Lords Sitting of 19 February 1952

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers
Several Lords—Took the Oath.
The Lord Faringdon—Affirmed.
Several Lords—Took the Oath.

ALDERSHOT EXTENSION BILL [H.L.]
Read 2a and committed: the Committee to be proposed by the Committee of Selection.
CANTERBURY AND DISTRICT WATER BILL [H.L.]
Read 2a, and referred to the Examiners.
CHESHIRE COUNTY COUNCIL (BRINE SUBSIDENCE) BILL [H.L.]
Read 2a, and committed: the Committee to be proposed by the Committee of Selection.
PORT OF LONDON BILL [H.L.]
Read 2a, and committed: the Committee to be proposed by the Committee of Selection.

MESSAGE FROM HER MAJESTY THE QUEEN
2.40 p.m.
THE EARL OF CLARENDON: My Lords, I have the honour to present a Message from Her Majesty the Queen, signed with her own hand. The Message is as follows:
"I thank you from the bottom of my heart for the loyal and affectionate Address which the House of Lords have presented to Me on the sad loss that I have suffered, and on My Accession to the Throne.
"I value highly the warm expression of your attachment to My person and of your confidence in My determination to follow My dear Father's example of devotion to the service of His peoples throughout the world.
"I pray that with the blessing of Almighty God I may, ever justify your trust, and that, aided by your counsel and sustained by the strength of the affection of My peoples, I may uphold the ideals that My Father set before Me of peace, freedom and the happiness of the great family of which I am now the Head."

GRACIOUS REPLIES TO MESSAGES OF CONDOLENCE
THE LORD PRIVY SEAL (THE MARQUESS OF SALISBURY): My Lords, I have to inform your Lordships that, together with the most reverend Primate the Lord Archbishop of Canterbury, the

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Lord Chancellor, the Earl Jowitt and the Viscount Samuel, I, pursuant to the Order of the House, waited to-day upon Her Majesty Queen Elizabeth the Queen Mother, and Her Majesty Queen Mary, with the Messages of this House of February 11, and that their Majesties made the following replies.
Her Majesty Queen Elizabeth the Queen Mother:
"I thank you most sincerely for your Message of Condolence, which will help Me to bear the burden of My great sorrow. I am deeply touched by your warm sympathy and I am moved by this further sign of your close and constant affection towards Me."
Her Majesty Queen Mary:
"I thank you for your Message of Condolence. The warmth and sincerity of your sympathy will be a consolation to Me at this time of deep personal sorrow."

HIS LATE MAJESTY: FURTHER MESSAGES OF CONDOLENCE
2.44 p.m.
THE LORD CHANCELLOR (LORD SIMONDS): My Lords. I have the honour to inform your Lordships that I have received certain further messages with reference to the death of his late Majesty. The first is from the President of the Conseil des Etats, of Switzerland. It is as follows:
"The news of the sudden death of His Majesty King George VI has profoundly grieved the Conseil des Etats Suisse. In its name and in my own I beg you to accept and to transmit to the members of the House of Lords the expression of our most lively sympathy."
The second is from the President of the Senate of the Republic of Uruguay:
"By the unanimous wish of the Senate of the Republic of Uruguay, I have the honour to express to your House the most profound condolences at the death of His Majesty King George VI. I send to the House of Lords the assurance of my highest consideration."
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The next is from the President of the Egyptian Senate:
"On behalf of the Egyptian Senate I convey to the House of Lords the expression of the deep regret with which the Senate has learned the news of the death of His Majesty King George VI. We express to the House of Lords the profound sympathy of this House with Her Majesty the Queen, the Royal Family and with the Parliament of Great Britain."
From the President of the First Chamber of the States-General of the Netherlands I have received an expression of sincere sympathy together with English translations of speeches which the President and the Minister of Foreign Affairs delivered at a meeting of the First Chamber of the States-General on February 6, in commemoration of His Majesty King George VI. These speeches (which will be recorded in the Journals of the House) expressed in eloquent and moving terms the high regard with which His late Majesty was held by the Dutch nation.
Finally, I have received this Resolution from the Irish Senate:
"The Irish Senate extends its deep sympathy to the Royal Family, the Parliament and the people of Britain on the death of His Majesty King George VI."
These Messages have been suitably acknowledged on behalf of your Lordships.

RABBIT CLEARANCE
2.48 p.m.
LORD MERTHYR: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what steps, if any, have been taken to implement the policy with regard to rabbit clearance which was announced on July 27, 1950 (M.A.F. 2612), as having been agreed upon by representatives of the Ministry of Agriculture and Fisheries, the National Farmers' Union, the Country Landowners' Association, the National Union of Agricultural Workers, the Transport and General Workers' Union, and the Nature Conservancy.]
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE AND FISHERIES (LORD CARRINGTON): My Lords, following the announcement in 1950 of the rabbit clearance policy—with which, I may say, the Government agree—the National Farmers' Union and the Country Landowners' Association asked their county organisations to convene joint meetings of interested persons to arrange voluntary area schemes of control. At the same time the Ministry instructed county agricultural executive committees, who were to be invited to send representatives to the joint meetings, to assist and advise in planning schemes and to use the powers they possess where voluntary effort was not forthcoming.
A special headquarters "Action Committee" was set up comprising representatives of the Ministry, the National Farmers' Union, the Country Landowners' Association, the Forestry Commission, the Railway Executive, and Service Departments, to examine and consider the progress of the campaign. Reports have been received from counties from time to time and, where action has fallen short of what is required, special representations have been made to the county organisations concerned. The latest reports show that well over 200 area schemes have been planned and the majority of these have been put into operation. Experience shows that success is most likely to be achieved in those counties where joint committees have been set up consisting of representatives of the National Farmers' Union, the Country Landowners' Association and the agricultural executive committees, and where an approach has been made to occupiers by these committees.
2.50 p.m.
LORD ELTON: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government: (1) What financial arrangements are made when rabbit catchers employed by a county agricultural executive
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committee are detailed by a pests officer to kill rabbits on private land; (2) What approximately is the price for which rabbits killed by official pest control personnel are sold.]
LORD CARRINGTON: My Lords, the county agricultural executive committees have been instructed to charge 6s. 9d. per hour per operator when the services of their rabbit catchers are required by farmers or other occupiers of land. When gassing is carried out an additional charge is made to cover the cost of the gassing powder. Some reduction in these charges is allowed in exceptional cases: for example, when a large compact area is to be treated. The charges are intended to cover the cost of the work; that is to say, wages, transport, use of traps, ferret and snares and supervisory and administrative costs. Rabbits caught by county agricultural executive committee rabbit catchers are the property of the occupier with whom the contract has been made, and they are therefore normally handed to the occupier. But if the occupier wishes the committee to dispose of the rabbits caught, they would be sold at the normal market price and a handling charge of 2d. per pound would be made. The net proceeds would then go to the occupier.
LORD ELTON: My Lords, may I thank the Minister far his reply and add that, since I understand that under the Agriculture Act of 1947 the Minister has power to provide these services free, or partly free, I hope he will consider making concessions in cases of hardship where farmers are not able to hear the whole charge? Such concessions would contribute to effective rabbit clearance and, therefore, indirectly to the preservation of a good deal of our crops.
LORD CARRINGTON: My Lords, it is the responsibility of the occupier to deal with his own rabbits. In point of fact, at the rates which are charged by the county agricultural executive committee operators there is really no charge whatever on the farmer, as there is usually a profit when the rabbits are sold.

BRITISH TERRITORIAL WATERS
2.54 p.m.
LORD SALTOUN: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they consider any alteration has been made in the territorial waters of Great Britain in consequence of the Norwegian Fisheries decision at The Hague and, in particular, whether Her Majesty's Government now consider the whole of the Moray Firth to be territorial waters so far as fishing rights are concerned.]
THE PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF READING): My Lords, there has been no alteration in the limits of British territorial waters. The recent judgment of the International Court of Justice in the Anglo-Norwegian fisheries case settled only the limits of the Norwegian fisheries zone, but the Court expressed certain basic principles and general considerations which a State may take into account in delimiting its territorial waters. The judgment generally endorsed the Norwegian claim that the base line from which the belt of territorial waters and exclusive fishery limits are measured may consist of a series of straight lines joining outer headlands, islands and rocks, provided they are reasonably drawn and follow the general direction of the coast. Her Majesty's Government are at present considering what effect the judgment should have on British practice in this matter.
In this connection, so far as the United Kingdom is concerned Her Majesty's Government must have regard, among other things, to the provisions of the North Sea Convention, 1882, and other fisheries conventions to which the United Kingdom is a party, in which exclusive fishery limits are defined. The position of the Moray Firth will be included in the examination, but until the examination has been completed it is not possible for Her Majesty's Government to determine their future policy with regard to the matter generally or to the Moray Firth in particular. There are so many
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ramifications in connection with this judgment, both in regard to its own terms and in regard to its effect upon existing conventions, that the noble Lord will, I am sure, realise that it is not possible to give him a definite reply at this stage. I will, however, if I may, let him know in due course as soon as I am in a position to give him a more precise answer, and thus afford him the opportunity to put down a further question.
2.58 p.m.
LORD SALTOUN: My Lords, I should like to thank the noble Marquess for his full reply. May I ask one supplementary question? Having regard to the importance of these waters for our food supplies and as a breeding ground for fish, and the damage to the spawn caused by foreign trawling, which we do not prevent, do not Her Majesty's Government think it of importance that some paramount authority should be provided for the area within the lines from Duncansby Head to Kinnaird Head, and will they consider what steps should be taken to establish such an authority?
THE MARQUESS OF READING: My Lords, this is an intricate problem and I am sure that the noble Lord would not expect that I should give him a precise answer at this stage. What I can assure him is that the points which he has raised in his supplementary question will be brought to the attention of the Ministers concerned when they are considering the entire problem.
LORD STRABOLGI: My Lords, will the noble Marquess bear in mind that the British fishing industry is very closely affected by any decision regarding the Moray Firth, and that, if we limit the fishing area in the Moray Firth outside the three mile limit, we give away our whole case in other valuable fishing waters in Northern Europe?
THE MARQUESS OF READING: I have said that this in an intricate problem and there are many aspects of it which will have to be considered. It may well be that the point which the noble Lord has raised will be one among them.
LORD SALTOUN: I am much obliged to the noble Marquess for his reply.

SUMMER TIME ORDER, 1952
3.0 p.m.
THE LORD CHANCELLOR (LORD SIMONDS): My Lords, the purpose of the Order in Council referred to in the Motion standing in my name is to provide that the period of Summer Time this year shall extend from April 20 to October 26. As your Lordships may be aware, under the Summer Time Acts of 1922 and 1925, the Summer Time period would have been from April 20 to October 5, but under the Summer Time Act of 1947 that period can be varied by Order in Council, and it proposed to vary it by an extension for a further period of three weeks to the time that I have indicated. Since the 1947 Act was passed it has, in fact, been necessary on every occasion to provide for an extension of Summer Time beyond the statutory period, the reason being the urgency of the need to save fuel. Her Majesty's Government regret that they have had to come to the same conclusion this year: the urgency of that need is no less. Although the Government are well aware of the inconvenience which it causes to some industries, and particularly to agriculture, the need to conserve fuel has been paramount. The extension this year is the same as that of last year except in this respect: that last year the period of three weeks was divided up, the period beginning one week earlier and extending for two weeks later. This year the whole of the three weeks is put at the end of the statutory period. The reason for this is that if the precedent of last year were followed, the first day for Summer Time would be Easter Day, and it is thought undesirable to make the change on that day. I beg to move.
Moved, That an humble Address be presented to Her Majesty praying that the Summer Time Order, 1952, be made in the form of the Draft laid before Parliament.—(The Lord Chancellor.)
On Question, Motion agreed to.

RESERVE AND AUXILIARY FORCES (TRAINING) ACT EX TENSION ORDER, 1952
3.2 p.m.
THE SECRETARY OF STATE FOR AIR (LORD DE L'ISLE AND DUDLEY): My Lords, the object of this Order in Council is to extend the provisions of the Reserve and Auxiliary Forces (Training)
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Act, 1951, to the year 1952. Unless noble Lords wish to discuss it in detail, I propose to move it as a formal matter. I beg to move.
Moved, That an humble Address be presented to Her Majesty praying that the Reserve and Auxiliary Forces (Training) Act Extension Order, 1952, be made in the form of the Draft laid before Parliament.—(Lord De L'Isle and Dudley.)
On Question, Motion agreed to, the said Address to be presented to Her Majesty by the Lords with the White Staves.

HOUSE OF COMMONS (REDISTRI BUTION OF SEATS) (BRISTOL, NORTH SOMERSET AND WESTON SUPER MARE) ORDER, 1952
THE LORD CHANCELLOR: My Lords, this Order gives effect without modification to the recommendations made by the Boundary Commission for England in their Report which was submitted to the Home Secretary in August of last, year under Section 2, subsection (3) of the House of Commons (Redistribution of Seats) Act, 1949, and duly laid before Parliament in accordance with Section 2 (5). It is a matter on which I do not think I need address your Lordships. I beg to move.
Moved, That the House of Commons (Redistribution of Seats) (Bristol, North Somerset and Weston Super Mare) Order, 1952, reported from the Special Orders Committee, be approved.—(The Lord Chancellor.)
On Question, Motion agreed to.

HOUSE OF COMMONS (REDISTRI BUTION OF SEATS) (SUNDER LAND AND HOUGHTON-LE SPRING) ORDER, 1952
THE LORD CHANCELLOR: My Lords, this Order in Council is precisely the same as that to which I referred just now, and I think I need only formally move the Motion standing in my name.
Moved, That the House of Commons (Redistribution of Seats) (Sunderland and Houghton-le-Spring) Order, 1952, reported from the Special Orders Committee, be approved.—(The Lord Chancellor.)
On Question, Motion agreed to.

REGISTRATION OF TITLE (SURREY) ORDER, 1952
3.4 p.m.
THE LORD CHANCELLOR: My Lords, in moving that this Order be approved, perhaps I should say a very few words. Your Lordships will be aware that the draft Order has already been considered by the Special Orders Committee of this House, and their Report, which is on the Table, is wholly favourable to it. The object of the Order is to extend the system of compulsory registration of title to land on sale in the County of Surrey. It is one more step in the process, which has been going on very gradually since 1897, of making the registration of title compulsory throughout the country. In those areas where it is now in force, including the whole of London. Middlesex, Croydon, and certain other places, the purchaser of land must register his title in order to get a good title to the land. When notice of intention to make this Order was given, certain local law societies within the area exercised their undoubted right and asked for an inquiry, and accordingly my predecessor, the noble and learned Earl, Lord Jowitt, directed that an inquiry should be held. This was entrusted to a distinguished Queen's Counsel, Mr. Neville Gray. Mr. Gray duly held an inquiry, and he has made a full and, if I may say so, excellent Report, in which he emphatically advocates and approves of the proposed extension of the system to this area. I personally have always been in favour of the extension of compulsory registration of title, and in particular I find myself wholly in agreement with what the learned Queen's Counsel has said. I have no hesitation in commending this Order to your Lordships, and accordingly I beg to move.
Moved, That the Registration of Title (Surrey) Order, 1952, reported from the Special Orders Committee, be approved.—(The Lord Chancellor.)
On Question, Motion agreed to.

THE ECONOMIC SITUATION
3.6 p.m.
LORD PAKENHAM LORD PAKENHAM rose to call attention to the Economic Situation; and to move for Papers. The noble Lord said: My Lords, we return to the day-to-day Business of the House, to economic arguments and, it can hardly fail to be, domestic controversies. I suppose none of us is quite the same as he was a fortnight ago, when we were preparing our speeches for this occasion: we are all sobered, and yet surely strengthened, by a great and noble example which is, and always will be, in our minds. We return to the challenge of a new era, an Elizabethan era, with the ears of all of us attentive to the call for service and for greatness.
The Motion before your Lordships directs attention to the economic situation. As the Spectator so truly pointed out last week, we are all well aware that national welfare in the broadest sense is not just mainly a matter of exports and imports; yet unless we can get what I may call this infernal business of the trade balance right, none of us sees much prospect of any welfare of any kind in this country during the next few years. Even from the purely economic angle I shall be compelled to leave out a great many topics of the highest significance. Indeed, some of them represent aspects of our national future on which everything depends—I have in mind particularly the need for a greatly increased production of coal, greater agricultural production at home, and education. There are a great many noble Lords on these Benches, and I expect also on other Benches, who are very worried indeed about what is being meditated by the Government in that connection. I am compelled to make no reference at all, except in passing, to the great issue of the development of the untapped resources of the Commonwealth and Empire. The noble Viscount, Lord Swinton, disagrees with me in many things, but not in the common devotion to that purpose.
Before turning to my general theme I should like to ask the noble Viscount. Lord Swinton, one or two questions which go closely together, and of which I have given him some notice. I am quite sincere (I think that applies to all of us on these Benches) when I say that I am

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glad he is to reply. If I may say so, he is a wicked animal, who defends him- self when he is attacked—and sometimes when he is not; but we all enjoy his speeches and look forward to one this afternoon. I cannot see the noble Lord, Lord Cherwell, in the House. After all the body-line bowling that he has directed at me during the last six years, I was rather hoping to see him take his place at the wicket. No doubt he is preoccupied elsewhere, and I shall contain myself and postpone the few pleasantries I had prepared at his expense—all of a very friendly character, of course.
The questions I should like to put to the noble Viscount, Lord Swinton, are these. First, can he tell us anything about the course of production right up to the present time? At the end of last year, so far as one could judge, it had slipped back to a figure no higher than that of the previous year. I am not attributing that to the present Government; I do not carry partisanship to that length. But does the noble Viscount attribute that mainly to the shortage of raw materials, especially steel? On the subject of raw materials, which, of course, is a matter with which he is specially charged in these days, I expect he will agree that there is only one long-run source of salvation—namely, international co-operation to regulate the supply and price of raw materials. We in the late Government did a good deal to get all that going, following Mr. Attlee's visit to the United States. Can the noble Viscount report any further progress in regard to international action on raw materials? In any case, in the meantime these bilateral deals are certainly not to be in any way disparaged. Further, can the noble Viscount throw any fresh light on the deals recently made with the United States in relation to steel and tin? In particular, can he explain, and if necessary defend, the price at which the deal was negotiated? There is a certain amount of anxiety, and potential criticism, on that score. Finally, though it is a slightly different topic, can he tell us anything more about the sale of rubber, also to the United States? I think that in all these matters most of us outside the Government are reserving our opinion, until we know quite what the facts are, but we shall be extremely happy to offer congratulations if and when convinced that they are due.
My Lords, there was one particular phrase in the recent speech of the right honourable gentleman Mr. Butler, a speech to which all of us in all parts of the House will feel inclined to pay tribute for its fairness and moderation, that stuck in my mind—namely, that we are confronted here with a great moral issue. I do not dissent from that. The Chancellor of the Exchequer was extremely fair about the history of the whole thing. He traced back the deterioration of our position fifty years, in a phrase which seemed to me to cancel out a great deal of the propaganda to which we have had the pleasure of listening, in this House and elsewhere, during the last few years. Be that as it may, there is a moral issue confronting the country. It confronts the Government, and I am sure they are conscious of it. It confronts noble Lords on these Benches, and we must seek to steer between the Scylla of exploiting national difficulties for Party ends and the Charybdis of condoning without adequate protest what we believe to be evil or foolish. May I therefore say a few things, quite frankly, on our behalf to noble Lords opposite, speaking to their faces, if I may say so, in the same way that we would speak about them behind their backs?
First, we must tell them candidly—and I am not going to labour this point very long—that we believe history will say that the Election campaign of the Conservative Party was a wretched affair. Indeed, I think that a great many of them say this themselves at the present time. That campaign reached its high point in the remarkable broadcast of the noble Lord, Lord Woolton, in which he not only held out a prospect—I understand that it was only a prospect, not a firm promise—of more red meat if his Party were returned to power, but coined the immortal phrase:
"We need a better diet, and I believe that we can get it."
The noble Lord was then taking a very long view, and I feel sure that he would not use language of that kind to-day. At the moment we are all searching for latter-day Elizabethans. We recognise easily enough in the noble Marquess the Leader of the House many of the qualities which made his famous ancestors live in our history. But it seems to me that the noble Lord, Lord Wootton,

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presents many analogies with Sir Francis Drake. If I may, I would adapt Newbolt's lines regarding Drake's continuance of his game of bowls after the sighting of the Armada had been announced. I am sure the noble Lord will accept this in excellent part, for his good temper is proverbial.
THE LORD PRESIDENT OF THE COUNCIL (LORD WOOLTON): I gather that it is going to be tried to-day.
LORD PAKENHAM: The noble Lord will have the right of replying to-morrow and he will have to-night to think over what he is going to say. This is how I adapt Newbolt's lines:
"Lord Woolton was deep in the Party fight,
When the national crisis came.
He said, 'I go on the air to-night,'
And he stooped and finished the game."
We have been over this ground before since the Election, and I do not wish to dwell too long upon such a painful subject. We are prepared to be charitable. We will try to forget all about "red meat" and to associate noble Lords opposite in general, and the noble Lord, Lord Woolton, in particular with some nice vegetable dish readily obtainable even under their benevolent dispensation: bubble and squeak, for instance—bubble before the Election, and squeak afterwards. It is sufficient to record that, after knowing all the facts about the trade balance right up to the beginning of October, the noble Lord and his colleagues presented a view of the country's prospects which they must now recognise was entirely false and, may I add, a recipe for improving conditions by abolishing controls—a recipe which we are inclined to hope they have now abandoned as totally inappropriate. That is the first thing which it was my duty to say to the Front Bench opposite. Noble Lords have been in retreat; they have now had an interval in which to meditate upon their sins; and if they have followed the exercises of Saint Ignatius—a course I commend to them—they have enjoyed a foretaste of hell. Now—to change the metaphor—we must hope, if not for conversion at least for modernisation.
The second thing which I have to say to them is less controversial. We agree (and I do not want to be misunderstood
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merely because of anything I may say in the course of any mild Party dialectics: I want the noble Viscount to be quite clear about this) that a grave situation faces our country in respect of our balance of payments and our gold and dollar reserves. No one but a knave or a fool would deny it. A leading article in The Times newspaper to-day contains this passage:
"…the huge external deficit and the drain of the gold reserves have proceeded without intermission."
That is the situation which confronts us to-day, whatever may be the recent past, and we need not waste time arguing whether we have or have not overcome worse situations before. The essential point is that if a Labour Government had been in power we should have had to take some unpleasant and drastic steps similar in important respects to some of those which noble Lords opposite are taking now. Do not let there be the slightest misunderstanding about it. We should have had to cut imports; we should have had to switch over some production of consumer goods from the home market to the export trade, using in each case primarily the method of physical controls, whether through compulsion or guidance.
Naturally, perhaps, there is a great deal that is still obscure with regard to the Government's intentions in this connection, and we shall welcome enlightenment from the noble Viscount if he is able to give it. The position is not clear to me, and I understand that it is not clear to learned writers—writers in the Economist for instance—how most of this switch over from home production to exports is to be conducted. We have not been told very much about the method. I do not know whether the noble Viscount can add anything. We do not yet know how the import cuts are to be distributed. Do not misunderstand me: I am not complaining at this moment; I am saying simply that the information is not at the moment available. We do not know yet whether inessential imports to the United Kingdom are to be sufficiently reduced. As regards the sterling area as a whole, and particularly the other members of the Commonwealth and Empire, we have no clear indication as yet about how fast or how definitely they are to

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act. So far as we can judge, the raiding of stocks, which the Government propound as one of their measures, seems to us to be an operation full of dangers, though incidentally it makes nonsense of the last available alibi of the Government, to the effect that "when they got there the cupboard was bare." In fact they found plenty of stocks, which they now props se to use in the way I have indicated. For the moment, in all these matters we must hold ourselves in considerable suspense. We are not seeking to manufacture any bogus difference of principle regarding the Government's general approach to what I would call the direct physical side of the problem. May I digress for a moment to say that I am ready to give way when the dialogue opposite becomes deafening? With regard to the matter with which I was just dealing, all I say is that the method which the Government are adopting, a method with which we are not quarrelling in principle, does not resemble anything that was foreshadowed by noble Lords opposite during the Election, though I do not say it is any the worse for that.
Thirdly, we must express complete uncertainty, combined, I am afraid with considerable suspicion, regarding the Government's more fundamental ideas as to how the crisis should be diagnosed and remedied. At the risk of repeating what many of your Lordships know already, let me remind you of one or two essential elements in the problem. I should think there is no dispute at the present time, that this crisis is a balance of trade crisis—an import-export crisis. The question that arises is how far is it our fault? How far is it our fault nationally, how far is it the fault of the late Government? Here I would quote the President of the Board of Trade. He has been criticised for his youth, but I am not going to criticise him for that. He seems to me to be a remarkably up-and-coming young Minister. Speaking in another place three weeks ago he said:
"Production has gone up by 40 per cent. to 50 per cent. compared with pre-war. Exports have increased by 80 per cent. and imports have remained in volume roughly where they were."
That is his summary of the present position. In the light of that extremely fair summary it really cannot be argued that the crisis is due to the feebleness of the
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post-war national effort or to our post-war incapacity for sacrifice. No Government is perfect, and noble Lords opposite are entitled to persuade themselves that under their own magical touch things would have been still better. I can only cite the fact that the British people under the Labour Government did themselves far more justice than in any pre-war period to which we can point.
So much seems to be beyond dispute, but I do not seek to brush aside an anxious question which may be posed, perhaps with particular effect by noble Lords who sit on some of the Back Benches opposite, anti posed in this way: "Granted what you say, granted the achievement, is it not still possible that as a country we have tried to live beyond our means since the war, bearing in mind the presence of so many adverse factors including our war losses and the sad deterioration in the terms of trade?" That is a question which cannot be struck aside or treated with contempt; but I am bound to say, in all politeness, that the last people entitled to argue in that way are the former Opposition, the noble Lords who now represent the Government. During our term of office they did everything in their power to goad us into letting the country live beyond its means. Mr. Attlee, whose word is never doubted, even if his views are frequently contested, reminded another place a few weeks ago of the highly irresponsible campaigns for more newsprint, more petrol, more feeding stuffs and more food. Was it not Mr. Churchill who fastened on Sir Stafford Cripps—to whom we all wish a genuine recovery—the nickname of "Strength through Misery," till the point was reached where, in this very House, one of the most respected noble Lords announced, in all good faith, so far had delusion entered into the minds of noble Lords opposite, that Sir Stafford Cripps had propounded that particular slogan himself? The Government, I say with respect, are out of court in this discussion. But I am ready to believe that other noble Lords—the noble Lords, Lord Brand, Lord Balfour of Burleigh, come into mind—may well feel that what is happening is a proof that they were right all along. I do not want to try to sweep that argument aside so easily.
I realise, of course, that this particular issue of whether we are living at a higher level than our income permits cannot

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be disposed of in a sentence or in a speech of this kind; but I say briefly that we cannot possibly accept that argument. I should like to remind your Lordships of a few facts. We have since the war been paying by our exports for a far higher proportion of imports—speaking of visible imports and exports—even bearing in mind the movement of the terms of trade against us (which of course made matters much harder than before the war) and the fact that we suffered such heavy losses during the war. Taking visibles and invisibles together, we find, as I ventured to remind your Lordships on an earlier occasion, that the United Kingdom had favourable balances in 1949 and 1950, which is more than can be said of any year except one during the 'thirties. I know that gentlemen in The Times are capable of refining on these figures in various directions, but I must take leave to stick to the official figures, published in Command Paper 8379, for the balance of current transactions for the United Kindom between the years 1948 to 1951—at any rate until the noble Lord, Lord Cherwell, has had time to correct those figures, which he used to find so unsatisfying and which may obtain a rather new complexion under his wizardry. But until that happens I am bound to stick to those figures. There is no doubt that, on balance, we were paying our way from 1948 until the middle of 1951.
We know to our cost by now that our national income is affected by many factors outside our power to control. World rearmament, and price movements which may or may not have been inevitable, but which certainly followed from world rearmament, have from the middle of 1951, effected an adverse change in our fortunes which Mr. Butler, again with great fairness—I repeat my tribute to his fairness, which is outstanding—called "dramatic" Therefore to say that we were living within our income up to that time is not the same thing as saying that we are living within it now, and not at all to deny the necessity for sharp adjustments.
I said earlier that we accept in principle the need for import cuts and the switching from home to export production. But there are two further aspects of the whole plan—its relationship, first to monetary
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policy, and secondly to public expenditure—which I do not wish to pass over without a few words of comment even in the most general review. About monetary policy, my noble friend Lord Pethick-Lawrence will speak with much more authority to-morrow; but may I say, a little dogmatically, perhaps, but in order to save time, that in spite of the extremely interesting speech of the noble Lord, Lord Balfour of Burleigh, as chairman of Lloyds Bank, and other very interesting speeches by bank chairmen which I have studied, as they deserve, I still do not believe that it was necessary to raise the rate for Government borrowing in order to bring about a moderate restriction of credit. If that is really so, and we are told by noble and banking Lords (if I may use that phrase) that this system is so beautiful that we cannot restrict credit without raising the borrowing rate the Government have to pay, all I can say is that this system of theirs, this remarkable system, which, after all, is man-made and has frequently been changed, is capable of still further improvement, and we look to the noble Lords concerned to immortalise themselves by changing it during their term of office.
The Bank of England, and ultimately the Government, carry the heavy and difficult responsibility of deciding how much money or purchasing power should be in circulation in order to strike a proper balance. I agree that that is not a matter on which some easy answer is likely to be available. To-day I express only an apprehension—I hope it is ill-founded—lest at the present time the restriction is being carried too far. I do not say this dogmatically, and I ask whether the noble Viscount can help us. I would ask the noble Viscount, Lord Swinton, what significance he attaches to the decline in consumption that is clearly taking place. Is he not seriously concerned about the unemployment and the short time that is causing so much concern in Lancashire, for example? The noble Viscount would hardly say that that is part of the plan. Can he tell us how he proposes to deal with this matter or how it is being approached? I agree that the monetary instrument, the use of bank credit and all that goes with it, cannot be neglected; but it is apt to prove a clumsy, indiscriminate and, on occasion, cruel weapon, compared with physical controls. Speaking for this side, I must make it plain that any attempt

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to bring about the kind of deflation that was justified by pre-war theory and operated in pre-war practice would be something we should strenuously fight, and I cannot believe it would ever be accepted by the bulk of British people today, with their memories of what occurred in the days before the war.
I come, finally, to the question of public expenditure. The last of the main things we wish to say to the Government is that we regard as altogether lamentable the attitude they are adopting to the National Health Service. I shall be asked. I suppose, and reasonably so, whether I claim that there is no connection at all between public expenditure and our overseas trade balance. On that subject, following the example of Edmund Burke—who possesses high credentials, I imagine, among the Conservatives, though he was a Whig, which would commend him to the noble Viscount, Lord Samuel, and the noble Lord, Lord Layton—I decline to be pushed into a universal proposition, positive or negative Of course there can be a connection, though, obviously, there are limits to which the argument, one way or the other, can be carried. Somewhere, once again, one has to strike a balance.
But let us take in practice, for illustrative purposes, the actual effect of these proposed new charges for prescriptions, stopping teeth, surgical belts, hearing aids and other necessities of the handicapped or sick. Do we really suppose that exports will be increased, or imports diminished, by such devices? We have two days of debate before us, and I shall be interested to hear whether anybody seriously argues that that will be the effective result. I do not think it is seriously argued that these measures will diminish abuses of the system—that was the argument which, it seems to me, justified the charges which we ourselves reluctantly imposed for teeth and glasses. And if that is so, I can think of only two lines of argument of any plausibility at all; and surely neither is going to commend itself to the House when we follow them out to their conclusions.
It could be argued, in the first place, that owing to the trade situation we are compelled to reduce the supply or the quality of these medical services. Take dentistry, for example. On that, it would be said that, owing to the export crisis,
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we ought to provide as a nation less dentistry or inferior dentistry, so that the resources, human or otherwise, could be diverted to export, or so that fewer materials will be imported for the stopping of teeth and the manufacture of what I have always called "buzzy bees"—I do not know whether that term is familiar to your Lordships. Does any of us really think that, from a national point of view, people go to the dentist too often? Does anybody go to the dentist for fun? I have never met anybody in that curious category. Does a single member of this House consider that the standard of the medical service, the resources and skill devoted to it, ought to be reduced at this point, even though we all agree that it is a moment when economies and sacrifices must be made somewhere or other?
Let us assume that that is not being argued, though I should be interested to hear whether any voice is raised on behalf of that argument. The only other line of argument (I will not go into the technical details this afternoon, and I should not do so even if I were qualified; we may have another opportunity for that) I cannot regard as any more acceptable. Let us maintain the Service, I shall be told, but let the sick or those in need of treatment pay something towards that treatment How does that help the trade balance? Presumably, it is by cutting down the power of the sick to buy other things, so that less of them are needed from abroad or more can be diverted into the export channel. I am trying to follow out the argument to its logical conclusion, and if I go wrong, the noble Viscount will no doubt improve upon it. In short, we are to impose a special levy on the sick so that they not only suffer physically but suffer from a financial standpoint as well.
LORD BLACKFORD: Before the noble Lord leaves that point, is it not the case that, with regard to the charge for prescriptions, Mr. Butler has merely taken over a Bill prepared by the previous Labour Administration?
LORD PAKENHAM: I can recommend the noble Lord with great confidence to the reply given by Mr. Attlee in the other place to that particular suggestion. He explained that the whole situation had completely changed since then, because, to mention

23
only one factor, we had found another way of tackling any abuses of the situation which might have been supposed to exist at an earlier moment.
I take this particular case of the Health Services, not trying to magnify it, but to examine the health cuts as the illustration of the principle. Assuming that the quality of the Service remains the same, what we are really doing (and when I say "we" I mean the Government, and through the Government, the country) is to effect a transference; and by cutting down expenditure, as they propose, the Government are simply redistributing income, probably and presumably in favour of the rich—that depends on the taxes they introduce in their Budget—but certainly in favour of those who are well and against those who are sick. That is all it amounts to. Leaving out the redistribution between the rich and the poor, it is a redistribution in favour of the healthy against the sick. I venture to submit that that defeats the whole purpose of the National Health Service Scheme. For that and other reasons we are strongly opposed to any proposals of this kind. We believe that it is not at all irrelevant to discuss this matter. On the other hand, we consider that these things are themselves irrelevant. Like other noble Lords, I have read the leading article in The Times, although it has not changed my mind. If any noble Lord can refute the reasons which I have submitted to the House on our behalf, I shall be interested to hear, and I shall also be greatly surprised. We hold, from the standpoint of social health, national psychology and human justice, as well as of economics, that it is a profound error | with far-reaching consequences for evil.
I have mentioned national psychology: I distinguish there between what may be called individual incentives and the great collective forces that operate on the nation as a whole. As regards incentives—here I speak with special earnestness—I do not believe that the last word has been said, or begun to be said, inside this House or out of it, by any Party; and I do not believe that it has been said, or begun to be said, in this country or abroad. I believe that we have all got to do a lot of fresh thinking, going right down to fundamentals. Some of the old harsh forces that drove round the wheels
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of our society—such things as the undiluted profit motive, the terror of unemployment and of real physical want in sickness and old age—have been destroyed, and I hope that we shall never see them raise their heads again. We have done something—I am not speaking now in a Party sense, although my Party were in power for six years—but I would not say that any of us on these Benches believes that we have yet done anything like enough to nourish effective substitutes. Some of the most important aspects of taxation are now being examined by a Royal Commission, whose Report will be eagerly awaited. I speak for myself, though I hope I carry my noble friends with me, in saying that I should like to see, in addition, an inquiry with terms of reference that went wider and deeper than those of the Royal Commission, to study every kind of incentive—self-interest, love of family, team spirit, love of country, the promptings of conscience among them—and to make suggestions as to how they could best be harnessed to produce the greatest national effort. I should like to see in charge some practical sociologist; and piously, but not only for reasons of piety, the name which comes into my own mind is that of the noble Lord, Lord Beveridge. I should certainly hope to see the Churches directly or indirectly represented.
In conclusion, I come back to national psychology in the broadest sense, and to what I believe is a moral issue. Whoever governs this country is not going to have an easy passage in the years ahead. A great deal depends upon what happens outside this country, but much more depends on ourselves. As I see it, there are two social theories between which the Government are even now uncertain as to how to make up their minds. On the one hand, there is the theory, passionately held throughout the Labour movement but held also, surely, by great numbers of people who disagree with the Labour Party in politics—I refer to the belief that the evolution since the war of the Welfare State, in spite of all our external afflictions, is a great and shining achievement in which the whole nation can take its share of pride. On the other hand, there is the doctrine that it has all gone too far and too fast, that however lofty the idealism, in view of our

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straitened circumstances the scale of public expenditure involved has been a tragic and disastrous error. I am not trying to fasten this view on to any noble Lords, but I think it is a view held in this House, arid held by noble Lords of the highest character and attainment. With every fibre of our being we beg the Government to turn down this second theory. We regard its economics as mistaken. We regard its social ethics as pitiful and retrograde. We consider that it failed dismally when it was tried before. But above all, if the Government, however high their own purposes, embark on an onslaught on the Welfare State, they will be creating a deep moral disunity throughout the nation at a moment when we are all conscious, whatever our politics, that a long-sustained, united national effort is the one way and the sure way of bringing us through the difficulties of the times. I beg to move for Papers.
3.42 p.m.
LORD LAYTON: My Lords, I do not propose to follow the noble Lord, Lord Pakenham, in his discussion of the last Election, nor yet in his remarks about the responsibility for the crisis in which we find ourselves, for it seems to me that the sad events which have occurred since this House adjourned a fortnight ago have greatly changed the atmosphere in which this debate is taking place. Political controversy has been silenced by a spontaneous and impressive demonstration of unity called forth by the death of His late Majesty King George VI. Nor has the emotion which prompted it been confined to this country. Throughout the free world it has been widely felt that King George symbolised—and this is a compliment to all of us—the qualities of the British people at their best, and in paying homage to him there have been coming from all quarters tributes to the rôle played by this country in the fifteen years of his rule. For example, the Washington Post, after recalling the courage of the British people under King George in beating back dangers such as none of their ancestors had faced in modern times, spoke warmly of the statesmanship displayed in transforming a restless Empire into a family of free nations. Its tribute ended with this striking phrase:
"By every standard that Americans respect and admire, we submit that more greatness was
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packed into the fifteen years of George VI than into all the sixty-three years of Queen Victoria."
Such words are a challenge to this generation to see to it that the reign which has just closed is not the swan song of Britain's greatness.
But if the moral currency of this country stands high to-day, the same unhappily cannot be said of the pound sterling. Britain enters this second Elizabethan Age full if honour but with coffers empty. This contrast, this paradox, creates a situation which calls for a maximum of effort and, as I would say, a minimum, of Party conflict. There is a second reason why this debate is rather different from the debate which took place in another place at the end of January. We are on the eve of an emergency Budget. In the absence of an Economic Survey and of other figures which are normally published at Budget time, it would be very rash to attempt to assess the situation in any detail until after we had heard the Budget Speech. The last speaker was prudent o confine himself in the main to questions, rather than to assertions of detail. In the meantime we must assume that the crisis is by no means abated. Though the rate of increase in our weekly debits to the European Payments Union has been checked, the total is still very large and is still mounting, and all the indications are—perhaps we may be told something on this matter this afternoon—that our gold and dollar reserves are still running out very fast. The overseas trade returns for January show a slight improvement, even though the cuts in imports which were made last November have hardly begun to take effect. But the monthly deficit on visible trade remains very high. The figures must change greatly if our balance of payments is to be in hand by the middle of the year.
I will make only one or two very brief comments on the situation and the measures proposed for dealing with it. The first is to repeat tin; warning I have made before, that cuts in imports are a double-edged weapon which can be counted upon to help the balance of trade for only a very short time, for they quickly affect the buying power of those upon whom the impact falls. It is not surprising that the cuts made in November have been quickly followed by similar cuts by France, and it will require

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great watchfulness and restraint to prevent a fresh outbreak of restrictions all round. The fact that as yet our action in making the cuts last November has not been copied more widely by other countries would seem to confirm the statement made at the time by the noble Viscount, Lord Swinton, when he said that "the greatest care had been taken to reduce to a minimum the harmful effects on our European associates." Nevertheless, sooner or later the reactions must come. This comment applies also to the very severe cut in foreign travel allowances. This will not only hit the Continental travel resorts and agencies very hard, but may very well put British European Airways back "into the red." and make worse the already parlous state of the French and British Railways. Quite recently I returned from Paris with five passengers in a large aeroplane normally carrying thirty. If that kind of thing is to develop, a snowball of deflation will have been started. We may be forced to take such action in an acute crisis like the present. But we must never forget that of all the great countries in the world we, in Britain, suffer most in the long run from a restriction of trade.
I agree entirely with the remark made by the noble Lord, Lord Pakenham, that it is very desirable to increase incentives to greater production, and I strongly support his proposal for a full examination of this matter. I should add only that I very much hope that employers and trade unions will not wait for the result of a prolonged inquiry before taking action. I also share his uneasiness about drawing on stocks, and I shall wait with interest to hear what the noble Viscount, Lord Swinton, has to say on that subject. But I do not find myself in agreement with the noble Lord, Lord Pakenham, in suggesting, as he seemed to suggest, that all inflationary elements had been eliminated from the British economy before the present crisis set in. The improvement in our balance of payments in 1950 and the first half of 1951 was due to many complex causes, including a 30 per cent. devaluation and the outbreak of the Korean War. I do not propose to go into that—no doubt speakers from the Government Bench will deal much more clearly with those points. Nor shall I follow the noble Lord into the question of cuts in the
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health services. From the internal point of view, one of the elements in the cure is the limitation of Government expenditure.
But I submit to the House that no country which is involved in the present crisis can save itself by internal action alone. The Leader of the Opposition in another place was right when he said—and this was repeated a moment ago by the noble Lord who has just spoken—that our present situation is largely the result of forces operating from outside this country. But that is not to say that we are the victims of happenings over which we have no control. On the contrary, we can influence those events very greatly. The point I wish to stress is that our international economic policy must play a major part in providing the cure, if there is to be one. Our economic connections, like our political relationships, lie mainly in three directions—toward the United States and the dollar area, to the Commonwealth and Empire, and to Europe. It happens that in all three cases there have been developed, mainly since the end of the war, financial institutions for facilitating trade and the making of international payments—I refer to the International Monetary Fund, the sterling area, and the European Payments Union. It is interesting to note that the differences of structure and method of these financial institutions reflect to a large extent the characteristics that apply to our political reactions in the same groups. All three have been operating under two very severe handicaps, one being that no post-war equilibrium in the trade of the world has yet been established. Almost every year there has been some new disturbance which has affected international trade on far too great a scale to be dealt with by normal banking practice.
The other handicap is that the reserves of these countries have become woefully insufficient—as indeed have the resources of all the trading countries of the world. Before the war, the world's gold reserves amounted to over 60 per cent. of its annual trade turnover. Since the War, although total reserves have risen by a third, the value of the trade has risen two-and-a-half fold and the world's reserve percentage to-day is only 30 per cent. in relation to turnover. But this figure includes dollar and non-dollar

29
areas, and in the non-dollar areas the situation is more acute. In our own case, in 1938 our reserves were 41 per cent. of turnover in British trade. Last year, with trade nearly three times as great in money values the percentage was down to less than 12 per cent., and the figure has now gone down to nearer 10 per cent. But this figure is in comparison with British trade only. It is, of course, the reserve of the whole sterling area. On December 31, it was only 5¼ per cent. of the turnover of trade in the sterling area; it is now certainly under 5 per cent. One must add, too, that the cushion of commercial credit which used to take care of the seasonal ups and downs of trade hardly exists. It is certainly much smaller and less flexible than before the war. On such a slender basis it is inevitable that the convulsions of international trade produce devastating effects.
This problem of reserves is one which can be relieved only by the United States. It has been urged in some quarters that it could be at least partially solved by raising the price of gold. This is a very controversial question. I think, on balance, that American opinion is at present against it. Moreover, it would not in itself provide the relief where it is most needed—that is to say in countries which already have very small reserves—unless it was accompanied by some plan for making part of America's gold stock available as a reserve for world trade. This, indeed, so far as one can see, is the only alternative to an indefinite flow of free exports from the United States. This is not a matter for United Kingdom initiative, but it is one in which the United States may well wish to take the initiative, to avoid chaos and a reversion to bilateralism.
Of the three financial institutions which are expected to cope with the situation, the International Monetary Fund, which is world-wide in its scope and is primarily concerned with relations between the dollar and the non-dollar areas, has played little or no part in resolving post-war problems. Its chief weakness is that it was designed for a relatively normal equilibrium of trade. This has not been realised and, in practice, when the trade between the two areas has got badly out of hand recourse has been had to direct action. Sometimes, as in the case of Marshall Aid, this has been on a
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gigantic scale. Between the authorities of the dollar and the non-dollar world, there is no effective machinery for continuing consultation and action at top level. Yet the United States, with its colossal economy and its vast resources is a very awkward bedfellow for nations with small currency reserves. In a country which consumes one-third of the world's coal and cotton, about half of the world's steel, oil, rubber, and non-ferrous metals, and two-thirds of its pulp and newsprint, a change in demand may easily set up a tidal wave that will swamp all smaller craft.
Nor does the high level of American consumption compensate other industrial countries for this handicap by the market which it offers them. This is partly due to its tariff. The delegation from the American Congress which recently visited Strasbourg contrasted, to our disfavour, the restrictions that have been placed on imports from America by European countries with the reductions that have been made in the American tariff since Mr. Cordell Hull started his series of reciprocity treaties fifteen years ago. The fact is, of course, that although the United States have made substantial tariff reductions, they were cuts in what twenty years ago was the highest tariff in the world. The United States tariff is still a high one. There is another reason why the United States market is not the answer to the problem. Some Americans will always be attracted by special types of imported goods, whether from Britain, France or other countries in Europe; but these other manufacturing countries cannot hope permanently to compete in the American market with the products of American mass production. Even though in good times they could obtain a foothold, it would be a marginal demand—I emphasise this—that would be subject to wide fluctuations. Sales in the American market cannot be relied upon as the basic means of purchasing Britain's requirements of food and raw materials.
I would sum up what, it seems to me, should be our attitude in relation to the dollar-sterling relationship as the maximum of collaboration on policy with the minimum permanent dependence on America, either as a source of supply or as a market. That does not imply any sort of hostility whatsoever to the United States—indeed, I believe it to be the

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view now held by the most enlightened American opinion. In other words, Western Europe and the sterling area must make themselves more self-sufficient. A permanent export surplus financed by American investments is not a final solution, although American investment in the under-developed countries is an essential means of restoring a general equilibrium in the world by increasing the general outflow of food and raw materials.
Our association with the Commonwealth and Empire plays, and is destined to play, a more important part in the economic life of this country—perhaps "more important" is not the right phrase: "more permanent" or "more stable" might be better. Seeing that Canada counts as being on the dollar side and not on the Commonwealth side in the dollar and non-dollar relationship, it happens that our imports from the sterling area, on the one hand, and from the Western Hemisphere, on the other, are of the same order of magnitude now as they were before the war. But while those from the Western Hemisphere are heavily in deficit, in regard to the sterling area the trade is more or less self-balancing. Moreover, in more normal times it is subject far less to possible fluctuations which may occur on the scale on which they occur in regard to American trade. But there is still something to be done if the Commonwealth and the sterling area as a whole is to consolidate and develop its economic strength. This area is by far the largest freely trading area in the world, yet recent experience has shown that its component parts do not necessarily always have the same interest, and a common currency may become impossible if the policies of the parties are out of step.
The decisions of the January Conference of the Finance Ministers in London show that contacts need to be even more continuous and intimate than they have been in the past. There is in the Dominions a feeling of remoteness in matters of economic policy, a feeling which can be readily understood. It is not confined by any means to Government circles. That gap must be bridged if there is to be a common policy accepted and acted upon by both sides. I hope that Her Majesty's Government will also give careful consideration to the opinion widely held that in some way
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representatives of the Commonwealth should be associated with the management of the sterling area.
Our third link is with Europe. The Organisation for European Economic Co-operation, with the European Payments Union as its financial institution, is the youngest of the three. But it is the most elaborately organised. Permanent delegations of the member countries work continuously in the same institution. They are geographically near home and their contacts are easy. They are able to make frequent return visits to their respective countries. The O.E.E.C. is the only body which has so far attempted to co-ordinate production programmes internationally. It is an experiment in persuasion and, although it may not have greatly modified production plans as yet and although the financial resources of the E.P.U. are much too small for their task, the organisation has progressed rapidly. It has been instrumental in removing many trade restrictions. It has also had substantial success in overcoming difficult balance of payments problems. The record clearly shows that the continuous discussion which has taken place within the O.E.E.C. has helped to bring closer together the financial policies of the various countries in Europe.
We in Britain are a deeply interested party in the success of this enterprise. In many vital respects the environment and the problems of the member countries are similar to ours. We certainly cannot afford to revert to a period of unregulated competition or to duplicate our efforts. We are even more interested politically than economically in the stability of our European neighbours. So too are our Commonwealth partners. Continental Europe is one of their great markets, as well as a source of supply. It is for this reason that discussions at Strasbourg have turned largely on the possibility of developing closer relations with all the members of the Commonwealth, and why the chief Dominions thought it worth while to send official observers to the last Assembly. These observers will report to their Governments and suggest ways in which their links with Western Europe may be strengthened. To sum up, my first proposition is that, while we must keep our policy as closely in step with the United States as possible, we should seek to reduce our dependence upon the

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United States. Secondly, consultations with the Dominions should be more continuous, and, if possible, the Dominions should be associated in the management of the sterling area. Thirdly, we should explore ways and means by which members of the Commonwealth can share in our economic and other associations with Europe so far as they feel they can.
I have one last comment to make. When we have done all we can to live within our means—and I think there is convincing evidence that we have not been doing so—and to hold inflation in check at home, when we have organised our affairs internationally, so far as possible, to prevent the clash of economic policies, there remains one question to answer: can we rearm on the scale that is required of us without a disastrous sacrifice of the standard of living that has so laboriously been regained since the end of the war? The findings of the "Three Wise Men" about the burden of rearmament have not been published, and in the absence of the information which they alone possess it is difficult for anyone else to express a definite opinion. There has been, however, one official statement on this matter, and it was issued last August on the authority of all the countries of Western Europe, including Great Britain. It recalls that;, with the generous help of the United States, production in Europe increased in the past three years by 25 per cent., and it goes on to state that if total production can be increased by a further 25 per cent. over the next five years—I quote from the declaration—
"an improvement in living standards and further social progress can be achieved in addition to meeting the requirements of defence."
In other words, their best estimate is that it needs a 25 per cent. increase in the production figure over five years to enable Europe to take up its whole burden without undercutting the standard of living. The Governments consider that an expansion of this size is well within the power of the European economy as a whole if its reserves are effectively used, and they undertake to work together to attain this end.
That is a very optimistic forecast. A 25 per cent. increase when production is recovering from the low level which followed the dislocation of war is a very different matter from an increase of 25 per cent. when labour and plant is fully employed. To achieve it a second time
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will require most strenuous efforts, and very exceptional measures will be needed to deal with the limiting factors, the most important of which is insufficient sources of power and, as Lord Pakenham remarked, in particular, coal. But the direct method of co-ordinating action and directing investment so as to use resources of labour and materials to the best effect has great advantages over the indirect pressure of deflation and unemployment. Therefore, I hope that Her Majesty's Government will take a full and active part in this experiment in international planning and in co-ordinating our own production plans with those of Europe, not merely in regard to armament, as we must inevitably do, but in regard to this definite and essential consideration of an increase of at least the amount that I have mentioned.
My Lords, it may seem that these comments are remote from the crisis of the next six months, but it is not really so; for it is when taking emergency measures of a very drastic nature that one is liable to get into currents that may take the ship far off its course. Here internal emergency measures must be taken promptly and vigorously, possibly even violently. My submission is that they can give only momentary relief unless, with equal energy, we press forward at all points with an international economic policy that offers an escape from constantly recurring crises, and the prospect of a reasonably secure and stable living for the people of this country.
4.14 p.m.
THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT SWINTON): My Lords, these economic debates range so wide that it would be quite impossible for any speaker from these Benches to attempt to cover the whole field without annihilating time and encroaching on eternity. I think, therefore, I can best serve the House if I try to concentrate on what appear to be the most important issues which have been raised here and, also, outside. I do this the more readily because we dealt fully with many of these matters during the three days' debate on the Address.
I should not think it necessary at all to emphasise in this House the gravity and urgency of the crisis, were it not for the attempt, made even by some more responsible members of the Opposition,

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to underrate it. Certainly, I do not think that the gravity of this crisis is as yet anything like fully realised by the people outside. After all, it is natural that the average man should find it difficult to realise that not only his standard of living but his whole livelihood is in jeopardy, when that underlying danger is so completely masked by full order books and by full employment. But it is literally true that to-day we are so dangerously in debt that, unless we can restore the position rapidly and pay our way, all that apparent superficial security will vanish, and we shall be bankrupt, hungry and unemployed.
My Lords, that situation was fully realised by the Commonwealth Conference. They realised that never in the history of the British Empire have we and the whole sterling area faced so grave an economic and financial crisis. Never have I known a Commonwealth Conference which succeeded better or more rapidly, and in which in so short a time every one of us concurred not only on the facts but on the action which we all had to take. As we sat round the table there was no question in any of our minds as to the gravity of the crisis. There was no hesitation of what we must all do, individually and collectively. But, equally, there was certainly no doubt as to our ability together to surmount our difficulties and to win through. I can at once assure the noble Lord, Lord Layton, on one point that he raised—namely, that we all appreciated the importance not only of being together during that Conference but of keeping throughout in the closest contact possible in all the measures, and in watching the results of all the measures which each of us is taking. I will come in a moment to the more detailed criticisms which the noble Lord, Lord Pakenham, made, echoing, I thought, with not quite the same confidence, what Mr. Gaitskell said in another place about our estimate of the deficit we have to meet and of the remedies proposed.
I should like first, however, to deal with the rather extraordinary statement made by Mr. Attlee, that the position of this country to-day is far sounder than that which he faced when he took office. To me, that just does not make sense. True, of course, we had all suffered in the war. We were impoverished, but
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certainly not more impoverished than we are to-day; and great aid came to our rescue. I do not want to be improperly controversial, but there was one matter in which the situation was very different. At the end of the war our prestige was at its peak, and the confidence of the world in Britain stood very high.
LORD STRABOLGI: Does the noble Viscount suggest that our prestige is down now?
VISCOUNT SWINTON: I will leave the noble Lord to consider that himself, and to compare how this country stands, or stood a little while ago, in the eyes of the world, compared with the position in which we stood at the end of the war. It would be foolish to blind ourselves to the difference in the way we are regarded. But we can certainly set it right and put our prestige back where it was.
One of the first things to do is for us all to realise the real truth about the situation in which we stand. Now I will ask your Lordships to allow me to give certain figures. In another place, and in a letter to The Times, in which he elaborated and justified his speech, Mr. Gaitskell, the late Chancellor of the Exchequer, suggested that we were overestimating the amount of the deficit which we have to meet, and, therefore, that our remedies were to that extent either excessive or unnecessary. And Lord Pakenham, so far as I followed him, was, more circuitously, on the same track to-day.
LORD PAKENHAM: I did not exactly make that point, but it is interesting to hear what the noble Viscount has to say in reply to Mr. Gaitskell.
VISCOUNT SWINTON: I thought that line was being followed. I will certainly reply, because I do not think the answer has been fully given. It is open to anyone to make guesses about the future, but the more responsible your position the more careful you should be that guessing does not lead you into wishful thinking. I want, very briefly, to take the facts which are not in dispute between us. First, there is the fact that in the second half of 1951 the sterling area, as a whole, was running an enormous deficit with the rest of the world, a deficit of the order of £1,450,000,000 a year.

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Secondly, there is the fact that in the second half of 1951 the actual United Kingdom deficit with the non-sterling world was of the order of £575,000,000, while the United Kingdom deficit with the world as a whole was of the order of £400,000,000—or about £800,000,000 a year.
These facts are not, and cannot be, challenged; and I think they entirely expose the fallacy of Mr. Gaitskell's argument that we are overestimating. What he has done for the purpose of his argument is to take the year 1951 as a whole, whereas we have had to consider—and as a responsible Government we could do nothing else—the probabilities in 1952, taking into account the deficit as it was running in the last half-year. Those being the facts, I do not think it will be disputed that, both for the sterling area as a whole and for our own part, we must eliminate the sterling area deficit in the second half of this year. That involves our reducing our own United Kingdom deficit with the non-sterling world from £575,000,000 in the second half of 1951 to a maximum of £100,000,000 in the second half of 1952. At the same time, we must at least eliminate the deficit in our overall balance of payments. This involves an improvement of about £400,000,000 in the second half of 1952, compared with the second half of 1951.
In dealing with this problem it is vital that we should not base ourselves on estimates that are too hopeful. I do not think that anyone will deny that in the past estimates have often erred on the side of over-optimism. Let me test that by the most recent experience of our predecessors, who are now our critics. The disclosed policy of the late Government was that during rearmament we had to balance the current account of the United Kingdom—apart from stockpiling. That meant running a deficit at no more than £100,000,000 in 1951. That was the declared aim of the Government and their plan. How, in fact, did that turn out? Instead of a deficit of £100,000,000, the United Kingdom had a deficit in 1951 of about £500,000,0000, including stockpiling. When you get estimates which run £400,000,000 on the wrong side, then really you cannot afford, in this grave time, to make that sort of mistake again. Moreover this must always be remembered. Just getting to equilibrium
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in the sterling area balance is only the first indispensable step in our progress. It is getting to the stilting tape. What has to be done after that is to build up again our reserves. If, by God's grace or by good luck, our estimates should be found to have erred on the right side, and we should have a little more than we have budgeted for, then to that extent we have taken the first step—but only the first step—in the second stage.
It is said at the same time—and it is a rather odd conjunction—that we are doing too much on the home front and too little on the dollar front. This leaves out of account the impact which thing done at home has on the problem outside. As much as possible of our balance has to be got by increased exports, and restrictions at home of every kind have a direct bearing, and are intended to concentrate our resources, material and financial, upon reducing the burden upon our economy and so freeing resources immediately or ultimately for export trade. What is above all important in these matters is that the world should regain confidence in us, so that money may be attracted here and not tempted out. That is a great reason why the world as a whole should see that our whole plan is comprehensive, adequate and complete. I hope that I have said enough—I have been as brief as I can in dealing with those figures—to dispose of the charge that we have overestimated our liabilities and are doing too much. I say to the House with the deepest sincerity that we should be failing in honesty and failing in our duty if we did less.
The noble Lord, Lord Pakenham, has challenged some of our proposals on moral grounds. He cited Burke—not, I thought, very relevantly. I think that a more appropriate quotation for his purpose would be this (I do not know to whom it has to be attributed):
"Never make a mistake in your logic, the facts remain at your disposal."
The noble Lord did, I think, make a rather unworthy suggestion, and I believe that on reflection he would wish to correct it. He suggested that in the economies we were making we were actuated by a desire to injure the poor in order to relieve the rich. I must say that I thought that suggestion unworthy of him and unworthy of the House. I am

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sure that, in his heart, he does not in the least believe it. The greatest moral offence we could commit would be to fail in our task, for then all would go by the board. As Lord Pakenham said, if the trade balance is not put right—I think he spoke of the "bedevilment of the trade balance"—there is no welfare for anyone, anywhere. That is profoundly true.
I think the noble Lord is much too good an economist not to know perfectly well how very directly Government expenditure impinges on the whole problem. I do not know whether he was responsible for the statement to the effect that it was difficult to connect a cut in education with the position of the sterling balances. You do not have to be a learned economist to realise how relevant the connection is. It is common ground that we have to concentrate on exports, and on what will help exports, and for that reason we have to switch demand. All Government expenditure means a direct call on materials and man-power, or the transfer of income to someone else who can make such a call. To say there is no relevance between Government expenditure and the balance of trade is about as sensible as if I were to say that what I spend on drink and tobacco has no sort of relevance to what I have left to spend on food and rent. I think that is a fair parallel.
The noble Lord, Lord Pakenham, was formidable, or at any rate very vociferous, on the economies which are proposed in the health services. We know how united the Opposition are. I should like to answer him out of the mouth of Mr. Gaitskell, for whom I know he has great respect. Mr. Gaitskell wrote an extraordinarily interesting article in the Tribune of December 28, 1951. He was being given a run for his money in what I think is called "Open Forum" and was invited, and accepted the invitation, to defend his Budget and the charges which he had made in the Health Service.
"Out of the fullness of the heart the mouth speaketh."
Let me quote what Mr. Gaitskell said:
"Sir Stafford Cripps had said only a year before, in much easier financial conditions "—
that is, easier than the conditions Mr. Gaitskell had to face last year—
"'It is clear that it is not possible in existing circumstances to permit an overall increase of
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expenditure on the Health Services. Any expansion in one part of the Service must in future be met by economies, or if necessary by contraction, in others.'"
Surely that can be said with even greater force to-day when the financial situation is so much more serious. But Mr. Gaitskell is not alone in expounding this necessity. I recall that after devaluation, when he was justifying economies which included education and housing, Mr. Attlee himself said:
"The Government have made it clear that any advantages to be reaped from the devaluation of the pound might easily be offset by an inflationary tendency. … To counter this risk of inflation and that arising from excessive demand on the home market, we must reduce expenditure."
We thought, and we said, that the Socialist Government were right at that time. Who, then, are Mr. Gaitskell and Mr. Attlee to revile us now?
The noble Lord, Lord Pakenham, asked me particularly if I would deal with production and employment. That is a short question, but a pretty wide one. If we take industrial production as a whole, it is estimated that production in 1951 was about 3 per cent. greater than in 1950. Of course, an aggregate figure of that kind does not present a true picture of what is happening in different industries. Let me take two or three examples. In the textile and clothing industries there was probably no overall increase in production last year. That reflected not a shortage of materials (the noble Lord asked whether any recession in production was due to that), because there was no shortage of materials, but a reduction of demand both at home and overseas. That shows how important it is that we should do everything we can to enable the engineering and metal-using industries, where there is still a possibility of export, to export to the fullest amount even at the expense of, and at the risk of causing discomfort to, the home market.
On the other hand, the chemical industry increased its output well above the average, and that in spite of considerable difficulty in the supply of materials such as sulphur. I think it is fair to say that industry generally has shown a great deal of ingenuity and flexibility in overcoming obstacles to increased production due to raw material shortages. I do not think we can give an aggregate figure of production hi the engineering industries, because it varies very much from one class

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to another, but certainly they have all been handicapped by the shortage of steel. That led the late Government rightly to the conclusion that the steel allocation must be reintroduced, so that available steel could be directed where it was most needed in the national interest. This shortage of steel shows how vitally important it has been for us to increase the supply of steel by every possible means, and how very valuable will be the increased supplies of steel and steel components which we shall obtain from the United States under the agreement made by the Prime Minister during his visit to Washington, about which I shall have something to say later. Suggestions about other incentives are welcome and every consideration will be given to them, but I should not like to wait for a Royal Commission before bending our energies and ingenuity towards finding incentives to workers to work their fullest, to managements and businesses to plough back profits into their businesses and get their production and equipment as efficient as possible. Returning to the importance of steel, I think that anybody who has been engaged in industry would agree that one of the best incentives we can have and one of the best works managers as well, is a continuous and certain flow of raw materials through the shop.
The noble Lord asked me to connect production with employment. The investment cuts and other measures which we are taking to reduce home civil demand are primarily designed to free resources for essential defence and export work. Of course, in many cases that involves workers transferring from one industry to another, sometimes between different firms in the same industry, sometimes between industry and industry. That has got to happen if we are to carry out the major task of re-deployment which is absolutely necessary to enable us to fulfil our defence programme and at the same time to pay our way abroad. The present situation calls for a much greater degree of industrial flexibility. I say this in no controversial spirit, but last July Mr. Gaitskell said:
"In any circumstances, a movement of labour from contracting to expanding industries is a condition of progress. In present circumstances this is a fundamental and urgent requirement if we are to secure an increase in production large enough to carry to a successful conclusion all the tasks that face us."
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That is true. We certainly have never challenged it, and I am sure the noble Lord will not, because it has been common ground to all of us. But you cannot get this greater mobility without some increase in the number of people temporarily out of work while moving from job to job. Indeed, even if we had not the present crisis—the combined problems of exporting to the maximum to pay our way and of discharging the defence programme—it would still be necessary, if we are to remain a great industrial country, that men should be prepared to move from one industry to another as one industry contracts with world demand and another expands. I know that this must mean some temporary hardship to individuals, and I should be the last to make light of it. But over the country as a whole the number of unfilled vacancies exceeds the number of registered unemployed. There are, and will be, increasing demands, both in the defence and in the export industries. I think I have dealt as broadly but as definitely as I can with the very wide question which the noble Lord, quite reasonably, put to me
The noble Lord then returned to the charge about the bank rate. He was not quite so specific as usual, but he was quite as definite in his disbelief. I do not want to repeat all I said on the Address, when I tried to deal with that point fairly fully. It was hardly repeated to-day, so I hope that we have finally killed the charge that we have been making a present to the bankers. Certainly I have not found any bank which thinks it has received a very generous present. Of course, that suggestion ignored the fact that when the interest rate is put up the bank cannot just retain it; it passes on through the system. It also completely ignored the effect that a change of interest rate has upon the gilt-edged securities of which the banks are large holders. I am still waiting for the noble Lord to find some banker who thinks he has been put largely in funds by the Government. The noble Lord loses sight of the much wider issues that are involved in this matter. The steps we are taking to restore our economic position are all part of a comprehensive plan. They are all necessary, and are largely interdependent. The noble Lord admits that to-day credit must be restricted and, presumably, must be selectively given.

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For the reasons I gave last time—every banker will confirm this view; and I desire to say on behalf of this Government that, like the previous Government, we have found the bankers wholly cooperative in trying to help—it is quite impossible for the banks to be selective and restrictive as they should be in credit, if there is unlimited credit available at the source at a low fixed rate of interest. That is just what the old system provided.
Therefore, it was absolutely necessary to use the monetary weapon in the only way in which it would work in practice. I am sure the noble Lord will not return to the old, rather worn-out song, that that means letting the monetary weapon operate absolutely automatically. We are not going to do that, and we have said so. If we did let the monetary weapon take charge of us, instead of our taking charge of the monetary weapon, then would be the time for the noble Lord to criticise us. This need to restrict credit has been emphasised by successive Chancellors of the Exchequer. I do not want to quote at length, but I would again commend to the noble Lord an article in the Tribune. I do not know whether he is on the subscription list or the free list of that journal, but if not I shall be delighted to lend him this copy—on the usual undertaking for safe custody and return, because I cherish it.
LORD PAKENHAM: Does it belong to the Treasury?
VISCOUNT SWINTON: I do not know, but I think it does. It bears the words "Chancellor of the Duchy." But I am quite prepared to pay for it myself, as it is a rewarding document. I commend to the noble Lord a passage on page 2 which commences:
"There is another reason why the Budget must be judged as a whole…"
And it concludes by saying:
"But events since the Budget—above all the deficit in the United Kingdom balance of payments—suggest that if I erred it was in underestimating the extent of the inflationary pressure against which the Budget was aimed, and perhaps in overestimating the effectiveness of the measures then adopted."
I do not know whether Mr. Gaitskell was the noble Lord's tutor, or whether he was Mr. Gaitskell's.
LORD PAKENHAM: We shared rooms at Oxford.
VISCOUNT SWINTON: Then perhaps the noble Lord will continue the "Oxford Group" policy of sharing, and share Mr. Gaitskell's opinions; because I could not put my argument better.
The noble Lord asked me particularly if I would deal with the agreement made between the United Kingdom and the United States Governments in regard to steel and other materials. The story really begins with the loan of aluminium which we were able to make to the United States in November of last year. I call it "a loan" quite correctly, because both what we lent them then and what they are to get under this agreement will be repaid to us and replaced in kind next year. The United States had temporarily run short of aluminium: indeed, they had run so short that the restrictions they had imposed in the interests of their defence programme would have left a large number of small American manufacturers so short of aluminium that they would have had to go out of business. Fortunately, we were able to come to the rescue with a loan of 10,000 tons. The American Government were most appreciative of that, and their appreciation was expressed in no uncertain terms both in America and by Mr. Manly Fleischmann when he was over here shortly afterwards.
That led Mr. Fleischmann to open up, in conversation, the idea that that transaction in aluminium might, as it were, be a prototype for further transactions in the nature of reciprocal aid, to the mutual advantage of both countries. That turned out to be a very fruitful suggestion, as witness the agreement which was made by the Prime Minister on his recent visit and which has been published as a White Paper. As I have said, we needed, above all, steel and iron ore. The United States wanted more aluminium and tin. The aluminium we were able to find, and that will be replaced next year. Tin has a long history. It has been a continual source of friction. I say frankly that I do not in the least agree with a great deal which has been said in the United States in the past about tin and the price of tin. But there it was: it was a perpetual source of friction and such it was likely to remain. While not in the least agreeing with much of the criticism—the state of a man's mind is as much a matter of fact as the state of his digestion—it was

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obvious to us that it would be a very great advantage if we could break the log jam created by the refusal of the United States to re-enter the market, and, at the same time, remove this bone of contention. That we have done.
The terms are these. So far as tin is concerned, we sell to the United States at 1 dollar 18 cents, which is the lowest price. I would draw the noble Lord's attention to this fact. If the United States pay a higher price to any other supplier of tin anywhere, then for the rest of the supplies which we are to deliver we shall be paid at that higher price. Of course, we shall be paid in dollars and the minimum we Shall get out of this transaction is 52,000,000 dollars. I draw particular attention also to paragraph 6 of the Agreement relating to tin, because one of the important things was to get the Americans back into the market. It reads as follows:
"This Agreement for the supply of tin to the United States from sterling sources is intended as an interim arrangement and it is the desire of both parties that more normal arrangements for the conduct of this trade should be established as soon as possible."
As it is very important to the United States to have tin as early as possible, and as it is equally in our interest to receive dollars as soon as we can, part of our deliveries of tin will be made from stock. Now in return for the sale of tin and the loan of aluminium we get the steel—1,400,000 net tons of steel or its equivalent in ore, scrap and pig iron—absolutely vital to our industry.
The noble Lord said that there had been some criticism about price. To get that steel at the American controlled price as we do—that is, the internally controlled price—is a great benefit to us, because if we had to buy that steel in the open market in America we should certainly not get anything like the amount and, at the same time, we should have to pay the large premium which is paid for export steel, which they sell at a much higher price. I think that the wore this is considered, the better deal your Lordships will see it is; and from he point of view of defence and export it is of vital importance. To bring the story of these materials up to date, I may say that there are two other transactions to which the noble Lord referred and about which I must give the House particulars. We have sold
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the United States 25,000 tons of rubber, with an option for a further 10 per cent. The price is 45 cents per lb., c.i.f. New York, for all rubber which we deliver before the end of April. We expect to have all 25,000 tons delivered before that date. This sale will give us about 24,000,000 dollars. We are delivering that rubber from stock, and it will be replaced under our regular buying programme. As your Lordships know, stocks of rubber have to be turned over from time to time to avoid deterioration. Here again, there is the provision that that deal will not affect the purchase for stock either Government would have made during that period. I think that will be generally admitted to be a very sound and sensible transaction. I certainly feel fortified in the wisdom of it by knowing that the honourable Member for Bury in another place, Mr. Fletcher, who knows as much about the rubber market as most people, has strongly advocated action on these lines.
There is one final transaction I should mention, and that is with regard to lead. We have sold to the United States 30,000 tons of lead at the price now ruling. That will give us rather more than 12,000,000 dollars. The lead was of Canadian and Australian origin, and the sale was made in agreement with the Canadian and Australian Governments and producers. This diversion of lead for dollars will be very useful to us. It will certainly not create any shortage of lead in this country, as the stocks are adequate. There was some comment in another place that the United States were not buying materials in the sterling area. All that we have done has helped to get those sales going again. The transactions have been valuable materially and financially, and they have been valuable, too, as showing how the partnership can work to our mutual advantage. I do not want to pass from that subject without paying tribute in this place to one of our number. We have been extraordinarily fortunate in having, the noble Viscount. Lord Knollys, as our representative on the International Materials Committee. One noble Lord asked about that Committee. I think it is doing very good work. I know that I am echoing the sentiments of his American colleagues when I say that I cannot speak too highly of the enormous value

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which the knowledge and negotiating capacity of Lord Knollys have been to us. I am glad to say that—not without considerable inconvenience to himself and, I have no doubt, to the great firm of which he is managing director—he has agreed to stay for some months longer and represent us in these matters in America.
The "Operation Recovery" can be completed only in the Budget. Of that, naturally, I cannot speak, but we shall not have long to wait. It is a very exceptional step to advance the Budget to March 4. That, in itself, is proof of the urgency with which we are handling the situation, and it should still further encourage confidence abroad. We must and we shall succeed. When the British Commonwealth is united it is a tower of strength. I would assure the noble Lord, Lord Layton, that in making the cuts we are not limiting our view to the narrow, immediate and urgent measures which are necessary. On the contrary, we shall certainly restore our adverse balance by positive measures as well. We have looked, and are planning, much further ahead. In this great partnership we shall expand the whole Commonwealth economy by developing the resources of the Empire. We shall build up our reserves again; and renewed confidence will attract once main the business which the world wants to do in sterling, as it did in the past. And with the restoration of confidence and the building up of our reserves, the goal of convertibility, which ultimately—and perhaps at not too long range—we are determined to achieve, comes nearer.
Of course, we in this country shall play our full part. We must lead in the enterprise to which the whole Commonwealth is committed. We have tremendous assets, physical and moral. Perhaps the greatest asset of all is that on which our people have always drawn in time of trouble—national unity. That unity of spirit and purpose and endeavour is needed as much to-day as in the darkest days of the war. If the people of this country know the truth and the national need, that unity of spirit and endeavour will not be lacking. We will continue to tell the whole truth. That is our first moral duty. We will not falter on the road we must all follow if we are to win
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through. We will not hesitate to lead. You can never drive a free people, but a free people will always look for leadership; and they will always respond to that leadership if they believe it is inspired by sincerity and courage.
5.2 p.m.
LORD SILKIN: My Lords, I am sure the whole House will wish to echo the last words spoken by the noble Viscount. There is nobody in this House who will desire to underestimate the very grievous financial position in which we find ourselves to-day. The noble Viscount who has just spoken was, for him, somewhat restrained; he quoted a minimum of passages from statements of the noble Lords opposite, and I propose to follow him in that spirit. I am bound to say that I agree with him that in the perilous situation in which we find ourselves it is better to err on the safe side and to over-do the precautions than under-do them. Later on in the course of my remarks I shall ask him, and Her Majesty's Government, to have a sense of balance and to consider whether some of the things they are proposing are really justified in their results, having regard to the magnitude of what they suggest. But no one will quarrel with the principle that at this time it is better to go too far rather than not far enough. For these reasons we accept entirely the curtailment of imports requiring currency, proposals for which have been put forward by Her Majesty's Government. It could be argued that restrictions on some imports are less desirable than those on others which could be suggested; but by and large one feels that this must be left to the discretion of Her Majesty's Government, who have no doubt given a great deal of serious consideration to the matter; and I do not wish to be factious in my criticism over the details of the restrictions that they have put forward.
I feel bound to say at the outset, however, that these are very short-term measures, and their effectiveness will be subject to the law of diminishing returns. The noble Lord, Lord Layton, referred to the possibility—indeed, the likelihood—of retaliation. We have already seen certain examples of that. For instance, the French Government have reduced their currency allowance: and one of the effects of reducing our own will be to reduce the

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number of people who come to this country. The restriction on capital investment may be inevitable at the present moment, but in the long run it is bound to affect our capacity to export, because our capacity depends on two things: first, the maximum amount of efficiency—and the noble Viscount will, I am sure, agree that a restriction of capital investment must have some effect on our efficiency. Secondly, our ability to export depends upon our having a substantial market at home; and the cuts, particularly the cut in capital investment, must reduce the home market and, therefore, our ability to export. I therefore hope that Her Majesty's Government are looking at this programme comprehensively, realising that some of the things which may be urgently necessary at this moment are in complete conflict with our long-term requirements.
I agree with much that the Chancellor of the Exchequer has said on the subject of restrictions and cuts. We have heard much from him about "lasting remedies" So far we have heard a great deal about the cuts but very little about what these real and lasting remedies are to be. In a vague way we have been told that we must export more. But how are we to do it? Exhortations to people to work harder will not be effective. If we need more concentrated manual work, we also need more efficient management and equipment; and we need the ability in the long run to compete with other countries. We have not hitherto been given any idea, either by the Chancellor of the Exchequer or by the noble Viscount, how it is proposed that we should develop our great resources and how we are to increase our export trade. Exports are not going to be easier in the future. We have hitherto had a sellers' market. It does not look as if we are going to get a sellers' market for certain commodities in the future—the noble Viscount, Lord Swinton, himself referred to textiles and clothing where the sellers' market has practically dried up. Chemicals and engineering products have increased, but these are both products which we ourselves shall need more and more for the rearmament programme. These are the very things that we shall be less keen about exporting in the future. So I would ask the noble Lord who is to reply to the debate whether he can tell
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us what steps are proposed to increase our export trade, and particularly to increase our trade in those commodities where there is still an effective demand.
VISCOUNT SWINTON: I realise that I had rather to concertina what I was saying, but I thought I had made it clear how we were going to increase the exports in the engineering and metal-using industries by the concentration of steel where it was most required for that purpose and by the deflection of goods from the home market.
LORD SILKIN: I understood that. This is not a debating point, and I do not wish to make a debating point of it. I thought that a good deal of that was going to be used for the purpose of rearming.
VISCOUNT SWINTON: It is for both. I am quite certain that we can do a very great deal of export if we concentrate our resources, financial and physical, on that.
LORD SILKIN: This is not a matter that we can settle by question and answer. The last thing I wish to do is to be dogmatic about the matter, but I want to put it as clearly as I can. We have been told by the present Minister of Labour, and by his predecessor, that at least half a million workers will have to be transferred from the home market, from home production, to the production of arms if we are to carry out our programme. That, I imagine, will be regarded as a first charge on our resources. If that is so, then I find it very difficult to understand how we are going to get any more It will be difficult enough to transfer half a million workers. How can we transfer more for the purpose of increasing our expert trade? And, by the way, what would be the effect on home consumption?
I cannot help feeling that not sufficient consideration has been given to this problem, in spite of the tune which has been taken by Her Majesty s Ministers in propounding their policy In particular, I cannot help feeling that they are still much too vague in their hopes and expectations of being able to increase the export trade. We are to-day, I suppose, largely discussing the statement made by the Chancellor of the Exchequer on January 29. While I commend, as my noble friend Lord Pakenham did, the

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tone, the spirit and the fairness of his statement, I must say that he gave me the impression that he was dealing with symptoms and not causes; that there was no attempt seriously to analyse the long-term fundamental policy. I thought that he tended rather to over-simplify it. Neither he nor the noble Viscount said very much about the effect of rearmament on our economic position. I have just referred to the very large diversion of labour and materials from our normal production that will have to take place. I referred to half a million additional people in industry alone, but we shall in due course have nearly a million men under arms. That is a very big diversion. The noble Viscount quoted the Leader of the Opposition in another place as indicating that the position was much more serious and much graver in 1945 than it is to-day. But the noble Viscount ought to bear in mind that the position to-day is that we have a very large increase in production, as compared with the level then. At that time it was merely a hope and an endeavour; to-day, it is a realisation. Nevertheless, we have not yet begun seriously to feel the effects of the rearmament programme; we shall feel them much more strongly as the years go by. I said a moment ago that I thought that neither the Chancellor of the Exchequer nor the noble Viscount had given sufficient consideration to the effect of rearmament on our economy. Very little was said by either of them in their respective statements.
In my view we are attempting the impossible. I think it is quite impossible to reconcile, on the one hand, rearmament on the scale to which we have committed ourselves, with, on the other hand, the maintenance of anything like the standard of living which our people are not only entitled to expect but which is necessary to maintain them in normal conditions of physical health and comfort. I do not feel at all inhibited by the fact that some members of my Party have taken a different view, or that the view I am expressing happens to be one expressed by a certain person who is unmentionable; I do not think that matters in the least. The duty of all of us in this House is to speak frankly and to say what we honestly believe. I feel that we have undertaken an impossible task, and that
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we have approached this problem from the wrong angle. The right approach would have been, first, to see what our total resources were, how much was necessary in order to maintain an agreed standard of living for our people (it might have been fixed at a lower level than the present one, but it should be an agreed standard of living), and then to devote what was left to rearmament. I feel that that would have been much better than fixing what I regard as an arbitrary figure for rearmament and then leaving the remainder for the people of this country to maintain themselves.
I realise that the noble Lord, Lord Pakenham, made a statement, and attributed it to the European Council, that if we could increase our production by 5 per cent. per annum for the next five years we could take rearmament in our stride. But is there any reason to believe that that is at all possible? It is true that in past years we have increased our production, and in some ways possibly by as much as 5 per cent. But to-day we have the calls of rearmament and the fact that we are going to be constantly faced with shortages of material, which does not make for efficiency. We know that during the last war production was not as efficient as it might have been because we were constantly faced with shortages of material. In those circumstances, and taking into account the switch-over from peace-time production to war-time production, it is inconceivable that we shall be able to increase production by anything like 5 per cent. I should guess—it is only a guess, and I hope I am wrong—that if we increase production at all, by a fraction, by 1 per cent., certainly in the first year or two of large scale rearmament, we shall have done exceedingly well.
There is one other matter of importance that neither the noble Viscount nor the Chancellor of the Exchequer mentioned—namely, the question of the terms of trade. Mr. Gaitskell, who has been quoted with approval so often by the noble Viscount this afternoon, stated that unfavourable terms of trade accounted for £150,000,000 to £200,000,000 of our adverse balance. If that is true, it is a substantial figure. If there is any remedy to the unsatisfactory terms of trade, it will be a far bigger factor than

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many of the cuts in Government expenditure which have been put forward, and I shall be glad to know what the Government are proposing in order to deal with the unfavourable terms of trade. I do not think it is satisfactory to say that those terms are inevitable; that they are governed by the law of supply and demand. Indeed, the noble Viscount supplied an answer to this question. He was congratulating himself and the Government on the very favourable terms on which they have been able to purchase steel. Therefore, since a great deal of the adverse terms of trade is due to the high cost of raw materials, it is possible to influence those high prices by negotiation, by the means to which the noble Viscount himself referred, by collaboration, and so on—in fact, by the method of bulk purchase which he praised so highly. We are very glad indeed that the first action of the Prime Minister in America was to embark on an expansion of something that he had hitherto condemned; so wholeheartedly. However, whatever steps are taken, I suggest that measures to deal with unfavourable terms of trade are of the highest importance and should be given very high priority.
There is one other subject upon which nobody has touched at all, yet it has played a very big part in this matter. Three or four months ago it was almost the only topic of conversation. I can well understand that it is an embarrassing subject and that the noble Viscount would not wish to touch upon it, but it is the important factor of the high and increasing cost of living. In the last three or four months the cost of living has increased substantially. This was a matter which we all understood was going to be given the highest priority: that whatever else the Government did, they were going to deal with the high cost of living. What has become of that intention? The high cost of living is a very important factor in our economy. The noble Viscount will not suggest for a moment that it is an irrelevant factor. It has a great bearing on the question of our adverse balance.
That brings me to the, subject of inflation, another matter that has not been dealt with at very great length. There is some dispute whether or not we really have inflation in this country, and it is important to clear our minds upon it. I believe it was argued by an honourable gentleman in the debate in another place
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that what we are suffering from at the present time is not inflation. Certainly, it is not inflation in the generally understood sense of the term—namely, too much money chasing too few goods. There is no shortage of goods at the present time; but there may be, as a result of the Government's policy. As we have explained, the pipe line is too full, but the time will come when there will be nothing in the pipe line. At present, however, and for some time past, it has not been a question of a shortage of goods; rather has the reverse been the case. It has been a question of the shortage of money, an inability to buy the goods that are available. That may be inflation, but it is not the kind of inflation that we generally talk about or understand.
One of the effects of this is that there is a constant demand for increases in wages to keep up with the increased cost of living. This results in increased costs, which in turn affect our exports and once again bring about a demand for further increases in wages. So it is a matter which must he dealt with. But I would suggest that the treatment for that kind of inflation is very different from the treatment for the kind of inflation that is normally understood, of too much money chasing too few goods. Of course, the remedy for the latter kind is, by taxation or otherwise, to hive off some of the money. If that were the disease from which we were suffering, then on March 4 it would be right to anticipate a substantial increase in taxation, in order to deal with that inflation. But if that is not the kind of inflation from which we are suffering, if, on the contrary, there is not enough money yet quite an adequate supply of goods, then we are not going to remedy the situation by increased taxation. Nor are we going to remedy it by putting additional burdens upon the people—that is, by transferring Government expenditure to personal expenditure, as the Government is seeking to do in certain respects. Of course, I do not expect to get a reply to this particular point to-day because that might be, in a sense, anticipating the Budget. But it is a point that should be borne in mind. There is a danger of confusion.
Next, I wish to turn briefly to the question of Government expenditure and to charges for the Health Service. I

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want to say at once that, in so far as expenditure by the Government involves a call on labour and material, then any reduction of that expenditure sets free labour and material. That is obvious. But if it is merely a case of transferring expenditure from the Government to private persons, I fail to see in what way the nation as a whole is gaining. I fail to understand—I know the noble Viscount opposite tried to explain this, but in my view he did not explain it—in what way the nation gains by the transfer of expenditure from the shoulders of the Government to the shoulders of individuals.
LORD HAWKE: Is the noble Lord arguing that when, for instance, a charge is made on prescriptions, exactly the same number of prescriptions will be made up as before? Perhaps he, like many other noble Lords, listened to his noble friend Lord Chorley, who a short time ago said that the whole nation was already being poisoned by a deluge of medicine and that he wished to have the deluge decreased.
LORD SILKIN: I am making my own case and not Lord Chorley's or anyone else's case. I say that in so far as the effect of the charge is to reduce the demand for prescripitions, for false teeth or surgical aids and so on, then to that extent less labour and material are consumed. But I was making the point—and if the noble Lord will permit me I will proceed—that a mere act of transfer of itself has no economic effect at all on the problem we are discussing. Now, says the noble Lord, we have to face up to the fact that the effect of making a charge is to reduce the call on dentures, surgical aids, hearing aids and so on. That may be so. But if it is so, it is a deterrent which I suggest is wrong in principle.
LORD HAWKE: Lord Chorley thinks it is right in principle.
LORD SILKIN: He may do. I would ask the noble Lord, Lord Hawke, what he thinks. Does he consider it right in principle that people should be deterred from getting their medicine through inability to pay a shilling? Is that the doctrine laid down by the noble Lord?
LORD BLACKFORD: Was not the charge a part of the doctrine of the
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Labour Party during the time of the late Government? They had prepared a Bill for that purpose.
LORD SILKIN: I regard myself as being perfectly free to express an opinion on this particular question which may not be the opinion of some of my colleagues. The noble Lord can, if he likes, argue with them. I am, as I say, expressing my own opinion, which is that it is wrong to prevent people getting medicine because they are unable to pay a charge for it. If medicines or anything else are being wrongly used, it is the duty of the Government to find some way of preventing that wrongful use, but not through the power of the purse. I doubt very much whether, in fact, the number of prescriptions demanded will be substantially reduced as a result of the imposition of the shilling charge. In so far as that charge may reduce the number of prescriptions, it may react on the wrong people. The people who are determined to get medicine because they believe in medicine for medicine's sake, will obtain it somehow. But the people to be deterred may be the very people who, in the opinion of the medical profession, are just the very ones who ought to get it. So the imposition of this charge may have a most unfortunate effect.
Leaving aside medicines I would next ask what about dentures? Does the noble Lord opposite apply the same reasoning to dentures?
LORD BLACKFORD: Mr. Gaitskell brought out the idea of making a charge for them.
LORD SILKIN: Are there too many people getting dentures, and ought we to prevent people from getting their teeth seen to? If the system of charges for dental work does not prevent people from getting their teeth seen to, then I say the economic effect of it is nil from the point of view of the financial problems that we are facing. I hope the noble Lord will agree with that. The system of charging becomes effective only in so far as people are deterred from getting these things—hearing aids, surgical aids, dentures and the like.
LORD HAWKE: They take better care of those they have already got.
LORD SILKIN: Is the argument then that we must charge in order that people

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may take better care of their artificial limbs and the other aids provided under the Health Service? Is it suggested that people are so careless about their hearing aids, their artificial limbs and their dentures that a step like this must be taken to make them more careful? The noble Lord is being driven into very difficult country indeed, if he is arguing along those lines. The fact is, I suggest, that these charges have no economic effect whatever, except to the extent that they improperly deter people from getting things that are necessary for their health. And, in the long run, they will have a deleterious effect on people's health. To neglect one's teeth or one's limbs for too long may result in an added burden later on.
Moreover, ought not the Government to have a sense of proportion? I fully realise that there is a shortage of steel, and that everything must be done to conserve supplies of that metal. But it seems to me that the Government are using a steam-hammer to crack a nut when they cut down all school building, except what is actually in progress, merely to conserve steel. Have they considered how much steel they are going to conserve? I am informed that the total amount of steel involved is something of the order of 30,000 tons a year, out of a total production last year of 14,500,000 tons—and we hope to increase that figure, together with 1,000,000 tons which we are getting from the United States. For the sake of this infinitesimal amount of steel the Government are going to penalise a whole generation of school children and, possibly several generations, by compelling them to receive their education in large classes, by preventing their getting secondary education, and so on. I do not wish to enlarge upon this matter, because I hope there may be another opportunity of considering specifically the subject of school buildings. But I do ask the Government to have a sense of proportion, and to consider what is the gain they are getting and the cost they are paying. Again, I ask what is the financial advantage in disbanding the Crown Film Unit? That is a unit which has done an immense amount of valuable work. It is admitted on all hands that the work they have been doing will have to be done by someone, if not done by the Crown Film Unit. It is not even a question of saving in labour and material,
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because such saving is infinitesimal compared with the harm that is being done.
Admitting once more that the situation is grave, I say that there is grave responsibility on anybody who is factious and merely out to gain Party advantage in considering what the Government are putting forward. I hope that so far we on this side have not been guilty. What is needed is, on the one hand, a pooling of ideas, frankness and constructive criticism and, on the other, clarity, objectiveness and courage to carry through the required policy. And perhaps courage is the most important of all these. Given an approach from these two angles, I, like the noble Viscount Lord Swinton, have little fear about the future of this island and the Commonwealth as a whole. I hope that this debate and the one which will follow the Budget will be of some help in bringing this nation through its very grave difficulties.
5.42 p.m.
LORD BRAND: My Lords, I propose to say some words on an aspect of the problem different from that on which the noble Lord, Lord Silkin, has spoken. I should like to answer some of the things he said, and perhaps some day we may have a debate on transfer expenditure and the taxation involved, and whether it has any economic effect. What I should like to talk about is the general situation of the sterling area and the problems it brings with it. In that way I think it may be possible to get a clearer view of our problems.
The recurrent crises we are suffering from are due fundamentally to the fact that as a great banking and trading centre, responsible for the currency which is used for half the trade of the world, we are totally illiquid, our liquid assets being completely inadequate for the short-term liabilities we have—that is, the sterling balances. It is this fact that renders our position so vulnerable and convinces the world at large that we are vulnerable and, therefore, that to speculate against sterling is without danger. It is what is called a "one-way street." Sterling, people think, is certainly not likely to appreciate, and may depreciate; therefore, why not take a position against sterling? I believe that I have always expressed to your Lordships the view that it was this external problem which should

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have been given A1 priority by any Government since 1945. It was a vital problem, and it remains a vital problem now, to increase our reserves and, so far as possible, to reduce our short-term liabilities, which unfortunately have been rapidly increasing. Since 1949 our sterling balance has increased by £742,000,000 and now stands at a total of £4,735,000,000, an increase almost entirely due to additional money we owe to sterling area countries. It is for this reason that I wish to consider what keeping the reserves of the sterling area involves and how we can deal with the problems arising therefrom.
As your Lordships are aware, the sterling area is a product of history. It grew up entirely because of the unique facilities which could be found in the London market. The United Kingdom in those days had a stable currency, a plentiful flow of exportable capital, banking and insurance facilities, well-organised commodity markets for metals, cotton, and many other commodities, every facility for exchange of sterling into any other currency, and ample shipping facilities. It was these factors which brought about the existence of the sterling area. In fact, one might almost say, as an eminent economist said the other day, that in those days the whole world was the sterling area. All these formed a unique combination of services, one unparalleled in the world. Even now some of them continue to exist, and if we have a strong determination to maintain them, we should be able to do so. It is still very important, both to this country and to the other members of the sterling area, that the sterling area should continue to exist. Everything that has been said in your Lordships' House to-night—and particularly what my noble friend Lord Layton has said—goes to prove that. Mr. Gaitskell would, I feel sure, take the same view, since in another place he has expressed his strong feeling that we should develop in any way we could our trade with the sterling area. It still provides, over a huge area, not a common currency—because every member has its own currency—but a currency, United Kingdom sterling, in which by common convention all international transactions between countries within it, and largely without it, are transacted. Within the whole area there is more or less freedom
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from exchange regulations, common convertibility of currency, comparative freedom of capital movement and the still unique facilities of the London market. But we have to recognise that the whole edifice was built up on, and cannot last without, first and foremost, a stable and strong United Kingdom currency. And this, in the modern world, means ample reserves. Can we re-create them to match our external liabilities or can we reduce these liabilities to something bearable? This is the most important question.
Secondly, the sterling area was built up on an ample flow of capital from this country. Can we continue to provide capital? That is the second important question. The sterling area was built up when we were a great creditor nation. At the moment we are a debtor nation, because we are loaded down with huge, short-term liabilities to other countries, largely arising out of the war but greatly increased recently. The real question, therefore, is: Can we earn for ourselves a surplus on our balance of payments on current account annually—that is, can we have exports, visible and invisible, larger than imports to such an extent as to build up our reserves to pay off gradually our external debts, to incur no more debts and to lend capital to the rest of the sterling area for their and our own benefit? None of this can be done except out of the surplus on our balance of payments.
Let us consider what this means, and examine briefly how the sterling area works. As your Lordships know, by common consent, dollars earned by other sterling area countries are pooled in our United Kingdom gold and dollar reserves in the United States. We, in return, undertake to meet the dollar requirements of other sterling area countries, and in return, again, for this every sterling area country observes certain agreements about general financial and economic policy and enforces certain exchange control regulations on its citizens to limit calls on our reserves. But it is very important to bear in mind—and many people do not—that these reserves are our United Kingdom reserves and do not belong to the other members. The rest of the sterling area, it is true (South Africa is an exception, but I will not delay to explain the arrangements we have with that country) hand over to us their gold and dollars. But they do not hand them

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over free. We buy them with United Kingdom sterling, and this purchase price goes to swell the sterling balances—that is to say, goes to swell our liabilities. In fact, any increase in these sterling balances, however arising, involves a possible call upon our dollar reserves, unless they are used tip to pay for exports from this country. Therefore, the way to reduce sterling balances is to have sufficient exports available to reduce them. This means an ample surplus of balance of payments, and that is the point to which we always return. Of course, anything else that leads us to add to the calls other countries can make upon us—for instance, loans or remittances of capital, like the Uganda loan made to-day or the Southern Rhodesia loan made a few days ago—increases our immediate liabilities.
Broadly speaking, these sterling debts are built up M the ordinary course of trade. They are not due mainly to Government transactions, but to transactions by innumerable banking and trading institutions and by individuals. Normally they disappear when used to pay for exports or other services; but if not, they remain a danger to our reserves. For instance, in 1950 we thought we were doing exceptionally well, because certain sterling countries sold us large amounts of dollars resulting from their exports to the United States, and on the other side built up large sterling balances. In 1951 they and other sterling countries, also with greatly increase d sterling balances, used these balances to buy back from us dollars out of our reserve to pay for American exports. Thus our reserves showed a great increase in 1950 and a great fall in 1951. If we had been able to provide more exports in place of the United States exports we should have lost fewer dollars.
I venture to give your Lordships a simplified example in figures which may demonstrate the way in which the system works. The following figures show broadly what happened in the three and a half years from January, 1948, to June, 1951. We bought from the rest of the sterling area in gold and dollars £554,000,000. We also bought other foreign currencies from the sterling area amounting to £373,000,000. (We did not in fact actually buy these currencies; the transactions took place through sterling, but that was the effect.) Therefore, we started by owing the rest of the
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sterling area £927,000,000 on these two accounts. As against this, however, we had a trade surplus of £769,000,000, for which the rest of the sterling area paid us sterling. This left us owing the sterling area £158,000,000 which should, one would have thought, have represented the maximum increase in the sterling balances. But, in fact, they increased by £801,000,000. The balance of £643,000,000 must represent loans and remittances in one form or another from the United Kingdom to the sterling area. Thus, during these years we had, it is true, a very large surplus each year with the rest of the sterling area; yet sterling balances—that is, our liabilities—still greatly increased. Our surplus was not large enough even to buy the dollars and other currencies offered us, altogether apart from our being able to reduce debt or export capital.
Since June, 1951, as I have said, these large sterling balances, recently built up, have been largely drawn upon again to meet the growing imports into the rest of the sterling area from here, the United States and Europe. Instead of having, as usual, a surplus, the rest of the sterling area had in this period a considerable deficit, which was met from our reserves through the use of sterling balances. My noble friend Lord Swinton gave certain figures, which I will not repeat, but which I found quite correct, in regard to the immense deficit in the last part of 1951, not only on the United Kingdom balance of payments, but on the sterling area balance of payments, running together to something like £1,400,000,000 or £1,500,000,000 per annum—Australia particularly had a very big deficit and drew heavily upon us.
It is not untrue to say that at present whenever any sterling country has a deficit, either in dollars or through E.P.U. with Europe, that deficit has to be met through the use of sterling balances out of our dollar reserves. Therefore, it is clearly highly important to us that the sterling area as a whole, including the United Kingdom, should have no overall deficit, as it his now; that the rest of the sterling area should earn the largest possible surplus with the non-sterling world to help us build up our reserves; and that, in any case, the rest of the sterling area should earn a surplus with the non-sterling world sufficient to cover

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our United Kingdom dollar deficit, which I think in the last years has never gone below 300,000,000 dollars a year. Finally, the United Kingdom has to aim at the largest possible surplus with the sterling area, with E.P.U. and with the dollar area—or, at any rate, as regards the dollar area, the incurring of the least possible deficit. So far as dollars are concerned, we have to look to the sterling area mainly to provide them and to sell them to us for sterling. In the end what is vital to us is that we shall have exports available by means of which the sterling balances can be reduced.
We are now faced with the urgent need of increasing our reserves or reducing our debt, or both, and it is clear from what I have said that our creditors—mainly the sterling area—have every interest in seeing that we are assisted by them in every way possible to do both of those things. It would be madness on their part to ruin our United Kingdom currency by too great pressure on us for immediate payments of debt. I would reiterate that we cannot reduce the sterling balances, we cannot build up our reserves and we cannot provide capital for the sterling area except out of our own surplus. Whether we can do all these things at the same time is questionable. What surplus do your Lordships think it reasonable for this country to try and obtain—£400,000,000, £300,000,000 or £200,000,000? Unless you have at least £200,000,000 surplus you can do very little in the way of either building reserves or reducing debt, and certainly in the way of finding capital. We have been finding capital for the last few years for the sterling area at the rate of £200,000,000. I say we "find capital," but we can do it only if we borrow the same amount of capital from somebody else. Therefore, if we provide now £200,000,000 a year for the sterling area, we must also borrow somehow about the same amount.
How we are to accomplish this brings me to the question of our own policy in this country. How has our internal policy affected our situation? Mr. Attlee said the other day that the trouble about the situation was that our reserves were too minute; that they were so small that whenever there was a little crisis the whole structure was threatened. Undoubtedly he is right. But during the
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last few years the Government have had the duty of building up our reserves and the reduction of our debt. Did they give this first priority? My own criticism always has been—I know that the noble Lord, Lord Pakenham, does not agree with me—that the Socialist Party tried to put the roof on the Welfare State before building its foundations. I do not think anyone would say that they showed the same passion for strengthening our currency or building up our reserves as they showed for the nationalisation of steel or the creating of the Welfare State.
LORD PAKENHAM: Will the noble Lord forgive me if I break in to say one word at the point where, as usual, he is interesting the House very much? I do not know whether he happens to have seen an essay recently published by Chatham House—with which I believe he is connected—on British economic policy. The essay was written, I think, about three years ago in 1949 by Mr. Austin Robinson, who is certainly no Socialist and is an independent thinker of the highest standing, and editor, I believe, of the Economic Journal. Speaking from memory—the noble Lord will no doubt check this—I believe that Mr. Robinson describes the policy pursued since the war of putting exports first (and they are aimed, after all, at the reserves), capital investment second, and consumption, third. I mention that because the noble Lord may know the essay.
LORD BRAND: I have no doubt read it, but there are so many of these documents by so many eminent economists that one forgets sometimes which is which. No doubt I did read it, and I have the greatest respect for Mr. Austin Robinson's intelligence and capacity. I was coming to the noble Lord's question with regard to exports. I think the noble Lord would certainly agree that in the Daltonian heyday all was different, and that we did then dissipate a great many of our resources. It is certainly true that when Sir Stafford Cripps came on the field, and also when Mr. Gaitskell followed him, great efforts were made to increase exports—and, in the main, very successfully. I do not, however, agree with all that the noble Lord said about our production. That has not been very exceptional; other countries have done better. Sweden has done much better,

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and other countries also. We have not done anything very exceptional, and all your Lordships know that in favourable circumstances we could do much more now. That is one direction in which one certainly has to look.
I agree also that during Sir Stafford Cripps' time our external debt was greatly reduced. Roughly, you can say that it was reduced by taking Marshall Aid and, out of it, paying off our debtors. I think perhaps top much was done in that way. But you cannot say that it was not in the good direction of reducing our debts. In my view, Sir Stafford Cripps' whole work was hampered by the fact that he had no influence at all in altering, and, indeed, he did not want to alter, internal policy. He sometimes said that some measures must not go further—for instance, that expenditure on health services must not be increased beyond a certain sum—but he did not go further than that. In my view, there was a prolonged attempt during all this time—which if it could have been done would have been admirable, and on paper was successful—to increase spendable incomes in the country, before the foundations were securely built. This policy was effected by subsidies or by selling below cost food, houses, electric power and coal and by free health. In parenthesis, I may say it always surprises me that health services are called "free." All your Lordships are taxpayers, and I think it is really a miracle to have persuaded this country that a service which costs the taxpayer £350,000,000 should be called free. Call it something else; but to say that it is free—and it is paid for by the great mass of people and not by the rich, because they cannot pay much more—is to me nonsense.
All these things have tended to greater consumption and also to more and more extravagant taxation. Very competent authorities have told me recently that they calculate that by these means real incomes have been raised for the great bulk of the population by about 10 to 20 per cent., though for the top million they have been very heavily reduced. To raise incomes generally is admirable, if we can afford it; but, in the circumstances, such a method is inflationary. Everyone would be only too glad to see the standard of living raised, if we could afford it. The noble Lord once or twice
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has accused me of "wanting to reduce the standard of living." It is as if accountants and solicitors, interviewing a man who is bankrupt through extravagance, say to him, "You must cut your costs." He replies," I know what you want. All you want to do is to reduce my standard of living." It is the same with a nation: it must live within its means. Everyone will agree that it is very unfortunate for the population to be compelled to reduce temporarily their standard of living, even in a time of crisis; but everyone will also agree that it is much more disastrous that their currency should completely collapse. Nothing could be worse than that.
At present, we have not only too much external sterling owed by others, but also too much internal sterling—too much sterling inside the country. The recent increase in imports from Europe in 1951 was far bigger than we could afford, because the power of consumption was too high, and, naturally, the public bought the things they wanted.
But I do not deny that in the whole picture, external circumstances—namely, the alterations in the terms of trade—have been enormously important and that rearmament has now a great influence also. No one could deny that. Nevertheless, these influences would not have been so great, had we not suffered from such a great illiquidity and had our reserves not been so small. So long as this condition exists, we are at the mercy of the world. Therefore, whether to avoid inflation or to create a surplus we must cut imports and restrict internal consumption and capital expenditure, and certain sterling area countries must do the same. This indicates that the Government policy is right and that they should proceed with it and develop further their monetary policy. I believe that this latter is more important than anything else. Apart from the effects of higher interest rates and the restriction of credit here, one should remember that higher interest rates do have an influence in keeping capital here and possibly drawing it here. This is not now regarded by most people as a pleasant country. They might like an opportunity of moving their capital elsewhere. There are constant threats against capital, against profits, against dividends, in fact against private enter-

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prise altogether; and therefore one great difficulty about having convertibility of sterling is that there would then be a temptation to take advantage of it and move a little of one's capital elsewhere—a temptation which might be an overwhelming one to a great many people.
Returning to the Government's policy, I would say that it is also important, in my opinion, to use Budgetary pressure as well as monetary pressure, and I hope the Chancellor of the Exchequer will continue his policy of reducing expenditure. I believe it ought to be possible to devise a reasonable scheme—I have said this to your Lordships before—for dealing with some subsidies: for instance, the food subsidies. Such measures are bound to lead to criticism, but if effective measures are not taken we may have, very soon, a real collapse. The real enemies of the people are those who reject all plans, and not those who in the face of great difficulty take measures to deal with the situation.
I should like finally to say a word upon a subject which the noble Lord, Lord Layton, developed in an interesting manner, and that is the part which the United States should play. I think, as he does, that a rise in the price of gold would be helpful. It seems to me paradoxical that if gold is still useful in the world, it should be the one single commodity whose price has not been raised. We all know, indeed, that more gold would be invaluable to the world at the present time. So long as everybody believes that gold is essential as a store of value and a means of exchange, so long, indeed, as we think gold is of such pre-eminent value, then it must be wrong to keep its price down to the pre-war figure. The sterling area would gain much if the price of gold were raised relatively to a level with other commodities. As for the part which America should play, I understood Lord Layton to suggest that it might be valuable if the United States were to provide other countries with gold for their reserves. The trouble seems to be that that would mean a gift. Furthermore, I wonder what good it would be unless the other countries were first to get their balance of payments right. It would soon be gone. At the present rate,
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so far as the sterling area is concerned, it would be gone in a very short time.
Therefore, I feel inclined to think that it would be more important, though perhaps difficult, to get the United States to go further towards free trade. She is the greatest creditor in the world and she ought to let imports in very freely. But we all know that Congress, pressure groups, history, customs collectors and so on, have to be persuaded, and we know how difficult it is to make these changes in the United States. Beyond this the only remedy is for American investment to flow abroad. We in this country in the nineteenth century lent abroad hundreds of millions of pounds annually, through private channels—but the world then was a place where private people could safely do that. Things are not so easy now. It is not going to be easy to persuade an American investor to invest abroad when he has attractive investments in his own country at high rates of return. In view of this, why should he invest in Teheran or in the Gold Coast or anywhere else? I doubt whether many of your Lordships would be ready to do so in similar circumstances. Therefore I think we can practically rule out purely individual investment at present. Big companies will go on investing some money abroad, and it may be that within a few years the United States, with her vast productive capacity, may wish to invest abroad very largely to keep her employment up. But at present we have to look to the Government, or to the Export-Import Bank or the International Bank. As to gifts, we know how disagreeable it is to give and to receive them. We must not blame the United States too much for not acting as a creditor country should. If you look at the American balance of payments figures you will see that her accounts, like those of other countries, must balance. They do this by making great gifts. It has been the only way open to them.
I feel that in all the circumstances the noble Lord, Lord Layton, is right when he says that we should develop as far as we can trade and interests with the sterling area and the rest of the world. For that reason, it is vital to make sterling a safe currency. Therefore, we should all support the Government in any steps they may have to take, however drastic, which will keep sterling as a sound and stable currency.
6.21 p.m.
LORD STRABOLGI: My Lords, I follow the noble Lord, Lord Brand, with some diffidence. In fact, I find myself, not for the first time, almost sandwiched between bankers in this debate. If I were the present Chancellor of the Exchequer, I should not be very happy about the first part of the noble Lord's speech. It was not, naturally, hostile to the Government. His arguments certainly were well based, and he made out a very strong case for the cuts the Chancellor of the Exchequer is proposing to make; but according to his figures the Chancellor's measures are not nearly sufficient. No doubt the noble Lord is relying on the Budget for more drastic measures, and I shall be interested to hear his remarks in the debate after the Budget has been opened.
Lord Brand speaks, of course, for the higher ranks in the financial hierarchy of the City of London in his remarks about the sterling area. I was recently with somebody much lower down in the City hierarchy. I had occasion to see a prominent stockbroker, not the one who advises me on my few investments, but a personal friend and a very staunch Conservative. After we had finished our business, I said to him: "What have you stockbrokers been doing in Throgmorton Street that nearly all my investments are down?" He said: "You must blame the Government, not us." I said: "Blame the Government? But you are a very strong Conservative." He said: "Yes, I know, but they are practically Socialists. We do not like them at all in the City." I said: "You do not like them?" He said: "No. We did much better under Gaitskell."
LORD BALFOUR OF BURLEIGH: Easy money.
LORD STRABOLGI: I said: "But how did you get on under Dalton?" He said: "We did not like Dalton. Dalton went too far. We much preferred Gaitskell to Butler." I said: "You, a Conservative, can say these things." He said: "That is common talk. The general talk of the City now is, how long before we get this crowd out?" That was at a much lower level in the City than that occupied by Lord Brand, but it may better represent City opinion.
LORD BRAND: Will the noble Lord use that argument on a platform? What the profiteers really like are the Socialists.
LORD STRABOLGI: I do not bother about profiteers and was not talking of them. The man to whom I was talking was a typical City man, a hard-working man, engaged in a very useful business. According to our financial pundits—I hope the noble Lord, Lord Brand, will forgive my using that description—these men who encourage and handle investment: have in the past been the very salt of our financial life. I would not deride them at all. I am certainly making no attack on the Stock Exchange.
I am sorry that the noble Viscount, Lord Swinton, has had to leave the Chamber, because I wanted to express my great surprise that he should suggest that our prestige is low to-day, or at any rate lower than it was in 1945. I travel about a good deal; I go abroad often, and everywhere I find great admiration for this country, and great faith in this country too, in spite of the change of Government. I heard it last year before the Election and I have heard it since the Election. I believe that if we have courage in ourselves, other people will respect us and that cur prestige will be as high as ever. Our prestige does not depend on brute force, on holding down subject peoples by imperialistic methods. It depends on our reputation for fair dealing, keeping our word, fair trading and the honourable way in which we treat our dependencies. I was very surprised indeed to hear that remark from the noble Viscount, Lord Swinton, because of our recent excursions in freeing and encouraging constitutional development in our West African Colonies, in which I know the noble Viscount is most interested, and particularly the recent advances in Nigeria. That, and things like our great success in our Indian and Pakistan policy, are the kind of things that increase our prestige. That increases our real prestige, and if the present Government will only follow our example, our prestige will look after itself.
I am also sorry that the noble Viscount is not here at the moment because I wanted to cross swords with him on his conversion, late in the day, to the virtues of Government bulk buying. His description of our hulk trading with the Americans in rubber for steel, and lead and tin and so on, was most delightful; and his description of how, in the first place, if we had tried to buy this steel in the open market in America we should

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not have got it, and, secondly, how such steel as we have been able to obtain would have been obtained only at a very high price, is a tremendous advertisement for the virtues of State-planning and bulk buying as against the anarchy and chaos of the unrestricted market. However, I hope that one of the noble Lords who adorn the Government Front Bench will be kind enough to ask the noble Viscount to note my remarks, which I am sure he will do with his usual courtesy.
Whenever we discuss economies, we are all in favour of economy in all directions, except of course in the particular matters in which we are especially interested. If, for example, you attempt to cut down arms in the Services, you get an instant reaction from the Benches opposite. If you propose cuts in education or housing, you get an instant response from the Benches on this side. The matter of which I am going to complain does not come within that category. I am referring to the proposal to abolish the Crown Film Unit—in fact it has already been done, but I want it undone. Here is a case where the whole regiment is out of step except "our Jock"—" "our Jock" being, in this example, the Treasury. There has been an unbroken condemnation from every informed quarter of the proposal to make this tiny saving, this diminutive saving, at so great a sacrifice in a service which has been of tremendous benefit to this country at home and abroad.
As many of your Lordships are aware, the Crown Film Unit was started by the Empire Marketing Board some twenty-two years ago. I believe that the Conservatives were responsible for it; certainly a Conservative Financial Secretary to the Treasury was immediately responsible. Then it became the General Post Office Film Unit, and finally, in recent years, the Crown Film Unit. It has produced the finest documentary films, acknowledged as such everywhere in the world; there is no argument about it. We have led the whole world in this particular form of documentary film. May I remind your Lordships of some of the famous films which have been produced by the Crown Film Unit, which have done so much to encourage and educate our own people and to show Britain to the whole world? These are some of them: Drifters, The Song of Ceylon, Night Mail, North Sea, Target for
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To-night, Fires Were Started, Britain Can Take It, Western Approaches, Merchant Seamen, Coastal Command, Children on Trial and Daybreak in Udi. Your Lordships must know most of those names. They must stir memories. They were historic films which were of the greatest service to us in a very trying time, and have been of great service also since then. The Central Office of Information sends these documentary films from the Central Film Library, which has a remarkable and probably the finest collection of non-commercial films in the world. It takes them to the remote parts of the country; they are shown in poor clubs, village halls and so on, and undoubtedly are tremendously appreciated.
These films, as I say, go all over the world. What is the cost? What are we saving by this "courageous" act of the Treasury in cutting down on the Crown Film Unit and the mobile film unit, with its hundred cameras which take these films all over the country? The Crown Film Unit costs £150,000 a year and produces thirty documentary films, most of which, admittedly, are of great excellence. The hundred projector units cost £260,000. So we are saving less than £500,000 a year. That is less than the cost of a couple of bombers, and less than one-tenth of the money that we remit annually to Hollywood for American films. That is the cost of the Crown Film Unit plus the hundred mobile projectors and crews. I hope that the spontaneous outburst of indignation and criticism which this proposal has evoked will have some effect. At any rate, I think that somebody in your Lordships' House is justified in drawing attention to this matter. That is why, when this debate was originally fixed, I gave notice to the Government that I intended to raise it, and I hope that whoever replies for the Government to-morrow will come prepared to deal with this matter, and that we may be given some encouragement. Most of your Lordships have seen in The Times newspaper the extraordinary correspondence on this matter from all kinds of informed people, all in the same vein, and nobody defending the Government. In addition, the Government have been heavily attacked in the Leader columns generally, from The Times to the Daily Mirror, there being general condemnation of this step towards destroying so valuable a national

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asset. I hope that I have made a case here, and that it is net necessary to say more in order to bring forth a favourable response.
I want, if I may, to make just one general observation on our present ills and misfortunes. I have said this before, but I have been rather a lone voice in the matter. I believe that it will be found in the future that our initial mistake has been in trying to be at the same time both a great military Power and a great naval Power. I think our original mistake was to embark on a Continental military policy, and it is my view that the rearmament programme upon which we are at present embarked is mistaken from that point of view. That we had to rearm is a policy of my Party, and I do not dissent from it. But I believe that we are rearming in the wrong direction and at unnecessary cost in labour and raw materials, which we cannot afford.
We have to be, as we are, a great sea Power to live, to exist, and to survive. In addition, in the present age we have to be a great air Power, because the two are really bracketed together. Command of the seas can be exercised by warships or by aircraft, and indeed by both to-day. Air power and sea power are both necessary and complementary. But at the same time we cannot afford, as I am afraid we snail find, to be a great military Power on a Continental scale. If we had diverted our efforts in the direction I am now suggesting we should have made great economies and, at the same time, would have preserved our vital needs for defence. We could have had a kind of amphibious combined military force, with Marines and the like, which are required because of our commitments overseas and to the Commonwealth. I believe that our mistake has been in involving ourselves in these vast military commitments.
I do not want to go into a strategical argument—it would be improper of me to do so. But I think the fault is realised by the refusal of both the present Government and the former Government to integrate our Army in the proposed European Army. Our independence has been preserved to some extent in that way. I think that shows a glimmering of the light, and indicates that it is realised by this Government, as it was by their predecessors, that we cannot indefinitely
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stand the strain of a vast military commitment at the same time as we have to maintain the essential and inescapable defence measures at sea and in the air. That, I think, is the crux of one of our main difficulties. I believe that we need a complete re-orientation of our Imperial strategy. That is so closely hound up with economy that I do not apologise for dealing with it in a debate that so far has been so fruitful in other respects.
6.36 p.m.
LORD BALFOUR OF BURLEIGH: My Lords, perhaps I ought first to deal with rather a minor point raised by the noble Lord, Lord Pakenham, that had reference to the question of the Bank rate. I think the noble Lord's question really is: Could not the monetary policy which is now being employed equally well have been put into effect without raising the Bank rate, which has, of course, the necessary consequence of increasing, to some extent, the cost of the service of the National Debt? I was glad to note that the noble Lord did, I think, agree that the monetary weapon must not be neglected. I was glad to derive that amount of comfort from what he said. I am quite sure the monetary policy could not have been made effective without a rise in the Bank rate. I think the answer is, quite simply, that in dealing with matters of credit you are largely in an area of psychology. Credit is really a matter of psychology, and in a psychological area psychological effects are real effects. I do not think the noble Lord will have any hesitation in agreeing that psychological effects can be real effects. I would remind him that it is not so very long since Mr. Gaitskell, in defending dividend limitation, said this:
"The psychological consequences of sharp increases in dividends are far greater than their direct monetary effect."
Of course, the spending power of wage payments to dividends is in the proportion of about eight to one. Even so, I agree that if there were an argument in favour of dividend limitation, Mr. Gaitskell was right to say that the effect would be psychological.
My Lords, it was in the practical sphere that the need for the psychological shock was necessary. The Banks have to regulate their lending or restrict credit through a multitude of officials.

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They all have their controllers and their managers, but in order to secure a proper and successful restriction of credit it was necessary that a certain shock should be administered to the borrowing public, the public who use credit. If I may say so, I agree that there is a theoretical point to be made. Theoretically, it may be argued that it might be done, which is the noble Lord's argument. I can assure him that that is a doctrinaire argument. It reminds me a little of all the gentlemen in the 15th and 16th centuries who spent an immense amount of time trying to find some source of perpetual motion. Some most ingenious machines were devised—on paper; and, on paper, there was no reason why they should not have worked. There was one apparatus which had a lodestone on the top pulling up a weight. The weight, it was intended, would drop through a hole and run down a slide and be drawn up again. Theoretically, the machine ought to have gone on for ever. Unfortunately it just did not work. That, I think, is the answer to the noble Lord—restriction of credit just would not work without a rise in the bank rate. And, quite rightly, in my opinion, the authorities limited the rise to the smallest possible figure.
Of course, there is not only the rise in the bank rate. I have already explained to your Lordships on a previous occasion that the monetary measures above all include a restriction of the credit base which has more effect in the practical sphere than the mere raising of the bank rate. Mr. Gaitskell said, I think, on another occasion, that monetary controls were clumsy and unfair, and not calculated to achieve precise results. I am bound to say that physical controls have not really achieved precise results. As the noble Lord opposite was good enough to quote from a document which, in another sphere, has emanated from my pen, may I quote to him one or two sentences which I think he must have overlooked about the value of monetary control? I wrote:
"To curb spending is, of course, also the object of such physical controls as the restriction of imports, the allocation of steel, the issue of building licences. Such controls are to continue for a time at least. But there is an important distinction between physical controls and the monetary restraints. When the curb on spending comes from the fact that
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each of us, individually, is forced to economise, the decisions are taken by the person who in each case is most closely affected and has most knowledge of the relevants facts, including his own circumstances and preferences."
I went on:
"It is this distinction—the decentralisation of economic judgments—which in my view makes a properly working monetary system infinitely more efficient and even more democratic than rationing and controls as the normal method of regulating our economic life."
I should also like to say this, while I am on the subject of monetary control. I most sincerely believe that the fears of noble Lords opposite about serious unemployment resulting from the monetary restriction are unfounded. In this connection may I quote something from an American paper? I think it is a most striking example of what I am trying to say. There is a publication in America called Business Week. I am informed that during the past year the United States has achieved considerable increase in the defence sector—the very thing we have to do—without unemployment, which in October was lower on the year. This is the quotation I want to read:
"Industry's gradual switch from civilian production to defence goes on with no change in factory employment worthy of note. As some lines are cut back, other plants hire an equivalent number of workers (although not the same workers, as Detroit can testify)."
That means that some unemployment occurred temporarily in the motor industry.
"Thus total manufacturing employment remains just under 16,000,000."
I hope that that quotation will bring some comfort to noble Lords opposite. I know that the very mention of a rise in the bank rate is calculated to provoke fears of a return to millions of unemployed.
So much for monetary measures. Now I want to devote a little time to the immediate problem of the crisis with which we are faced, which, of course, is crystallised by the loss of gold and dollar reserves, and which I know we all recognise as a very serious matter. Where the difference lies between us, I think, is how far the sterling-dollar un-balance is to be attributed to the United Kingdom un-balance of payments. On that subject there is a vital difference of opinion between us. It is on that subject that I regard it as most important for us to come to an understanding, and, on that subject I think noble Lords opposite are taking a gravely

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wrong view. I agree that it is a difficult matter and I agree that misunderstanding is common. I was greatly struck, as many others of your Lordships may have been, by an article which appeared in the Observer of February 3—of course it is a bit stale now. When I was preparing my speech for the original debate, I intended to quote it, and it is so apposite that I still venture to refer to it. What I liked about it was that, by what I thought an extraordinary effort of unconscious humour, the author of the article called it "Confusion." I refer your Lordships to the article to read the whole of it yourselves. What the author of that article entirely failed to see was that overseas sterling area countries have bought dollar goods, paying for them with sterling balances, largely because we could not supply those goods, and we could not supply those goods because we were consuming them, very largely, ourselves.
Let me give your Lordships the history of the balance of payments deficit of 1951 in four simple stages. Stage I—the U.S.A. bought goods at high prices from sterling area countries. They paid their dollar earnings into the central pool and received sterling balances in exchange. We therefore had a simultaneous rise in our gold reserve and in our sterling liabilities. Stage II—the U.S.A. stopped buying, and sterling area countries were seeking goods for their accumulated balances. Stage III—since the goods they wanted were not available in the United Kingdom, owing to excessive home demand, they sought goods in the U.S.A. Our gold and dollar reserves were drained away, and the sterling balances fell. Meanwhile—Stage IV—United Kingdom imports from the world as a whole (and this is proof of what I am saying) increased by 15 per cent., compared with 1950, and there was an increased deficit in dollars on the United Kingdom account.
I say that our sterling-dollar un-balance is due largely to the continuous inflationary pressure of the last seven years and could have been avoided. I regret that to support my thesis I must have a look at past history. I beg your Lordships, particularly noble Lords opposite, not to think I am making a Party speech. I am not doing that at all; I am trying to deal with the facts. In 1945 we came out of the war with an accumulated inflation. Mindful of our special position
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in the world, utterly dependent as we are on the turn of trade, that was a position which demanded special caution. We were specially vulnerable to balance of payments difficulties. Indeed, the strain on the balance of payments had already been visible before the war. That is made a great point of by noble Lords opposite. If that was so, and it was, that was reason for additional caution. Our first aim ought to have been to level up production to equal spending power. What in fact happened?
In October, 1945, the then Chancellor of the Exchequer plunged into the cheap money drive. I want to be fair; I think I can see what he was after. He wanted to save on the cost of Treasury bills. At one stroke Treasury bills and Treasury deposit receipts, the main floating debt, were reduced by one-half of 1 per cent., a saving in some millions of pounds. But the Chancellor of the Exchequer had another glittering prize in view—the conversion of the 3 per cent. local loans. That was accomplished by a deliberate process of inflation. In the year 1946–47, £807,000,000 was added to the deposits of the clearing banks, which represent the reserves of the spending power of the nation. That may be compared with the addition of only £290,000,000 in 1945–46, although the deficit on the 1945–46 Budget was £500,000,000 more than the deficit on the 1946–47 Budget. I ask your Lordships to reflect on those figures, because that was a remarkable addition to our spending power, to which I attribute much of the difficulty with which succeeding Chancellors of the Exchequer have had to contend. That policy was reversed even before the then Chancellor left his office—and I should think it was regretted. The damage done can be measured by the price which the stock taken in exchange by his unhappy holders of local loans now stands—something under 60. I cannot help thinking that that stock, with the name which it bears in the Stock Exchange, will provide a memorial which was neither anticipated nor desired by its author. The worst thing about it is that by that further injection of inflation into our system we lost what might have been a golden opportunity.
Following that year, there were six years of United States prosperity—and there are all sorts of "might have beens."

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Had we only been able to keep inflation in check, I think devaluation could have been avoided. From what the noble Lord, Lord Pakenham, said, I am not sure whether he agrees that we have an inflationary position at present or not. I do not know whether he would care to tell me?
LORD PAKENHAM: I will certainly answer the question, if the noble Lord will define "inflation."
LORD BALFOUR OF BURLEIGH: The noble Lord is very wise and I do not press him further. But as the noble Lord took credit for the fact that his Government had an overall surplus, visible and invisible, in 1949 and 1950, let me remind him of the figures for the years 1946 to 1951, which give the overall picture. The noble Lord, Lord Layton, has reminded the House that the surplus was achieved in 1949 by a 30 per cent. devaluation, and in 1950 by circumstances following the Korean War. These are the figures of the United Kingdom balance of payments—1946: adverse, £344,000,000; 1947: adverse, £545,000,000; 1948: adverse, £29,000,000; 1949: favourable, £21,000,000; 1950: favourable, £221,000,000: 1951: adverse, somewhere between £450,000,000 and £500,000,000. This gives a total adverse balance of somewhere between £1,126,000,000 and £1,176,000,000. The noble Lord evaded my question about inflation.
LORD PAKENHAM: My Lords, since the noble Lord says that that is an evasion, if he will give me even the broadest definition, I will answer it. As the word is used in this House in about six different senses, I cannot be sure in which sense the noble Lord is using it. But I shall have a chance of replying to-morrow night at the end of the debate and if some point seems to have been evaded, I will take the opportunity of answering it then.
LORD BALFOUR OF BURLEIGH: It is not unlikely that I may be betrayed into some kind of definition before I am done. I shall avoid it if I possibly can; but I will give a description of what I consider persistent inflationary pressure, which amounts to almost the same thing. I must spend a little time on criticism of Mr. Gaitskell's speech in another place
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because he controverted a statement which I made elsewhere. He said:
"It is simply not true to say that in this country we have been in a continuous inflation for the past six years."
Like the noble Lord opposite, Mr. Gaitskell has not defined inflation, but in his speech he gave three definitions of what was not inflation. I am interested to know how he would define it. As the noble Lord has from now until tomorrow to think it over, I hope he will give us a definition.
LORD PAKENHAM: We are waiting this evening for a definition from the noble Lord, who will not have a chance to-morrow.
LORD BALFOUR OF BURLEIGH: Let us look at the six years which Mr. Gaitskell says were not years of continuous inflation. I am going to begin with the four and a half years from June, 1947, to 1951, because, as the noble Lord knows, in June, 1947, there was a new index of retail prices. There were nine half-years in those four and a half years; in eight of them wage rates went up, and in eight of them retail prices went up. Taking the same period by quarters, there are eighteen quarters: wages rates went up in thirteen of them, and retail prices went up in fourteen. I need not trouble much about the eighteen months between January, 1946 and June, 1947, because during that period wage rates went up 9½ per cent. Those six years were a period during which we had price control, wage-freeze policies, licensing of building, import restrictions, controls to divert goods to export, and all the time the purchasing power of the pound was falling, falling, falling. During those years, too, we were staggering from one balance of payments crisis to another. If that is not a perfect picture of continuous inflationary pressure, I do not know what is.
I have here the figures of the purchasing power of the pound for every year. This is what it would cost each year to buy what cost twenty shillings in 1945: in 1946, 20s. 6d.; in 1947, 21s. 11d.; in 1948, 23s. 8d.; in 1949, 24s. 2d.; in 1950, 24s. 10d.; in 1951, 27s. 1d.; and in December, 1951, 28s. 4d. Therefore I feel that Mr. Gaitskell's phrase that that is "not continuous inflation" is a little disingenuous. Suppose that, if you were free-wheeling on a bicycle down six miles

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of almost continuous gradient with, here and there, a little bit of flat, and even a little bit of uphill, your momentum carried you the whole six miles. I should say that that was six miles of continuous downhill free-wheeling. Mr. Gaitskell says: "No; it is not continuous downhill free-wheeling." How can he deny that it is continuous free-wheeling? The times are too dangerous for quibbles of that sort.
I must make another reference to Mr. Gaitskell. He says, further (OFFICIAL REPORT, Commons, Vol. 495, Col. 214):
"But if … it is argued that the fact that prices have gone up since 1945 is evidence of inflation and the result of inflationary policies in the United Kingdom, then, obviously, that cannot be so, because these price increases have occurred, as we all know perfectly well, throughout the whole world."
That seems to me to be the most glorious non sequitur. He is saying that all other Governments have been following inflationary policies and, therefore, that we cannot have been doing so. That seems to me a most astonishing argument for a responsible man to produce. In the next sentence he says:
"In point of fact, the influence of the United Kingdom Government's policy on world prices is inevitably extremely limited."
I venture to differ from that on a question of fact. Taking the sterling area first, the sterling area imports are one-quarter of the whole world imports; and United Kingdom imports are as much as those of the rest of the sterling area. The influence of the United Kingdom on world import prices is far from being negligible.
I do not want your Lordships to take this thesis only from me. I have already told you on a previous occasion that I am not an economist—I struggle with these things, to the best of my ability. I think your Lordships might care to hear what Mr. Ivar Rooth has to say on the subject. Mr. Ivar Rooth is Chairman of the Executive Board and Managing Director of the International Monetary Fund, and a former Governor of the Riksbank, the Swedish Central Bank. He says:
"In a period of widespread shortages"—
and this is rather apposite—
"created by the extraordinary needs for defence, even bold financial policies cannot prevent some rise in prices. But nothing could be more fallacious than the assumption that each individual country is helpless to
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resist a world-wide inflationary trend and that the price rise abroad is always the main reason for the price rise at home. In most countries, the national component in inflation is far larger than the international. In any case, a country that deals with the inflationary forces that it is itself generating will not only keep the rise in prices within moderate limits, but will almost certainly avoid a serious international payments problem."
On another occasion he said:
"It seems to me that the pervasiveness and the intractability of the payments problem indicate that it is fundamentally a by-product of inflation. Despite the great rise in output the inflation problem remains acute. When the people of a country spend more on consumption, investment and for government purposes than the value of what they produce at home and the aid they receive from abroad, the excess spending will be used to bid away goods from export markets and to import more than can be paid for with accruing exchange earnings. The payments problem can for a time be kept under control by restrictions on imports; and from time to time a temporary remedy can be found in devaluation. The impact of inflation on international payments is certain to differ widely among countries, and a satisfactory solution to the payments problem is impossible unless and until inflation has been stopped."
I have one other reference to make to Mr. Gaitskell, and in this instance I feel that he is in flagrant error. In Col. 228 of Vol. 495 of the Commons OFFICIAL REPORT he says:
"Let me take the general question first. Are we in this country still consuming too much'? It seems to be the right honourable Gentleman's view that we are and; of course, all the inflationary school would say so. But let us look at the facts of the situation. I refer the right honourable Gentleman to his own document, the Bulletin for Industry, for January, where we are told that consumption in the autumn fell to the extent of about 3 per cent. below the level at the same period of the previous year, and that for the year as a whole it had not been any higher than in 1950."
That is true. But the same bulletin goes on to say:
"But although, as already noted, consumption in 1951 has probably been about the same as in 1950 and production has been roughly as expected, the overseas deficit has grown much worse so that a fat greater increase in exports is now necessary."
And it adds:
"In engineering … the home market may well have been taking supplies that were needed for exports."
I think it is a pity that Mr. Gaitskell did not complete his quotation.
I have no desire to deny that inflation is world-wide; and in a world-wide inflationary situation, of course, everybody blames his neighbour. I should like to

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remind your Lordships that we have three reasons for special care. One I have already referred to, our dependence on the turn of trade. Secondly, to put it briefly, there is the banker-customer relationship. And, thirdly, there is our high standard of living. We have achieved a very high standard of living, higher perhaps than almost any other country outside North America. Therefore, we can afford certain cuts if those cuts are necessary to avoid collapse of the whole system. In passing (I will not go in detail into the question of the hospital services) is it not relevant, both to cuts in general and perhaps to hospital cuts also, that our expenditure on drink, tobacco and entertainment was £1,600,000,000 in the last year for which figures are available, which happens to be twice the whole annual rate of our United Kingdom deficit? I think there is a relevance.
I want to say a few words about convertibility. I notice a tendency on the part of uninstructed people, and, to some extent, I think, on the part of people who ought to know better, to cling to the hope that there are some help and some shelter for us to be found behind non-convertibility of sterling. I want to say at once that, while I know it is not an immediate possibility, the return to convertibility of sterling is the only hope we have of maintaining our high standard of living in this country. Unless sterling can be made once again the great counter of international trade, there is no future for the 50,000,000 people in this country. Here I want to refer to an observation made by the noble Lord, Lord Silkin. He made a reference to the standard of living which our people are entitled to expect. Nobody in the world owes the British people a standard of living. If the British people are to maintain their standard of living, they have to do it as they always have done—by their own efforts.
I should like to come to something a little more constructive. Whatever the cause of this crisis, we are all in it together. We know about the dwindling gold which is a spectre which haunts us every day. Here I should like to quote from another speech of Mr. Gaitskell—a most wise speech—which he made at Blackpool in September, 1951. The speech
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is full of wisdom. He was Chancellor of the Exchequer and he said among other things—
LORD PAKENHAM: Did the noble Lord say "wise" or "wild"?
LORD BALFOUR OF BURLEIGH: I said it was a wise speech, and I think it reflects enormous credit on Mr. Gaitskell in his then capacity. He said:
"Yet internally we could, on our own, easily set off a new inflationary process."
May I just emphasise the word "new"? It looks as if there had been some inflation in the past. He went on:
"The cost of living here would go on rising in 1952, even with stable world prices, if we went on pushing up our own costs through further substantial rises in wages and salaries. We must avoid that. If incomes go up more than production, then prices will rise. The truth is as simple as that and I should like to see it hanging as a text on the wall of every office inhabited by any employee or trade unionist concerned with negotiations about increases of any kind."
Quite apart from the loss of our gold reserves, I want to emphasise the extreme danger of our present situation, because, as we know, wages are rising and the latest statistics of production are more or less static. That is a highly inflationary situation. In November, 1950, and November, 1951, the production index is the same. Consequently, remedies have to be found, and I think there is a good deal of confusion about those remedies. The first instalment, of course, is the cuts, and I should like to emphasise that the cuts will have to be of two quite different kinds. There are the cuts in physical consumption, and there are also the cuts in spending power which are necessary to counteract the inflationary effect of what is going on. Of course, all cuts in imports are inflationary, because they diminish the quantity of goods and leave the spending power alone. The export drive is inflationary also, because it removes goods and leaves the spending power behind it. The point I wish to make about the cuts in investment is, first, that all cuts help. There has been a good deal of doubt thrown on the cuts in education. Let me take an example of a school. Suppose a school is built. That school uses up a great deal of cement and a large number of bricks. Bricks and cement cannot be made without coal. In that example you get at once to the heart of the matter. If we can save coal, we

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can do one of three things: we can export the coal which would have been used to build the school; we can use it to make other things which we can export, or we can simply save the import of coal. There you have a completely unanswerable example of the benefit to the United Kingdom balance of payments of refraining from erecting one school. You have consideration on the other side of a different kind, but that is another matter. These physical cuts have to be made somewhere.
Now the spending power cuts. I know that it is argued by noble Lords on the other side that it is no use making a cut in the spending power of the people which might prevent their going, for instance, to the cinema, because the cinema will remain open; it will use its light and its power; and that if it is half empty you are not really doing any good. But you are doing good, because the lack of receipts in the cinema will be reflected in lower profits, and the owner of the cinema will consequently have less to spend and you will thus diminish the total spending power. The cuts, of course, are only the beginning. Cuts, I imagine, are only half the policy. The Budget is still to come, and one hopes that by the time we have the whole picture we shall have a complete policy. I should like to refer for a moment to what the noble Lord, Lord Layton, said about reserves. Of course, the paucity of reserves is a terrible danger, and if the United States cart find some means of implementing them, well and good. But what I do not like about it is that, so far as I can see, it will have to be on an eleemosynary basis. We cannot look to the United States for a permanent subsidy. The United States wants a partner, not a satellite, and policy must be directed to setting us finally on our own feet.
In conclusion, I should like to appeal to noble Lords opposite for co-operation. I am going to try and answer the questions which the noble Lord, Lord Pakenham, asked at the beginning of his speech. He stated what I think he called two theories, and I am not quite sure whether they were intended to represent an antithesis. I will repeat them as best I can. The first was that the Labour movement believes that the development of the Welfare State is a shining achievement. The second was that people think the Labour Party has gone too far and too fast.
LORD PAKENHAM: I will just add that I made it plain that in my own view the first theory is not confined to the Labour Party. It is held by vast numbers of people outside the Labour Party. I made that quite plain at the time.
LORD BALFOUR OF BURLEIGH: I do not want at all to misrepresent the noble Lord, and I think that helps me: because had he claimed the establishment of the Welfare State as a shining achievement of the Labour Party—
LORD PAKENHAM: I did not.
LORD BALFOUR OF BURLEIGH: I am so glad that he did not, because he knows that it would have been wrong and I should have had to deal with it.
LORD PAKENHAM: I think it was a shining achievement of the Labour Party, with some support from other quarters, because the Labour Party was the Government at the time.
LORD BALFOUR OF BURLEIGH: Yes, but we must go back further than that. The social services did not begin with the entry of the Labour Party into power. The second theory was: Did the Labour Party go too far and too fast? I answer that with an unhesitating affirmative. That is the cause of our trouble. The Labour Party did go too far and too fast. After the war they failed to recognise that we were a much poorer nation than before. I will give your Lordships some figures which I think are perhaps a little debatable, but they enclose a kernel of truth. Taking the international situation before the war, we find that every individual in these Islands had a claim front overseas of £80 per head. At the end of the war every individual, dividing it up in these Islands, owed a debt of £20 per head, and at June, 1951, the debt owed by every individual in this country had risen to £55 per head. My fear, therefore, and my conviction is that a great deal of the achievement of the Labour Party in increasing the social services was built on no stable foundation. That is the danger; and I appeal to noble Lords opposite to recognise that their policy has been inflationary and that we must be prepared to suffer some cuts if we are going to save the ship at all.
The dangers which we now face are, I think, well within the comprehension of

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every member of your Lordships' House. But believe me, my Lords, the great bulk of the population of this country are still unaware of the reality of the crisis. It is very much like the case of the patient to whom a doctor has administered over too long a period, say, penicillin. The patient becomes what the doctors call "penicillin-insensitive" or "penicillin-resistant." Our people are crisis-insensitive and crisis-resistant. And so long as noble Lords opposite go on maintaining that cuts in any social service are an attack on the whole welfare system, there is great danger. The noble Lord spoke of "a deep moral disunity." I beg him to believe that my moral earnestness is just as great as his, and I say that the whole Welfare State is hanging by a thread. The next six months will be the most critical we have ever had to face; and I am not exaggerating when I say that I think that whether we can save the situation or not depends upon the attitude of noble Lords opposite and their Party. If they are going to blame the "reactionary Tories" for cutting social services when the sole purpose is to effect essential economies, theirs will be the responsibility if we fail to get through this critical six months' period without disaster.
Your Lordships know the reputation of Professor Lionel Robbins. I commend to noble Lords opposite his Stamp Memorial Lecture. He deals with the vital point whether the sterling-dollar unbalance is due to the United Kingdom unbalance or not, and he ends with these words:
"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)"—
and I interpolate: if we can have the cooperation of all men of good will—
"we still have a future of high promise. If we do not, then I fear our days are numbered, certainly as a great Power, perhaps even as a stable society."
7.25 p.m.
EARL WAVELL: My Lords, I must first beg your forbearance to one who is addressing you for the first time. I hope I shall be further forgiven if I do not pursue the broad issues of high finance that have been discussed this afternoon. It is with great diffidence and trepidation
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that I trespass upon your Lordships' time at this hour to speak on what is really a very small matter connected with the reduction of the foreign travel allowance. It is a matter in which I should declare that I have, or hope to have, a personal interest. In the past three years my company has had about one thousand National Servicemen who have come into the Army direct, for the most part, from school or university. It is very encouraging to find that about two-thirds of these men have spent a holiday abroad at some time or other. There has been a great growth in organised school trips, in exchange visits with foreign families and in the numbers of people hiking and camping on their own. These people come from every kind of family, and I am sure it must help our relations with our neighbours on the Continent that there are now far more families in this country who have some knowledge of their way of life than was the case in the years before the war.
I do not subscribe to the view that all this will be severely curtailed by the reduction in the travel allowance. A friend whom I met at Cambridge last term told me that he and his girl friend spent seven weeks on the Continent last summer, visiting Milan, Venice, Vienna, Strasbourg and Paris, going to an opera or theatre in most of those cities; and in all that time they spent, including their fares, only £26 each. The Chancellor of the Exchequer's restriction will merely exercise their ingenuity and resource a little further. There have been letters in the newspapers from persons who have suggested that the prestige of this country has suffered through the apparent poverty of our people who travel abroad. I do not say that it would be entirely becoming if some senior members of your Lordships' House were to be seen "thumbing" their way across the Continent; but personally I am not very disturbed if some of our students rough it a little by sleeping on haystacks or on park benches, and thus save some valuable currency.
But there is one form of enterprise which I think this economy may stimulate and which does frankly alarm me, and that is that young people will be tempted to climb in the Alps without guides. All those of us who have been taught our climbing by the older generation know

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very well that we should not climb without guides—and certainly climbers as inexperienced and nervous as I am would not do so. I think we should rejoice that climbing has now come within the means of large numbers of people from our northern industrial cities; but many of these people who are "tigers" at rock climbing in the Lakes and in Wales and Scotland do not altogether realise that the snow and the icy conditions of the Alps, and the sudden storms which blow up, make it imperative to have a guide, at any rate in the first season. If one were on a ten-day holiday and fitted in two or three climbs and shared a guide with another person, one would still spend about £10 or £15 each on the guide. That is a great deal to take out of a £25 allowance. I am afraid that what will happen is that people will either climb without guides—and we have, in all conscience, had enough accidents in our own hills in this country in the last two years—or possibly they will appeal to some of their friends who are more experienced climbers and ask to join their party. That is going rather to stretch the altruism of an experienced climber—to give up some special route which he has cherished in order to take a climb more within the compass of some beginner.
One of Ben Jonson's characters defined courage as:
"no vain appetite of false encountering formidable things."
I know it is much easier to tell your own guide that the moment has come to turn back than to reveal, perhaps to a party of your friends, eager to carry on, that the climb has got beyond you and you have not the nerve to continue. What I propose is that the Government should consider making an allowance in sterling of £10 annually to each climber, to spend on guides. One can, after all, buy a ticket in this country to the mountain station practically at the top of the Jungfrau. I hope you will not consider it too disingenuous to argue that in paying for a guide you are paying your fare to your ultimate destination by a rather more arduous route. Some of your Lordships may think that this will lead to a "ramp"—that people will claim the £10 allowance and never intend to climb at all. But I have taken some advice on this. I am told that there is a certain manner in which these things can be
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arranged. The Swiss guides are all accredited guides and are already subsidised by their own Governments, and I am told that it should not be very difficult to administer. It may be rather more difficult, perhaps, with other countries. At any rate, if any of my remarks find any favour at all, I would ask Her Majesty's Government to discuss this proposal with the Alpine Club and other climbing clubs in this country, with the travel agencies and with our consuls abroad.
After all, the aim of all our economies is to prepare for defence. The last war showed that the battle often flows into terrain that we never expected when we started—terrain in which we had never been trained to fight. I should have thought that, even as a matter of expediency in defence, it was worth allowing people to go out and obtain experience in making their way in mountain country. We all hope for a long age of peace; yet the combatant instincts of man must be somehow satisfied, apart from war. What better way than in the challenge of and response to high mountains? We begin this first year of a new Elizabethan Age with British expeditions to Greenland and the Himalayas. Moreover, in the scurry and rush of life to-day I think we all need some moments of retreat away from the machinery of life, from its social machinery as well as its machinery of steel and plastics, to get away and look at the older and more enduring workmanship of the Architect of this world. And in the hills we can have feelings only of humbleness and gratitude.
Mountaineering as a sport was largely developed by British climbers in the last century. I am glad to say that it is now within the enjoyment of far larger numbers. But in the democratic development of this sport we should surely wish it to stay within the true traditions of British climbing as set: up by the climbers of an older generation—for example, Lord Schuster and his contemporaries. Those traditions were based upon a right attitude to safety in climbing and a close friendship with Swiss guides.
7.37 p.m.
LORD DOUGLAS OF BARLOCH: My Lords, I am happy to follow the noble Earl, Lord Wavell, and to have an opportunity of congratulating him upon his

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speech. Those of us particularly who knew his father, a man of such varied talents and sterling character, will be doubly happy to welcome the noble Earl's participation in our debates. He has made his points to-day in a very persuasive and effective fashion of which, no doubt, the Government will take notice. We look forward to hearing him again upon other occasions.
If I may, I will revert now to some of the main topics of our debate to-day. Our discussion on the Government's policy for meeting the balance of payments crisis is greatly handicapped by the fact that at present we know only a part of that policy. As the noble Viscount, Lord Swinton, said, the Budget is obviously a very important part of the policy which the Government intend to develop, and that is hedged by the usual curtain of secrecy with which all Budgets are protected. However, we do know certain things and, in particular, it is clear from the statement which was issued following the Conference of Commonwealth Ministers of Finance that the Governments of this country and of the others have set before themselves the goal of ultimately establishing the complete convertibility of sterling, not only with the dollar but with the currencies of all countries who are willing to pursue a like course. I do not disagree with that policy. It was indeed one of the purposes for which the International Monetary Fund was brought into existence, although, so far, that institution has not been able to do very much towards achieving that aim.
The reason is not the fault of the institution; no doubt, it lies in the inability, or the unwillingness, of the participating countries in the International Monetary Fund to take the necessary steps in order to make their currencies freely convertible. I think that this objective is both acceptable and, in the long run, necessary. In the first place, it is necessary if we are going to adhere to the ideal of an international society in which exchange and intercourse are free to all the individuals within it. I am not going to say that it is an easy course, but it is certainly the least difficult road by which we can move towards such a society. All schemes of political unification,
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federal union, the creation of supranational authorities and so on, are beset with the most grave practical difficulties, but measures of an economic kind, which aim at international unification by making exchange and trade free between countries, are, after all, flowing with the tide of human instinct and inclination. Men want to trade with one another. The only people who object to this are the monopolies, which profit by means of restrictions upon trade at the expense of the vast majority of the rest of their fellow citizens. They are the only obstacles. Nevertheless, in our existing condition it is by no means easy to achieve a free convertibility of sterling, and I should very much like to know from the Government Front Bench what are the practical means by which they intend to move towards, and ultimately achieve, that goal. It is very important that both we and the country should know this, because it is a matter of fundamental policy.
I think it was the noble Lord, Lord Balfour of Burleigh, and perhaps also Lord Brand, who said that quantitive restrictions of our imports were only a temporary expedient, and that although measures of that sort produce an easement for the moment they create other difficulties in the future, so that it is all the more clear that other measures must be introduced in order in the future to avoid using measures of that kind. It is extremely disconcerting to trade and industry to have quantitive restrictions suddenly imposed upon them. It frustrates and upsets economic calculations; indeed, it is intrinsically wasteful, because it is usually impossible completely to divert the assets which have been used for one purpose to an entirely different one. When rational business calculation has been directed to a certain end, it is undoubtedly a grave error to interfere with it and in the long run it is bound to be detrimental to production and to trade. I regard quantitive restrictions as being in themselves incompatible with any free convertibility of our currency. The two things cannot continue to stand together. Although, to a lesser degree, that applies also to tariffs and other interferences with trade which are established for protectionist purposes. However, I do not want to pursue that consideration any further to-night.

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It is also true that if we are to attain a free convertibility of currency, it is essential that we should avoid any inflationary policies. It is clear, I think, to everybody that the only purpose for which anybody holds foreign currencies is in order to use them ultimately for purchasing things that can be purchased with those currencies. That is the only economic object of holding foreign exchange, and if people with purchasing power in any country find that the money which circulates in it is depreciating, the natural and inevitable result will be that they will refuse to hold it, and that country will get into balance of payments difficulties. In so far as that is concerned, I agree with some of the noble Lords who have already spoken in this debate. I do not agree, however, that all our troubles during the past six years have been due to that factor. Of course it is cleat that when vie came out of the war our resources were greatly diminished. We had been obliged to make a sacrifice, for the sake of existence, which involved the running down of plant and equipment and a very great reduction in the productive resources of this country, all of which have had to be built up anew. It is a very great achievement that they have been built up and that the volume of production in this country is considerably greater than it was before the war.
On the other hand, it is true that one would have expected that, when production had increased to that extent, we should have had a fall in the price of goods produced. That has not happened; there has been a steady increase in the price level, and that undoubtedly is a clear proof of inflation. But let not noble Lords who sit upon the Benches opposite try to make Party capital out of that admission. This process, we must remember, started during the war itself, when it was the policy of the Government of this country—which after 1940 comprised members of all Parties—to increase the note issue. The note issue was increased to about three times the pre-war level, and undoubtedly that was a fundamental cause of inflation. At that time I was a Member of another place, and mine was about the only voice which was ever raised in pointing out that inflation was the inevitable result of what was being done at that time.
Of course it is true that inflation in our complex modern society is a little
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more complicated a process than that. The practical means by which money is put into the hands of people and gets into circulation is through the banks. And it is perfectly evident—as indeed some of the chairmen of our great joint stock banks have admitted in their recent annual speeches—that they have been parties to this process, and have allowed the amount of circulating credit to increase. I do not blame them for that. It seems that there is an inevitable temptation to banks, when there is more of the fundamental basis of currency available, to increase their circulation correspondingly in the ratio of, it may be, 8 to 100, according to the current practice of bankers. Ultimate responsibility for this must always rest upon Governments. It is their duty, and it is in their power, to control monetary circulation and to determine whether it shall be inflationary or not.
Although I believe, as I have said, that there is an inflationary situation which must be dealt with, let me safeguard myself against any suggestion that I want to pursue the opposite policy of deflation, which I consider equally detrimental and equally dangerous to the economy of any country—indeed, in some respects, perhaps, more dangerous. But I ask once more what practical steps the Government propose to take to deal with these matters. How do they propose to re-establish the convertibility of sterling? How are they going to ensure that there will be a sufficient degree of freedom of trade, and absence of either protectionist tariffs or other quantitative restrictions upon trade, to make that policy work in practice? Because these things have to go hand in hand, and unless the Government are prepared to adopt a policy of that kind, in all its fullness, it is perfectly useless for them to talk about aiming at free convertibility of sterling with other currencies.
It is not an easy course to pursue. I do not agree with the view which has been expressed—I think it was implied in what the noble Lord, Lord Balfour of Burleigh, said—that cuts are an inevitable ingredient of measures for dealing with this situation—by cuts I understand measures dealing specifically with the availability of the National Health Service, and matters of that kind. I agree that it is necessary that spending on the part of

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the people of this country generally will have to be restricted in order to restore the balance. There are, however, various ways by which that can be achieved, and I believe that certainly one of the worst, and one of the most partial, methods of doing it is to single out for reduction particular items of Government expenditure, just as in the long run it is, in principle, extremely detrimental to the national economy to single out and curtail particular kinds of imports, upsetting business and financial arrangements which have been made in order to carry on production. All measures of that kind are detrimental in the long run and ought to be avoided. I believe that the Budget is the proper means of dealing with this problem, and in my view it would have been far better had the Government taken their courage in both hands and introduced immediately a Supplementary Budget to deal with these problems, instead of dealing with them in a piecemeal fashion as they have done and are doing.
7.55 p.m.
LORD ROCHDALE: My Lords, I should like, first of all, to add my congratulations to those already tendered to the noble Earl for his excellent maiden speech. If I may, I would put it in this way: it seemed to me that, quite apart from its subject matter, the manner in which he delivered his speech introduced a most welcome breath of fresh air from the Alps into the rather sombre climate of this Economic Debate.
I want, in as short time as I can, to deal with one point only in the proposals of Her Majesty's Government—that to restrict the availability of new plant and machinery to industry at home. One has only to consider for a moment how we in this country stand, how we have a population expanded out of all proportion to the country's size, how we have, in fact, only two major assets—our coal and our own human endeavour—and how we have to import all our raw materials before converting them and then exporting them as manufactured goods, to realise how drastic is the step which is proposed. We have, as I have said, to import our raw materials. We have somehow or other to be able to convert them, with greater imagination, greater skill and greater economy than other countries, if we are
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not to allow ourselves, steadily and inevitably, to go down the way of ever-increasing trade difficulties. I mention that merely to try to underline, as best I can, the fact that constant improvement, constant development, in our industrial methods and machines—in other words, constant investment in them—is really the life blood of this country.
Other industrial countries are, perhaps, more fortunate than we are. They may have available, merely by the growing or the getting, raw materials of their own. That means that they can gain something from the sale of the raw materials from their own soil as well as something from the endeavours which they put into their conversion. With us the position is, substantially, that we have to buy all our raw materials. Therefore, we must rely more than ever upon the industries which convert them. That may be an oversimplification of the position, but I think it gives broadly the background against which we have to consider this proposal. Here I sympathise very much with Her Majesty's Government on being compelled to take a step which I know must be as unwelcome to them as it is to everyone else. Yet from the facts as they appear I agree that as a short, I hope very short, expedient, it is not easy to see how they could have done otherwise. Somehow or other, we have to increase our immediate exports. I think we can be said to be almost in the position of a man who has to make a forced sale of part of his estate. He has lost the right to choose what he sells and what he keeps for himself. To-day the demand from overseas customers is largely for plant and machinery and not for consumer goods, such as textiles—a situation which is particularly unfortunate because it comes at the same time as our rearmament demands at home.
Taking the most favourable view, there is bound to be a certain time lag before the full value of this proposal can be felt. It is not merely a question of diverting standard engineering products from customers at home, for whom they were originally intended, to buyers overseas. If that were the position it would be easy; it could be done with a stroke of the pen; but, of course, it is not like that. Many engineering products, particularly in heavy engineering, are made to meet customers' particular

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requirements, and, apart from them, a great many engineering products which at home would be regarded as standard (I have in mind such things as electric motors) would, for various technical reasons, be unsuitable for export to certain countries overseas. While the effect of this proposal is bound to take time, by the same token when the day comes when we can again afford to increase the rate of investment of this kind at home, there will again be some delay before that can be put into effect.
As I understand it, the method by which this policy is to be carried out is by granting or withholding licences for raw materials. I know that there is already very close consultation between the Government and representatives of industry, but for the reasons I have given I suggest that in this instance it is more than ever necessary that the liaison should be as close as possible, so that we do not proceed along this dangerous course one moment longer than may be absolutely necessary. We are already feeling the effect of competition from Germany and Japan, though those countries also have to import a large measure of their raw materials. Anything that can weaken our ability to compete or to keep ahead in technique and efficiency can be regarded only as something to be done in the most extreme crisis. I am not suggesting that the Government should have done other than they propose to do. They have had to deal with the situation as they found it. But I think we ought to realise exactly what is implied.
We are witnessing an acceleration in the change which, as the noble Viscount, Lord Swinton, said, is going on all the time in the pattern of our export trade. This acceleration of change is no new experience for this country, but when it occurs it is a very uncomfortable one. We saw it in a striking way between the two wars in the sudden decline of the Lancashire cotton export trade, due to a rather similar reason—the export of textile machinery from this country. In time, the gap in our export trade then created was made good by other industries. As your Lordships know, we have to-day a great export trade in motor cars, chemicals, electrical goods and machinery. The important thing we have to remember here is that that gap was
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filled only by immense and courageous capital investment at home. If we are going to keep pace with the constant change of demand from overseas, we have to guard the whole time against capital investment, which alone will enable us to keep pace with it, being stifled. I recognise only too well that there must be some restriction of investment of one kind or another. If I may diverge for a moment, would say that I believe the Government would be right in refusing to restrict in any way investment in house building. I do not want to encroach on the debate which I know is to take place shortly in your Lordships' House, but more houses are essential, if for no other reason than to make it easier for industry to become more flexible and therefore better able to adapt itself to changing demands from overseas.
I should like to ask whether we can be sure that restriction on investment is being weighted so far as possible against those industries that normally produce non-essentials, largely for the home trade. I do not know how easy this discrimination will be, and I admit that for those concerned it will be hard. Any firm which exports needs some home trade, if only as a testing ground for its products before they go overseas. But everyone has to accept for the time being some restriction in investment on new plant and machinery for industry at home. Naturally, one turns to the position, and particularly the financial position, in which industry will find itself when the time comes for these restrictions to be lifted, and for the release of the reserves available for making good the arrears of new equipment needed. The whole tendency of taxation on industry since the war has been to eat away industry's real capital, and with the rising cost of machinery and renewals it has been difficult, if not impossible, to make proper provision whereby depreciation allowances could be related to to-day's replacement costs. That has been stressed over and over again by noble Lords in many of our debates. I want only to underline the fact that the proposal I am discussing must, I am afraid, be classed as one other factor which, so long as it lasts, will have the effect of compelling industry to live on its fat. As a temporary and drastic expedient I believe it to be necessary, but let us take it with our eyes open.

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My medical friends tell me that in many cases of acute disease it is necessary to administer small doses of poison, and often there is a narrow dividing line between the correct dose and a dose that may be fatal. I believe that with this proposal we are playing with poison for our industrial system and that an overdose might easily be fatal for our future. I have tried to put this point merely to underline how serious the situation is and that the most drastic methods are necessary to deal with it. Therefore, I hope that this sort of drastic remedy will bring home to others throughout the country the fact that we really are in a desperate situation to-day. As other noble Lords
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have said, if only all will realise that fact—and at the moment they do not—we shall be much nearer being able to get ourselves out of our difficulties.
8.12 p.m.
LORD BURDEN: My Lords, on behalf of my noble friend Lord Pethick-Lawrence, I beg to move that this debate be now adjourned.
Moved, That the debate be now adjourned.—(Lord Burden.)
On Question, Motion agreed to, and debate adjourned accordingly.
House adjourned at twelve minutes past eight o'clock.