advocate a dose of unemployment often forget that the very slacknesses, the "going slow" and the restrictions which they now deprecate, were, in large part, born in times of unemployment. When a bricklayer, laying last row of bricks of a house, knew that when that house was finished he would be "on the street," without any unemployment benefit, he did not need any trade union to tell him to cut down the number of bricks he laid. Out of that grew the ca'canny and the restrictive practices. The trouble is, of course, that ca'canny and restrictions which were bred by this situation have lasted into full employment—why, we do not know. Therefore, I suggest that we ought to get all the facts, and I want to put facts before remedies. I believe that remedies are always most likely to be best if the facts have been studied.

That brings me back to what I spoke of in the beginning, the moral to be drawn from the experience of the last ten years before 1914. There was then severe unemployment, and unemployment was a subject of heated political debate. There was one set of people, the employers, declaring that there was one way of curing unemployment. I did not agree with them in that debate, but fortunately the Government of the day, faced with this problem of unemployment, said, "Let us have a Royal Commission to investigate the facts." The Royal Commission on Poor Law and distress through unemployment was appointed by a Conservative Government in 1905, and reported to a Liberal Government in 1908. The Commission recommended a number of remedies—the creation of labour exchanges and all the rest of it—to be put into force. But more than that, they showed all the facts and produced the basis on which that Government and all subsequent Governments could work. I want to ask your Lordships, would it not be worth-while to-day to consider applying the same method of further impartial investigation of the quite different, though equally serious, social problems with which we are now faced?

We have had in the House to-day a certain amount of heat in discussing our problems. In my view what we need is light, rather than heat. The trouble is said to be lack of industrial efficiency. Why do the Government not consider having a Royal Commission on industrial efficiency, commissioned to test impartially and relentlessly all charges of inefficiency in discipline and restrictions, on either side of the wage bar. Such a Commission could compare our output per man-day with those of other nations. I want this Commission as essentially a fact-finding Commission, but I do not mean that if they want to suggest remedies they should not do so. They may find ways of suggesting remedies. There was nothing to prevent the Poor Law Commission from suggesting remedies, as they did. But I attach more importance in this case than I did in the case of unemployment before the First World War, to the finding and publicising of the facts of our industrial output, our output per man-day, and our industrial conditions. True, many excellent bodies in different industries have made careful studies into these things. But who knows about it? Who in the great mass of people has ever had this in his mind? I suggest that what we need, above all, is to get at the facts and then to bring them home, not merely to the Government but to every man and woman in the country, in order to show them upon what their standard of living depends, and how they themselves can raise it.

5.11 p.m.

LORD TEVIOT

My Lords, I hope that what I am going to say is not going to "hot up" the debate again, but I want to draw the attention of noble Lords opposite to certain facts which, to a certain extent, I think have been denied by them. I am going to say this with a smile and I hope it will be received with a smile, because we did get a little warm. The noble Lord, Lord Wilmot of Selmeston, stumped to the Box and said that what my noble friend Lord Swinton had said was entirely untrue. I have here one or two extracts from speeches that I think it is just as well that the House should hear. We know that at the Mansion House on October 3, 1951, Mr. Gaitskell made a very strong speech. I do not think the noble Lord, Lord Wilmot, will deny that at that time it must have been clear to the Socialist Ministers that from the end of last summer we had been heading for very serious trouble. That is not denied. Our small gold and dollar surplus of 54,000.000 dollars in the June quarter changed dramatically to a gold and dollar deficit of 638,000,000 dollars in the September quarter. The Treasury must have been aware of the current trend. The Socialist Cabinet could have taken action then. They could have made import cuts and called the Empire together at once to face the crisis. Instead, they decided to go to the country. The problems ahead appeared to be too much for them to face, and they were bankrupt of any policy to deal with the situation.

It is very often remarked that from time to tine a consistent and clear idea was put forward by various responsible Ministers to acquaint the people of this country with the real situation. I have no recollection of anything of that sort being done. I can remember various statements which I am going to quote and which, in many cases, within a very short time reveal a complete somersault in regard to the situation. In the debate in another place on January 30, 1952, Mr. Gaitskell himself made this admission—I quote from the OFFICIAL REPORT, Commons; Vol. 495, col. 218: I accept that while we were in power maybe more should have been done. … I think everybody agreed it would have been better if the Finance Ministers' Conference could have been held some months earlier. That is a perfectly straightforward statement, which I accept.

LORD PAKENHAM

May I interrupt the noble Lord to ask him to read the rest of the quotation, if he has it?

LORD TEVIOT

I am afraid I have only that piece.

LORD PAKENHAM

To the best of my knowledge, Mr. Gaitskell went on to explain that it could not be arranged. I do not think there was any lack of initiative on our side.

LORD TEVIOT

I thank the noble Lord for that information. Then, at Leeds on October 18, Lord Milner, who has just come to this House but whom I do not see here now, said: This country was never so prosperous. My Lords, that is a statement quite outside the re alms of reality. I do not say that the noble Lord had the inside knowledge of the Cabinet, but at that time he was Deputy Speaker in another place, and he must have known a good deal; yet that was the statement he made. Then the former Prime Minister said at Lowestoft, on October 9, 1951: Mr. Churchill says, as he says so often, that this country is declining and we must 'stop the drift.' You know that is quite untrue, but ever since we came in he has been prophesying ruin, and that the country is going downhill. … Take the verdict of independent persons and take your own verdict, and you will find that so far from sliding and slipping back we have made wonderful progress to recovery. If that was really Mr. Attlee's view at that time, based on the information he had, why was there an Election? The Government had been in office for eighteen months and they had another three and a half years to run. If the outlook was so good and there was none of this crisis to which I am going to refer again in a moment, why not go on?

Then Mr. Gaitskell, again at Leeds, on January 4, 1952, said: The Government are no doubt painting the picture as black as possible for political reasons. … We must be on our guard against 'crisis' talk as an excuse to set back the clock of social progress. In our terrible situation that statement was riot very enlightening or helpful to the man in the street and humble individuals like myself, who had not the knowledge of noble Lords opposite. Then again, the former Prime Minister, on January 19, at Manchester, spoke in these terms: The Conservative Government is trying to create an atmosphere of scare and is crying out that everything is in danger and that this country's position is awful. Perhaps they will try to spring some Election on you on which you must all rally round the one man. Within ten days of that speech—namely, on January 31—Mr. Attlee said this: We are perfectly seized of the gravity of the situation and we are prepared to support, as we have supported, those measures which are necessary; and we shall not go round the country saying 'It is all due to the Conservative Government.' To read such statements does lead one's mind to a state of bewilderment. How is it that such contradictory statements can be made by responsible Ministers? I really do not think noble Lords opposite were justified in getting so cross when my noble friend happened to mention that these things are in the picture. I have been a little distressed to note that in the last fortnight or three weeks there seems to have been in operation some sort of scheme of personal attack in another place, and now it has extended to this House. With regard to the attacks on the Prime Minister, I believe that he is well able to take care of himself. Anyone attacking him would need to be on a very good wicket indeed to be able to deal successfully with his bowling, and I think he disposed very effectively of those batsmen who did attack it. Now, alas ! we have come to this sort of thing in your Lordships' House. We had an attack yesterday on the noble Marquess the Leader of the House. I was glad to note that he was able to deal very adequately with it. I thought his reply was admirable and I was pleased that the Leader of the Opposition withdrew his Motion after the explanation which was given to him. Now we have had an attack to-day. I knew it was coming but I did not think it was coming so soon. Lord Pethick-Lawrence, who, I am sorry to note, is not in his place at the moment, started off by making a quite absurd attack on my noble friend Lord Woolton. When we think of the things that have been promised and of the promises that have not been carried out by the Party opposite, one wonders at them taking such a line. I do not wish to raise a lot of trouble, but I have here some really terrible things.

LORD CALVERLEY

From the Daily Mirror?

LORD TEVIOT

This is the sort of thing that has been printed, and the Labour Party cannot escape responsibility: Welfare with Labour or warfare with the Tories —and there are all sorts of pictures. Accompanying the words "Warfare with the Tories" is a picture of a broken down, bombed street with a soldier carrying a little child. I hope that noble Lords opposite do not agree with that sort of thing. And there are other publications of that nature which are really quite deplorable.

LORD CALVERLEY

Shocking!

LORD TEVIOT

No, I am not going to give way.

LORD CALVERLEY

I do not want you to.

LORD TEVIOT

We on this side have suffered from these insinuations, and I thought that a little retaliation would meet with your Lordships' approval. Here is another printed query: Will your boy die in Persia? And again: They would take us back to poverty and insecurity at home and the threat of war abroad. I say to noble Lords opposite that they must not throw too many stones, for it is easy to find things of this sort in their own publications—they are all over the country.

My Lords, I find, like everyone else who speaks at this late hour—to use a phrase well known in this House—and after such admirable speeches as we have heard, that the greater part of what I was going to say has already been touched upon. I entirely agree with every word said by the noble Viscount, Lord Swinton. I thought that he explained the situation—concerning which I have some notes—extremely well. As your Lordships know, in the course of a discussion some time ago we had from the noble Lord, Lord Balfour of Burleigh, and the noble Lord, Lord Brand, very exhaustive and learned statements on the subject of the bank rate, and I think that the noble Viscount, Lord Swinton, has today dealt admirably with that matter. Now I come to the question of the subsidies. My noble friend Lord Woolton in his broadcast mentioned rumours that the Conservative Party were going to reduce old age pensions, cut the food subsidies, abolish rent control, put up the cost of living and reduce family allowances. He said: There is not a word of truth in any of these charges. Then there was the charge of warmongering made against the Conservatives. That was used very freely in the last few days before the General Election, and undoubtedly it frightened the women—there is no question about that; I saw evidence of it myself. As to family allowances, noble Lords opposite, the trade unions and the Labour Party generally were very much against the initiation or those allowances. I see the noble Lord, Lord Calverley, looking at me, and I am sure it will be within his recollection that when we were both in another place Miss Eleanor Rathbone was always pressing for family allowances, but the trade unions and the Labour Party were always against it because they said it would prejudice them in demands for higher wages. It would, they suggested, upset their method of dealing with the employers. Old age pensions, we find, are being put up, and family allowances also. There is a reduction in food subsidies, but this has been much nullified by the increase in old age pensions and family allowances. These increases will do much to help those who may be particularly affected by the reduction in subsidies.

LORD PAKENHAM

I am sorry to interrupt the noble Lord, but he surely is not denying that a pledge about food subsidies was given and broken.

LORD TEVIOT

I say that here was an omnibus statement. You may pick out one thing, as you have done, but you have not referred to the fact that the old age pensions were not reduced, that we did not abolish rent control or put up the cost of living, and that we did not reduce family allowances. You did not mention that these allowances went up. I consider that the items in an omnibus statement of this sort counter-balance very happily. Let me remind the noble Lord of this. I think it was the present Prime Minister who said, in effect: "Here is a policy we are going to attempt to carry out, but I cannot tell you what I can do until I have seen the books." As my noble friend here has said, the books, when they came to be examined, were just about as bad as they could be. Certainly they were a great deal worse than we thought it possible they could be. Every single Minister who has had to deal with this situation has told me that.

There is just one other thing I want to say with regard to food subsidies. I have for a Ling time taken the view that food subsidies mean less food. Now some of your Lordships might regard that as rather a foolish thing to say, but if you analyse it I do not think you will find that it is. The Minister of Food may get an opportunity to buy somewhere in the world a large quantity of food which would help to feed our people. Once a ceiling is placed on food subsidies, then the Treasury has to be consulted, and the Treasury at once say: "If you are going to buy this food you will undoubtedly go above the ceiling." Therefore, my view is that the operations of Ministers responsible for foodstuffs coming into this country are apt to be stultified when there is this ceiling and the Treasury have the dominating voice.

Another question that is asked is, "Who is paying for the food subsidies?" We have been told for same time now that direct taxation has reached the stage of diminishing returns. So it comes to this: that those who have to pay for the food subsidies are the people who have to pay the tremendous duties that are imposed on tobacco, whisky and beer, and who pay purchase tax and all the rest. They are paying for them themselves, and a great Chancellor of the Exchequer has evolved this plan of reducing the food subsidies to a certain extent—which, after all, Sir Stafford Cripps did; but Sir Stafford forgot to supply those people, who were perhaps going to suffer from it, with compensating allowances to make up for it. It is all very well to go on talking about "free this" and "free that" nothing is free. Everybody says that there is a free Health Service. Who pays for it? There is no question about it: the consumer, the taxpayer and workman—and all of us are working. It is all coming out of our pockets. There is nothing free at all. I do not think there is anything more I have to say. As I said, I was going to touch a little on the various questions with which my noble friend, Lord Swinton, dealt admirably, but at this late hour I will not detain your Lordships any longer except to say that I hope I have not "hotted-up" the atmosphere again. I notice some smiles on their Lordships' faces. I will sit down.

5.32 p.m.

VISCOUNT BRIDGEMAN

My Lords, in this debate so far we have, as we often have in debates in your Lordships' House, points of agreement and of disagreement which do not always correspond with the normal Party lines. In this debate, the pattern seems to me to be rather unusual. In the first place, I think it is widely agreed that we are now in a very serious economic condition. The suggestion was made at one point in the debate elsewhere that the condition could not be as serious as was thought in some quarters, but I do not think that that suggestion was seriously pursued. Of course, it may be due to bad luck, but it is certainly understandable, that the end of our honeymoon in the Welfare State has coincided with the end of the honeymoon in Australia on rather similar lines, though it was due there to rather different causes. That means that we are fighting not only our own troubles but a whole set of other troubles caused by difficulties in the countries to which we wish to export. I think that by and large we are agreed about that.

Speaking in a general way, I also think we are all agreed that it would have been far better if some of the measures which were taken in the Budget by my right honourable friend could have been different. So at that point perhaps it is fair to say that we began in this debate to start the game of political "Old Maid"—that is to say, we all began to say that this or that measure was a bad one; and we went on looking round to see who was to pay the bill which undoubtedly will have to be paid. Unless I have been particularly inattentive in the course of this debate, I seem only to have heard speakers denouncing measures that have been taken; I do not seem to have heard any noble Lord say what he would have done in order to make good the provisions which have been made in the Budget. The discussion seems to me to be likely to be very academic if we simply condemn the measures which have been taken without saying what we should do in their place.

The noble Lord, Lord Wilmot, who I see is not here at the moment, said that economic measures ought to have been taken which would have closed the gap and diverted luxury production to armaments. I am sorry that he did not go any further and say what he thought those economic measures ought to be. I should have thought that was just what had been in the mind of my right honourable friend when he took the measures that he did in the Budget. The noble Lord went on to say something else—and again I apologise for mentioning it when he is not here. He said that the rise in prices and so forth had done away with all hope of increased production. I think that the message which should go out from your Lordships' House as a result of this debate should be not a cry of defeatism but a challenge to make our position good. For that reason, I hope that the message which goes out this evening from your Lordships will be the one of the noble Lord, Lord Beveridge, rather than that of the noble Lord, Lord Wilmot. I agree that there were many things which the noble Lord, Lord Wilmot, mentioned which sounded very attractive to the ears of the noble Lords on this side. In fact, one might almost describe some parts of his speech—I hope without offence—as a speech of Satan rebuking sin.

But let us come back to these measures. We all have things we do not like. We should all have liked to reduce taxation of the lower income groups, in order to provide more incentive. I think that my right honourable friend has strained himself to go as far as he can in that direction. When we talk about the removal of the subsidies, and so forth, taking away all hope of increased production, may I come back to something which the noble Lord, Lord Layton, said, which, if I understood him aright, was this: that there were some items in the Budget of the lower income groups which, to use his word, were "squeezable"? Well, my Lords, the Economist newspaper has been quoted more than once this afternoon, and I noticed that in last week's issue it was mentioned that the present cost-of-living index, dating from 1947, is not confined only to the barest necessities but includes all sorts of things. If noble Lords refer to the Economist they will see a list that includes things like chocolate-covered biscuits, hair cream and repairs to motor bicycles. So you see, my Lords, for the people in those groups, if we are to judge by the cost-of-living index there does seem to be a little margin. It is wrong to say that there is no margin at all.

Then we come to the question of incentives to industry. That, perhaps, is a subject more usually discussed from these Benches than from the Benches opposite. Let me say frankly that I agree, in theory, with a great deal of what the noble Lord, Lord Wilmot, said. Of course we should like to see the tax on capital, if you like to put it that way, brought to a close. Of course, the position about profits and taxation is fantastic, looked at from certain points of view; but the word "profit" has really become an accountant's term of art; it bears no relation at all to the amount of money which a company may make in any one year, which is at their free disposal, or can be given to the shareholder by way of dividends. The profit position, as we all know, will not become realistic until allowances are given for the replacement of machinery to become realistic, too. I am not going down that road any further this afternoon because the hour is late and because I think my noble friend Lord Rothes will have something to say later on in the debate.

I want now to come to the question of inflation; but before I do so, let me say this. Of course, there are things that none of us likes in the Budget, but we have to start somewhere and we have to break the vicious circle. And it is my belief that my right honourable friend has balanced the opposing factors as closely and as fairly as he can, and if, as we believe, these measures meet with success, next year will be the time when some of our dreams of this year may come true. But let me come back for a moment to this question of inflation. The noble Lord, Lord Wilmot, seemed to want to make it appear that the Budget had caused an immediate outbreak of inflation. I really cannot accept that view. I cannot accept that at the time when the late Government went to the country there was not a roaring inflation in progress. What about the agricultural labourers; what about the engineers? Were the movements to raise their wages last time due entirely to the arrival of a Conservative Government? I think not. But that is not a point on which one wants to go in for hard swearing. I believe the facts will prove that what I say is right.

Having said that, I want to come down to a somewhat lower level of business, where, indeed, I am rather more at home. I have been trying to think what ought to be happening arid what probably is happening in the board room of the ordinary company which is trying to play the game and produce goods for export. That is what a great number of people are doing in this country at the present time. We can moan about the rise in the bank rate; we can moan about the excess profits levy—though perhaps our moaning will be best done when we know exactly what shape that clause takes in the Finance Bill when it comes to your Lordships' House. But we can also have a look round and see whether the whole thing is the Government's fault—any Government's fault—or whether we should say to ourselves sometimes that "the fault lies riot in our stars, but in ourselves." In other words, is the average business quite without blame? Is there anything more it can do?

If we look at the question of salesmanship, I think it is probably fair to say that our salesmen in this country have never really been "put to it" since about the year 1939. During the war they had no selling to do—I met many of them in the Home Guard, where they were usefully employed. Since the war they have nominally been selling things, but in practice most of the goods that come from this country have been, by and large, selling themselves. It is only now that the really good salesman is going to come into his own—he has not been tried out as yet. The time has now come to see whether he can still do his stuff. In the same way that other people, such as the tea brokers, the foreign exchange brokers, and so on, have had to come out of cold storage and do their stuff, so the salesmen of this country have got to come out of cold storage and do their stuff, too. Up to now it has been perfectly easy to sell everything that we could produce at more or less any price that we liked to name. As inflation went on—and inflation has been going on—it was quite easy to put up the on-cost, increase the selling prices, and so forth, and still get away with it, because the buyer overseas wanted our goods, despite the rise in costs and the lengthening periods of delivery.

Now we come to a time not only when it is vital for us to increase our exports, but when we are running into a period of competition with the Germans and the Japanese. It is not for nothing that ships on the Continent are now being built with Japanese plate—and one could multiply instances of this sort. So we must face the fact that the export effort which we are going to make is going to be dependent not only upon our salesmanship but also upon the timely delivery of our raw materials to the works. There private enterprise is in the hands of the Government, whoever they may be, and that is so particularly in regard to steel. Here I declare an interest, because I am connected with a firm which uses steel—and I say that in the engineering industry one of the chief foundations of sales abroad is the supply of adequate steel at the proper time. One of the ways in which we can keep our orders is not merely by not increasing our prices, but by shortening the time of delivery, which in many cases now is far too long for the overseas buyer to wait. That is a most important point. I am certain, also, that many of us rejoice in the fact that my noble friend Lord Swinton has as big a say as he does in matters of this kind.

I come back to this question of inflation. If, as the noble Lord, Lord Wilmot, predicts, we are going to have another round of inflation in this country, are we not going the right way to get priced-out not only of those markets we want to enter, but of those we want to hold? I believe that this is the greatest danger that we are facing at the present time. Therefore, I think—and I say this advisedly—that it would be utterly wrong for anybody to suggest that because of this Budget we are going to have inflation, and we have got to have it, and we are therefore going to haul down the flag. To my mind, that is the most important point which comes out of this question of holding our exports; and the question of holding our exports is, to my mind, the most important point which should come out of our discussion of the economic situation. If we can succeed in halting inflation, then I believe there is great ground for hope. That operation of halting inflation is one which lies not entirely with any Government, whoever they may be, but with the mass of the people, whether they are employers or workers, who are engaged in producing the goods for export on which not only the success of the Chancellor's Budget, but the safety of our country, depends. If we can halt inflation, then I believe we may start the new financial year with very good grounds for hope. These are far too early days yet to say what will be the effects—they are not shown in three weeks or a month. The way to judge it, I suppose, will not be so much by debates in your Lordships' House or anywhere else, as by the daily trend of sterling; because, if I am not much mistaken, we shall reach the winning post on the day that the pound is convertible; on that day it will be shown beyond all doubt that the measures now being discussed have proved successful. But, as I say, that is a task not merely for the Government, but for everybody in this country who is in any way concerned with finance, commerce or industry.

5.49 p.m.

THE EARL OF ONSLOW

My Lords, I intervene merely to inform your Lordships that, as there is still a large number of your Lordships who wish to speak, arrangements have been made through the usual channels for dinner to be provided in the Peers' dining room. If your Lordships will notify the dining room if you wish to dine, and at what hour, the debate will continue without an adjournment for dinner.

5.50 p.m.

THE EARL OF ROTHES

My Lords, I hope your Lordships will bear with me, as one engaged in day-to-day management in business, if I briefly draw your Lordships' attention to some practical considerations which I believe have an important bearing on the economic life of this country, both now and in the future. The basic fact that I have in mind is that we are predominantly an industrial and commercial country, and unless in this broad sense industry has every chance of robust health and vigorous development we are doomed to national decline and bankruptcy. This may sound strong language, but looking back over the years is it not clear beyond a peradventure that the growth of the population from 16,000,000 in 1801 to 50,000,000 in 1951, has been possible only on the back of the immense industrial development which took place during that period? Is it not equally clear that, if that development falters, and if in fact the process is reversed by the withering of industrial and commercial enterprise, we shall be faced with national decline and disaster of unparalleled magnitude? I hope that I have made my first and basic point clear.

My second point is that the health of industry, on which almost all depends, has in recent years become increasingly impaired by the scale of taxation levied upon it—taxation, moreover, which has been computed on a basis of fallacious profits. The Budget provides that the Exchequer should take, in one form or another, something approaching two-thirds of the profits of industry, and that that proportion should be taken right out of the business, so to speak, in hard cash. The State, now the senior partner with a two-thirds share, leaves none of it in industry to finance its growth and development, as was the invariable practice of the private partners in industry in other times. Thus, industry is being forced to live on its capital at a time when greater production and efficiency are being called for. It does not seem to be sufficiently realised that increased production and efficiency do not depend only upon the willingness of workers but also upon the adequacy of capital.

If your Lordships will allow me, I should like to return for a moment to what I referred to just now as taxation based on fallacious profits. It seems that this point is only just beginning to be fully appreciated—namely, that in the inflationary conditions which have complicated our affairs and blurred our vision in recent years, the profits on which the State's share is calculated are grossly overstated by conventional accounting methods. I refer to the fact that those profits halve been, and continue to be, assessed—at any rate for taxation purposes—before provision has been made for the increased cost of replacement of plant and machinery, and, indeed, of trading assets in general. The profits of industry on which taxes are levied are thus, under present conditions, grossly overstated, and therefore the State is taking in real terms much more than two-thirds of the real profits. The most notable outward symptom of this is that, almost without exception, large and apparently flourishing companies find themselves running out of capital in spite of their pursuing, in the vast majority of cases, a reasonable, conservative dividend policy.

May I give your Lordships a simple example which will perhaps illustrate this fundamental problem—and I do so with great restraint? If some of your Lordships had joined together twenty years ago and had formed a company to buy and operate a new cargo ship costing £100,000, the profits for purposes of taxation would have been arrived at after charging depreciation based on the original cost of the ship and its estimated life. Now after twenty years the ship is at the end of its life and has to be scrapped and replaced. The accumulated depreciation, as allowed for taxation purposes, would have amounted to £100,000, and would be represented, theoretically at least, by cash at the bank of £100,000. But when your Lordships go to the shipbuilders you find that the cost of replacing the ship at present day prices will be no less than £400,000—four times its original cost.

It may be that your Lordships have not the money to replace it, and in that case it is clear that you must either go out of business or get others to join you and put up the £300,000 of additional capital required. Incidentally, under prevailing conditions, it might not be by any means easy to find people ready and willing to do that. It is clear that, during the life of the original ship, the State in computing its share of profits by way of taxation has made no allowance for the increased cost of replacing it. This principle—or perhaps I should say this evil—is present in greater or less degree in every industrial undertaking operating plant and machinery. The practical effect is that industry is becoming debilitated by the weight of taxation and by the way that taxation is calculated. Unless something is done to modify the computation of profits both for taxation and for other purposes, a sort of pernicious financial anæmia will completely undermine the vitality of industry.

The leading accountancy bodies are, I know, on this account extremely disturbed at the shortcomings in an inflationary period of conventional accounting, based on what they call historical cost. It is, I gather, a matter of great difficulty and complication to depart from conventional accounting methods, but I venture to suggest that there are ways and means by which the most serious evil could be tackled without revolutionary changes in accounting methods. The root of the evil is that at present profits are overstated because the charge for depreciation is based on historical cost and not on cost of replacement. The position would be very much alleviated if, in arriving at the profits, the charge for depreciation were based roughly on current values. There is no need in this regard for a horde of valuers to get to work, because current values for insurance purposes are available in virtually every case. I would suggest, therefore, that they might form a sound basis. If this reform were agreed and adopted by the Revenue and by the commercial community, current profits would at least bear some sensible relation to realities and most of the trouble would be eliminated. Of course, the backlog of inadequate depreciation accumulated over recent inflationary years would not be eliminated, but that, in an imperfect world, is clearly unattainable.

I apologise to your Lordships for having digressed on what may appear to be a matter of detail, but it is, I believe, one of the root causes of, and a very serious factor in, our present troubles. To restate my general theme, it is that the economic well-being of this country is utterly dependent on healthy and vigorous industrial and commercial enterprise. If that is wrecked by high taxation, aggravated by inflation, all will be lost. I therefore beg that Her Majesty's Government should, as a matter of urgency, address their attention in the first place to the particular aspects to which I have referred.

6.0 p.m.

LORD HUNGARTON

My Lords, our economic difficulties are caused by manipulation of currencies or by the high cost of food. In my opinion, the scarcity of food which makes it dear, and so forces up the cost of living, is at the root of our problem. The high cost of living is reflected in everything produced. About 1942 a conference of forty-four nations was held at Hot Springs which resolved to raise the standard of living throughout the world—a grand resolve. What has been done? I was one of those people who at that time put up their hands in glee. I thought this was grand. But many of those nations have forgotten the resolution. Food is the first essential in raising the standard of living. It is true that some attempt has been made to produce more food, but this has not been taken seriously by many countries. Britain has done well to increase her production by close on 50 per cent., but we can, and must, do much better. Our Commonwealth has vast potentialities and that is where I think we need to look for help in the production of the food which is so badly needed.

The noble Lord, Lord Boyd-Orr, has said that unless the world doubles its food production in the next twenty-five years millions will die from starvation. I believe he is right. But what a task to double, as he suggests, the food production of the world! I say that as a producer—and only those who are on the land can realise the task which that means. But if Lord Boyd-Orr is right—and many think he is—what are we doing to produce this extra food? We are not getting down to one or two fundamental problems of to-day. This question of greater food production should be tackled immediately, and tackled very seriously. I suggest that a conference of leading men who really understand agriculture should be brought into being from our Commonwealth countries at the earliest possible moment. I say that because I believe that some of the Colonies can produce the things which matter at a more economic rate than we can. On the other hand, there are certain things that we can produce much better than can some of the Colonies. It is essential, if we are going to raise our food production to the extent we should, that we should get together and know what the other is doing.

I realise that it is not easy to solve this problem. Some of these countries are becoming industrialised, as Britain did one hundred years ago. Far too many men are leaving the land, and a policy must be agreed by the conference I have suggested to encourage many workers to return to the land. Men are now leaving the land at the rate of something like 20,000 a year. It seems ridiculous that men should be leaving the land today. They are having this difficulty in Australia, too, and the result is that during the last seven months of last year Australia exported to this country only about 15,000,000 lb. of butter, whereas in the previous year she had sent over 71,000,000 lb. The difference in the export of eggs to this country from Australia is considerable; it has been reduced from 17,000,000 dozen to about 6,500,000 dozen; and so with other foodstuffs. That is obviously wrong. I am disturbed about the future. Whatever we may do, however we may manipulate money in this country, or in America or other parts of the world, unless we have the abundance of food we need we shall not get anywhere.

The world requires food in abundance—I will not say cheap food. The day of cheap food is over, and no one wants to see a return to the kind of cheapness we had in the 1930's. But the price of food can be lower than at present. What we want is an economic level. I make, very respectfully, this observation to our cousins in Australia. If they had had at present a large exportable surplus of foods, it would not have been necessary for them to make the cuts in imports from Great Britain. In the meantime, we must make a terrific effort to produce much more—at least 25 per cent. more—food than we are doing at present. I know that it can be done. I firmly believe that an abundance of food will play a great part in the economic recovery of this country and in that of the whole world.

6.6 p.m.

LORD BLACKFORD

My Lords, at the outset I want to make a strong protest against one minor point in the Finance Bill. It is contained in Clause 32 (2) and in the first section of the Eighth Schedule, which specifically includes investment trusts within the scope of the excess profits levy. They were excluded by Socialist Chancellors of the Exchequer in previous Finance Bills. I make no secret of my interest in this matter. I am a director of several investment trusts, and therefore it is my duty to call attention to anything that may mean an injustice to my shareholders. As your Lordships are well aware, investment trusts are not trading companies; they are simply organisations to which investors have entrusted their funds on the supposition that the management and directors can invest them to better advantage than can investors themselves.

The effect of including these trusts in the excess profits levy is, obviously, that they will become subject to this tax twice and, in some cases, as I could show, even three or four times. I do not want to weary your Lordships by going into detail on this matter, because we know that nothing can be done about it in this House; but I think it is somebody's duty to draw public attention at the earliest possible moment to this manifest injustice at which I am quite sure, had it been introduced by a Socialist Chancellor of the Exchequer, the whole Conservative Party would have snapped as one man. I hope that some influential Conservative in another place who is not afraid to give emphatic expression to his opinions will, on the Committee stage of the Finance Bill, move to omit these objectionable sentences, and that he will be heartily backed up by the whole Conservative Party and thus induce the Chancellor of the Exchequer to change his mind. There need not be any fear of defeating the Government on this issue, because, of course, no Socialist would join in remedying an injustice to a capitalist.

I now turn from the particular to the general. It is, of course, the business of the Opposition to oppose, and the Opposition are doing their best to oppose the proposals in Mr. Butler's Budget. I have not heard any very constructive suggestion; but it is just as well to remember that, had they been returned to power at the last Election, it would be up to them now to deal with the undoubted financial crisis which did exist and which still exists. I was particularly interested in that portion of the noble Lord, Lord Wilmot's, speech, in which he denounced the excess profits levy. I agree that the excess profits levy is a highly objectionable tax, but the Socialist Party, you must remember, have always inveighed, and still inveigh, against what they regard as the too-high degree of profits. It is safe to say that if Mr. Gaitskell had been now Chancellor of the Exchequer, he would have made a further attack on profits in the Budget which he would have produced. I should like to make a challenging assertion on this subject of profits. What could have been more clear or more instructive than the speech which we have had the pleasure of hearing from my noble friend, Lord Rothes, just now? What he said was that taxation is far too high for businesses to continue to exist. I make the assertion that there is not a single business in this country to-day which, on the present scale of taxation, is able to put enough to reserve to replace in the long run its plant and buildings. Therefore the paramount need of this country, as has been said time and again, is for a reduction of taxation, and that can be brought about only by a reduction of expenditure.

About two years ago, I inflicted upon your Lordships a speech in which I advocated a reduction of expenditure to the, tune of £600,000,000 a year, with, of course, corresponding reductions in taxation. That has been rendered impossible by the ruinous rearmament programme which has been forced upon us. But I am delighted to see that Mr. Butler has followed the example of Sir Stafford Cripps and effected economies in the food subsidies to the tune of £160,000,000. Do not let us fall into exaggeration on this subject of the increased cost of living made necessary by the reduction in the food subsidies. One shilling and two-pence halfpenny a week is exactly one cigarette a day or one bottle of beer a week, whichever sacrifice you may think fit to make. Nor do I think we should be too much led away by the hard luck of the lowest paid members of the wage-earning community who are earning about £3 10s. to £4 a week and who receive no relief under Mr. Butler's taxation proposals but, on the contrary, suffer that extra burden of 1s. 2½d.; because those people who earn only £3 10s. to £4 a week are, almost every one of them, young girls and boys of tender age who are living at home with their parents and who have no family appendages or responsibilities (or, if they have, certainly ought not to have at that age !). If they are forced to make a further contribution towards the necessities of the country to the tune, as I say, of one cigarette a day or one bottle of beer a week, I really do not think it is a matter to make very much "song and dance" about.

For the rest, Mr. Butler has relieved no fewer than 2,000,000 people from the payment of any income tax. He has devoted a large part (I think it is £80,000,000) of the savings which he has made on the food subsidies towards effecting reliefs for those 2,000,000 and, in accordance with the best Socialist principles, he has added to the cost of motor driving and tacked on the excess profits levy. Do not let us exaggerate on the subject of the excess profits levy. After all, the total profits in industry, I think I am right in saying, are something like £2,700,000,000 a year, and Mr. Butler's levy is calculated to produce only £100,000,000 per year, which is something like about 3¼ or 3½ per cent. increased tax. So although, as the noble Earl, Lord Rothes, has so eloquently pointed out, taxation upon industry as a whole is ruinously high, yet the addition to it is not so serious as all that. The fact is, as I see it, that the masses of the people of this country have for the last six or seven years been wrapped, and are still wrapped, in a cocoon of economic illusion, the threads of which are woven out of unprecedented sellers' markets, loans and doles from America and elsewhere, hidden subsidies, the spoilation of the rich, the devaluation of the pound and so on. Perhaps a cocoon is not a very apt simile, because the chrysalis in this case shows little sign of emerging of its own volition. It would seem that the emerging process will have to be effected from outside, which will be extremely painful.

That leads me to another fact—or at least, in my submission, a fact—namely, that large masses of people in this country, salary and wage earners, say, from about £800 or even £1,000 a year, downwards, take it as a matter of course that every time the cost of living rises their salaries or wages shall rise with it automatically, in order to make good the difference. It is not necessary to tell your Lordships that so long as that process continues, so long must inflation continue and increase. The public have been told that time without number, not only by capitalists and Conservatives and people of that sort, but also by Socialist leaders. But the masses of the people either do not realise it or will not accept it. Therefore, in this connection it appears to me that Mr. Butler's Budget takes one first step towards reality.

He asks them to pay a little more for their food; to get somewhere near the real cost of their food; to do away with about one-third of the hidden subsidy which they have been enjoying on food. If the result of that is that they demand wage increases to cover it, then we are lost, as the noble Earl, Lord Rothes, pointed out in his speech. Therefore it seems to me to be deplorable if leaders of public opinion—I do not want to create any antagonism anywhere—give either open or veiled encouragement to wage-earners to put in now for increased demands. I see that the Trades Union Congress issued a circular the other day which certainly did not discourage the idea. It seems to me essential that the people of this country should realise that the peak has been reached for the time being, and that it is only by their increased productivity (which is harder work) and probably with slightly less social services (which is less pay) that we can possibly make both ends meet. Everybody realises that expenditure in this country is far too high and that taxation must be reduced by the reduction of that expenditure.

That brings me to the cost of rearmament. It is not always right to take it as a matter of course that one's political opponents are wrong. I must say that for a long time past, as soon as I heard that we were to spend £3,600,000,000 on increased armaments I thought it was more than we could afford; and when that figure was increased to £4,700,000,000—and, indeed, I think the Prime Minister the other day in another place mentioned £5,000,000,000 as the figure—I thought it was absolutely impossible for us to meet that expenditure combined with the cost of the maintenance of the Welfare State. Nov how that expenditure could be safely reduced is more a matter for argument in a Defence debate or a Foreign Affairs debate, and I do not propose to go into that now. But I must say that I agreed with Mr. Aneurin Bevan when he made his well known utterance last June. I never thought to find myself in agreement with him, but I am bound to confess that I did.

I listened to his spokesman, Mr. Crossman, speaking in the Defence debate in another place, and I am bound to say that I thought he made a brilliant speech; but perhaps that was because I agreed with almost everything he said. In the course of it he was specifically asked what he would do to make both ends meet, and he said that he thought the defence expenditure should be reduced to £1,000,000,000 a year and that if we could increase our exports by £300,000,000 a year both ends could meet, there would be some possibility of reduction in taxation and we should be economically sound. Where I do not agree with Mr. Bevan is that I am afraid that in existing circumstances our exports will not increase by £300,000,000 a year and therefore the Welfare State will have to give way a little more; but that remains to be seen. All I would argue at this present time is that economy has not been tackled (I was going to say that the present Government have hardly begun to tackle economy on the lines which I think will eventually be necessary) and I urge the Government to do much more in that direction than they have done hitherto.

I want to say only one more word and that somewhat repetitive of what I have ventured to say before. The idea that one Party is malevolent to the Welfare State and the other Party benevolent is, of course, quite wrong. All politicians care more than anything for votes. They will always try and do their best for the workers who form the majority of the electorate, because that is the popular thing and gets votes, and the opposite is the unpopular thing and loses votes. Therefore it is quite absurd to say that the Tories are against the workers and want to depress their standard of living; on the contrary, they want as much as the Socialists to keep it up. What the people of this country do not realise is that in the end no Government can save them; it is only their own exertions that can do that.

6.24 p.m.

LORD ARCHIBALD

My Lords, there are so many experts in your Lordships' House, not only on economic matters but on nearly every matter, that it is somewhat terrifying for one who is not an expert to intervene in a debate of this kind. However, I conceive that one of the functions of your Lordships' House is the expression and exchange of opinion, as apart from information, and in the very mellow atmosphere created when one finds Lord Blackford agreeing with Aneurin Bevan and Richard Crossman I am encouraged to proceed.

I think I am right in saying that the dictionary defines "crisis" as "a moment of danger, of suspense." I feel that to talk about the present situation as being an economic crisis in that sense is quite wrong. The economic situation from which we are suffering is something deep-rooted and long-ranged, not something of the moment, not something transitory. I am therefore this afternoon not going to talk about the Budget, or about the immediate and topical aspects of it, but I should like to say a few words about some of the more underlying causes. I am more encouraged to do so because of the statement of the Chancellor of the Exchequer in the debate in January when he made the very much quoted statement: It is the harsh truth that our economic position in the world has been deteriorating for about half a century. As I say, that statement has been very much quoted but it has hardly been followed up, even by the Chancellor himself, either in that debate or in the Budget debate. In our debate the noble Viscount, Lord Waverley, qualified the Chancellor's statement, saying: there is one respect and one only in which our situation has deteriorated steadily during the last fifty years, and that is in respect of our overseas investments. I am not an economist but I venture to suggest that the Chancellor was right and that the noble Viscount's qualification was wrong. I think the Chancellor's statement is an excellent starting point for an examination of our present economic position.

The facts are, of course, extremely well known. They are so obvious that I would apologise for bringing them before your Lordships' House if it were not for the fact that they are, as it were, so obvious as to be apt to be overlooked. It is of course a truism that the two world wars have caused a most serious loss of our overseas investments, and that if Britain to-day had those investments which were sold during the wars our balance of trade position would be considerably better. But it is also true that British overseas trade never fully recovered from the dislocation of World War I. Let me take as illustration the position of the textile industries. It is a particularly appropriate illustration, in view of the present unemployment depression and fear in that industry. Before World War I the textile industry supplied well over one-third of the total value of British exports. Cotton in 1913 had an export value of £127,000,000, out of total visible exports of about £450,000,000. Of course, during the 1914–18 war our overseas markets for cotton goods were almost completely lost, and after the war we never fully regained them. We did not regain them for the well-known reasons that native textile production in our Far Eastern markets had developed and the textile industries in America, Canada and Australia and other countries had been expanded. That was not wholly due to the war but it was accelerated by the war.

After World War I our cotton exports never regained their pre-war figure. From an export of, I think, something like 7,000,000,000 yards in 1913 we never rose above 4,500,000,000 yards in the post-war period; and in 1938, we were down as low as 1,450,000,000 yards. Then in World War II, history, so far as that industry is concerned, practically repeated itself, and we have not again recovered even the 1938 figures. I believe that last year cotton exports were about 1,000,000,000 yards, including the re-export of Japanese Grey cloth finished here. The case of cotton is perhaps the most striking but I believe that it is typical of the overall long-term tendency in the export trades for all our consumer goods industries. As I think the noble Viscount, Lord Swinton, said, it is our consumer goods exports that are having the most difficult time at present.

Again, I know that I am stating the obvious but I mention that it was during the nineteenth century, and up to about 1913, that our large favourable balance of trade permitted the building up of the overseas investments which were drawn on in the two world wars. But that favourable balance of trade which prevailed in the nineteenth century and up to World War I had disappeared before World War II came. We had an adverse balance between 1936 and 1938 of the order of £40,000,000 or £50,000,000 a year. It has been calculated (the figures are not mine) that at present prices that would have represented an adverse balance of the nature of £400,000,000. So that if World War II, with all its destruction of wealth, and its dislocation of trade and loss of overseas investments, had been averted, we should still to-day have been facing an adverse balance of trade, unless the tendencies which were operating before World War II had been reversed; and it would have been an adverse balance of such magnitude as to constitute a quite formidable economic situation. In view of that fact, I suggest that it is completely mischievous and misleading to talk about the present situation as though adverse balances were something new—something that had come about only under a Labour Government, and as though the Labour Government were responsible for the long-term trend which had produced adverse balances before World War II.

Now, since the war, our export problem in consumer goods, which was with us between the wars, has been masked to some extent by a world shortage of that type of goods—in fact, by a sellers' market, to which reference has been made, and, of course, to the absence of Germany and Japan as full competitors. I am not yielding to anyone in giving credit to the British people for the production and export drive of the last six years, but, despite all the effort, only in 1949 and 1950 have we had a favourable balance. As was pointed out in our last debate, there were special and favourable factors in those two years. Unfortunately, they are the type of favourable factors that I am sure none of us wants to see recurring. In a trade sense, but obviously not in the wider human sense, the world has a surplus of consumer goods. The countries that formerly produced only or mainly primary commodities, have developed, and are developing, their own secondary and manufacturing industries; and they are producing for themselves the things that we formerly produced for them. Above all, in the world situation the enormous increase in the productivity of the United States overshadows everything. To say in the face of that state of affairs that our economic position has deteriorated only in respect of overseas investment s is very wide of the mark.

In that connection, the noble Lord, Lord Balfour of Burleigh, said: Our sterling-dollar unbalance is due largely to the continuous inflationary pressure of the last seven years and could have been avoided. To say that, I submit with respect, is to ignore the physical realities of what has been happening in the world in the past fifty years, and its effect upon our very vulnerable trade position. I might add that the deterioration in our terms of trade to which the noble Viscount, Lord Bruce of Melbourne, drew particular attention in our last debate is, in a sense, the answer to that statement. I said a moment ago that in a trade sense the world had a surplus of consumer goods. It is not really a surplus, it is a shortage of effective demand, because there can never be a surplus in a human sense while hundreds of millions have so few of the essentials of life. But if the world has what I may call an apparent surplus of consumer goods, it certainly has an unfilled demand for capital goods. As I think the noble Viscount, Lord Swinton, said, it is our capital goods industries that at present have their order books filled, and in many cases are behind in their deliveries to overseas customers. I feel that it is there that we have to look for the more hopeful aspects of our present situation.

In what I thought was one of the most interesting speeches in our last debate, the noble Viscount, Lord Bruce of Melbourne, urged the importance of developing the undeveloped and under-developed parts of the world. He spoke of getting for the under-developed regions—I quote: that constant flow from the western industrialised worlds of several billion dollars a year. That was a quotation from the Rockefeller Report. What does it entail? It means the export to the under-developed and undeveloped regions of capital goods. And, because these regions are undeveloped and under-developed, it means the export of the capital goods to them for a very long time as unrequited exports. That, however, is something which in our present position we cannot afford. Obviously, we cannot supply the capital requirements of the underdeveloped regions out of an adverse balance.

During our long period of favourable trade balances we did, of course, play a very large part in the development of many of the then under-developed regions of the world—some of them are now our formidable trade rivals. The only country which to-day has a big export surplus, and could play the part which Britain played in the nineteenth century, is America. But America is not playing that part. That is not said as a criticism. The world has changed and the techniques which were appropriate (or at any rate the techniques which prevailed) in one historical period are no longer suitable in another. In my view, overseas investment is no longer mainly suitable for private enterprise. For one thing, public opinion would not stand for the degree of exploitation of native resources and peoples which in the past made very large profits and made that type of investment attractive. On the other side, the state of the world is such that few private investors would be prepared to take the risks involved.

I therefore suggest that the financing of what the Rockefeller Report calls the "constant flow of several billion dollars a year," is a matter, not for Governmental but for inter-Governmental action—in fact, for an international loan or series of loans not loans to this; country, but loans to and for agreed development projects. This is action in which I think the United Nations might take a lead, and I suggest to Her Majesty's Government that they might take the initiative in bringing the matter before the United Nations. I believe that a bold lead by the United Nations for international financing of great development works would bring fresh hope to the people of the world. It would give hope for world trade, and for the satisfying of human needs; it might make a substantial contribution towards world peace, and be of greater value than some of the arid debates.

But even if we get international financing of development works, the capital goods have still to be produced, and here I want to press on the Government the case for expanding our capital goods industries. I am encouraged to believe that that may be in mind, because there was a reference to it in the noble Viscount's speech—though, if he will pardon my saying so, a rather vague reference, which I hope may be expanded later. The point I am trying to make was so well put by the Observer on Sunday that although most noble Lords will have read the paragraph I ask their indulgence to quote it. It refers to: the inescapable fact that we simply cannot afford to maintain in this country a textile industry on the old scale. It goes on to say: World production of textiles is much greater now than it was before the last war, while world trade in textiles has not vet returned to the pre-war level. Other countries are producing for themselves what we once produced for them. In order to survive economically we must recognise that more of our resources and our man-power will have to be used in future to make machinery and other capital goods which the younger developing countries are unable to make so easily for themselves. This shift in industry cannot be brought about suddenly, but it must be achieved. The Government should have the courage to say so plainly. I am not to be taken as subscribing fully to the pessimistic view taken by the Observer about the future of the textile industry, but the argument about the change of stress from consumer goods exports to capital goods exports is, I think, very sound. If I might interpolate something here, I think we have a duty to see that Lancashire and the other textile areas are not allowed to drift back into the unemployment of the between-the-wars period, the fear of which is haunting them already. We have to take every possible step to develop new industries in those areas and so introduce a very necessary degree of diversification of industry. And, if I may be allowed a further digression, I would say that measures which reduce the purchasing power of the people of this country have a very serious effect upon this question, because, despite its importance in the export field, 75 per cent. of our cotton production is for domestic use. Therefore, the maintenance of the domestic market is important; and accordingly maintenance of domestic purchasing power is important. So if we cannot help Lancashire's export trade to any considerable extent, it is certainly within the compass of the Government to maintain and not depress the domestic market.

To return to my main theme. The Observer asked the Government to have courage, but I would add on this particular point that the Government should also, in this respect, have caution. Particularly they must see to it that short-term measures do not cut across or hamper development of the capital goods industries. Here I join with my noble friend Lord Pethick-Lawrence in my dislike of the instrument of the bank rate, that blind instrument which tends to restrict useful and necessary development equally with non-essential development. I think that noble Lords will agree that, as the useful and necessary is often the less profitable, it is the useful and necessary which tends to be more severely curbed and restricted by a dear money policy. I hope the Government will take such action as they can, through the Capital Issues Committee or otherwise, to see that the expansion of the capital goods industries is made possible in relation to finance, materials and labour.

I had intended to make a reference to agriculture, but as we are to have a debate on that topic in a few weeks' time, I wish at this stage only to say that I agree with my noble friend Lord Hungarton that the increase of agricultural production here is one of the most important contributions that can be made to closing the gap. In that connection, I would beg that we should at an early date have on agriculture some statement of Government policy of a long-term nature calculated to produce in the farming community that confidence which will lead to increased food production here. I am sure it can be got. But there has been no indication yet of anything in Government policy that would be likely to bring it about.

My last point is with regard to our present rearmament programme and its effect on our economic situation. I am almost tempted—in fact, I think should allow myself to be tempted—to say that Lord Blackford and I are for once in agreement. I think that the programme of spending £4,700,000,000 in three years is no longer valid. I believe it has now become, possibly, £5,200,000,000 in four years.

VISCOUNT SWINTON

You are both recruits for Mr. Bevan.

LORD ARCHIBALD

Yes and no. I think I might say that we can both agree with him on certain things, without necessarily agreeing with him on everything. But the programme, whether it is £4,700,000,000 or £5,200,000,000 and whether it is to be spent in three years or in four years, is, I suggest, in present circumstances an unreal programme. If war is really imminent it is not enough. If the danger of war has receded—as we are told it has—then I regard that programme as a heavier burden than our economy can bear, and I think it should be re-examined.

In conclusion may I say that I think it would be almost worth while to set up a Royal Commission to examine the real nature of our basic economic problems. The result might be only to enlarge the area of agreement on this subject, but that in itself would be worth while. And, incidentally, it might produce a definition of inflation which, I think, would be useful in this House, where it was so carefully avoided in our last debate. But, whatever the definition, inflation seems to be something that has gone on, with only minor interruptions, from the first Elizabethan age to this, and it would be much easier for the non-technical people in the House, like myself, if we could get some agreed meaning for that word. If the area of agreement on the nature of our problem could be widened, I do not know that we would necessarily be, but we might be, nearer to agreement on how to deal with it, and I still feel that there would be ample room for all our major political differences. I have tried—I hope not too dogmatically, but I am afraid at too great length—to say how I see the basic problem and to indicate a little of what I think might be done about it. I started my remarks by giving one of the dictionary's definitions of "crisis." But there is another definition" and that is that "crisis" is "the turning point.' I think we are, as a nation, at a turning point. If we are, again, in a crisis to take, as we have in the past taken, the fearful, timid way of contracting our whole economy, then the future is black indeed. But if at this turning point we take the way of bold measures to adapt and modernise and expand our economy, then Britain has still an important and useful part to play in world trade, which will earn for her people the high standard of living to which their past and their present entitle them, and for which, may I say, given the opportunity, they have always been prepared to work.

6.50 p.m.

LORD HAWKE

My Lords, I do not intend to follow Lord Archibald in detail but I would suggest some slight caution about greatly relying on international loans, because it seems to me that these loans, unless they are the result of private domestic savings in the various countries concerned, are purely inflationary measures, creating purchasing power for capital goods without, at the same time, stopping the corresponding demand for consumer goods. I was going to inform the noble Lord, Lord Pakenham, that I rise as an innocent, because I was one of those people who were quite unaware of the extreme gravity of the situation last autumn. I knew the position was bad, but I had no idea that the position was quite so bad as it turned out to be. Of course, I have no access to private and secret information, but I try and keep myself as reasonably well-informed as most members of the public could be expected to be informed, and I was ignorant.

We have been talking a great deal about this Budget and I should say that the first thing that struck me about the attacks on the Budget was what I thought a grossly misleading attempt to make out that it was a Budget taking money away from the poor and handing it to the rich. That attack has been made by all sorts of people, and those people seem to have ignored (I can only presume in ignorance, or with true deliberation) the fact that petrol tax falls with particular gravity on the rich. Presumably the excess profits levy will fall chiefly on them, and, above all, the accompanying increase in the bank rate has knocked slices off the fortunes of every rich man in the country to-day. He must be a very fortunate man who has not lost at least 10 per cent. of his fortune over the last few months. My own attitude to the Budget was fully justified, I thought, by the attitude of the enemies of Britain. When the Daily Worker froths at the mouth we can be pretty certain that we are doing something that is right; and the extreme enemies of Britain—the Communists and fellowtravellers—made more fuss over this Budget than I have seen them make over anything. I personally welcome it, as I think a step back towards tradition, back to the days when we raised the minimum amount of money out of all the pockets of the people to do what we thought was necessary for them. I know that there is a big surplus this year, but that surplus has come about purely from the fact that savings are so inadequate that the Chancellor has to provide Government savings to lend to the local authorities.

I think the last few years have shown us that a Budget is an imperfect instrument as an instrument in combating inflation. In fact, it may even be an imperfect instrument in combating deflation, but we have had no opportunity of seeing that. I think the fact that some people say the Budget is inflationary while others say that it is deflationary gives support to my remarks. The fact of the matter is that any Budget which does not relieve taxation is, to my mind, of an inflationary nature at our present level of taxation. Furthermore, you just cannot plan for one year ahead. These astrological figures which noble Lords opposite love so much have been disproved time and time again when the succeeding year's Economic Survey has made nonsense of the prophecies. It cannot be an astrological instrument. The proper method of controlling the economy, if we wish to control it, is to control the volume of credit, and that is a day-to-day matter of great flexibility and delicacy. In the last five or six years, that control has failed—failed because deliberately it was never exercised. The rate was kept unnecessarily low and there was no limit on the amount which could be released on credit.

My Lords, what is the real price of money? Of course it depends in every case on the tax position of the borrower; but if you take Government stock as being on a 4 per cent. basis to-day, and deduct 9s. 6d. in the pound off the interest, you can say that long-term Government money is approximately on a 2 per cent. basis. That does not compare unfavourably with the price of money years ago. Surely nobody can call 2 per cent. net a high rate for money. In any case, what should be the price of money? Surely in the last resort it is the price at which people can be persuaded to save their money and other people can be persuaded from not dissaving it; so that the real price should be a different thing for different people. Here, my Lords, is rather an important law, which is this: the lower the tax, the lower the rate at which you can reasonably hope to persuade people to save money, and this is an additional incentive to try to get taxes on income lower.

Of course, the trouble about the noble Lords opposite is that they belong to a Party which likes savings but hates the savers. They love to eat the eggs, but when it comes to feeding the geese they grudge every spoonful. As a goose-keeper, I know geese will not lay unless you feed them properly, and the savers will not save unless they are properly treated. I have never been able to discover the line—and there must be a line somewhere. On one side of it, the saver is a patriotic saving citizen and, on the other, he immediately becomes a wicked capitalist to be soaked in this world and the next. I have never yet discovered where the line is drawn. There must be a line somewhere in the minds of the noble Lords opposite, if not somewhere on paper in one of the articles or in the Memoranda of Association of the Labour Party.

LORD PAKENHAM

May I interrupt, for the sake of friendly record, to point out that, to the best of my recollection, we have never described capitalists as "wicked." I know that noble Lords opposite believe we think they are wicked, but we do not really.

LORD HAWKE

We have had a pronouncement from one of Her Majesty's ex-Ministers, one of the intelligentsia of the Labour Party. I am very satisfied.

Cheap money naturally discourages saving, and it encourages dis-saving. There has been a tremendous amount of dis-saving going on over the last five or six yea's. The high-tax payer finds that he can buy a farm, perhaps at a net cost of half of one per cent. to himself, and he indulges in all sorts of capital expenditure which he would not do otherwise. The demand for all this has meant that there has been much too great a demand on capital; and there has had to be, to match it, the creation of credit the whole time. So we have had a perpetual tendency to inflation ever since the days of Dr. Dalton. I was one of those people who prophesied disaster from Dr. Dalton's cheap money policy from the first days of its institution, and I do not take back any word of what I said: I believe it has been the most disastrous factor in bringing us to our present state.

There are one or two smaller and more specific points in the Budget proposals to which I should like to refer. I do not think any noble Lord in this debate has yet said any thing about the purchase tax. As the father of a large family, who perforce have to be brought up on utility goods, I greatly welcome this change in the incidence of the purchase tax. The so-called blind spot was a grave difficulty about the previous system: goods of medium grade could not be bought because a heavy tax had to be charged on them and nobody was prepared to buy them. As an instance, I suggest to your Lordships that you go and search the shops for an ordinary bedsheet of more than 100 inches long. There may be some. But I have always found that a sheet of 108 inches long is at least £1 more expensive than a sheet 100 inches long. I understand that the one falls within the utility range, and the other does not. The next time your Lordships are making beds, I recommend you to do the necessary arithmetic to make a 100 inch sheet, possibly shrunk a little, stretch over a 78 inch bed—it is a bad proposition. The extra eight inches is worth something every time, but it is not worth £1 or 30s. more. The new system will ease the burden of the con- sumer in ways of that sort in which the old system had serious blots. Some people say that the new datum line is too low and therefore goods attract tax at too low a level. I think it is too early to say that, because I am inclined to think that the price of certain goods has not yet reached its bottom. I do not want to give advice to the housewives, like the famous guide who put Lancashire out of work—I will not go further than that.

With regard to food subsidies, there is only one noble Lord in your Lordships' House who I admit cares more for the people's food than I do, and he sits in front of me—Lord Woolton. I welcome greatly this change in the food subsidies. I should have liked to see the whole lot go; I believe it would have been greatly to the benefit of the consumer. The nation will never be properly fed so long as the Treasury have a vested interest in keeping down the quantity of food in the shops. When we get a free market in food, with corresponding reductions in taxation which will allow people to have the extra money to spend, then the nation will start to be properly fed. I hope that in administering the changes in the food subsidies Her Majesty's Government will concentrate the remaining subsidy on the fewest number of foods, so that there may be the widest area over which the Treasury have no vested interest at all. The noble Lord, Lord Hungarton (he has left the Chamber) said that food is too dear, and we must bring the price down. I think that if that cry goes out to the people it will produce an unfortunate and misleading impression. Food is too cheap at the moment for the necessary food to feed the human race to be produced. I would ask the noble Lord to compare the number of sacks of wheat which it took to buy a locomotive in 1911, or the number of yards of calico you got for a sack of wheat in 1911. I think he will find that on that basis food is cheaper to-day than locomotives or calico.

Finally, having been engaged for a good part of my life in a trade connected with Lancashire, I should like to say a few words on that subject. At the moment Lancashire is undoubtedly the victim of a world-wide recession in cotton goods. There are two sides to it. First, there is the long term, and secondly, the short term. I believe that in the long term it may well be that Lancashire's capacity to produce is rather more than she will be able to exercise in the years ahead. But if there is to be contraction, let it be an orderly contraction, and not the "free-for-all" which was rather the old Liberal school idea and which ruined Lancashire between the wars. Above all, let the contraction not be accompanied by any decrease in output per man-hour. In fact, the larger the output per man-hour, or per man-loom, or whatever it is, the more likely it is that the whole of Lancashire's present capacity can be employed—but I believe it is a matter of some doubt.

LORD PAKENHAM

I am sorry to step in and possibly take the words out of the mouth of the noble Lord, Lord Beveridge, but would it be fair to the old Liberal school to suggest that they were in power between the wars?

LORD HAWKE

No. But Liberal ideas were very much in power in Lancashire between the wars, and people there found the utmost difficulty in getting together for an orderly contraction. Over a period of twenty years I watched the whole enormous business committing suicide, largely through lack of co-operation. We now come to the short term. Undoubtedly, prices have been too high. Once upon a time there was a world price for cotton, which was arranged in the Liverpool market: to-day there is no Liverpool market. American middling, translated into Lancashire terms, would probably cost to-day about 3s. a pound. There is a shortage of non-dollar cotton in the world, and the result is that non-dollar cotton—Egyptian, Indian, and so on—has been bid up far above that price. Before the war, as producers of cotton as well, we used to reckon that 9d. a pound was a very good price for cotton. Therefore I maintain that the American price, supported by the American Government, at present levels is definitely too high. The consumers of the world, when they saw prices rocketing still higher owing to speculation over the Korean war—and cotton goods are much speculated in in all the Eastern markets—rushed in to place their orders before the prices went up, and now there is no question that they are over-bought: the shelves of the world are full, prices are still on the high side, and the consumers are holding off. They will not go into the market and we shall not get the pipeline cleared until the consumers are really tempted. The difficulty is that the housewives of Britain have rather lost their yardstick as to what cotton goods ought to cost. This is where my noble friend in front of me, who was once connected with a great merchanting organisation, can come in. It is the advertiser who has to step in—

LORD PAKENHAM

To whom is the noble Lord referring?

LORD HAWKE

My noble friend Lord Woolton. It is the advertiser who has to step in and show the public when the prices have come down to a reasonable and safe level to buy. Any price based on the American Government's farm-support prices for cotton is obviously a pretty good average to take, provided that all the unnecessary profits, and so on. have been squeezed out in between. These recessions have happened before—I have seen them. And that is the traditional method of dealing with them—price cuts. Somebody takes the risk of cutting his loss and selling the stuff even more cheaply than he can buy it to-day. The housewives come in, the shelves are cleared, fresh orders go through to the mill and the process starts up again. There is no quicker method of curing constipation in the pipeline than a dose of bank rate.

7.12 p.m.

LORD CALVERLEY

My Lords, I promise not to keep your Lordships very long. I would say to the noble Lord, Lord Hawke, who I believe has a large family of girls (I think he has six), that if he goes into the market for what was a utility cotton gown, he will find that under the D. Scheme he is going to pay 5s. 6d. per yard more.

LORD HAWKE

I should like to interrupt the noble Lord, because I was arguing precisely the opposite. I said that nobody yet knows where prices will settle down. I fully expect to find that the better quality will come down below the datum line.

LORD CALVERLEY

I was saying that this D. Scheme is the very devil's scheme. He will find (I quote from to-day's Manchester Guardian) that he is going to pay 5s. 6d. a yard for good cotton fabric to clothe his daughters. It was utility stuff before and was fit to gown my own wife and the wife of the noble Lord. I quote again from the Manchesher Guardian. Another popular line is going up to 3s. 11½d. under the new D. Scheme. I mention all this because I am going to confine my remarks for the next seven minutes to textiles. I start with cotton because the Lancashire cotton industry is in a more critical state than the wool and worsted industries in Yorkshire, the West of England and the southern parts of Scotland. The noble Lord talks glibly about"recession"—we call them "slumps." If he goes into Oldham or Rochdale he will see the beginnings of a new incentive—the incentive of an empty belly, an attempt to make ends meet in a different way from what they have been doing these last few years. The noble Lord also said that he did not know there was a crisis. I am not an economist and I do not often write letters to the Press, but last August I wrote to one of the principal American papers and said that trying to complete the rearmament programme in three years was going to strain our economy to the breaking point.

Leaving cotton for the moment, I will go on to woollen and worsteds, in which trade, on the operative side, I have spent practically the whole of my life. There is not too much gloom and despondency, at any rate on the worsted side. I would remind the noble Lord that only about thirteen to fifteen months ago "tops"— which is the finished article of the wool comber; 64's merinos, as they are called—went to the ridiculous price of 355d. per pound owing to the American stockpiling. There is very little American—

VISCOUNT BRIDGEMAN

May I interrupt the noble Lord for one moment? If he is giving the causes of the rise in the price of wool, will he add Russian buying to American stockpiling?

LORD CALVERLEY

Compared with the American stockpiling the Russian buying was infinitesimal. I have not the exact figures, but the whole world knows that the Americans went to Australia and bought on the spot, and were even taking away the wool which usually comes to the London wool sales. I would remind your Lordships that, whilst it filled the sheep farmers' wallets full of dollar bills, it sent the price of 64's merino to an utterly ridiculous level. Yesterday, the price of the same commodity had come down to 124d. per pound, which is getting somewhere near reality. But what happened? There was no basis of buying what we call these "tops" in the market. Therefore, the largest single unit of wool combers in the world has been compelled to pass a dividend.

If I had money to invest, and if your Lordships have any money left, I would recommend you to invest it in that particular company of wool combers at the price of the shares obtaining to-day. I was saying that we have had this unreality thrust upon us. If the noble Lord, Lord Barnby, had been on the Bradford Exchange—which he has not—he would know that what I am saying is absolutely true. I was present at the conference when the President of the Board of Trade came to Bradford. I was permitted to join in simply as a friend of the President, and I was glad to do so. There was the utmost desire on both the trade union side and the employers' side to come to an understanding, which they did reach. I asked for advice from one of the biggest companies which takes the raw wool to the finished article, and they said: "What we are suffering from is that the stocks are too great." To use the Lord Hawke's phrase, "The pipeline is choked up." But they anticipate they are not going to put the shutters up. That is true of the worsted wool trade, which is different from the woollen trade.

Turning to woollens, I may say that asked one firm, who have earned one-fifth of the dollar income from Canada and from America, how they were situated. They said: "We have plenty of orders for the next few months, simply because we have specialised. We will not use inferior rags in our wool: it is all pure wool, and we are looking forward to having a good trade both in New York and in Canada." Their only fear is of this new 4 per cent. bank rate. I am sorry that the noble Lord, Lord Balfour of Burleigh, has gone. He is the mouthpiece of the joint stock banks, and I hope that the joint stock banks will deal with the matter of overdrafts and such things in a better way than they did in the slump of 1921. But, My Lords, I have not come here to spread gloom and despondency. So far as woollens and wool textiles are concerned, I think that as soon as we can get a basis of values we shall be able to get going again. In the meantime, however, there is unemployment. Certainly there is unemployment in Lancashire. Some people have been working for the principle of holidays with pay, but if we are not careful the workers in Lancashire are going to have long holidays on nothing but unemployment pay. It is for the Government to take action.

It is a custom in the Northern parts of this country for people to go in for new clothes at Whitsuntide. The Lord President will know of the custom. I am suggesting to him that he should go to the Cabinet and suggest that the purchase tax should be taken off altogether from, say, the week after Easter until about a fortnight after Whitsuntide. It is an unwritten law in the North Country that at Whitsuntide every boy should have a new suit and every girl a new dress, and, if the older people can afford it, for them to have a yearly outfit in order to feel fit to go to the Sunday school anniversary. I put it seriously to the noble Lord that if he has not seen in the Manchester Guardian the cry from the heart from a leading employer on the cotton side he should make a point of seeing it. There is obviously a pipeline that has to be cleared, and the only way to clear it is to get that 75 per cent. of trade which is cotton's contribution to the home trade of this country. Let the businesses clear their warehouses as far as they can. The way to help them is certainly not to put a 5s. 6d. per yard tax on utility goods. The way to help is to take the tax off; otherwise in a few months' time there will not be the money to buy new clothes—unless it is taken out of some such fund as National Savings. The noble Lord, Lord Hawke, mentioned savings and seemed rather to twit some of us on this side, who were brought up on Smiles' Self Help. We do not want the savings of the people to be dipped into too much.

Let us, then, clear the pipeline; let us get on with supplying new goods of the best quality. The reason why the firm of which I have spoken are able to stand up to competition from America or anywhere else in any market is because their goods are quality goods. The noble Lord spoke as if no progress had been made in the cotton trade, but the cotton trade production is to-day the finest in the world. The trouble is that the Japanese are getting to know the trade marks and try to use them on inferior articles. I fear a recession—they called it "rationalisation" after the First World War. What I am afraid of is a slump. Now, my Lords, I believe that the Lord President is the greatest psychologist we have in politics.

LORD WOOLTON

I am flattered.

LORD CALVERLEY

I am very serious about this matter of the purchase tax.

LORD WOOLTON

Is the noble Lord requesting me to ask the Cabinet to take the tax off for six weeks only?

LORD CALVERLEY

I am not an Oliver Twist. What I am asking for is very little. The noble Lord knows that in the North, Whitsuntide is the time for new clothes. The people have a week of processions in Manchester, all in their new clothes. Take the tax off, even if only for, say, eight weeks. Take it off altogether if you will, but at any rate for eight weeks, because of the psychological effect. This would give people the chance to clothe their children as they should be clothed. I know the Lord President will do his best.

7.28 p.m.

LORD BARNBY

My Lords, I seem to have dropped into a sort of textile "pocket" in this debate. I am almost tempted by my friend of long standing who has just spoken to make a contribution to this debate which in length would recall a debate which took place last week in another place; but I have no intention of inflicting a contribution of that character upon your Lordships. A debate of this kind can be carried on in an atmosphere of restraint from political controversy—though even the serious-minded at the fun fair must occasionally be given the opportunity of cracking a few coconuts. We should not like to have a debate entirely devoid of those amusements. The impression one gets, on coming back after a long journey abroad, is that such a debate as this is of a seriousness which should lead one to avoid all forms of political controversy.

It seems to me that most of the debate so far has been, perhaps properly, concentrated on the short-term analysis of our position. There have been relatively few remarks about the long-term complications of our immediate position, but concern about that is inescapable unless there is going to be a fundamental change of thinking. The voter seems to have to forget many of the political assurances that have been made since the war—more leisure and a highly developed Welfare State, synonyms for affluence. After all, we are not richer; we are poorer than we used to be. Many of us remember the assurances after the First World War —"Homes fit for heroes to live in," and all the gay hopes that were held out for the prosperity that would come and what the country could afford. We rapidly found that our expectations were doomed to disillusion.

It seems to me that the hard logic of economics is no more escapable to-day than it was then. The fundamental question seems to be: How are we going to feed 50,000,000 people in these islands on a reasonable basis while trying to import 60 per cent. of what we eat? Momentarily, all the talk is about balance of payments, but surely the terms of trade are what may well concern us more. It is when one travels into the areas of the world where food is being produced, places like Australia, New Zealand, Canada and the United States—I have travelled long distances in recent months—that one realises that it may well be that the happy position which has been referred to in this debate, when in the 1930's food could be bought almost at our own price even though the basis of the values of our exports was itself low, will never return. There is an awakening of 1,000,000,000 Asiatics and Africans to the fact that they are entitled to have more food to eat, just as the lower-income-bracket people in this or in any other country have proper aspirations to a higher standard of living. Our standard of living, low as it has been in the past, is high to-day compared with that of 1,000,000,000 people who are now being alerted and are yearly getting more determined to have their share of what is going in the world.

An increasing proportion of the food production of the world—obviously it is increasing— is being used up by the indigenous populations. That must continue. Therefore, prices and the terms of trade seem unlikely to fall in our favour as they did in the 1930s. I realise how in Australia now the exportable surpluses of dairy products, such as beef, are falling. Beef is only one item. As the noble Lord, Lord Woolton, knows well, beef exported from Australia last year showed a catastrophic fall. I think it is right that little New Zealand exported more beef to Britain than the Argentine and Australia did together—at least so the meat controller in Australia told me. Anybody who knows Australia, New Zealand and the Argentine can realise what a catastrophic position that is.

Migration to Australia is making itself felt. Local consumption is bound to increase. The same is apparent in Canada, in the case of Australia, how much the present flow of migration will continue is at present uncertain, but self-sufficiency in all countries in manufacture is increasing, and the finding of substitute markets seems to depend on raising the standard of living in new areas in the world. Just recently, the Australian example of the vigorous limitation of imports commended itself to organised labour. They want to be protected against the inflow of merchandise which may swamp them through over-importation from Britain. The position is not dissimilar in Canada to-day. They also are feeling the effects of high importation from Britain.

I noted with interest during the debate on textiles that even among representatives of organised labour, emphasis was put on the fact that there must be protection in Britain against the inflow of goods produced by low-cost Japanese labour. I am informed from authoritative sources that, roughly speaking, the basis of wage payments in Japan is only one-third of what it is in England. In other words, British labour wants protection against cheap Japanese labour. Let us remember that to-day the cast of comparable labour in Canada is three times what it is in Britain. Are we, therefore, to say that if British labour calls for protection against Japanese labour, it is unnatural that labour in other countries is going to seek protection against low-cost British labour? These are very complicated matters.

I turn to the supply of food for the United Kingdom. Lower costs alone seem likely to permit the export volume to assure the exchange necessary to pur- chase our imports. What really is the use of talking of greater effort from workers working on half time, or of greater efficiency through new plant, when three-shift operation on the highest class of equipment is resisted by trade union practices? Bluntly, more output at lower cost seems to me the only hope, and seems to be the problem for which a solution must be found. That brings me to the remarks of my noble friend, Lord Beveridge. We are accustomed to listen with the greatest attention to his speeches, for the great service that he has done for this country in two World Wars and continuously in between times, and before as well, entitle him to be listened to with the greatest attention. I noted that my own humble remark was put much better by him: he said that we must have the highest output per man per day. I cannot expect him to reply now, but perhaps the noble Lord, Lord Pakenham, will give me a reply on this point.

LORD PAKENHAM

I am afraid I did not hear it.

LORD BARNBY

I am referring to Lord Beveridge's statement that we must have a higher output per man per day. Did he mean through longer hours? We like to assume that the British worker gives a big output for the hours he works. Is it the noble Lord's point that to maintain our standard of living we must work longer for the same pay?

LORD BEVERIDGE

I deliberately put it not as "output per man-hour" but as "output per man-day," making it possible to get the greater output in the day either by working harder or more efficiently during the same number of hours, or by lengthening the hours. It was to cover both those possibilities.

LORD BARNBY

Thank you. I return to exports. As to the dollar area, in which we want to increase the volume of our exports, why not offer advantages on exports? It should not be beyond the wit of man to devise the means, and other countries have succeeded in doing so. That brings me to the remarks of Lord Wilmot, who emphasised that we should concentrate on the production of goods that could be exported. I wish he were in his place because I would have emphasised to him the difficulty of getting the fluidity of workers to achieve that very desirable object. Now as to the textile industries, to which I must make a brief reference, it is a misfortune that so much emphasis was put on them last week, because that is the best way of encouraging everybody the world over not to purchase British goods. I would suggest to Lord Calverley some different ways in which purchase tax might be applied. One might be by differentiating between wool textiles, as against cotton. I would recommend that to the Lord President of the Council. After all, wool is a sterling area commodity of which we want to encourage the import; and cotton is, in the main, a dollar area import which is very expensive.

In regard to what the noble Lord, Lord Hawke said, I would point out that American cotton is much too dear because of the price parities which are written into the law of the United States. You cannot reduce the price of American cotton without reducing the price parities; therefore the same remarks would apply to wool. We have at present the absurd spectacle of the United States paying out fabulous amounts in order to keep prices up, and we paying out large sums of money to keep the price of food down. I suppose indirectly it goes back to the United States from the money which they are pouring out, the 80 billions which I understand they have given in support of Europe since the war. Reference has been made to the strength of sterling. It would seem to anybody coming back from Canada that if a fraction of the confidence of the U.S.A. which has been shown to Canada could be shown to Britain as a result of convertibility here, our balance of payments would quickly be assisted. It is as well to know that 2,000,000,000 of United States dollars went into Canada in 1951. In the meantime I should like to know whether Government encouragement cannot be given to migration within the Commonwealth—a movement of the people to the food. Surely a strong group of populous Commonwealth countries is the hope of Britain. I came back from the distant parts of the Commonwealth only three days ago, and while I know that internal administrative regulations and business problems in all these countries are different, one from another, I could not help noticing the great superiority of Canadian methods of correction of current difficulties by the use of the minimum amount of controls, quotas, licences, bureaucracy, and ballyhoo generally. That seems to me to be a good target for our Government.

7.45 p.m.

LORD RENNELL

My Lords, far be it from me to stand between your Lordships and your dinner. I expect we are all hungry at this hour of night. There are, however, two small points I should like to make. I, like Lord Barnby, have been away. I was away at the time of your Lordships' debate in February on the economic situation. My first point arises out of that debate. I find it extraordinary that the noble Lord, Lord Balfour of Burleigh, should have had to marshal all the facts as he did to show that we in this country were in an inflationary state. It is a state which has been recognised all over the world and which is generally accepted, I think, in this country; and it really needs no argument, except perhaps on the part of those people who are unwilling to face the situation which has developed as a result of the last six years of government which we have had since the war. I personally find it quite extraordinary to have to argue the point at all.

Looking at the situation to-day, some three months of this year having elapsed, I find, frankly, very little comfort in the improvement which it has been suggested is taking place, or alternatively, on the other line of argument, that the situation is not so bad as it was supposed to have been owing to the introduction of what is reputed to be a rather mild Budget. The situation which is particularly depressing at the moment, so far as I am concerned, is that raw material prices and commodity prices in the world generally have been falling since the beginning of last year, 1951. If noble Lords wish the data produced, they are contained in two well-known indices of raw material prices, one published in this country and the other the United States Bureau of Labour Index of Raw Materials. Both of those show that the peak of raw materials was reached in March or April of last year and has been falling steadily ever since—but not, however, in this country. The indices require very little explanation, the major raw materials which will occur to your Lordships—wool, cotton, copper, lead, tin, rubber—have all been falling for the last twelve months, and yet prices in this country have been rising. They have been rising for the very simple reason that we have been in a highly inflationary state here All the indices which are usually consulted to find out whether or not there is an excess of purchasing power show that that has been the case in this country. I do not think that the point really needs labouring any more, except for the fact that it is pretended by the Party and leaders of the Party of the noble Lords opposite that this is not the case. It is abundantly the case. Deposits in clearing banks have been rising. The velocity of the circulation has increased and yet, as I repeat, the price of raw materials elsewhere has been falling, but not here.

Now the other side of the picture, which creates an almost equally disquieting situation, is that production in this country has not risen in the last two months. There are two main indices of production; at the present moment, they show slight divergencies which the noble Lord, Lord Pakenham, well knows, but they are practically static. The index of production in the statistical summary shows a fall since the latter part of last year. If, therefore, you find yourself in a country, in a situation where raw material prices are falling, the cost of living and prices are rising, wages are rising, and production is either static or falling, then you will have the elements of a first-class critical situation to which remedies must be applied. Those remedies Her Majesty's Government are seeking to apply, but in the arguments that have been developed about those remedies the distinction has always been made wrongly, between, on the one hand, what has been proposed in the Finance Bill and Budget and what ought to have been done, and, on the other, the financial steps proposed.

It seems to me—I do not think that mans. people will dispute it—that those two elements must be taken together. For the last seven years successive Governments have pursued a policy of cheap money which has required the creation of credit to keep money cheap. And, as a remedy for the inflationary consequence of that policy, the last two Chancellors of the Exchequer in the late two Governments have sought to mop up that purchasing power by budgetary means. This is obviously a point very germane to what the noble Lord, Lord Pethick-Lawrence, was discussing in his opening speech. They have tried to remove the purchasing power by budgetary means; in other words, to impose taxation and cut subsidies which would take away a purchasing power which, in the view of a great many of us, ought never to have been created. Those methods of curbing or holding in control the price structure and the wage structure of this country have failed. Prices have risen inordinately, the cost of living has risen and wages have risen. In other words, whilst we have unnecessarily created purchasing power in order to keep money cheap, the remedies applied by budgetary means have not been successful.

As I see it, what Her Majesty's Government have done, in Mr. Butler's policy as outlined in the Budget speech, is to depart from using that remedy only to cure what had become a critical situation—critical in the terms outlined by Lord Balfour of Burleigh; critical on the issues to which I have referred—and have decided, by means of a modest Budget surplus, only modestly larger than the one Mr. Gaitskell achieved in an inflationary Budget year, to apply financial remedies which will in fact diminish the amount of money and purchasing power in the country by monetary means. These two elements in the present policy are obviously quite inseparable and cannot be discussed the one without the other.

It is argued that dear money is necessarily bad. Dear money is obviously not desirable if it can be avoided. But it seems to me to have been shown quite conclusively in the last seven years that the remedies which it has been sought to apply have been unsuccessful, and therefore an additional remedy is required—which is what the policy announced in the Budget speech amounts to. The effects of high money rates are classically well-known to anybody who has ever gone into economic history. It is perfectly true that in theory (and in Socialist theory, rules and regulations can achieve the same object; but in fact they do not) the way to achieve the restriction of credit and of money is, as other speakers have said, both this afternoon and in February, to make each person conscious of the undesirability of borrowing money if it can possibly be avoided, because it is too expensive. Instead of the bank manager having to say to each individual client, "Look here, I think your overdraft is too large. Will you kindly reduce it?" now the client goes to the bank manager and says, "Look here, I think my overdraft is costing a little too much." In other words, the consciousness of restriction has been imposed on the people by the financial machine and by the financial restrictions which higher money rates inevitably produce.

There is a second point which it seems to me is almost equally important—namely, that to try to mop up purchasing power, and to keep prices in control by budgetary means, and by rules and regulations which in the end depend on legislative action for their efficacy, is a rigid and a very difficult method. Moreover, having once been imposed these statutory orders cannot readily be altered from one day to another, or from one week to another. If, instead of adopting the financial means which Mr. Butler has adopted, he had sought to budget for a much larger surplus, that could have been done only by the imposition of taxation, which inevitably must run for the whole of a Budget year and cannot readily be altered during the course of that year. The financial mechanism, the bank rate and all that that implies—is far more delicate in its administrative application. It can be modified from week to week. The bank rate can be dropped this week. A statutory order or a clause in the Finance Act applying a new tax or impost cannot be altered from week to week.

The advantages of using the financial weapon seem to me to have been neglected, both in the speeches of noble Lords opposite to which I have listened to-day and in the speeches made during the debate which took place at the end of February. To have a 4 per cent. bank rate to-day does not mean, and was never intended to mean, that we are going to have a 4 per cent. bank rate or a 5 per cent. bank rate for all time. Personally, I regret that last year the bank rate was not raised higher than 2½ per cent. Had it been raised higher I think we might have seen more obvious signs of what I believe is beginning to happen—namely, a general restriction of purchasing power in this country. We are seeing some sign of that taking place in a decline in the deposits it clearing banks, and if not a decline in advances, at any rate a very much smaller increase in advances this year than we have been used to for many years. The decline in deposits is very remarkable, and, has brought the total of the last available figure down to a level which we in this country have not seen, I think since the early part of 1950. That is the direction in which these mechanical financial devices are intended to operate and are beginning to operate. It is a matter of great regret to me that they were not put into operation five months ago, because the deterioration in the situation which has taken place since November of last year is so marked as to warrant the use of Lord Balfour of Burleigh's phrase used in the February debate—namely, that we are now facing six months of the most critical time in our economic and financial history. That can be said with full truth and without any exaggeration whatever.

My Lords, that is the one aspect of the economic situation with which I wanted to deal. Before sitting down, I want to say one word about what might be called the external side. The internal side can, and I think probably will, be remedied if the measures which Her Majesty's Government have taken up to date are severe enough. The only latent doubt I have is that they may not be severe enough at this late stage. If they have to be tightened up they will become much more unpleasant in every way than those with which we are already familiar. The external side seems to me even more difficult to remedy at this stage. The noble Lord, Lord Brand, spoke in February, of our liabilities to other countries, our liabilities within the sterling area and our liabilities without the sterling area.

The noble Viscount, Lord Swinton, in the course of his remarks to-day, expressed the hope that this year would see an increase in production of some £250,000,000, and an increase in our exports of some £50,000,000. If, last year, the Government over which noble Lords opposite and their colleagues presided had taken the steps which then ought to have been taken, it would have been perfectly possible, I believe, to divert some production consumed internally into the export trade. There were still many countries that were short; there were still many countries that could have taken that extra £50,000,000 worth. To-day it is extremely doubtful whether there are major customers of this country which are in a position to buy these exports. In the case of Australia, I am extremely doubtful; in the case of other large Commonwealth countries, also, I am doubtful. To lock round to-day and find customers for an extra £50,000,000 worth of exports over the total of last year is going to tax the ingenuity of everyone in this country within and without the Government.

But there is one element in our external balance of payments where an almost immediate result could be produced. That is not in exports, but in the diminution of a certain category of imports—I am referring to food. I am not suggesting that food imports should be cut down any further. What I am firmly convinced about is that the production of internally produced food in this country can be stepped up more quickly than can the export of manufactured articles. Returning from Australia about three weeks ago, through America, and in conversation with American friends (many of whom bear names which would be familiar to all your Lordships in the House this evening as being amongst our best friends in the United States; and, thank God, we have many), I found that all, without exception—from those in the food-producing industries themselves to those who are not even remotely connected with the production of food—believe that the first immediate step which could successfully be taken here, and which would produce a result in twelve months, would be to increase the output of domestic foodstuffs.

I do not want to go into statistics at this hour of the night, but at the present time we are producing approximately half the food we eat in this country. There is no reason why, within twelve months, we should not produce 5 per cent. to 10 per cent. more, and, within five years, 25 per cent. more. That is open to Her Majesty's Government today, and it has been open to any other Government which has been in power before. But it is an opportunity which until now, I regret to say, has been grossly neglected. The price of food to-day is quite immaterial compared with the quantity. We shall, I understand, have a debate in your Lordships' House after the Recess on food, and it is obviously not a subject to enlarge upon at this late hour. But I believe that as an element in our external balance of payments, as a method of building up a surplus of earning power abroad, a reduction in food imports by internal production, and doing whatever can be done to stimulate exports, are the only means by which we can secure that modest surplus with which to make a beginning in reducing our liabilities to the Commonwealth countries, to the sterling area and, above all, to the dollar area.

8.6 p.m.

LORD PAKENHAM

My Lords, I am sure that the whole House will wish to join me in welcoming back the noble Lord, Lord Rennell, and the noble Lord, Lord Barnby, from Australia. I gather that while they were there things underwent a change. Of course, we had hoped that as they were visiting Australia, unofficially but, in a sense, on behalf of this House, the change would have been for the better. It seemed otherwise to the gods. None of us, I am sure, blames the noble Lords for the adverse development in Australia. We thank our lucky stars that they were there or thereabouts, for just think how bad the cuts would have been if they had not been visiting Australia during that period. Lord Rennell said that he did not wish to stand very long between the House and dinner. I do not wish to stand very long between the House and the noble Earl, Lord Selkirk. We have a high regard for Lord Selkirk's potentialities, and we feel sure that they will be realised, though I believe that he may have a rather difficult task on this occasion.

I cannot begin to deal in the way that would be expected of a Government spokesman with a great number of the issues that have been raised—for example, the proposal of the noble Lord, Lord Beveridge, for a Royal Commission. I do not know whether he has a chairman in mind. He knows where my vote would go, and if he is looking for a "bottle-washer," as in times past, he might do worse than look along this Bench in these days of partial unemployment. I am certainly very sympathetic to the noble Lord's proposal. Then, of course, there is the very grave question of Lancashire. I have a strong feeling that the House may wish to discuss the position in Lancashire before we are very much older. I think that in that subject the noble Lord, Lord Woolton, and I will find something upon which we shall not disagree. The noble Lord has a much more intimate knowledge of Lancashire than I, but we both feel very strongly about the position there. Indeed, I think we all feel that the question of Lancashire is the gravest single economic question of the hour.

Other and, in a sense, wider questions have been raised, but I will confine myself to but a few of them. I believe that some noble Lords have been hoping that I shall rather "hot things up" during these concluding remarks of mine. That is not at all my intention. Just as the noble Marquess the Leader of the House yesterday disclaimed any desire to indulge in a slanging match, I also will try to remain calm and to maintain the policy of relative detachment which the noble Marquess adopted so effectively yesterday afternoon. The noble Viscount, Lord Swinton, has explained that—for reasons which I entirely understand and appreciate—he cannot be with us now. That, of course, makes the position, in one sense, a little harder to deal with. But he warned me some time ago that he would not be able to be present. As regards the personal attitude which the noble Viscount exhibited towards me at one moment, and which seemed to me rather extraordinary at the time as coming from the Deputy-Leader of the House towards another and younger Peer, I can only say that I appreciate that he was labouring under a strong desire to defend a colleague. I make my excuses in my mind for him, and if he reads these words he can be sure that I have forgiven and forgotten anything he said to me.

But the noble Viscount did make a grave charge against the late Government. He accused them—although I did not take down his words and I am in the recollection of the House—of keeping the Opposition and the country in the dark about the economic position. I say that that charge is an outrageous one, unless the noble Viscount is able to substantiate it, which I am quite sure he is not able to do. At the risk of delay, I feel it is necessary for the record that I should read you verbatim—and I think I am in order in so doing—what the Chancellor of the Exchequer, Mr. Butler, said immediately following the Election. I will not read you all he said, but these are the principal words. This was after the Election. In November Mr. Butler said (OFFICIAL REPORT, Coms., Vol. 493, Col. 191): It has been generally known for some months that our balance of payments was deteriorating and that unless vigorous remedial action were taken we should be once more in crisis as in 1947 and 1949. The previous Chancellor of the Exchequer, who is sitting opposite me now, in a debate in July, said that the position was getting worse. In his speech at the Mansion House on 3rd October he announced that the dollar deficit for the third quarter was 638 million dollars compared with a surplus of 56 million dollars—a surplus in the second quarter and of 360 million dollars in the first quarter. Those who listened to him could not have doubted that whatever Government were returned to power an ugly situation would be bequeathed to them. I ask the House to note those words very carefully: In fact, the worsening has continued over the last few weeks. In order that I may make plain that Mr. Butler was not making any sort of charge, I will quote from Mr. Gaitskell, who followed him. He said (Col. 212): The right honourable Gentleman was good enough to say that at the time I made the speech the figures were as I gave them. Of course, that is true, but evidently fresh calculations have been made which indicate some rather less favourable prospect. The right hon. Gentleman did not give us—I make no complaint about it—very many assumptions on which the estimates were based. Mr. Butler, if he disliked that way of putting it or thought it exaggerated, had every opportunity of interrupting. I think those two quotations refute completely what the noble Viscount has said.

THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (THE MARQUESS OF SALISBURY)

I think most of my colleagues would agree that although we knew the situation was bad we did not realise directly after the Election quite how bad it was, and it has been further borne in on us as time has passed. I do not say that in any controversial sense. I think anybody would say that we had not a conception at the Election or immediately afterwards how seriously the situation had deteriorated.

EARL JOWITT

A very serious accusation was made by Lord Swinton, which I thought reflected on the honour of all of us in the late Government. I gather that the noble Viscount does not suggest that we kept back any figure whatever. Perhaps we did not all realise what the figures meant, but it is not suggested, I understand, that any single figure now presented was kept back.

THE MARQUESS OF SALISBURY

I think that what my noble friend intended to suggest was that neither the country nor we were fully aware of the seriousness of the situation at that time. I am not making a charge against the noble Lord but I state that as a fact, and I believe that to be a fact which will be borne out by my colleague.

LORD PAKENHAM

I am grateful to the noble Marquess for what he is saying. It is something he has said on earlier occasions in this House and it is not something which we resented, though to my mind it is capable of an answer. The short economic point is that the situation did in fact deteriorate, very rapidly during the month of October, or during part of it, in which the Election was actually taking place. What the honourable Marquess has just said is totally different from what the Viscount said earlier today, to which we take the strongest objection. I express the hope, as I feel the Viscount appeared to be speaking in something of a frenzy, that when he has calmed himself he will express his regret and make a complete withdrawal.

As I say, I do not wish to become unduly controversial but there are a number of points I should like to make about the Budget. When I talk of the Budget, the House will perhaps allow me to use the expression in rather a compendious way to cover the whole economic policy that the present Government have introduced since they came into power. I would use these epithets about it, which become slightly more controversial as they proceed, in order to indicate the general drift. First, it is essentially a Conservative Budget. Secondly, it is a surprising Budget—I am talking of the policy generally now. Thirdly, it is a confusing Budget. Fourthly, it is an irrelevant Budget. Fifthly, it is a "breach of promise" Budget. Sixthly, it is an unjust Budget; and seventhly, it is a damaging Budget, all of which perhaps makes redundant the eighth point that it is a thoroughly bad Budget.

My Lords, there are three aspects of this policy. With one of those—the general physical method of attempting to reduce imports and stimulate exports—I am not going to deal to-night. I do not say all has gone well or that all has been wisely conceived. There appears to have been a frightful muddle over the Australian trade, but we have not yet obtained sufficient information about that to pass complete criticism. But broadly, with the effort to cut imports and increase exports we are in sympathy in principle.

Now I come to what might be called the purchasing power aspect of the whole policy. There I have in mind the monetary policy on the one side and also the point that was dealt with by Lord Rennell—the budgetary surplus. If the House will bear with me for a few minutes, I should like to read a few extracts from independent observers (and none of them from people particularly sympathetic to ourselves) to show exactly what I mean. I will not attempt to labour a point that Lord Pethick-Lawrence made, but as he received no answer at all I make no apologies for putting this again to the noble Earl, Lord Selkirk. When we debated these matters on February 19, we did so in a very grave atmosphere, both from what was said inside the Chamber and from things some of us learned from the views of other members in private discussion. I think we all came away very much depressed about the balance of payments situation. I would just remind your Lordships, for example, that the noble Viscount, Lord Swinton, said (OFFICIAL REPORT, Vol. 175, Col. 35): I do not think that the gravity of this crisis is as yet anything like fully realised by the people outside. That was the general note that was struck. The noble Lord, Lord Balfour of Burleigh—who I am sorry has not participated in the debate to-day—at the end of a powerful speech, quoted Professor Lionel Robbins with some approval. These are the words the noble Lord quoted approvingly, and indeed, passionately, of Professor Lionel Robbins: Stop the inflation, stop it at all costs: that is the paramount need of the moment in the economic sphere. If we meet it (which we can do very easily if we have a mind to do so)"— then the noble Lord, Lord Balfour of Burleigh, put in, if we can have the co-operation of all men of good will"— and went on with the quotation— we can still have a future of high promise. If we do not, then I fear our days are numbered. … That is the quotation with which the noble Lord wound up his speech. To quote a very different authority, but one that I am sure is no more biased in our favour—at any rate, I have no reason to suppose so—The Times Educational Supplement of March 28 said: The request for a 5 per cent. reduction on all local estimates was delivered at a time of great economic alarm. That was the view they took of the educational cuts last winter. What do we find now? I think The Times summed it up correctly. To the best of my recollection, The Times described it as "a hopeful Budget"; and that was the general attitude of the Press which would incline to the Right Wing in politics.

Without wishing to quote too much, I would remind your Lordships of what the Economist said soon after the Budget: Both in its details and in its general shape Mr. Butler's Budget has taken the world by surprise. Clearly there was a strong element of surprise somewhere about this Budget. The Economist went on to point out that: Mr. Butler is giving away in reliefs more than he is taking back in tax increases and cuts … Now the surprise—and, I am bound to say, the confusion—has become greater, if one can judge by the current number of the Economist, where we read: But the Budget implied that after all there was little inflation to fight, and in replying to the Budget debate the Chancellor last week made explicit his fears of a recession of trade. Outside opinion has, for the most part, obediently taken his word for it. So that now it is very doubtful—and I have quoted only authorities who are certainly not on the Labour side—whether the Government consider they are tackling inflation at all. I hope that the noble Earl, Lord Selkirk, will deal with that point. I put is specifically: Do the Government still take the view that we are in an inflationary situation, and that we must fight it at all costs?

THE EARL OF SELKIRK

I would ask the noble Lord whether he considers that we were in an inflationary position.

LORD PAKENHAM

I think the whole world thought that we were in an inflationary position. But these things change very quickly. I am not saying that what was said at an earlier stage was wrong merely because it becomes untrue at a later stage. The noble Earl is bound to have more information than we have, and I ask him to give us the view of the Government as to whether we are fighting inflation or deflation, or inflation in some quarters and deflation in others. I put that to the noble Earl because, in view of what I have read out, I think that any fair-minded person would agree that, taken as a whole, people are much surprised and confused, as my noble friend Lord PethickLawrence said.

I now come to the question of irrelevance. Still confining ourselves to the purchasing power aspect, it is agreed that, after all, we do not want to cut down consumption; that the total consumption of the country this year is to remain the same as last year. That brings me to my next heading—namely, public expenditure. In the light of the view which the Government have now expressed, but which they had not expressed when we had our earlier debate, I say that if the consumption is to remain where it is, how can the noble Earl justify these cuts which we discussed on earlier occasions? We have criticised these cuts before as irrelevant. Even on the Government's estimates hen (I am speaking of the health charges and the cut in education: I will say something about the cut in food subsidies in a moment), when there were supposed to be sacrifices coming, we said that these cuts were irrelevant. Now we know that sacrifices in consumption are not being called for from the people as a whole. Yet the schoolchildren have to suffer some losses of education, and people have to pay extra for filling of teeth, and so forth, and for prescriptions. Those people have to suffer; their consumption in some way has to be interfered with. Why should they be singled out" if consumption as a whole is to remain where it is? The only effect of singling them out is to make sure that everyone else has a slightly better time, while they have a slightly worse time. That calls for an answer. I say to the noble Earl that his own argument is bound to be very much affected by the general line taken by the Chancellor of the Exchequer in his Budget. The whole line of argument which I understood was presented before seems to me now to become completely inadmissible.

I come next to the cut in food subsidies. These, of course, are particularly irrelevant. The noble Lord, Lord Teviot, who set a good example in a heated debate by speaking throughout with a smile—and I will try to emulate him and smile at everybody, though I always find it an effort, and it is sometimes rather painful for the onlookers—attempted to justify Lord Woolton's promise, and the way it was broken by the Government, by arguing that the cut in the food subsidies was made necessary by the discovery of how bad the situation was. I think that is a fair reproduction of one point made by the noble Lord, Lord Teviot. I would say this: that the cut in the food subsidies seems to me, on Mr. Butler's own showing, to be in no way connected with the trade crisis. Is that a fair account of Mr. Butler's position? I do not ask the noble Earl to intervene, but I would ask him to reply to that. As I understand it, whether or not there was a balance of payments crisis, these food subsidies were to be cut eventually. I think the noble Viscount, Lord Swinton, said that the Conservatives had always disliked the food subsidies, and that they would cut them eventually, but, in some way which was not explained, the crisis makes it necessary to speed up the cuts.

I cannot understand why the crisis should affect the attitude of the Conservative Party to the food subsidies. If they dislike them, then possibly they should cut them; but that has no connection with the balance of payments, because the effect of cutting the food subsidies is obviously deleterious to those struggling in our export trade, and otherwise, to make both ends meet. When all is said and done, the most obvious effect of the cat in the food subsidies is to raise the cost of living—no one can doubt that; and it is bound to lead to some increase in wages, to increased costs, and to damage to the export trade. Therefore, I say that that policy is not only a breach of promise, but highly damaging to the country, and particularly to those labouring to balance our trade accounts.

LORD HAWKE

Would the noble Lord have increased the food subsidies greatly? Conversely, the same thing ought to apply. To encourage the export trade you ought to double or treble your food subsidies. Would the noble Lord have done that?

LORD PAKENHAM

I cannot speak off-hand for my colleagues. Noble Lords can laugh, but that is a perfectly fair answer: the noble Earl may laugh at that. In a moment he may be asked some questions, and he is a member of the Government. I should think that some increase in the food subsidies might have been justified. I am not in possession of the knowledge possessed by the Chancellor of the Exchequer to say whether that is so or not. I would not be dogmatic about it.

LORD HAWKE

And increased taxation to match?

LORD PAKENHAM

I should think that would be necessary, yes. The noble Lord made an interesting speech and he must not tie me down. I am giving an off-hand opinion, without access to the facts. The noble Earl's Government has therefore cut the food subsidies and increased the cost of living, and nobody can seriously argue that that is going to help the export trade. It is a breach of promise.

I will not labour that point, except to come to the assistance of the noble Lord, Lord Woolton. I think on the whole he is a maligned man. I think he is in danger of being victimised by public opinion and by the public opinion of his own side as well, because really the noble Lord was not alone in this pledge. We must not forget what Mr. Butler himself said. He said on October 12, at North Berwick: In present circumstances, while we fight and strive to reduce the cost of living, we shall maintain the food subsidies.

LORD WOOLTON

I did not hear that. Would the noble Lord mind repeating it?

LORD PAKENHAM

Yes, because I think it should be of great assistance to the noble Lord in some of these internal discussions he must be having with his colleagues—I make him a present of it. Mr. Butler said at North Berwick on October 12: In present circumstances, while we fight and strive to reduce the cost of living, we shall maintain the food subsidies. Therefore, I well understand the noble Lord's offer of his resignation, which we understood was confirmed by an important nod of the head—I understood Lord Woolton to nod when it was said that he had offered his resignation. In my opinion that offer does him great credit. But I am afraid that I feel very strongly that it does no credit to the Government who refused to accept it. I am bound to say that Mr. Butler's resignation would have had to be accepted at the same time, which perhaps made it a little awkward for the right honourable gentleman the Prime Minister. I do not want to get too deeply involved in this question of resignations. The House once spent a whole day discussing one case, and "a good time was had by all." I think the noble Marquess could perhaps teach Lord Woolton something about resignations. He comes of a great family and one of the most honourable facets of his family is their gift of resignation. The noble Marquess once resigned, and all honour to him. I think one of his uncles resigned, and certainly his grandfather did. His grandfather, to whom he has made proud reference, resigned from Disraeli's Government. Disraeli is now the hero of the Party and he felt that his honour would not be safe in his keeping. I hope the noble Marquess feels that his honour is as safe in the keeping of his colleagues, because I am bound to say that it would be safer outside. I am not going to level this criticism against the noble Lord, Lord Woolton, personally. I think the whole Government shared in this thing, and in the long run they must stand or fall by public judgment.

THE MARQUESS OF SALISBURY

The noble Lord is terribly tender about honour, but when we make any accusation against the honour of his Party nobody is so furious as he is. I think he might allow us to look after our own honour and we will leave his Party theirs.

LORD PAKENHAM

I am very sorry indeed, but in public life it seems to me the painful duty of an Opposition to criticise the Government on these broad issues. I am sure that the noble Marquess, who hits extremely hard and never resents being hit back, will admit that. Our debates would become a kind of tea part,' if we could not accuse noble Lords of breaking pledges, when they have broken them so flagrantly as they have on this occasion.

I will net detain your Lordships much longer. I have set out to justify each of the epithets which. I have used. I found myself reading this sentence taken from Britain Strong and Free, a document which I need not place in the hands of noble Lords opposite, because they know it by heart. It is the Conservative manifesto. It says: A Government will be judged according to the effect of its programme upon rising costs and prices. When we study their programme and, above all, this most controversial feature, the cut in the subsidies, which is clearly bound on general admission to raise costs and prices, then I find myself returning to the moving end of Mr. Churchill's Life of his father where these words appear: There is an England which stretches far beyond the well-drilled masses who are assembled by Party machinery to salute with appropriate acclamation the utterances of their recognised fuglemen; an England of wise men who gaze without self-deception at the failings and follies of both political Parties of brave and earnest men who find in neither faction fair scope for the effort that is in them; of 'poor men' who increasingly doubt the sincerity of Party philanthropy. It was to that England that Lord Randolph Churchill appealed; it was that England he so nearly won; it is by that England that he will be justly judged. I say only that it is to that England that this Budget makes no appeal at all. It is that England which this Budget has no earthly chance of winning. It is by that England that this Budget will be justly judged, and will be justly and finally and most severely condemned.

8.37 p.m.

THE EARL OF SELKIRK

My Lords, we have had a fairly long debate, and I should like to say this. Many noble Lords have spoken and enlightened our debate. I will attempt to answer but very few, and I hope that they will appreciate that what has been said will be carefully looked at in detail. If I may, I am going to take up the noble Lord on one thing only. We have been asked whether we knew in this country what the situation was at the time of fix General Election. Let me tell you what I knew and what my reaction was—I would even go so far as to say what was the reaction of the noble Lord, Lord Milner. We have heard his quotation at Leeds, and as the noble Lord was not here I will quote it again. He was quoted as saying: This country was never so prosperous. The noble Lord was not a member of the late Government.

LORD MILNER OF LEEDS

What date was that?

THE EARL OF SELKIRK

October 18, 1951, at Leeds.

LORD MILNER OF LEEDS

Precisely; under the Labour Government.

THE EARL OF SELKIRK

The noble Lord was not a member of the Government and I am certain that he said it in all sincerity. I am certain that that is what he believed at the time. Many noble Lords spoke at the Election. I wonder how many really knew that, at the rate at which gold was going out in the last six months, it would all be gone by September of this year? That is the nature of the crisis which we are being called upon to face. I merely ask: How many noble Lords on either side of the House were really apprised of that fact? I believe very few indeed.

We are faced with this very great crisis of the utmost complexity—complex not only in its effect upon our life, but complex because it extends all over the world. In this light we are asked: Are your remedies up to the gravity of the situation? That was the gravamen of tie speech of the noble Lord, Lord Pethick-Lawrence. In other words: Is this Budget too hard or too soft? For various reasons, at the present juncture a mere physical pulling in of our belts is not going to help, or, at any rate it is not going to help a great deal. Consumption, provided production is up, will probably be the same in the present year. But I am sorry that noble Lords opposite are tending to take the line, so far as I understood it, that the Budget is too hard. At least, that was the burden of the criticism of the noble Lord, Lord Pakenham, so far as I can understand it. But if that were advanced it could only mean that the gravity of the situation was less serious than has been represented.

We are not concerned with either the popularity or the unpopularity of the Budget. That, in the present circumstances, is irrelevant. What concerns us about the Budget is its effect. We like to think that it is moderately fair, and we should perhaps look at what has happened in previous Budgets. We should consider, in a world of inflation, how it will help those least well off. In the times in which we are living, with many people receiving National Assistance, people are constantly being adversely affected by the influence of inflation. The noble Lord emphasised the question of the balance of payments. We have been living since the war in a sellers' market; we have had Marshall Aid; we have had a devaluation. Each one of those steps has been to our advantage. We are now facing a sterner situation without any of these factors entirely with us. The sellers' market is certainly less strong than it was; we have no Marshall Aid; and we are trying to face up to the situation as it is.

There are one or two other points with which I should like to deal. We have limited imports over a wide field, as far as possible arranging cuts in such a way that industry continues to get essential materials. That is essential. But, on the other hand, cuts will fall mainly on unrationed food and manufactured goods. The cuts will be made at the expense of stocks not only of food and tobacco, but also of certain raw materials. Secondly, we are endeavouring to ensure that materials are available for firms engaged on export work. Much of these materials come from the same source as those required for the rearmament drive; and we have had to cut our investment programme. Obviously we do that with the greatest possible reluctance. We have no other source from which we might make good our export trade. And this is one of the elements to-day; we cannot make it good strictly from the consumer market. Owing to the failure of the opportunity of exporting we have, reluctantly, to make cuts in our investment programme.

LORD PETHICK-LAWRENCE

The noble Earl says that we are making cuts in our investment programme. That was the question. I put to the Government, but I understood that the noble Viscount was unable or unwilling to answer. I am very interested to know that the noble Earl says that the Government are making cuts in our investment programme. I should be very much obliged if he would give me some idea of their magnitude.

THE EARL OF SELKIRK

It is well known; there is nothing new about it. But unfortunately I am not in a position to give the noble Lord details at this moment. One of the things we are trying to avoid is making numbers of prophecies. We are not making any prophecies about what the cuts in investment will bring in this matter. I want to emphasise this, because it is often given out of its context: that we are not saying that there will be the same amount of consumer goods in the market unless production increases. If it does not increase that position will not arise.

Lord Pakenham asked what we consider the present position to be, whether inflationary or deflationary. Well, my Lords, I can say simply this: that experience has shown since the war, and indeed for a long time before, that inflation is probably the greatest temptation of almost any democracy. It is the easiest possible way in which the Government can score off the people without their knowing it. I do not think that there is any doubt at the present juncture that we are engaged to a major extent in preventing the inflation left by the previous Administration. What has been done? We raised the bank rate in November; we had a funding operation in November; and we have raised the bank rate since. We have had a restriction on hire purchase and restrictions on capital issues. I want to be clear about this: that—as the noble Lord, Lord Rennell, emphasised—we consider this matter of the bank rate to be of very great importance, not only because of its effect in this country psychologically, but also because of its effect abroad as an earnest that we really are taking the situation firmly in hand.

It has been emphasised that we should use more direct and positive control. The disadvantage about price controls is that their influence is not always strictly confined to the subject to be controlled; they tend to spill over and affect many other things that they are not meant to affect. The obvious example is the black market: the moment you impose price controls you raise the possibility of a black market. If you put on price controls you may create queues and put up prices in other directions. We are using price controls, but we say that they are not the only way. If I may say so with great respect, the late Government were not strikingly successful in dealing with inflation, and they should look with some leniency at our use of this instrument at a time when inflation has been one of the most important factors to be reckoned with, and probably will still be so. The noble Lord, Lore Pakenham, asked about our policy regarding inflation.

LORD PAKENHAM

My question arose out of Mr. Butler's striking attitude in his Budget speech, which was commented on in the Economist and elsewhere.

THE EARL of SELKIRK

I would describe our policy as a policy of "flation"—that is to say, the endeavour to obtain a balance. In a complex world it is easy to fall down on one side or the other.

A question has been raised in regard to Lancashire. I would say only that Lancashire is earnestly engaging the attention of Her Majesty's Government, and I have nothing to add except that the causes of the Lancashire difficulties had arisen before the present Administration came into office. It is possible that it might have beep stopped more easily, though I do not think it could have been. The difficulties arose at the end of last year and are now becoming more apparent. But it is largely because of this situation that we have not sought, by and large, to restrict the consumer market. I think it was the noble Lord, Lord Archibald, and the noble Lord, Lord Calverley, who emphasised the importance of keeping textiles on the market as far as possible. There is at present considerable resistance to textiles overseas.

The noble Lord, Lord Pakenham, raised the question of food subsidies. He expressed great anxiety about the reduction of Government money in payment of food subsidies. Now, my Lords, it is being said increasingly that a food subsidy is a kind of social service invented by the Socialist Government.

LORD PAKENHAM

Who said that?

THE EARL OF SELKIRK

It was invented by Sir Kingsley Wood.

LORD PAKENHAM

Who said that?

THE EARL OF SELKIRK

It is reported in the OFFICIAL REPORT of another place—but that is by the way. I am not suggesting that the noble Lord opposite would make a statement of that character but, none the less, it has been put forward, that in point of fact it was invented in the first place by the Socialists. With great respect, what happened in 1949 was that Sir Stafford Cripps, so far as the house- hold consumer was concerned, did exactly what was done in this Budget, except that he provided for no countervailing advantages. I quote what Sir Stafford Cripps said. Your Lordship; will recall that he reduced the fold subsidies by £120,000,000. He said this: The major part of this adjustment must, of course, be by retail price increase. It is true that, technically, it was not a cut, but actually it was a cut. So far as the household was concerned, it was in precisely and exactly the same position. Any Chancellor of the Exchequer dislikes food subsidies and we regard them as wasteful and as hiding the real situation.

We have had a remarkable speech to-day from the noble Lord, Lord Beveridge, on the question of efficiency, and what he said was re-echoed by the noble Lord, Lord Archibald. Lord Beveridge asked for a Royal Commission on industrial efficiency. This is an extremely complex subject. The noble Lord, Lord Pakenham, referred earlier this year in the course of one of his speeches to the question of efficiency and incentives. I would suggest that it is of the utmost importance that we should examine that question closely. We are anxious to prevent, on the one hand, any interruption of effort and, on the other any interruption of result. We think it is a great pity that there should be an interruption. In other words, the one should be seen quite clearly as emerging out of the other. We have felt widely that under a Socialist régime there is little reward for doing well, and the penalty is diminished for doing badly or for failure. We think that is wrong, and feel in the broadest sense that men should realise as fully as possible that, where they expend their energies and ideas, it is hard that they should not have the opportunity of adequate reward. I feel, too, that we should endeavour to get away from the idea that a man works for a boss who is making money out of him; we should adopt the outlook which I believe is much more prevalent in America, that a man is working with his boss, and it is up to the trade unions to see that the man gets a fair deal—in other words, that the man is identified in the success of the business with his own boss.

I wish to express sympathy with the importance of the points raised this afternoon about income tax. I should like to say one or two words on that matter, because we attach great importance to financial incentives. We do not suggest that the financial incentive is the only incentive. But we agree that it is one. For instance, a married man with two children who is earning £9 a week has his tax reduced from 2s. 1d. to nothing. On every £1 overtime that he works his tax is reduced from 3s. 10d. to 1s. I am suggesting that these figures are not unimportant. Then the question of the Health Service was raised. I do not propose to say very much on that point now, except this: that, frankly, if the Health Service had been put on a sounder basis when it was started, a substantial number of the difficulties which have arisen would never have arisen. But it is a big subject and I would rather not launch on it at this time of night, as we have been sitting now since half-past two. I do not feel that I could do justice to the subject, which is too large to be taken out of its context. In conclusion, noble Lords opposite have been very pleased about the Chancellor of the Exchequer's statement that our situation has been deteriorating for fifty years.

LORD ARCHIBALD

I am sorry to interrupt, but I think it is most unfair to say that we have been "very pleased" about it. It suggests that we are pleased that there has been a deterioration, which I am sure the noble Earl did not mean to imply.

THE EARL OF SELKIRK

No, the noble Lord is quite right. I should not have put it that way. I should have said they derived a certain satisfaction or relief. Will the noble Lord accept "relief" from the statement of the Chancellor of the Exchequer?

LORD ARCHIBALD

No. I think it is "interest" rather than "relief" or "satisfaction."

THE EARL OF SELKIRK

Be that as it may, there is no point in it. We have accepted that statement, and I think that everyone will recognise that for fifty years the standard of living in this country has been rising. Obviously, that situation cannot continue. We have been talking, for reasons which I stated earlier, about the short-term situation. The noble Lord, Lord Barnby, emphasised the question of the long-term situation. If I may, I should like to say a word about that. We have seen industrialisation grow up all over the world—that is common knowledge. What perhaps is less common knowledge is that it has happened almost entirely at the expense of agriculture. I was surprised to learn (I believe I am correct in saying this) that to-day the percentage of industrial workers in Australia, which we often look upon as an agricultural country, is greater than that of the United States of America. It is a somewhat striking fact.

In this matter, we are peculiarly affected, because we are especially dependent on food imports and we must, therefore, produce whatever it is that will enable us to gain food for this country. This is a matter of the utmost importance, and I should like to say here that the point which the noble Lord, Lord Layton, made about flexibility, both in technique and in adjustment to a new situation, is absolutely right. It is of the greatest possible importance. Many of us feel that the tendency in the last seven years has been for this country to become stereotyped, to become narrow, to become fixed in form rather than readily adjustable to new situations. We have got to increase production. It was emphasised by the noble Lord, Lord Hungarton, who has left the Chamber, and by the noble Lord, Lord Rennell, I believe, that we have to make full use of all our land, including our marginal land, and that if we do not do that we shall indubitably gravely lower the whole standard of living in this country.

We hope (we do not claim to have gone very far) that we have made a basis for a dynamic economy which will gradually enable the full skill and resources of the people of this country to be deployed. I do not think anyone questions that the real energies and capabilities of this country in terms of the individual are hardly touched, and that we have a long way to go before we learn how to harness to the full all available means for a useful contribution to society. This is a task in which we have not, as I say, gone very far, but I think we have achieved something. In doing this we have served not only ourselves but also a large part of the world who look to us for leadership—not only, if I may say so, in material things but also in immaterial things, for the things for which we stand in our free institutions, and for our way of life. If we go down or if anything happens to us, we lose far more than ourselves: we lose a standard and an ideal for the rest of the world.

9.0 p.m.

LORD PETHICK-LAWRENCE

My Lords, I am sure I shall be consulting the interests of all your Lordships if I confine my remarks to a very few moments before we bring this debate to an end. I feel particularly grateful to those who have taken part in this discussion, not least to the noble Earl who has just sat down for the very courteous way he has dealt with the debate and for the information and the arguments which he has put forward in support of the Government. I have listened to nearly the whole debate. I much regret that I was absent when the noble Lord, Lord Beveridge, spoke, but I shall read his remark; in Hansard with great interest. I think that the speeches which interested me especially and gave me great pleasure were those of my old friend, Lord Blackford, my friend, Lord Archibald, and the exceptionally interesting remarks of Lord Rennell, who was the only person, it seems to me, who really dealt cogently with the point I was trying to put with regard to dear money. I shall think over carefully what he said to see how far it modifies the view which I had hitherto formed.

I want to make only a very short reference to one or two of the points made by the noble Earl who spoke just before me. I do not want to reopen this question as to w hat blame is to be attached to the Labour Government over the crisis, but I think we must all face this fact quite fairly from a non-Party point of view: that this crisis blew up with extraordinary rapidity in a matter of weeks, Lind almost of days. A very short time before the adverse position arose, we were still rejoicing in the surplus which we had had until a very few months before, and then the crisis blew up, as I say, in a matter almost of days. The real question between us on this matter—and I do not think it ought to be denied—is that it is quite true that every person who is keenly interested in finance was not aware of the rapid degree with which the crisis deteriorated. The real question is, were the Labour Government and our Chancellor of the Exchequer in any way to blame for that fact? The answer, surely, is that they were not, because the Chancellor of the Exchequer took every means in his power of stating the rapidly growing crisis and those people who were capable of following it like the present Chancellor realised—

THE MARQUESS OF SALISBURY

We had a very interesting intervention from the noble Lord, Lord Milner, who was a distinguished Member of the other House at that time. He himself during the actual Election campaign was actually unaware that there was anything wrong. That seems to me to show—I am not making any charge of evil intention on the part of the Government—that they utterly failed even to convince their own most experienced supporters that such a situation had arisen.

LORD MILNER OF LEEDS

I hesitate to rise, but I have not been given the courtesy of having had it mentioned to me that any words of mine were going to be repeated by the noble Earl, Lord Selkirk., and the noble Lord, Lord Teviot.

THE EARL OF SELKIRK

With great respect, I did mention it.

LORD MILNER OF LEEDS

On what occasion I do not recollect. The point is that I have no doubt that I may have used those words, probably to my constituents. It is perfectly true that my constituents at that time, mostly working-class constituents, were probably more prosperous than they had ever been. I am sure that they are not so prosperous now, and will probably be less prosperous in the future.

THE MARQUESS OF SALISBURY

I have no wish to be disrespectful to the noble Lord. The point was, what was the effect likely to be on his constituents at the time he made it?

LORD PETHICK-LAWRENCE

I think we are getting away from the point. I do not deny that the great bulk of the people of this country, including distinguished politicians, were ignorant of the rapid degree with which our financial position was deteriorating. We are all agreed on that. The only question is, was any blame attachable to the Labour Government and, in particular, did they deliberately keep the public in the dark? I contend that there is no evidence of that whatever. In the midst of the General Election, the Chancellor of the Exchequer made speeches. The fact that they did not reach the general public is because the general public, as a rule, do not take much interest in these financial matters until it is brought right home to them. There is no particular ground for saying that anything more should have been said at that time. After all, it does not seem to me that the fact that this crisis grew up with extraordinary rapidity, like a storm, really affects the situation that when the Conservative Government came to be formed they found a situation which they had not suspected. The Labour Government would have been in the same position, because the situation so rapidly deteriorated but that does not affect the actions that they were to take, except those that were directly concerned with the crisis.

Another point that I wanted to make is with regard to the cuts in the investment programme. I said in my opening speech that I was greatly confused, I did not know how far the Chancellor's proposals were adequate for the purpose of meeting the crisis and I could not judge whether I thought them sound or not until I knew correctly the proportions in which the cuts fell upon the body politic. In particular, what I wanted to know was whether they were going to fall on current consumption, or upon the production of the future in the shape of cuts in capital development. To that question I received no answer at all from the noble Lord, Viscount Swinton. I asked that question in perfectly good faith. I wanted to be in a position to understand what up to this moment I have not succeeded in being able to understand—how far the cuts going to be imposed are justifiable or otherwise. Until I get that information I shall remain confused and I shall refuse to consider the Budget satisfactory.

THE EARL OF SELKIRK

May I say this, very shortly. I do not want to prolong the discussion, but the point is that it is almost entirely from the engineering industries that we can get exports to-day. Now those industries are the same industries to a great extent that are wanted for armaments. We have, for that reason, most reluctantly to put investment behind exports and rearmament. With that, I think you will agree.

LORD PETHICK-LAWRENCE

I quite understand. I am not in the least saying that the Government is not entitled to make some cuts in investment. I am quite sure the Labour Government would have had to do so also. All I am asking for is a perfectly reasonable piece of information to get some conception in advance of what the Government expect to do in this matter. I do not, of course, expect accurate minute figures, but I want to get some sort of idea of the order of magnitude; and that Lord Swinton was unable to give me.

I am not criticising him for that. I say that as I have not got that, certainly my feeling of confusion and uncertainty remains. The Government have been very fond of talking about targets in regard to things for which they were not necessarily estimating. I should have thought that at least some target would be forthcoming showing what proportion of the gap was to be closed by cutting the investment programme. However, as they do not in the least seem to know, we must let it go at that.

There is one other point that I want to take up with the noble Earl who has just spoken. He said that the Government set great store by the increase in production. I am very glad to hear that they do. All I hope is that their optimistic forecasts will be realised, although I think that is extremely doubtful. From the bottom of my heart I certainly hope that their full £250,000,000 worth of additional production will prove to be a fact. I put this to the noble Earl. He said that in so far as it is not reached, of course the purchasing public in this country will have to go short of commodities. But that is not the full bottom of the matter, because if with a certain amount of purchasing power this additional production does not take place, then the result will be that there will be too much money running after too few goods, and we shall have inflation. Therefore, if that is not to take place, some other remedies must be found by the Chancellor of the Exchequer, before it too late, to meet the situation. I do not think the matter is quite so simple as the noble Earl seemed to indicate.

My Lords, with those few remarks I close what I have to say. I feel that this has been a very useful debate. I think that perhaps it could have been a little more useful if the Government had felt able to be a little more forthcoming; but if they feel that they cannot, we must go on and we must hope, as the year develops, to get the information to judge in retrospect what I certainly am not able to judge in prospect—how far this Budget is adequate and how far the remedies which are being adopted are suitable and proper to meet the emergencies of the case. My Lords, I beg leave to withdraw my Motion.

Motion for Papers, by leave, with drawn.

The Lord Beveridge—Took the Oath.

House adjourned at a quarter past time nine o'clock.