FINANCE BILL

HL Deb 08 July 1952 vol 177 cc836-922

2.45 p.m.

Order of the Day for the Second Reading read.

LORD LLOYD

My Lords, the debate on the Finance Bill is usually the last of the series of economic contests which are waged between noble Lords on that side of the House and noble Lords on these Benches. So far as I am concerned, I have to admit that this is the first economic debate in which I have taken part from this Box—I do not usually play in the "Economic League"—and I must confess to some of the apprehensions which are normal amongst those who are suddenly hauled from a safe position in the pavilion as twelfth man and scorer and find themselves opening the batting.

This Bill in itself forms only part of Her Majesty's Government's general economic policy. It cannot be considered in isolation from the other measures which the Government have taken to restore our economic stability. Nor can it be judged, I suggest, except against the background of the grave deterioration in our economic position which took place during the last half of last year and which was fully dealt with by my noble friend Lord Swinton in the debate which took place in your Lordships' House last Thursday. For these reasons, I think it is fortunate that we have already had two economic debates since the Budget; and, in particular, I think it was a happy innovation, if I may say so, on the part of the Opposition to initiate an economic debate only last week, because these debates have given the House an opportunity of discussing the broader aspects of economic policy, and they have given us more time to-day to consider the more limited issues involved in this Finance Bill. For this reason also I propose to confine my speech to the issues which form the content of the Bill itself, because, frankly, if I were to attempt to cover a wider field, I should be imposing, in addition to the very heavy taxation that is imposed in the Bill, an additional tax upon your Lordships' patience.

There is obviously a limit to what any Finance Bill can do. Certainly I am sure that it will be a matter for general agreement that no Finance Bill in itself can restore the fortunes of this country. That is a task which must inevitably fall on the shoulders of every man and woman in this country—the people as a whole. Ultimately, they are the only people who can restore the fortunes of this country. But a Finance Bill can do certain positive things to help. In the first place, it can restore confidence abroad in our economy and in our determination to put our house in order; secondly, it can create conditions at home where effort and efficiency are encouraged; and finally it can help to ensure that there is available for export a sufficient quantity of goods of a type for which there is a demand abroad.

With regard to the question of confidence abroad, I think we can derive some comfort from the facts and figures concerning our balance of payments which the noble Viscount, Lord Swinton, gave to the House last Thursday. The position has undoubtedly improved, and we may perhaps be permitted to feel that although the bailiffs are still just round the corner they are no longer actually knocking on the door. On the other hand, as has been emphasised by the Prime Minister, by the Chancellor of the Exchequer and in all parts of your Lordships' House last week, we can have no cause whatsoever for complacency: our position is still far too precarious. If we are to have future security we have not merely to stop the drain on our gold reserves; we have to rebuild the reserves themselves. I do not think there is any disagreement about that. Apart from the question of establishing confidence abroad, the whole purpose of the Budget and of the Finance Bill is to create the physical condition and—what I think is equally important—the mental climate in which the skill, the enterprise and the industry of the British people can be given full scope in order that they may bring about their own salvation.

Before I deal with the major of the more controversial aspects of the Bill, there are one or two matters which, if not so obvious, are none the less important and to which I think I ought to draw the attention of the House. The first matter relates to a group of recommendations made by the Millard Tucker Committee. We should have liked to include in the Bill more of the Committee's recommendations, but I think your Lordships will agree that there is a limit to the load that any Finance Bill will bear, and we have therefore given preference to those recommendations which, in addition to their general merit, had particular reference to the main purposes of the Bill itself. A number of these recommendations are embodied in Clauses 19 to 22 of the Bill, and give valuable tax reliefs to mining activities, both at home and abroad. In view of the general agreement that was expressed in the House last Thursday about the vital importance of stimulating production of essential raw materials, I cannot help feeling that these proposals will be welcomed in all parts of the House.

In Clause 20, we have been able to provide that expenses incurred in connection with unsuccessful applications for patents should be admissible for tax relief, whilst in Clause 22 we have withdrawn the special deduction which for many years the brewers used to enjoy in respect of tied houses let for less than their full value. I must confess that I do not know whether the combined effect of these two proposals will be to make it more expensive for disappointed applicants for patents to drown their sorrows in drink.

LORD STRABOLGI

I think the noble Lord has a different edition of the Bill from the one we have from the Printed Paper Office. His numbering of the clauses is completely different from that of the Bill we have.

LORD LLOYD

I beg the noble Lord's pardon. He is quite right. I have taken the wrong reference, and I apologise to him. But I think he will agree with me that the provisions are unaltered.

Clause 71 will, I know, warm the heart of the noble Lord, Lord Saltoun, because it removes a venerable anomaly whereby the liability to estate duty of a member of the Armed Forces killed in action depended upon his rank. As a matter of fact, it is a very ancient anomaly, and to remove it we have had to repeal a part of the Stamp Act of 1815. The new position will be that the estate of any officer or man who is killed in war, or in warlike operations in a time of general peace, will be absolutely exempt from duty. I cannot help feeling that at this moment, when a number of our fellow countrymen are risking their lives on our behalf in Korea, it would be wholly unjust, and indeed repugnant, that if their lives should be sacrificed, their widows and families should be penalised by this anomaly. I am sure that its ending will be welcomed by every member of this House and, if I may say so, particularly by the noble Lord, Lord Saltoun, who has fought his battle for so long and with such dogged persistence for a most noble cause.

Another anomaly to which the Bill puts an end is the discrimination, so far as motor licence duty is concerned, between cars which were registered before January 1, 1947, and those registered afterwards. Your Lordships will remember that the flat rate of £10 was introduced by Mr. Dalton when he was Chancellor of the Exchequer for what I think were excellent reasons—namely, the adverse effect that the old tax had on our export sales of cars. At that time, as he freely admitted, he was not prepared to introduce a general flat rate because of the cost to the Exchequer. It is a curious factor, which I am quite prepared to admit, that the cost of doing this on a £10 basis has risen by £1,000,000 since then. All the same, I think it will be generally agreed that the argument for a flat rate on all cars is a strong one, but I do not intend to elaborate it this afternoon because I think it is well known and the time at my disposal is short.

EARL JOWITT

How much does it cost?

LORD LLOYD

If the noble and learned Earl will forgive me, I will tell him that in a minute. The proposal of the Chancellor of the Exchequer is that there should be a flat rate of £12 10s. on every car as from January 1, 1953. That will be done at a cost to the Exchequer of £1,300,000 in a full year, but we believe that, on the whole, the arguments are in favour of the general flat rate.

Now I turn to the question of purchase tax, which I think, since it is the most all-pervading, is the most unpopular of all taxes. There are people, I have no doubt, who would like to get rid of it altogether. Nevertheless, its charm for Chancellors of the Exchequer is its very large yield. It undoubtedly plays a very important part in our economy. Last year, it yielded no less than £338,000,000. That is the reason why successive Chancellors of the Exchequer in successive Governments, when it came to the point, never decided to get rid of it. To those who have to continue to suffer under it, the only consolation I can give is the reflection that they are not the first to suffer under excessive taxation of this kind. The other day I was looking through a book and I found that Sydney Smith wrote this nearly 150 years ago: The schoolboy whips his taxed top—the beardless youth manages his taxed horse with a taxed bridle on a taxed road—and the dying Englishman pours his medicine, which has paid 7 per cent., into a spoon, which has paid 15 per cent., flings himself back upon his chintz bed, which has paid 22 per cent. and expires in the arms of an apothecary, who has paid a licence of £100 for the privilege of putting him to death. So it has happened before.

Nevertheless, if we have not been able to remove purchase tax, we have made some big changes in the system, changes which were recommended by the Douglas Committee which was set up by the former Chancellor of the Exchequer. As your Lordships know, one of the many criticisms of the tax was directed against what is known as the "blind spot"—the point at which, under the old system, any article attracted tax at the full weight. The effect of this, as your Lordships know, was that any article which was just too expensive to qualify for the classification "Utility" had practically no sale whatsoever in the home market. For example, a Utility article costing £1 obviously sold for £1. A non-Utility article costing 21s. and paying 33⅓ per cent. purchase tax sold at 28s., and I think it is fairly obvious that nobody was prepared to pay 28s. for an article which cost 21s. when he could get an article 1s. cheaper which would cost £1. At the same time, of course, there were reasons for believing—as, indeed, there still are—that articles in this medium-price range could be sold abroad if only they had a sufficient home market to make their production worth while for British manufacturers.

Under the new scheme, known as the "D" scheme, the sudden jump in tax is removed, and an evenly graduated tax is substituted. This is done, as your Lordships are probably aware, by giving each class of articles (whether they were formerly Utility or non-Utility) a tax-free allowance, known as the "D", tax being charged only upon the amount by which the wholesale value of the article exceeds the amount of the "D." In fixing the "Ds," the underlying principle has been that, broadly speaking, about half the total quantity of each class of goods concerned should be completely free of tax; thus the object of the old Utility scheme, which was to enable the lower income groups to buy their most essential articles, such as clothing, footwear and gloves, tax-free, is still preserved. On the other hand, of course, the amount of tax on articles just above the "D" line is very small. If I do not weary the House, perhaps I might give an example here. Men's shirts with two collars at 27s. retail tax-free, whilst better quality shirts which retail at 36s. pay only 1s. 6d. worth of tax. Moreover, in order to help the textile industry the Chancellor agreed during the Committee stage in another place to reduce the rates of tax on textiles by one-quarter, at a cost of £10,000,000 to the Exchequer.

Apart from the help the change will give to our exports, there are two other advantages in the new scheme. First of all, it gets rid of a number of entirely indefensible anomalies which existed under the old scheme. For example, one could buy a pair of dancing shoes tax-free, yet rubber boots, which are absolutely essential to agricultural workers and many others, bore tax at the full rate. One could buy a Utility dinner jacket, but protective clothing and footwear for industrial workers were taxed. Again, cotton tablecloths were tax-free, yet oil baize tablecloths were taxed. If I may say so, there was really no logic to the old system at all. Those are just a few of the anomalies which existed and which are done away with under the new scheme. Secondly, of course, the new scheme meets a difficulty in relation to our international obligations, because the old Utility scheme applied only to home-produced goods; and, consequently, foreign goods which competed with home-manufactured Utility goods found themselves faced with what was, in effect, an additional protective tariff. My Lords, whatever view we may take of protective tariffs, either for or against, I think there will be general agreement in the House that if we are to have such tariffs, they should be open tariffs and not concealed tariffs of that kind. In any case the old scheme was, in point of fact, entirely at variance with our international obligations.

It is inevitable, of course, that as a result of the new scheme some articles which in the past were virtually outside the whole purchase tax system will now have to pay a tax, and inevitably there has been a good deal of criticism on this score by the interests concerned. On the other hand, as I have already pointed out, there are a number of articles which formerly paid tax and which will now either be exempt or pay tax on a very reduced scale. As I have already emphasised, in every range of articles, half will be tax-free. Equally, we should not forget that there is a very substantial range of goods which are altogether outside the scope of the tax, such as goods for export, goods for Government contract and children's clothing. Therefore, I suggest to your Lordship that this tax must be looked at as a whole, and if we so look at it I think we must agree that, on the whole, the new system is both fairer and better than the old one.

I pass now to a new tax which is imposed by this Bill—namely, the excess profits levy. In our Election Manifesto we said: Our theme is that in normal times there should be the freest competition and that good wages and profits fairly earned under the law are a public gain, both to the nation and to all industry—management and wage-earner alike. But the vast rearmament policy of spending £5,000,000,000 in three years on defence inevitably distorts the ordinary working of supply and demand. Therefore, justice requires special arrangements for the emergency. We shall set our face against a fortuitous rise in company profits because of the abnormal process of rearmament. We shall accordingly impose a form of Excess Profits Tax to operate only during this exceptional period. My Lords, that is the justification in principle for this tax. Perhaps I may say here that we are not really setting any new precedent in this tax. After all, before the last war there was a levy of this kind during the rearmament period; then during the war there was the excess profits tax that we all knew, and perhaps I should remind the House that in the United States they have had a similar levy for the past year. After all, not only are public funds on a very large scale going into our rearmament but—what I think is perhaps more important—scarce raw materials are being specially allocated to industries manufacturing armaments. As a result, industries whose only "crime" is that they do not make armaments will find their raw materials diverted to the benefit of their more fortunate competitors, the armament firms, who will undoubtedly profit at their expense.

At the same time, I will not attempt to deny that the tax has certain unavoidable disadvantages, and for this reason we hope that the rearmament period will not be unduly long. One disadvantage, for example, is that the levy falls upon all firms that make increased profits, regardless of whether or not they are directly concerned with armaments. In practice, it is quite impossible to distinguish between profits which are made as a result of rearmament and those which are not. Obviously, the increased purchasing power which we are injecting into our economy does not all remain in the armament factories. The armament factories are going to increase the number of workers on their books, and obviously these workers will spend their money at local retailers and local places of entertainment and, in their turn, the people who run those places are going to benefit as a direct result of Government expenditure on the defence programme, although it cannot be said that they themselves are in any way concerned with rearmament. Nor do I think that this particular difficulty would be met by an increased profits tax, as has been suggested in some quarters. Such a tax would be just as general in its application and, of course, would have the additional disadvantage that it would hit not merely those firms who are going to benefit by rearmament but a great many other firms who, partly, it may be, because of rearmament, or because of world trade recession, as in Lancashire, have fallen on less prosperous days. I think that is a conclusive argument against an increased profits tax. Apart from this particular difficulty, there have been a number of other criticisms of the original proposals in respect of this levy. I must say that I think the Chancellor of the Exchequer has carefully considered every criticism that has been made and, moreover, that whenever a good case has been made out he has done his very best to meet it.

Perhaps I may now draw your Lordships' attention to some of the concessions that the Chancellor has made to meet the criticisms that have been levied against this tax. For example, a taxpayer may now choose to be assessed on any two of the three standard years, instead of on all three, as previously. That meets some objections which were made about the year 1947 by companies which had not yet fully emerged from war difficulties. Then there is added an alternative standard based on net assets, which obviously is going to benefit the company which in the past has ploughed back into the business a good deal of its profits. The minimum standard has been raised from £2,000 to £5,000; the allowance for new capital has been raised from 10 per cent. to 12 per cent., and an allowance of 4 per cent. on additional borrowed money has been introduced. The overriding maximum—that is to say, the overriding impact of the tax—has been cut down from 18 per cent. to 15 per cent., whilst companies which carry on substantially the whole of their business through an establishment overseas have had their maximum cut down to 10 per cent.

In addition to these concessions, the Chancellor has made certain additional concessions for enterprises carried out in Japanese-occupied territories, and also for mining and oil companies. I think we should also remember that something has been done to mitigate the impact of the levy by the reduction in the profits tax, and that a particularly important feature of this reduction has been the fact that it is weighted in favour of the firm which ploughs back its profits into the business. Therefore, taking it all in all, I think it is fair to say that the Chancellor of the Exchequer has made great improvements in this tax, and in the improvements which he has made he has wholly or partially met every single criticism of substance that has been made, apart, obviously, from the overriding criticism of those who wanted to see the tax abolished altogether.

LORD PAKENHAM

The noble Lord is making such an attractive speech that I am sure he will not mind my interrupting him. Has he been able to discover any circles in which this tax is defended—circles inside the Government or outside?

LORD LLOYD

I have not, obviously, been moving in the circles in which the noble Lord has been moving. I should say that, generally speaking, all those with a strong sense of moral justice—upon which the noble Lord always prides himself—will, on the whole, consider that this tax has a very strong moral basis.

I turn now from the imposition of this new tax to the more cheerful subject of the reliefs which the Chancellor has given in respect of a very old tax. I think it would be very generally admitted—certainly it has been often said in your Lordships' House over a number of years—that one of the greatest obstacles to greater production in recent times has been the heavy burden of income tax. I think it is fair to say—whatever the noble Lord may think about this, I believe is true—that a great many people in this country whose social conscience is perhaps not all that it should be do on the whole like to feel that they are working for themselves, and not (and this is no disparagement of the Chancellor) for the Chancellor of the Exchequer. They do not like to see their overtime money going straight back to the Exchequer. That is undeniable.

The Chancellor of the Exchequer said in his Budget speech (and I think it is true) that there were three main defects in the income tax system as it was. First, the starting point of liability was too low. I think that is self-evident. For example, if the tax-free allowance is kept at £110 per annum, at a time when both prices and wages are rising, it is obvious, even to such a bad mathematician as myself, that the taxpayer gets a smaller proportion of his income exempt every year; thus, in effect, an increasing burden of taxation is put upon him. The second criticism is that the rates were too high, and, finally, that they rose too steeply. In this Bill, we have taken steps to improve the situation in all three respects. Personal allowances and earned income relief are both to be increased, and reduced rate reliefs are being improved. As a result, no less than 16,000,000 taxpayers will receive tax relief. Indeed, 15,000,000 of them have received it already, since they come under P.A.Y.E.

Perhaps I may again, at the risk of wearying your Lordships, give a few examples. A married coal miner with two children, who earns £12 a week (and that, I believe, is not unusual) will pay 7s. 3d. a week, instead of 15s. 9d. His mate, a single man, earning £10 a week, will pay 6s. 4d. less than before. Or take the case of another worker, a vitally important worker in our industries, a man engaged in the production of motor cars for export. He may be earning £10 a week, with a wife and a child to keep. He will pay 6s. instead of 13s. 4d. a week. Or take the case of the foot-plate crew of a passenger express. The driver may have a wife and a boy still at school to keep on £10 a week. His tax will be down by 7s. 4d. per week. His fireman, who may have been recently married, and who is earning £8 a week will save 5s. 6d. I suggest that these are reliefs which, although they are often scoffed at, ought not to be scoffed at.

What is more, I should like to emphasise that they are not reliefs designed primarily, as has been suggested in some quarters, to benefit the wealthier sections of the community, though, obviously, any general measure of this kind must, by its very nature, benefit everyone who pays tax, whether he be rich or poor. Nevertheless, I would point out that 40 per cent. of these reliefs go to people with incomes of under £10 a week, 30 per cent. to people in the £10—£15 a week category; 10 per cent. to the £15—£20 a week category, and 20 per cent. to the £20 a week category and over. I hope that, in view of these facts, the suggestion which has been made, that these reliefs are only for the benefit of the rich, will be recognised as completely unfounded. We believe that these reliefs will, in fact, operate most effectively in the income zone which most directly affects the earnings of the skilled worker, and his earnings from overtime—perhaps the most important thing of all. In this way, we believe, we shall provide the stimulus to greater production upon which, perhaps, more than any other factors our economic survival depends.

My Lords, I do not wish to detain the House any longer. I have tried, as briefly as I can, to deal with the main provisions of this Bill. I would end up by saying just this. In the critical circumstances in which we took office it would have perhaps been too much to expect that any of the measures we found it necessary to take to restore our fortunes would be popular. Indeed—and this I should like to emphasise—popularity is not what we have sought in framing this Bill. All we have tried to do is sincerely, and without fear or favour, to put into effect the economic policy which we believe will give the people of this country the opportunity of securing their own future. I submit to your Lordships that no Government could do more, and I am quite certain that no self-respecting Government could do less. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2^a.—(Lord Lloyd.)

3.18 p.m.

LORD SHEPHERD

My Lords, in the first place I should like to compliment the noble Lord, Lord Lloyd, on the very able way in which he has presented this Bill to the House. He did not quite succeed in making it a popular measure to myself and colleagues, but he did his best to throw light into the dark places and to help us to understand the Bill a little better. As a rule, the debates which take place annually on this Bill are concerned with everything in the world but the provisions of the Bill itself. Whilst I agree with the noble Lord that our debate last week may prevent our trespassing—or make it unnecessary for us to trespass—too widely afield, yet I hope that the line taken by the noble Lord in putting the Bill before the House will not prevent one or two slight incursions into those realms, because I am afraid that we shall not understand the real merits of this Bill unless we can compare it and link it up with things that have taken place in other directions. If I am permitted to take that course I shall be grateful to your Lordships, and I am sure that it will lead to more interest in the debate itself.

To begin with, however, I will confine my remarks to the Bill. I will compare it with the Bill presented to your Lordships last year. I do so in order to bring out a point about which it seems we should remind ourselves just now. Last year the Budget provided for expenditure on this basis: out of every pound paid to the Exchequer, 9s. 6d. was devoted to the Armed Forces and the service of the National Debt; 7s. 11d. was devoted to the social services and food subsidies, and 2s. 7d. to the rest of the activities of the Government. Since the introduction of that Budget we have had a General Election, one of the main features of which was the denunciation by noble Lords opposite of noble Lords on this side of the House for forcing the country to its ruin by gross over-expenditure. When I think of that, I want to know how far the present Bill and the proposals of the Government show a reduction on the expenditure in which we indulged ourselves.

To make that comparison perhaps I should dissect the items of social services and food subsidies. Of the 7s. 11d. in the pound which was devoted to the social services and food subsidies, 2s. 2d. were spent on education and housing. The present Government do not propose to reduce expenditure on those two services. Indeed, we are informed, such is the housing zeal of the present Government, that much more money will be spent this year under that heading than was spent last year. Last year we spent 1s. 11d. out of every pound on health. It is true that in another Bill this Government have proposed a series of charges which will transfer some of the expenditure incurred under the National Health Service, but not to be incurred under this, from the backs of the community to the backs of the sick and infirm. But notwithstanding these transfers, because of the payment to doctors the amount of money to be spent on the Health Service this year is to be greater than last year. The next item is entitled, "Pensions and social allowances," on which last year we spent 1s. 11d. out of every pound. Under this Budget and other measures this year the Government are spending more in pensions, they are spending more in allowances for the sick arid injured, and they are spending more in allowances to the parents of children. Here there is no reduction in expenditure for which we were denounced. Only when we come to the last item, food subsidies, do we find that the Government become enthusiastic in the interests of economy. They propose to reduce expenditure upon food subsidies from about £400,000,000 to an eventual £250,000,000. The full blast will not be felt at once, but it is to come in due course.

I think the Government have in their Budget paid us a compliment. Despite all the abuse of the General Election, not only do they now agree that the Government last year did not spend too much but they have shown by their example this year that they do not believe the Government spent enough. That is why this comparison of the two Finance Bills is important, when talking about "saving the country from bankruptcy." When we next meet in strife, facing one another in a General Election, I hope that we shall be prepared to discuss the issues of the day on the basis of the facts, and not on the basis of what we consider to be the merits or demerits of a particular Government. I hope not to be more controversial than that during the course of my remarks. I hope to be as objective as possible in discussing the merits and demerits of this Bill.

The second general point I want to make about the Bill is the compliment paid to the Finance Bill of last year by the right honourable gentleman the Chancellor of the Exchequer in his introduction of the Budget of March 11. Almost at the commencement of his speech he gave estimates of what would occur in this country if, instead of bringing in a new Budget, he asked Parliament to reaffirm the Labour Finance Act of the previous year and to continue for a further twelve months the taxation then laid down. I mention figures below because they are a tribute to the sagacity of the Labour Chancellor of the Exchequer, to the merit of the Government of that day and their supporters in Parliament. Mr. Butler estimated that if the Labour Finance Act were to continue into this year, the revenue would approach £4,778,000,000—an increase over the previous year of £338,000,000. He then indicated that Inland Revenue would show an advance of £430,000,000, income tax an advance of £300,000,000; that Customs and Excise would remain about the same, profits tax would be up by £150,000,000, and that there would be a surplus at the end of the year of £538,000,000. If I had been Mr. Butler, in the circumstances, and the difficulties surrounding us being as great as they are, I should have played for safety. I should have said that the current taxes were safe and sound; they seemed likely to give me a surplus of ample dimension; and that I had better ask Parliament to support me in carrying them forward into this year. I think we can say that during the past year, despite all international difficulties, the trade and revenues of our country have been buoyant indeed.

I want to say a word about a recent announcement made in this House and in another place, because it would seem that the Bill now before us is likely to disappoint before the year is out. I am sorry about that, because, although we shall fight one another when Elections come round once again, no noble Lord on this side of the House would like to see the Budget of the year fail, no matter what Government brought it in. If the Budget of the year fails, that means that the difficulties are all the greater in the year that is to follow. From the announcement it would appear that under the present Bill at the end of the first three months of the present financial year there is already a deficit of £201,000,000. Of course, during the next three quarters of the year the revenues may recover. But if the revenues do not recover during that period, then it would seem that at the end of the financial year, instead of there being a surplus of some hundreds of millions of pounds, which the Chancellor would like to see, there will in fact be a deficit. I feel sure that that would be regarded by all people, and certainly by noble Lords on this side of the House, as an unfortunate state of affairs, and it is a matter to which we feel the Government should give the utmost attention at once.

Having said something about the broad basis of the Bill, I should now like to say a few words about two important features of the Bill. I do not, however, propose to follow the noble Lord, Lord Lloyd, in all the details he mentioned. The first point has reference to the food subsidies. When food subsidies were introduced during the war period their purpose was quite clear. In the emergency of the war it would have been quite wrong to allow the wages of the working classes of the country to increase unduly, because that would only have added to the cost of the war effort. Therefore, food subsidies were introduced in order to keep the cost of living at a reasonable level and to obviate the necessity for constant wage demands. That was during the war period, and I feel that we should all agree—we were all in that Government—that food subsidies during that period proved to be most successful. The trade unions of the country answered the call, their members responded, wages were kept largely pegged, and the prices of manufactured articles were kept to a fairly low level.

When peace came and the new Labour Government took office, a decision had to be taken as to whether the food subsidies should be continued. It will be remembered that our export trade was practically non-existent at that time. We had to build up our connections in all parts of the world. Trade and commerce had to be carried on, otherwise we should all have starved. It was felt that if we had to carry on trading successfully, the costs of industry had to be kept low; and one of the ways by which that could be done was to keep the wage levels on a stable foundation. Therefore the Labour Government decided that the food subsidies should be continued, in order to keep down demands that might otherwise have been made for continual increases to meet the constantly increased cost of living. It is true that, notwithstanding that, wages did rise. But noble Lords should know that, although wages rose, the cost of living figured largely in practically all the discussions that took place prior to any increase in wages.

I submit to your Lordships that if the time has now arrived when the food subsidies should be swept on one side, either altogether or bit by bit, then the subject of compensation is bound to arise. Surely, noble Lords cannot take the stand that of all the people in this country the only people who should not ask for compensation are the trade unionists. Obviously, if all other sections of the community, faced with some commitment of the nation which renders them less able to meet the costs of the day, are to be able to claim compensation, then the workers should be able to do so as well. Indeed, to some extent the Government have already agreed to this in principle, because they not only now give us income tax reductions, in order to make up the loss on food subsidies, but they are also giving us increased allowances for various other things; and one of the reasons why that is being done is because those to whom the allowances are being given are going to have to face increased burdens. I want to emphasise that if the Government pursue this line—a line to which we must object until fair conditions are brought about—they must be prepared to face in a willing spirit the requests for wage considerations that will enable the working classes of this country to maintain their position in the world.

I know that a claim is sometimes made that we should not reduce the food subsidies until the cost of food has itself fallen. It is sometimes said that if we were to allow the cost of food to fall, then the food subsidies would automatically be cut out. I do not believe, and my Party does not believe, that the cost of food will ever fall to that level. We cannot see the day coming again when the producers of food are reduced to starvation level, as they were between the wars. In this country, as in all countries of the world, the food producers must be protected and must be given a reasonable standard of life, and that will mean that food will never go back to the old prices; food will always be more expensive in the future than it was in the old days. We have to face the issue that if the food subsidies must go, then there must be compensation. I would appeal to the Chancellor of the Exchequer, and those who support him, not to press the trade unions and their members to forgo asking for higher wages because the cost of their foodstuffs is being increased.

The second point to which I want to refer is the purchase tax. Purchase tax was instituted in the war years for a very definite purpose. If possible, we had to prevent inflation in this country, and one way in which we could do that was to discourage people from buying certain commodities. If we could prevent them from buying commodities unnecessarily, we had a means of keeping the prices down. We therefore made the commodities much more expensive, and in some cases out of reach of many people, by the tax; and to that extent we kept inflation at bay. Since the end of the war we have had to consider the use of this tax in another direction. We tried—and we met with a great deal of success—to get rid of the tax on articles of attire, and other articles used by the working people of Britain, which were not articles readily exportable to the United States or other dollar countries. We continued the tax on goods and services which were of use to our American friends and for which they were prepared to pay, so that they could be exported to win dollars for us.

But I do not think anyone would be prepared to retain purchase tax as a permanent means of raising revenue. No one would be prepared to impose this tax to prevent people from buying the things which we think they ought to buy when conditions become normal. Even now, although we still have to export everything which the Americans will buy, we have to remember that in some industries there is no longer good trade, but a recession. May I take the cotton industry as a case in point? The mills are being closed down, and the workmen and women are being turned adrift and are going into other industries to find employment. The cotton trade, which has been of great use to the people of this country, is in the same condition as in the years following the war of 1914–18. When you have circumstances of that kind, even though it means a loss of revenue, it is desirable that we should remove the purchase tax, because if our cotton friends cannot export to other countries they cannot make dollars, but they can continue to serve the people of this country who, in many respects, are short of the cotton goods Lancashire produces.

I said that I wanted to depart somewhat from the line followed in the speech of the noble Lord opposite. I want to be brief, because there are other speakers to follow. I wish to make reference to a statement made by the noble Viscount, Lord Swinton, last week, and to a statement made by the Chancellor of the Exchequer on the Third Reading of this Bill in another place. It concerns the deficit in the dollar and gold reserve of this country during the past quarter. In December the loss was 934,000,000 dollars, on March 31 it had dropped to 635,000,000 dollars, and we are informed that in the last quarter the loss was 15,000,000 dollars. I do not mind using the figure 15,000,000 dollars, although it might be said that the loss was considerably higher than that, because in that period the Americans once more came to our assistance. If you take out the contribution made by the Americans, the loss for the past quarter was about 217,000,000 dollars. I believe that the Government are right in taking some credit for this fall. I think the nation itself is right to claim some credit for the fall also. But I hope we are not going to take the line of the noble Viscount last week, when he seemed to suggest that we have stopped the rot. What we have now to do is to climb once more to affluence.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT SWINTON)

I am sure that the noble Lord, who is such a fair controversialist and, indeed, such a helpful one, would not wish to misrepresent me at all. I made it perfectly plain, when giving that figure of 15,000,000 dollars, that we had to allow for the fact—and I begged the House to take notice of this—that during that quarter we had received 202,000,000 dollars of aid. I forget exactly what my words were, but I believe they were to the effect that we had not the faintest ground for complacency, and that everything depended on the road ahead. I think we were at one on that.

LORD SHEPHERD

There is nothing much dividing the noble Viscount from myself as to what he said, but I rather gathered from him that after those allowances had been made, and after we had considered the 217,000,000 dollars, we had reached bottom in the losses, and what we had to do, without being compacent, was to build up for the future. We had made a start. I do not wish to say more than that, but I think that fairly represents what I gathered from the noble Viscount's speech. I hope that we shall not be too complacent about that result. I hope that we shall take note of the experiences of the Labour Government during 1950 and 1951. My incursion into a discussion on the balance of payments with reference to those two years is in order to indicate that, although the Labour Government had much more glowing accounts in its period of office than the present Government, yet the turn of the tide came once more, and instead of being passing rich with increasing dollars, we began to lose dollars at a very rapid rate indeed.

May I just say one or two words about that aspect of the matter, in order to impress your Lordships with the difficulties as we see them on this side of the House? In 1950—that is, the year following the devaluation of the pound—our reserve of gold and dollars doubled itself. It rose from 1,688,000,000 dollars to 3,300,000,000 dollars—a very respectable increase in the course of one year. Now I do not want to express what we on this side of the House felt about this increase, but it obviously created a great impression outside, and I want to give some of the points which arose at that time. According to a leading article in the Financial Times of December 30, 1950: Compared with 1949, the year 1950 has been for the United Kingdom, and for the sterling area as a whole, one of uncovenanted economic progress. At almost every critical point, the indicators show an improvement in the general position such as could not reasonably have been hoped for at this time last year. Industrial production rose from 140 on the index to 150. Partly as a consequence of this, inflation has been kept within bounds and export records have been beaten almost every month … at the same time, in each of the first three-quarters of the year—and almost certainly in the fourth—the sterling area has earned a surplus on its trade with the dollar area. It would have seemed scarcely credible at this time last year to forecast that before 1950 was out Marshall Aid could be dispensed with, without serious economic dislocation. I think these extracts indicate the general feeling in the country that, despite the fact that we had a Labour Government, this country was rising to the occasion and was getting out of its troubles.

During the month of January that followed, my right honourable friend Mr. Hugh Gaitskell, who was Chancellor of the Exchequer at the time, made a speech to a Press conference, and in very plain terms warned the people of this country that they were facing very trying times in the year then forthcoming. He based his views upon these three points: first, the impact on industry of rearmament; secondly, the scarcity of raw materials, and, thirdly, the continuing rise in the price of imports. Then he went on to say: It is not going to be easy to pay our way abroad in 1951. The rise in import prices means that for the same volume of imports as in 1950, we may have to pay as much as another £400,000,000 this year. But if we can get them we shall actually need bigger imports, particularly of materials to sustain the higher level of production now reached, including defence production. Sometimes it is said that the last Labour Government allowed the people to sleep on the existing difficulties of the day. I have quoted those particulars to show that, whilst the City of London was almost putting out its flags because there had been a change in the tide, the Chancellor of the Exchequer of the Labour Government was pointing out to the country that things were not too rosy. In January it appeared to him that before the year was over the balance of payments might undergo great changes. Notwithstanding that, in the first quarter of 1951 we had a large surplus in the balance of payments. In the second quarter of that year we had an excess of £50,000,000 in the dollar and gold reserves. But in the September quarter and in the following quarter the rot had set in. Values declined, gold and dollar reserves came down almost to extinguishing point; and that state of affairs has continued until the recent delaying action brought about by the restrictions now applied.

I mention those things not to win sympathy or to make propaganda points but because I believe that if we bring in a bank rate of 4 per cent., which is largely negative in its operation, if we cut imports—which again is largely a negative operation—although for the moment we may save the drain upon our reserves, in the long run, if we rely on these two things alone, our difficulties are going to be even worse than they have been up to now. So far as I can see, our main difficulty during the whole period has been the rise and fall in the cost of raw materials. The first rise in the cost of raw materials following the outbreak of the war in Korea certainly benefited the sterling area; but as we are a consuming country that rise greatly increased the prices of the import trade of our own country. On the other hand, to-day the Government may have been assisted by the more recent fall in raw material prices noted of late.

But a further warning to the Government. There is now another change; prices of raw materials are again beginning to show some expansion. We ought, therefore, to consider with our opposite numbers in other countries ways and means by which raw materials can be organised, and their distribution also organised, so that all nations in the world desiring those raw materials may obtain their share without the great rivalry of the auction mart which caused such great inflation during 1950 and 1951. I hope that I have not kept your Lordships too long. I trust that you will excuse me, for I am in a similar position to the noble Lord, Lord Lloyd, in that, like him, I have been called upon to speak on economic matters in your Lordships' House for the first time.

3.54 p.m.

LORD STRABOLGI

My Lords, I, too, enjoyed the venture of the noble Lord, Lord Lloyd, for the first time on the stormy seas of finance and economics. I am sorry that he has been called out, because I wanted to congratulate him on his gaiety and optimism and on the feeling of well-being that he must have given to my noble friends on this side of the House, whatever effects his words may have had on the troops behind him. He knows, I know and the noble Viscount, Lord Swinton, knows, quite well that the situation is by no means so rosy as all that. I think my noble friend Lord Shepherd has done us a service in drawing attention to the crude, cold, hard facts of a very ugly position. The truth of the matter is that it is a stormy sea upon which Lord Lloyd has embarked, and unless there is a drastic change of course we are going to be led into yet another economic crisis next year. I think every one who studies the facts knows that. The only problem is whether the Government will wake up in time and make the changes in our whole economic and financial policy which are not represented in the Budget and which have not appeared in any recent statement by the Chancellor of the Exchequer in another place.

Last Thursday, in the very important debate in this House, the Chancellor of the Duchy, the noble Viscount, Lord Swinton—who, I understand, will address your Lordships later—forecast further cuts in imports from the non-sterling area. I should like to know why we do not impose those cuts right away. Why wait? And why only from the non-sterling area? My noble friend Lord Shepherd produced some important figures. Let me, if I may, amplify them a little. If we cut out the defence aid from the United States, to which reference was made by both Lord Shepherd and Lord Lloyd, the true deficit in April this year was 61,000,000 dollars. That is from the dollar area only. In May the figure was 67,000,000 dollars, and last month it was 89,000,000 dollars. That is not a very good picture. But then in the first quarter of this year we had to pay in gold to the European Payments Union 219,000,000 dollars. So we certainly ought to be making cuts in our imports from the non-sterling area. I know that there are difficulties about trade agreements and the danger of reprisals, and so on, but the position is desperate, as we can see if we look at the figures.

Whilst the noble Lord, Lord Lloyd, was right to paint as good a picture as he could, I think he created a feeling of optimism which was false. What I missed in his speech—and I hope we shall hear something about it from subsequent speakers on the Government side—was-anything about further economies. Very little has been said about that matter so far. In fact, there was not one word about it in Lord Lloyd's speech. We have to make drastic economies in addition to those which were mentioned by Lord Swinton.

LORD BLACKFORD

Would the noble Lord oblige us with a few practical suggestions for economies?

LORD STRABOLGI

Yes. I do not want to make too long a speech, but I will begin by suggesting spreading over the rearmament programme still further. We heard from the noble Lord, Lord Lloyd, about the difficulties which the engineering trades are suffering as a result of the diversion of their scarce raw materials to rearmament. I suggest that we spread over the period of rearmament still further. That is the most important economy we can make.

Now, what ought to be done in this situation? I think the noble Lord, Lord Shepherd, made suggestions as clearly as he dared in view of his position in the Party. I am in a rather more independent position and I can speak more freely. I think we all ought to get together on this subject. We have been talking about a bipartisan foreign policy—which has ceased to exist for the time being. What I should like to see is a bipartisan economic policy. Let the Government drop their utterly futile proposals about denationalisation of transport and, more particularly, of iron and steel. In return we will support them in the most drastic economic measures that this situation calls for. I am not alone in this proposal. I expect your Lordships will have noticed, with great interest, the speech reported in to-day's newspapers by the President of the National Union of Railwaymen. Lord Shepherd spoke just now of the effects of general increases made without an increase in production or a corresponding rise in prices. The President of the National Union of Railwaymen made an even stronger appeal along these lines.

It is even more likely that your Lordships noticed a report of a speech made over the week-end by no less a person than my right honourable friend Mr. Aneurin Bevan. He used the accents which we used to hear from the late Lord Snowden when he was Philip Snowden in the Coalition days. He used much the same sort of language as was used in those days by Philip Snowden. This is what he said, appealing to the trade unions, as he had every right to do as an old trade unionist himself. According to The Times of yesterday, he asked the trade unions to face the grim fact that higher standards of living were impossible if production went down. The report goes on: He did not say that the unions which were putting in for increased wages at the present time ought not to have them, but he asked them: 'How do you expect to get higher wages if production goes down? If you try to get them, all that will happen would be inflation of the worst possible kind.' I think that is what the noble Lord, Lord Shepherd, also was indicating. Mr. Bevan went on to say: that national production had fallen in the past two months", at a time when production in the United States, Germany and Japan is going up. If our production is down, that is a most serious situation, and does not justify the gay optimism and joyfulness of the speech of the noble Lord, Lord Lloyd, which I may say again, as he has now come back to the House, we all enjoyed.

Then Mr. Bevan went on to speak about the rearmament programme—and this is where we get the authentic Snowden touch: ' If we conclude that we ought to have more tanks and a rearmament programme on that scale' "— he was speaking about the £1,460,000,000 programme— ' we ought to face the facts and realise that no amount of transfer of wealth from the rich to the poor in Great Britain will make up the result.' Furthermore, he said, ' You cannot have increased social services ' "— this is where I answer the noble Lord, Lord Blackford, if he will allow me to— 'increased wages, bigger arms, more armies, and a higher standard of life from lower production.' That is the situation, and I think this cuts right across the Parties—at any rate, it ought to. I should like some sort of a bargain such as I have suggested: let the Conservatives drop their shibboleths for denationalisation and not completely disrupt the iron and steel industry and transport at the present time. Let us, for our part, support them in the necessary cuts and the necessary measures to get us out of this very serious situation, because I do not think its seriousness can be exaggerated.

That is the situation as I see it I hope that I have not shocked my noble friend Lord Shepherd by going a little further along the road which he so brilliantly indicated. If so, all I can say is that he encouraged me, and I was still further encouraged by the remarks of so eminent a trade unionist as the President of the National Union of Railwaymen and so eminent an administrator as my right honourable friend Mr. Aneurin Bevan.

4.4 p.m.

LORD KENSWOOD

My Lords, I should like to draw the attention of Her Majesty's Government to some very odd consequences of the operation of the income tax regulations as they affect blind workers in the United Kingdom. In this country, as far as I can compute, there are about 95,000 registered blind persons. Of these, between 11,000 and 12,000 are gainfully employed. Just under 6,000 are in what are known as sheltered workshops and sheltered home workers schemes. It is there that the first anomaly occurs. There are various schemes for remunerating these workers. They are highly skilled and have to go through a rigorous and lengthy training, but nevertheless their earnings are low, because these very industries are among the poorest paid in the country. They are gnerally known among blind workers as the Cinderella industries.

As a consequence, the general tenor of the schemes for paying these workers is something like the following. I hope none of your Lordships will accuse me of over-simplification. I am not going into the complicated workings of these schemes, but they are somewhat as follows. A minimum wage is fixed for the workers. If a man or a woman does not reach this minimum wage, the difference is made up out of public funds, and this augmentation is untaxed. Your Lordships will readily see that it is not in the financial interests of a worker to earn more than the sum of his personal income tax allowances, because if he earns more, he will be taxed on that income and will at the end of the week, unless he earns considerably more than the minimum wage, take home a lighter pay packet. His actual earnings, if they are at the level of the sum of his personal allowances, will receive no income tax assessment at all, but the moment he earns more than that, the difference between his personal allowances and his actual earnings will be taxed. That is a curious anomaly. It is virtually a punishment or a fine for being efficient or industrious.

It is obviously unfair to expose any person to the temptation to "go slow" in his work in order to earn more money. It is a Gilbertian situation. I think that this difficulty would be easily overcome and would cost the Exchequer very little indeed if there could be an increased personal allowance on account of blindness—that is to say, a personal allowance on earned income. That would stimulate the workers to higher output—and we all desire that.

Then I come to the workers who are in what is known as open employment. This comprises a long list of occupations: factory workers who operate semi-automatic machines, shorthand typists, telephonists and one or two committee clerks in local government offices, clergymen, lawyers, teachers, even a few university lecturers, musicians and so forth. The list is endless. Those men and women receive no increased allowances or exemptions on account of blindness. At the same time, their expenses are considerably greater than those of an ordinary seeing person. Very frequently they have to have guides. Some have to have secretaries, or at least, readers. They have to have special gadgets to carry on with physiotherapy. The musicians generally have to purchase not only the ordinary ink print copy which the seeing musician has as part of his equipment, but also a Braille copy, which is very expensive. Finally, his travelling frequently costs him more than it would cost anyone else.

It is my conviction that it is not only in the interests of the blind to keep away from subsidised industries and go into open work, but it is also in the interests of the country for them to do so. In the first place, there is the pull of sheltered industries to a person who is undergoing the terrifying stress of threatened blindness. He will frequently seek the shelter, the protection, of a safe livelihood by going into these Cinderella occupations. It is not right that he should be subject to this pull. It is better for him to take the risk and to go out into the ordinary world and gain a livelihood there. It is much better for him and for the community, because he will be much more productive in those outside industries than in the ordinary workshops or in the home workers' schemes.

I therefore make this appeal: would Her Majesty's Government grant every blind worker, of whom there are only about 12,000, an extra personal allowance of £100 per year on account of blindness? It will cost the Exchequer very little and, on the other side, there are compensations. In consequence, these people may receive less out of public funds to help them. After all, over and above the subsidies it is very expensive to keep going sheltered workshops and home workers schemes. They require a great deal of supervision, and marketing is not too easy. These people would be more productive. At least they would receive an incentive to work harder. I ask for this concession, not on charitable grounds, not even on sentimental grounds or on the ground of humanity; I ask for it purely because of hard, common-sense economics. It will pay; and it will increase the dignity of the blind people affected. A similar approach was made to the Treasury in 1949, but it was turned down, I am told, on the very strange ground that too few people were affected by this request. That is the very reason why I think Her Majesty's Government should not hesitate to make this grant forthwith. The last two speakers expressed pleasure in what the noble Lord, Lord Lloyd, said. I, too, wish to express pleasure, because I hope that as a consequence of his statement that income tax concessions have been made for the poorer people of this country, and because the Chancellor has made those concessions in order to stimulate higher production, this grant will be made. It gives me every hope that the Chancellor of the Exchequer will not hesitate one moment to do what I am pleading for at this moment.

4.14 p.m.

LORD MACDONALD OF GWAENYSGOR

My Lords, perhaps the most interesting feature of to-day's debate is the sparsity of speakers from the Government Benches. That could be due to the fact that they consider that this Finance Bill is so good that it needs no vocal support, or that it is so bad that it does not deserve any vocal support. I am not quite sure which of those two considerations have determined the sparsity of speakers from the Government Benches. The noble Lord, Lord Lloyd, described himself as the opening batsman. May I say that I thought he justified himself as an opening batsman in this debate? I understand that the opening batsman's duty is to tire his opponents without boring the spectators, and I think Lord Lloyd succeeded in doing that. The noble Lord assured us that this is not a popular Bill. I agree that it is not a popular Bill. I know of no Chancellor in any political Party in this country who could produce a popular Finance Bill in to-day's circumstances. I do not think that is possible. Therefore, the noble Lord need not emphasise that this is not a popular Bill. The noble Lord also assured us that there were aspects of the Bill which he thought were more popular than others. I think there are. My noble friend Lord Shepherd dealt with all those aspects—the popular, the less popular and the non-popular aspects of the Bill. It is not my intention to traverse the ground he covered so well. There is no need for that.

This Bill has changed immensely since it was first introduced in another place. I know of few Bills which have changed so much. I notice that the Chancellor himself was responsible for over two hundred Amendments being inserted; he also willingly accepted quite a number of Amendments from the Opposition. That may be an indication of a conciliatory spirit. It may also be an indication of a lack of foresight or it may be an indication of the strength of argument by the Opposition during the Second Reading and the Committee stages of the Bill. But there are the Amendments. I am not at all surprised at the patience of the Chancellor and his pertinacity in regard to this Bill. I remember him piloting another Bill through another place in 1935. Since that day I have been a great admirer of the present Chancellor. I have seen few men who have shown greater patience and greater perseverance in dealing with opposition. He was a great batsman then. Opposing him he had perhaps the most relentless bowler of all time—namely, the present Prime Minister, who was present day in and day out and sometimes throughout the night, constantly attacking the present Chancellor on the India Bill. This was a long innings lasting many weeks, and a great feature was that at the end of that long innings the present Chancellor was still carrying his bat. He had few centuries to his credit but he was still batting at the end. I am not surprised that, with such patience, he has done the same with this Bill.

I do not wish to deal with the statistics that have been put forward by my noble friend. In fact, I dislike statistics as much as the noble Viscount, Lord Swinton, who is to wind up the debate, and I shall use as few as possible. That is not the aspect of the Bill which troubles me. The noble Lord, Lord Lloyd, told us that the purpose of this Finance Bill was to restore confidence abroad. I agree that that is one of its purposes. I hope that this Finance Bill will do that. But I am very much more concerned with restoring or, should I say, retaining the confidence which has been built up in this country, especially among those on whom we depend—namely, the workers in industry. My greatest anxiety is that this Bill and the general policy of the Government is failing to do that—and if we fail there we fail everywhere. We can have our debates on economic crises or on the balance of payments, but if we fail to retain and increase the confidence of the workers in this country, we shall not get the results we desire.

Lord Lloyd wound up by telling us that the best thing that this Finance Bill could do would be to bring about a substantially increased production. I agree. If it does that, it will do the rest; if it does that, the other things will be added unto us. But what is necessary in order to do that? This is a Bill which gives something to everybody; but it has also. I think, taken something away from everybody. Once you do that you are in a difficult dilemma. You must ask yourselves: are you giving to those who do not need to receive, and are you taking away from those from whom you ought not to take away? That is the inevitable dilemma, once you begin to give and take in a Bill of this kind. I understand that £50,000,000 is being given to those with an income of over £1,000 a year. It may be that the purpose of that is to provide an incentive. I can well understand that But we must look at that £50,000,000 from the point of view of the ordinary worker, who has had something taken away from him without receiving very much in return from this same Finance Bill. He looks at it in this way. You are giving substantially to those who do not need and you are taking away from those who do need—from those who cannot afford the sacrifices you are demanding of them through this Bill and the general policies associated with it.

My noble friend, Lord Strabolgi, spoke about the desirability of the two sides getting together on economic issues, but what hope is there of that in peace time? My noble friend quoted from a speech by my right honourable friend the member for Ebbw Vale, Mr. Aneurin Bevan. I say here and now that Aneurin Bevan is the last man who would consider having any arrangement or any agreement with the Conservative Party on economic issues. There is no use looking in that direction. What we have to do is to see to it that the workers do not lose their confidence. The noble Lord, Lord Black-ford, intervened on the last occasion, and I am glad to see that he is going to intervene again to-day. He was very anxious to know—I noticed that he put the question on this point to Lord Strabolgi—what constructive suggestions we on this side had to make. The primary need of this country is increased production, and the first essential for increased production is the confidence of the workers. Any piece of legislation or policy of any kind on the part of the Government which undermines their confidence and causes them to feel ill at ease endangers production.

There are those to-day who suggest that if you want increased production you must increase costs by increasing wages. I do not think that to follow out that sort of policy would solve cur problems. I think that the noble Viscount opposite, in the very comprehensive speech which he made last Thursday, said that increased production is what we want, with, at the same time, as little increase in costs as possible. I think that that can be achieved, but to do it we must get the workers' state of mind where it was under the Labour Government. This is not a question of Party politics at all. I am far too much concerned with the crisis to make a Party speech. When the Labour Government was in office, the trade union leaders felt that they could come to some arrangement with them: they could trust the political leaders of the day. Rightly or wrongly, to-day they look upon the Conservative Party as a Party which cares for its supporters, and those supporters in their view are identified with the employers and the well-to-do generally. The financial policy of the Conservative Party, they think, is designed to safeguard the interests of their own supporters, though it may give a sop here and there to the poorer classes. That is the attitude of the vast mass of the workers in the trade union movement. After years of continuous effort they have built up a decent standard of life, and now they are afraid that they may lose it in as many months as it has taken years to build it up.

They are clamouring to-day, and it is no use blaming the trade union leaders. No trade union leader can do his job and ignore the rank and file of the movement; he must keep in touch with them. And the rank and file of the movement to-day are very intelligent. They watch their leaders and they watch the General Council of the T.U.C. very closely, with a view to seeing whether there is any move in any direction which may endanger their standard of life. The trade union leader has to examine the financial policy of this Government very carefully, for he himself is being watched; and that financial policy does not give to the workers in general the confidence which is essential if they are to do their best. And that is a matter about which I am very anxious. I am satisfied that the increased cost of living is a big factor in this connection, and I am sure that matters which have been mentioned by my noble friend, Lord Shepherd, are also important factors.

The noble Viscount, Lord Swinton, knows well that he will get his Bill, but I would ask him to give us some assurance that in the financial policy of this Government some regard will be paid to the workers' feelings on these different issues. There is a real danger of losing their confidence. We have been told that our job, as being in close touch with the workers, is to make them aware of the seriousness of the present position. My noble friend, Lord Kirkwood—incidentally I understand that it is his birthday to-day; he is eighty years of age, and I am sure we all extend our best wishes to him for many happy returns of the day—said recently that the workers did not know the seriousness of the position, and that if they did know they would rise to the occasion. In the long and fine history of this country, I do not know of any occasion when the people as a whole have failed to rise to an emergency. If we could get it across to the workers that there is an emergency now, I am sure that the response would be magnificent. But we have still to get it across. If, by some mistake—maybe in the Far East, in the Middle East or in Europe—we should slide into a war to-morrow, there would be an immediate response. The masses would realise the danger at once. All of us, and not merely one section, have to do something to bring home to the workers the crisis with which we are confronted. We have to make them understand that this crisis, though not war, is as serious as if it were war. How is that to be done?

As I have said, they are watching and wondering what is happening, because they have seen such changes in policy recently. I am sorry that the Conservative Government have thought it necessary to make all these changes right away. No matter how strongly they felt, they could have delayed some of them. And it would have been good politics for them to have done so. But by pushing straight on with the implementation of these Conservative policies, as they have done, they have created suspicion in the minds of the workers. The workers are saying: "Here are the Tories back again, and see what they do as soon as they get into power." Now that attitude has got to be put right, and only a Conservative Government can right it. Once the workers of the country are convinced that the crisis is as serious as a war, we need not entertain any more fears about them.

I would ask this Conservative Government, if they can—possibly through the Chancellor of the Duchy of Lancaster this afternoon—to give us some indication, some assurance, that this giving and taking does not mean giving too much to those who do not need it. Some people, as the result of the present financial policy of this Government—people who did not really need it—have received substantially; and some people who were badly in need have been called upon to make sacrifices. And they have been called upon too often, in my view. I trust that after this Bill has been enacted—as it will be shortly—in the period which follows before the next financial statement comes before us, the Government will do something to restore the confidence of the workers and to show them that the Tory Party is not a Party which simply looks after the well-to-do and, during the process, gives a sop here and there to the working classes.

4.28 p.m.

EARL HOWE

My Lords, I shall not follow the noble Lord who has just spoken in the line which he has taken. The matter I wish to bring before your Lordships this afternoon is that of motor taxation. In the interesting speech with which the noble Lord, Lord Lloyd, introduced this Bill to us this afternoon he spoke about the flat rate tax; and, of course, a flat rate tax has a great deal to commend it. But I think it must be realised that the proposals outlined in the Bill will certainly have the effect of making about 1,300,000 owners of small motor cars pay about £2 10s. more than they are paying to-day. That is an unfortunate fact. I do not suppose, whatever flat rate had been fixed, that it would have been possible to fix one that did not have a more or less similar drawback to it. The noble Lord who introduced the Bill did not have very much to say to us about increased duty on light hydrocarbon oils. Motor taxation as a whole to-day is running at an enormous figure. The licence duties are £64,000,000 a year, the fuel tax £242,000,000 a year, and the purchase tax on cars accounts for another £32,000,000 a year. That works out at a total of £338,000,000 a year. To a large extent this is simply a tax on transport. The necessity for it at the present time is perfectly well understood. We all know that the Chancellor of the Exchequer wants money for defence. Recently he told another place that it was a form of rationing. All that we can appreciate, but at the same time, in my humble judgment, it will be fatal to the motor industry if motor taxation is kept on at its present level.

Further, I submit that this taxation adds to the inflationary spiral. I will try to explain what I mean. There is not a single soul in this country, whether he has a car or not, whether he is one of the richest or one of the poorest, who does not depend in one way or another upon the motor vehicle in all its forms. He depends upon the motor bus on which he goes to work, the lorry which takes the goods he makes for export and brings his food; the doctor's car: the agricultural tractor. In passing, may I suggest to your Lordships that the application of the present duty on petrol will deal a severe blow to the agricultural tractor. All these forms of transport are necessary to the life of the nation, for our trade, the distribution of our food and our business. Anything that increases the cost of transport, therefore, definitely increases the inflationary spiral. If, owing to the increase of duty on motor fuel, bus fares have to be raised, that may lead to demands for increased wages. If the cost of the transport of food is increased, that again increases the cost of living. And if there is an increase in the cost of goods for export, we may find ourselves pricing ourselves out of the world's markets. It is essential to reduce the total burden of motor taxation as soon as it can possibly be done.

Take the fuel tax. It is four and a half times what it was in 1939 and two and a half times the total of all motor taxes in that year. The imposition of an extra 7½d. a gallon on diesel oil, it is estimated, means that every bus employed by municipal undertakings will have to pay from £100 to £110 more a year. There are 13,900 buses owned by municipalities; therefore, the extra cost will work out at a minimum of £1,390,000. London Transport have over 10,000 buses on the streets and the cost to them will be £1,000,000. If fares have to be raised in order to meet this increased tax, I suggest it will be a direct tax on the travelling public, who are simply not in a position to side-step it. The millions who have to travel distances to their work cannot change the places where they live. If the cost of transport is increased, we know, from our recent experiences and the agitation that resulted, what will happen.

Let me take a typical private car, doing a mileage of 10,000 a year, and work out the cost in transport tax and purchase tax on the basis of eight years. During that period the typical car owner will pay £78 15s. a year. The owner of a similar car in the United States will pay only £15 8s. a year. The tax per gallon on fuel in this country is 2s. 6d. In the United States it is 6¼d. The retail price of petrol in the United Kingdom is 4s. 3d. In the United States it is 2s. 4½d. The average retail price of petrol abroad generally has been worked out at 3s. 9d. a gallon, so it will be seen that we are paying considerably higher prices than people overseas. It has been estimated that the tax of 2s. 6d. on a gallon of diesel oil equals a tax of £25 on a ton of coal. What this would mean can be appreciated from this example. The Scottish expresses each use about 9 tons of fuel to go to Edinburgh, and usually convey about 220 passengers. On these figures, if coal were taxed in the same way as petrol, each passenger would have to pay £1 extra.

We realise the necessity for it all, but will the Government give an assurance that when the arrears of defence are overtaken, if not before, they will bring about a substantial reduction of this transport tax, and so do something really concrete to reduce the cost of living? As I have said, the motor tax is being levied on the scale of £338,000,000 a year. Of that amount, only 9 per cent. is being given back to motorists in the form of roads. As we all know, the roads are becoming increasingly difficult for drivers and will soon arrive at stretching point. The Government cannot go on taking this enormous sum away from motor owners without putting back a reasonable portion of it to improve the state of affairs on the roads. I will not develop that theme further because it is going to be the subject of our debate to-morrow.

However, there is another point I want to bring to the notice of the Government which I have previously raised in this House. I want to make an appeal to them on the question of branded petrol. They are taking this great sum away from the motor world, and a large proportion of it from the owners of the lighter cars. The answers that have so far been given in Parliament have not been entirely convincing. You can go to France, Germany, Italy, or almost any other country you like, and buy petrol of a far higher octane value (roughly about 80-octane value) than you are allowed to buy in this country. The Government insist that we must still continue to use this pool petrol which, as everybody who has experience of it knows, is very inferior petrol.

An enormous capital expenditure has been authorised by the Government for the building of new refineries. Anglo-Iranian have been authorised to spend £70,000,000 on refineries at Llandarcy, Grangemouth, Kent; the Shell Company, at Stanlow, Shell Haven, £30,000,000; Esso, at Fawley, £37,500,000; and Vacuum, at Coryton, £13,500,000. That gives a total figure of £151,000,000 for the erection of new refineries. The new cat-cracker (I believe that is the correct technical term) at Stanlow alone is estimated to cost £9,000,000, and the programme provides for six of them. It will be possible to realise the full efficiency of these huge plants only if they are allowed to operate to the full extent for which they have been designed. If you insist that petrol of a low-octane value should be produced, then it means that a certain proportion of the plant in connection with the cat-crackers cannot be operated to the full extent of its efficiency.

I hope that not only will the Government be able to give us an assurance that, as soon as possible, a reduction in the transport taxes will be brought about but that they will also be able to go in for a steady programme of road improvement, using some of the money which is obtained from the motor world by the various taxes; and also that the motor world will be given a better sort of petrol to use than it has at the present time. Apart from those observations, I have nothing but praise for the present Bill. I do not share the rather gloomy view of the Bill which the noble Lord who spoke before me seemed to have, and I hope that it will produce the results anticipated by the Chancellor of the Exchequer.

4.43 p.m.

LORD OGMORE

My Lords, I had not intended to speak in this debate on the Finance Bill, but I have had an experience in the last few months which may perhaps interest your Lordships. I have gone back into private practice, after being away for some thirteen years, and have been a sort of twentieth century Rip Van Winkle. Just as my predecessor coming from the Catskill Mountains, discovered some rather strange facts, I myself, coming from the Government-circles and the Army back into the old circles which I knew in the days before the war, have found that, as compared with pre-war days, tax questions play an enormous part. In advising a businessman in the old days tax played only a small part in the calculations. But to-day-it is almost the first thing that is thought about in regard to any question. The first thing that is asked is: "What is the income tax aspect of this problem?" The accountant, who in the old days was the man you paid to make sure that none of your staff was cheating you and the petty cash, has now become a sort of witch-doctor, who is called in at a very early stage, and all through, to advise on policy. That seems to me to be extraordinary; and it is, I suggest, an inversion of what really should take place.

Ours is an old country, and therefore things are inclined to continue without examination. We saw it in our debate yesterday on Central Africa. It is true of Colonial questions, and perhaps it is equally true of some domestic matters. I believe that it is a good thing occasionally to take these accepted facts (as they are called) up by the roots and examine them. We are told that we must have more revenue, or that we must have the same revenue as we have had. But if the revenue, or the way it is collected, is affecting the national character, and is likely to affect the national trade, then I feel it is a matter which calls for consideration, and, if necessary, for amendment. As regards indirect taxation, this is, of course, a Victorian legacy. The virtuous not only receive their reward in another world but receive a fair cash reward in this—in fact, to a large extent, from the point of view of taxation, the virtuous live largely at the expense of the vicious. Take, for example, the man who does not smoke, does not drink, does not go to the pictures or to the football match: he almost lives for nothing. I am not suggesting at this moment that we should alter that position, but we can at least make it a little more obvious to those who live under those conditions that it is a fact that the moral in this country are doing pretty well, and that virtue pays in this world, as well as in the next.

However, I am principally concerned to-day, not with indirect taxation but with direct taxation. I feel that there are three aspects of this problem—namely, the height of the direct taxation, the incidence of it and the allowances. Of course the main direct taxation, so far as the ordinary person is concerned, is income tax. As to the height of direct taxation, I do not desire to say anything other than that high taxation, even though it is a necessary evil, is in my view still an evil. I do not believe in high taxation if it can be avoided. As to the incidence, I remember Mr. Callaghan, who sits for Cardiff South and who is a considerable expert in these matters, saying some years ago that income tax was suffering from fatty degeneration; that, in fact, it was being made to do many things which it was not intended to do. I believe that to be true, and it is a point into which the income tax authorities should look carefully.

On the third aspect of the income tax—namely, that of allowances, I wish to speak at slightly greater length. The Labour Party in another place tried to get the allowances increased in a number of cases. I give as examples of their efforts the housekeeper allowance, the allowance for apprentices, and the allowance to authors for works written by them. Unfortunately, they had not much success: they had a little, but nothing like what they desired. I feel that these allowances as at present given really do bear hardly on the people of this country. They were framed when rates of income tax were much lighter than they are today, and when life was a much simpler proposition. To a large extent, they are almost entirely out of date, because they take no account of a person's real expenses. They are based upon a traditional way of life, a traditional way of assessment, which may have been proper years ago but certainly is not proper today, and which the votaries of the Income Tax Temple and the Treasury would never dream of questioning because it has been handed down to them as something sacrosanct. There is an old Persian proverb that The trees which whisper around the temple become as dear as the temple's self. I cannot help thinking that that is the case with regard to these allowances. They have been so long in this form that the High Priests of the Treasury would never believe with interfering with them because they are the trees which whisper round their temple.

I will give some examples, in addition to those given in the moving speech of my noble friend Lord Kenswood, of the absurdity of the present situation. The noble Lord gave the very good example of blind persons. Here again, it shows that there is no real attempt to assess the expense to which a person is put in earning his living. That is my main criticism of the system of allowances. Take the case of a man employed in exactly the same trade or profession living in a small village or town and a man living in London. They get exactly the same allowances. The man in the small town walks to his office, business or factory in the morning; he walks home to lunch; he walks back in the afternoon and walks home at night.

As we know, the sartorial standard in the country is not the same as that in town. He has no expenses of moving himself to and from his office and he has no luncheon expenses, which, in London, are very heavy. The actual expenses of the man living and working in the country and the man living and working in London bear no relation to one another, yet both men receive the same allowance. I cannot understand why. The Inland Revenue are not permitted—it is not their fault, because they are bound by law—to allow to a person his actual expenses of earning a living. In London that means travelling expenses, which are very high. It means luncheon in the City, or wherever it may be, the cost of which is also high; and it means the cost of dressing in a certain style.

I will give another example, that of the cost of children's education. I must declare my interest here, because I have three children, and at some stage or other they all fall under this particular rule. In order to get any allowances for children over the age of sixteen, the parent must have the child educated at a recognised educational establishment. Therefore, it is not the cost to the parent which is considered but the school to which the child goes. If ever there was a more lunatic proposition than that I should be interested to hear of it, because this is an allowance to the parent and not to the school. If it were an allowance to the school, it would matter to which school the child goes, but if it is an allowance to the parent, what does it matter which school the child attends? The question is whether the child is receiving full-time instruction. If the child has a tutor the parents are not allowed anything at all, but if he goes to a State school, where he is supplied with education and books for nothing, then the parents get the allowance. If anyone can see the logic or justice of that, I shall be glad to hear it.

There is another example which affects your Lordships, and that is that, to what- ever expense you may be put, if there is no salary directly earned you cannot set off the expenses.

SEVERAL NOBLE LORDS

Hear, hear!

LORD OGMORE

Well, it does affect your Lordships, but it affects others as well. Anyone of a logical mind would say that if a man does not get a salary that is all the more reason why he should be able to set off his expenses. But in the income tax world, if he does not get a salary he is not allowed to set off the expenses.

All this is a serious matter for this country, because, as your Lordships know, the country has been built up, the export trade has been built up and maintained, by skill—not by turning out vast quantities of material, but by the high standard of services and goods which we export. Therefore, we particularly need to keep up the morale and to encourage the professional and skilled workers—I put them all in one category; the people who have skill, whether they are artisans or whether they are professional class. It is most important that their morale and skill should be maintained. Under this archaic system of allowances, which every Government continue without any attempt at an inquiry into them, these are the very people who are most hit.

I remember when I was a Minister once making an inquiry into some of the young senior civil servants, clever men upon whom a great burden of the administration of this country falls. I was amazed at the way in which many of them are living under conditions of financial stringency. They are unable to get any domestic help and very often, because of that lack of domestic help and because of the financial stringency in which they live, they are unable to take those cultural advantages which their predecessors could have taken. I do not feel that these conditions can continue without serious loss to this country, and I believe that the Government should think about it very carefully indeed. As we know, there is a Royal Commission on Taxation sitting, but Royal Commissions are apt to sit for a very long time, and I ask the Government not to wait for the results of the Royal Commission. In another place, the Labour Party tried to deal with this in some fashion, but without much success, and I ask the spokesman for the Government here to give us a better answer than we received in another place.

I would ask both the Government and the Treasury, before the Finance Bill of next year, to consider this matter. I believe that if we do not consider it on sensible, sound lines, then this situation which is of considerable moment in the life of our peoples, will lead us into great difficulties: difficulties which, if they are not overcome, will tend to reduce the real output of the people of this country, the people with whom I said we are mainly concerned, the people who provide the skilled work that is so needed. Therefore, I would ask the Government, and particularly the noble Viscount who is to reply, not to brush this matter aside, because it is a matter which should not be brushed aside. I do not ask for an answer to-day, but I ask the noble Viscount to consider it with his Treasury advisers very carefully to see whether they cannot come to some sort of solution to this problem, which I am sure all members of your Lordships' House feel is of considerable weight.

4.58 p.m.

LORD BLACKFORD

My Lords, as we know, it is the duty of the Opposition to oppose and criticise, so I came down to this House this afternoon expecting to hear a full-blooded attack on Mr. Butler's proposals and his Finance Bill, to which I hoped to make some sort of reply in his support. But, on the whole, the speeches to which we have listened have not been of that character at all. The noble Lord who has just addressed us confined himself to some valuable suggestions of a specialist kind, to which I hope deep attention will be paid. They were excellent suggestions, clearly and ably put, but no single word of his speech was devoted to criticising the proposals of Mr. Butler. The noble Lord, Lord Kenswood, also made a speech of a specialist character in his particular department, and the noble Lord, Lord Strabolgi—whom I have heard speak for goodness knows how many years, on goodness knows how many occasions, and with whom I have hardly ever agreed—made a speech almost on Conservative lines.

Therefore, in seeking to support Mr. Butler against some form of opposition, I am bound to concentrate upon the speech of the noble Lord, Lord Macdonald, because he did say something to the effect that he rather disagreed with the proposals contained in this Bill. He is, as we all know, a trade unionist of the highest type, and anything which falls from him is entitled to the greatest possible attention. I am particularly obliged to him for reminding me in the first place of the maiden speech delivered by the noble Lord, Lord Kirk wood, some two or three months ago. I am sorry that Lord Kirkwood has left the Chamber, because I should have liked to add my hearty congratulations to him on the attainment of his eightieth birthday and also on his excellent maiden speech. I had the privilege on November 22, 1922, of listening to his maiden speech in another place, so I am doubly privileged in that respect. There is a French proverb which says something about "other times, other customs," which would be appropriate to the occasion. But, at any rate, I do congratulate the noble Lord on his maiden speech in your Lordships' House two or three months ago.

It struck me as curious, however, that the Press seemed to think that the noble Lord had enunciated something original. If your Lordships remember, he devoted the whole of his speech to this theme: that all political Parties had failed to tell the workers of the country the economic truth and to apprise them of the fact that a state of emergency exists; and that, if they had been so informed, then they would of their own volition have taken the necessary steps to fend off the trouble. I should have thought that that theme was totally untrue. If I take my mind back a few years, I remember Sir Stafford Cripps, when he was President of the Board of Trade, telling the people that a state of emergency was arising. I remember Mr. Attlee, when he was Prime Minister, positively placarding the country with appeals to the workers to give 10 per cent. more work in order to fend off the emergency.

As for Conservative speakers, they have for many years and in many places pointed out that there was a state of emergency arising, and have urged the workers to take the necessary steps to fend it off. And even as recently as last Saturday, such a leader of the Left as Mr. Bevan made what I thought was a very striking speech—the noble Lord, Lord Strabolgi, has referred to it—telling the workers that if they did not produce more they could not expect more wages. He said in effect, also, that they could get nothing more from the rich because there is nothing there to get. What more can you expect in the way of truth from a leader of the extreme Left than that? The fact is that the electorate will never accept an unpleasant truth until they are frightened. That is the real fact which has been proved time and time again. Politicians can tell the people what is going on and that the country is going to the devil, but they do not believe it. They say, "If this is crisis, let us have as many crises as possible, because we are enjoying a standard of life which we have never enjoyed before. The longer it goes on the better we are pleased." That is the attitude they take.

That brings me to the main reason why I rose to address your Lordships this afternoon, which was to refer to one point in particular in Mr. Butler's Budget—the reduction of the food subsidy. About two years ago I ventured to make in your Lordships' House a speech on the Finance Bill, in which I advocated a reduction of expenditure of £600,000,000 a year, with a corresponding reduction of taxation. So, of course, if Mr. Butler does about one-third or less of what I advocated, I welcome him as a disciple who is taking the first timorous step along the proper path. He has given back a large portion of that saving on food subsidies in the form of decreased income tax; and the noble Lord, Lord Macdonald of Gwaenysgor, seemed to object on the grounds that this income tax relief was being given to the wrong people—to people who did not require it.

It would be almost impossible to divide income tax payers into watertight compartments, but if the noble Lord, when he spoke, had in view people in, say, the £800 to £1,000 a year class, and feels that they ought not to receive this relief, but that the people lower down in the wage scale ought to get it, I would submit to him that those people in the £800 to £1,000 a year category have been pretty hard hit in the last few years. They have to keep up a standard of appearance and so on, as the noble Lord, Lord Ogmore, mentioned just now. They have to keep up this standard for themselves and for their families. It is a standard which is not required by, for instance, the miner or the agricultural labourer. I am sure that the relief given to these people is not one to which we ought to object. But the noble Lord went on to say that the confidence of the workers had been shaken by, I think he said, all these Conservative measures. I wondered what he had in mind beyond the food subsidies.

LORD MACDONALD OF GWAENYSGOR

May I help? During the first six months of office, the Conservative Government, for some unknown reason, decided to foist on the country as much Conservative policy as possible. In doing that, they have disturbed the transport workers, the steel workers and many other workers and made the task of the trade union leaders much more difficult. What I was emphasising was that it would have been better if the Conservative Government had kept back some of their Conservative measures, for by pushing them they were justifying what was being said of their Party, that they were the Party of the employers and not of the workers. That is what I had in mind.

LORD BLACKFORD

The noble Lord had not in his mind financial policy so much as these other economic matters. But both Parties have to produce an election programme. Noble Lords opposite have to produce theirs—and some of it may be rubbish. The Conservative Party also have to produce theirs—

LORD STRABOLGI

And that may be rubbish.

LORD BLACKFORD

There were in the Conservative election programme two matters to which the noble Lord referred—namely, the denationalisation of steel and of transport. But these measures have not yet been enacted, even though many months have passed since the Conservative Government came into power. I had not dreamed that it was those two matters which were shaking the confidence of the worker. I do not think they have done so. I think the noble Lord, Lord Macdonald, did make reference to the Conservative Government in connection with finance.

LORD MACDONALD OF GWAENYSGOR

Partly.

LORD BLACKFORD

It is surely just as well to remember that if noble Lords opposite had been successful in the last Election they would, in order to deal with the financial situation confronting them, have had to do some unpleasant things. No one knows that better than themselves—and no one is more grateful than they are to find themselves in Opposition.

The noble Lord says that his confidence has been shaken. To what extent has it been shaken? As far as I can see, only by the reduction of the food subsidies and the consequent increase in the cost of living, which, according to Mr. Butler, is 1s. 6d. a week per head. One shilling and sixpence a week is equal to one cigarette a day or one bottle of beer a week. That brings me to this point: that there is often some confusion between the cost of living and the standard of living. As noble Lords know perfectly well, the cost of living comprises simply food, heat, rent, light and clothing. That is the cost of living, the basic cost of living which every Government has to maintain for its people to the best of its ability. Anything above that is the standard of living, which comprises smoking, drink, cinemas, television on the hire purchase system, toys for the children, holidays and so on. As I have ventured to submit to your Lordships many times in these debates, no Government, Socialist or Conservative, can maintain a standard of living. That is up to the workers themselves. They can do it only by their own efforts. All that a Government can do is to try and make it as easy for them as possible; but, in the long run and basically, the standard of living depends upon the efforts of the workers themselves.

Br. Butler has endeavoured to take a step towards bringing the workers of this country face to face with reality. We know perfectly well that the greatest danger to this country is inflation—continued inflation. We know that that is a danger which, if allowed to continue unchecked, will swamp us. The opposite to inflation is deflation, and that is what we have to face. There are a large number of people in this country with salaries and wages from about £1,000 a year downwards who seem to take it as a matter of course that, when the cost of living goes up, their wages and salaries shall go up to cope with it. Until that process is reversed, it seems to me that it is impossible to prevent an increasing spiral of inflation. The only way to bring about a stop and begin a decrease of inflation is by the nation facing the fact that there must be a time when there is a peak to wage rises and that they must stomach the increased cost of living in order to face reality, until reality has been completely faced. As long as food is subsidised, the worker does not understand the real cost of the food which he is buying and eating. He does not understand subsidies; he does not realise that he is paying with one hand in order to receive with the other, and that a condition of unreality is there. I am in favour of reality and, consequently, I am strongly in favour of the reduction of the subsidies which Mr. Butler has made and the use which he has made of the reduction—namely, to the best of his ability, to give it back to the people in the shape of reduced taxation. If he is Chancellor of the Exchequer for two more years, I hope most sincerely that he will reduce the food subsidies progressively until there are no food subsidies left, and that he will off-set such increases in the cost of living as may arise by giving reductions of taxation correspondingly, because I believe that to be the only sound economic policy to pursue.

The workers of this country, the trade union workers of this country, answered Mr. Butler's proposals with regard to the food subsidies by instantly putting in for large increases in wages totalling £500,000,000 a year, if they are granted in full. I submit that the argument which I have been putting before your Lordships leads to the conclusion that, if those wage demands are granted, then the inflationary spiral is bound to go on and lead to final ruin. This is the crucial moment at which the workers of this country have to make a decision as to whether they will continue to press in that fatal direction or whether they will stomach the small increased cost of their food, do away, if necessary, with one or two of their luxuries in order to meet it, and determine that, while we are faced with this ruinous rearmament expenditure, they will not demand any further increase of wage.

LORD STRABOLGI

Would the noble Lord allow me to ask this? Would he not agree with me that we should reduce this ruinous rearmament expenditure?

LORD BLACKFORD

Yes, I am willing to say a word or two about that, but I rather wanted to stick to my one point. I have all along agreed with Mr. Bevan on the subject of rearmament. I never thought I should find myself in agreement with him, but, when he first said so over a year ago, I have always thought that the present expenditure on armament is completely ruinous. It will ruin all the countries of the world unless we can find some way out of it. But both Parties are agreed on this at present: that we cannot reduce the expenditure on armament. It is ony Mr. Bevan, who is attracting to himself an increasing following, who argues in the opposite direction. But for the moment I do not want to be carried off on that subject.

The noble Lord spoke about economy. I am entirely in agreement with him on the subject of economy. I do not think that this Government have done enough to economise. I am afraid that I would not carry the noble Lord with me in the way in which I should like to economise. There is nothing so unpopular in the world as economy. We all want to spend money on our particular fad and take away money which other people want to spend on theirs. Immediately any particular economy of a drastic character was proposed by the Conservative Government, nobody would be quicker than the noble Lord, Lord Pakenham, and other debaters of his calibre, to criticise it.

LORD PAKENHAM

Since the noble Lord referred to me, I should like to put to him a question, because he seems to feel that the debate has been rather dull and there has not been enough impetus coming against him. He did not make himself quite so plain as he usually does in what he said about support for Mr. Bevan. Is he a true Bevanite or is he a "fellow traveller?" Is he prepared to support Mr. Bevan against his own Party or not.

VISCOUNT SWINTON

Does the noble Lord mean against Mr. Bevan's Party or our Party?

LORD BLACKFORD

The noble Lord must not start to cross-examine me on something which is not in the slightest degree to do with this debate. I was trying to explain the reason, and very seriously too, why I hope that the workers will not persist in their demands for large increases of wages. That is the one point which I wanted to submit to your Lordships this afternoon. The noble Lord, Lord Macdonald, quoted the noble Lord, Lord Kirkwood, in his maiden speech—how we never tell the truth. From my obscure position on a Back Bench of your Lordships' House, I want to tell the truth as I see it—that is, that if the workers persist in demanding wage increases now, the inflationary spiral will continue. That will make the crisis worse. If it continues to the end, it will lead to absolute economic ruin. I hope that the workers' leaders will not persist in their demands, but if, unfortunately, they do so persist, then I hope that the opposite organisations will resist them in toto. These opposite organisations are not all the hated capitalists—there is the Coal Board, the Railway Executive and so on. These things are not as they used to be and, for the reasons that I have given, I hope that the organisations representing the managerial side of industry will resist these demands. But I hope that that resistance will not be needed because the men and their leaders will have the good sense not to press them.

5.21 p.m.

LORD ARCHIBALD

My Lords, the noble Lord who has just sat down opened by complaining that he has not found enough in the speeches from this side of the House with which he could disagree, or at any rate disagree violently. I, at any rate, cannot repeat that complaint so far as the noble Lord's speech is concerned, because I find myself in almost total disagreement with practically everything that he has said—in fact I have to reverse what he was doing: I have to search for the points with which I can agree. I can in fact find two such points. Assuming that he is not just a "fair-time" supporter, I can agree with him in regard to his attitude on the level of rearmament. I can also agree with him on the point that any Government in office at the present time would have to do unpopular things. But it does not follow from that, as a matter of course, that they would do the same things as are being done by the present Government; and it is a travesty of the situation to suggest that those of us on this side of the House are grateful for the fact that we are on this side of the House, thereby escaping responsibility for the situation.

I want for a few minutes to go back to some of the matters which have been already touched upon either during this debate to-day or in our discussions last Thursday, which I feel were, in effect, the advance part of the Second Reading debate which we are having to-day. I want particularly to say something about the food subsidies, but on a rather different line from that taken by the noble Lord, Lord Blackford, and also with regard to the reliefs in taxation. Last Thursday, Lord Swinton quoted the action of Socialist Party Chancellors of the Exchequer with regard to food subsidies. He said that Sir Stafford Cripps had fixed the ceiling in 1949 at £465,000,000; and had reduced it to £410,000,000 in 1950; and that Mr. Gaitskell held it at £410,000,000 in 1951. If the noble Viscount had adduced this historical reference in justification for Mr. Butler's holding the ceiling at £410,000,000 in 1952, despite rising prices, then the argument would have been a solid one. But I find that his justification for cutting the subsidy to £260,000,000 (although I believe that it is now to be £310,000,000 this year, the rest being a cut to take effect next year) means that the reference has rather missed the point. It would have been just as relevant if the noble Viscount had prefaced his remarks on tax reductions with a history of what Socialist Chancellors of the Exchequer have done in that particular field—namely, that 3,750,000 people have been relieved entirely of income tax since 1945; that there has been the increase in earned income allowance, the relief in the earned allowance for married women, the increase in the married couples' allowance, the improvement in the sub-standard rates, and so on. I do not want to labour the point, but I suggest that it would have had as much relevancy. However, as the noble Viscount said on his reference, I am not making a Party point of this.

I join with the noble Lord, Lord Blackford, on one point. I think it was implicit, if not explicit, in his argument, that the cut in the food subsidies, £100,000,000 this year and a further £60,000,000 next year, must raise the cost of living. It is not a question of the standard of living; it will actually raise the cost of living, particularly of the lower income groups, who must, of necessity, spend a higher proportion of their income on food. What about the countervailing benefits to which the noble Viscount, Lord Swinton, referred last Thursday? The only one which at the moment is affecting all those who are in employment is that of tax reliefs. Pensions and allowances affect a different class, but the employed person is affected by the tax reliefs. Both last Thursday and to-day we have been given examples of how at different levels these benefits work out, but the noble Viscount last week, and the noble Lord, Lord Lloyd, to-day, in giving examples of the tax reliefs, entirely ignored great classes of the community who get no benefit at all from those reliefs. I instance as probably the largest single class the agricultural worker. The average wage of the agricultural worker is about £6 a week. No married man with children at that wage level comes under P.A.Y.E., so he gets no tax relief. I know of a young farm worker who is married, with one child, and earning £6 10s. a week, which is more than £1 above the national minimum wage for the agricultural worker. He gets no tax relief and, having only one child, no increased family allowance either.

LORD BLACKFORD

Does the noble Lord not agree that the man to whom he is referring is really extremely well paid? Probably his rent is 6s. a week, and he has no travelling expenses. He has a garden which will provide him with vegetables. He probably gets cheap milk and wood. He has practically no clothing troubles, as compared with a town man. Does not the noble Lord agree that that agricultural worker is really very well paid?

LORD HAWKE

And, moreover, he has not started to implement his social obligations, to have a family on a higher scale.

LORD STRABOLGI

It depends how long he has been married.

LORD ARCHIBALD

I do not agree that the man is very well paid. I took the case of the man with £6 10s. a week so that I should not be accused of having exaggerated the position. I should have been fully entitled to take the case of the agricultural worker getting the minimum rate for his job—namely £5 8s. a week. I admit that that rate of £5 8s. a week cannot be compared exactly and in all respects with the position of a town worker getting the same wage. I agree with the noble Lord that there are certain additional advantages in regard to the farm worker. But these additional advantages certainly do not justify the suggestion that that man is very well paid. Nor is it only the agricultural worker with whom we are concerned in this. There are many other workers throughout the country getting less than the rate which brought them under P.A.Y.E. on the old scale, and they are therefore getting no advantages at all from the tax reliefs.

We are now calling for increased output, and particularly for increased output from agriculture. I believe that if the sights were set high enough, and if there was enough drive, we could get such increased output from agriculture as would make the biggest single contribution of any industry in the country towards closing the gap. For that we need the co-operation of the men who work on the land. The noble Lord, Lord Macdonald of Gwaenysgor, said the Government must have the confidence of the workers, and it must have the co-operation of the men who work on the land. But this Budget, so far as agricultural workers are concerned, is discouraging. It increases their cost of living and gives them no countervailing advantages.

To answer a point made by the noble Lord, Lord Blackford, we are not objecting primarily to the fact that the tax reliefs benefit mainly those with incomes of from £400 to £500 a year and upwards. We are objecting to the fact that they give no benefits at all to those with smaller incomes—that is to say, they give no benefits to those most in need. That is the gravamen of the charge: that there is no benefit to those most in need of it.

It has been said (it was suggested by the noble Viscount, Lord Swinton, last week) that although there is no prospect, so far as can be seen, of world food prices coming down, the prices of many other articles are coming down substantially. That may be so, but I venture to suggest that its effect has not yet been felt by the housewife. Her experience is that the rising cost of food—which is a part of the general increase in her cost of living—is not being offset by reductions in other directions. Therefore, I come to the argument that in cutting food subsidies at this time, and so contributing to the increase in the cost of living, the Government have incurred a direct resonsibility for the current round of applications for increased wages which the noble Lord, Lord Blackford, so greatly deplored. It is really an extraordinary situation. By accepted standards, according to the noble Lord, Lord Blackford, we are in an inflationary period, and the Government have to adopt deflationary measures. But in cutting the food subsidies, so increasing the cost of living and thereby encouraging demands for increased wages, they are doing exactly what is regarded normally as starting an inflationary process. One can say that the Government's policy in this respect is so completely inconsistent as to be almost schizophrenic.

I want now to come to what I regard as the Government's most important approach to our economic situation, a matter which is not to be found within the provisions of the Finance Bill—I refer to the raising of the bank rate, and the other measures for the restriction of credit. I think that those measures are of far greater importance than even the most important items in the Finance Bill. In our economic debates earlier in the year there were many challenges and counter-challenges, designed to try to secure some definition of inflation. We did not, as I remember, get any definition of inflation, although we heard many serious warnings about its dangers. But, definition or no definition, it is clear that the Government accept that we have been suffering from inflation. In consequence, as I have said, their main actions have been of a deflationary character—the double rise in the bank rate, the restriction of credit, and all the consequences that flow from such actions; for example, the rise in building society rates of interest, the rise in the rate of interest charged by the Agricultural Mortgage Corporation, and so on.

I am not an economist but I find it difficult to accept the generally held view that we have, in fact, been living in a truly inflationary situation in the past six or seven years. We have, of course, been living in a period of rising prices, and therefore of falling money values, but that is not necessarily the same thing as inflation. This afternoon the noble Lord, Lord Ogmore, said it was sometimes necessary to challenge things which are accepted as being facts. I think it is necessary to challenge the assumption that we have been living for six or seven years in an inflationary period, because unless that assumption is challenged, then I agree that there can be no criticism of the application of deflationary measures.

One of the arguments of those who say we have been living in an inflationary period is that the value of the pound, in terms of internal purchasing power, has been falling. Of course, that is true. Taking the index as 100 in 1938, the pound had fallen to 51 by March, 1951—which is the latest date for which I have figures. But if we look at the situation in parallel with that in the United States of America—again taking the 1938 index as 100—the purchasing power of the dollar had fallen by March, 1951, to 57.5. That means that it had not fallen quite so far as the pound, but near enough to make the comparison quite a complete One. If you look at the rate of fall of the dollar's purchasing power between 1945 and 1951, you will see that the rate of the fall in America has been much greater than that of the pound in our own country. In other words, if we have had inflation in the past six or seven years, then the United States of America has also been suffering from inflation. Now would anyone seriously argue that the United States economy is suffering from inflation? Her productive capacity is so vast that production for rearmament can be superimposed on an enormous investment programme (many times, probably twenty times, greater than our own) without interference with civilian consumption—in fact, with an increase concurrently in the output of consumer goods. Is that inflation? Would anyone describe the situation in the United States as being one of: "Too much money chasing too few goods"? Too few goods," with goods of all kinds, capital goods, consumer goods, rearmament goods, pouring out like a Niagara! Yet the situation in both countries is the same—prices rising steadily and the value of money falling.

I venture to suggest to your Lordships that what we have been seeing in this country and in the United States of America over the past six or seven years is probably an inevitable consequence of an expanding economy. In our April economic affairs debate, I mentioned that this process of rising prices has gone on at least—if not from an earlier time—from the first Elizabethan era until today. And I suggest that that reflection should be considered seriously. The fact that in recent years the rise has been more marked, that the whole process has been accentuated, does not make it different, and does not, in my opinion, make it inflation in the proper sense of that term.

It is very easy simply to describe the process as inflation; to give it a bad name and thereby make it easy to apply unpopular measures. It is also possible to make great play with the fact that rising prices bear heavily and unfairly on all those with fixed incomes. Such people fall into three main categories: those in receipt of pensions and allowances of all sorts, which are always belated in their adjustment; those, such as teachers, university lecturers, civil servants and so on, for whom there is always delay and no rapid adjustment; and the rentier class, in so far as there are any of them wholly dependent on fixed interest securities. So far as the first two categories are concerned, I suggest that it would be better that pensions, allowances and salaries should be on a cost-of-living sliding scale. May I interpolate here that I see no reason why insurance contributions should not also be on a scale fixed in relation to wages? For those in the third category I have no amelioration to offer. I am not suggesting that, having put wages, salaries and allowances on a sliding scale, and with the trade unions able to look after their members, we should then be content to let prices soar and wages, salaries, pensions and allowances climb after them. That would be a completely irresponsible attitude.

At this stage I may say that I share the view, which is increasingly widely held, that the corollary of full employment is a wages policy. But there cannot be a wages policy in isolation. There must be a profits policy, a salaries policy, and a social policy; that is, a policy on such things as the Health Service and food subsidies—all the things that make up the social income. It is important that these policies should be related and consistent with one another. We cannot expect the wages policy to come first. There must be the climate for it. I am not arguing, therefore, that there should be an all-out scramble of rising prices and rising wages and salaries. I am pleading that we should not describe the price changes of the past six or seven years as inflationary and then proceed, as the Government have done, to apply deflationary measures. For this reason I want to look at the effects of these deflationary measures, including the raising of the bank rate and the general restriction of credit. If these measures are to have any success from the Government's point of view—and I think this has not been sufficiently faced—they must lead to a falling off in business generally. If they do not, then they are not working effectively.

Let me take an ordinary illustration. The man who is planning an extension of his factory will postpone it because, even if he could get the credit, it would cost him too much at the higher rates. The man carrying large stocks will let them run down to avoid heavier interest on borrowed money. Every such diminution in activity leads in its turn to others. Fear is created, and fear in itself leads to further contraction. Once the vicious downward spiral, which I regard as being much more dangerous than an upwards spiral, is started, there is great danger that it will not stop until we are in a slump like that of the 1930's. It is not sufficient to say, "Don't let us talk ourselves into a slump," when the economic forces that produce a slump have already been put into action. There are signs, with which many noble Lords are familiar, that the slide has already started. Reference was made at last week's meeting of the Regional Board for Industry to increasing short-time working in the clothing, boot and shoe and furniture industries in the London area. There are reports from some areas, where local industry since the war has been absorbing all the children leaving school as soon as they were out, of school, that there is now a greatly reduced number of vacancies. I do not want to exaggerate the situation in the least and be an alarmist about it, but I certainly think that we should take note of it.

The logical end of a deflationary policy is slump and unemployment, unless someone can produce some evidence of a method of stopping deflation which has not hitherto been available. In our debate in April the noble Earl, Lord Selkirk, said for the Government (OFFICIAL REPORT, Vol. 175. Cols. 1280–1): We hope (we do not claim to have gone very far) that we have made a basis for a dynamic economy which will gradually enable the full skill and resources of the people of this country to be deployed. I do not believe that we can have a dynamic economy with a deflationary policy. One thing we can never have is a static economy. It must either expand or contract, and in my view deflation must cause it to contract. I recognise that the Government will not reduce the bank rate overnight to its level of last October; I doubt whether they will pay any attention to this argument but I sincerely hope that there will be a planned reduction over a reasonable and fairly brief period. It would be better if the Government would lay down a policy as to which industries and which kind of businesses are to get credit facilities, and let them give instructions to the banks to administer that policy. It may be more difficult to apply the method of physical control, but the advantages are certainly overwhelming. We want credit facilities to be available to the industries that can make the biggest contribution to the solution of our economic problems. We want credit facilities to be available to the capital goods industries, to engineering and aircraft, to agriculture and so on. It may be said that the banks have had instructions to that end; but what is the use of telling the banks to make credit available for agricultural expansion if the rate of interest is so high as to make borrowing quite unprofitable for the farmer? Cheap credit, but credit available only for purposes that serve the national need, is the main requirement to-day.

My last word is this. I agree with those who have said that increased production is the only really effective safeguard against inflation, the only means of producing a better standard of living, better social services and all the rest. But we cannot get increased production from the worker if he fears unemployment as a result of a deflationary policy, or by increasing his cost of living. We cannot get increased production from the farmer and the manufacturer if we make credit unprofitably dear. Moreover, since the cost of credit enters into the cost of almost every article that is produced, we cannot reduce the prices of our export goods by raising the cost of credit. In my view, in so far as both the Finance Bill and the dear money policy of the Government tend to discourage production, they are completely inadequate to the needs of our time.

5.50 p.m.

LORD BALFOUR OF BURLEIGH

My Lords, I think that this is one of the most refreshing debates I have listened to for a long time. I found it difficult to decide whether to intervene at all, but in view of the remarks of the noble Lord, Lord Archibald, on the subject of inflation, I feel I should be failing in my duty if I did not attempt to pass some comments on them. May I say, as a preliminary, that I recognise to the full the burning sincerity with which the noble Lord always speaks. He speaks from the heart, and no one can listen to him without feeling the complete absence of Party propaganda. Speeches in that form are admirably suited to your Lordships' House. The noble Lord has thrown doubt upon the subject of whether we have been living under an inflationary pressure for the last seven years. He said that if we have been suffering from inflation, then so have the Americans. Of course there has been inflation in America. But what the noble Lord must remember is the difference between the basic circumstances of the economy of the United States of America and that of these Islands. The basic factor is that the United States do not have to sell their exports in world markets in order to provide such necessary imports as those of food and raw materials by which alone our population can live. I think it is fair to say, in a word, that they can afford inflation, and we cannot.

I believe it to be true that had we succeeded in avoiding inflation after the war we might well have been able to do without the devaluation of the pound. What a difference that would have made! It is interesting to note that since devaluation the price of American manufactured exports has hardly risen, whereas the price of British manufactured exports has risen by, I think, 30 per cent. The fact is that since devaluation we have lost the benefit in our export markets of anything that we gained at that time. The noble Lord said that deflation was much more to be avoided than inflation. In the last resort, I most profoundly disagree with him, because continued inflation will lead to utter and complete disaster, beside which the figure of 2,000,000 unemployed which is burned into the hearts of noble Lords opposite will be nothing.

I am touching now on a very difficult subject, which is open to misrepresentation, and on which I have frequently been misrepresented. But we must face the truth, at the risk of misrepresentation. I believe that one reason why noble Lords opposite are not willing to face the fact that we are living under an inflationary pressure is because, from their point of view, it suits them. You get a position in which you have a surplus of jobs over applicants, and that in its very nature is an inflationary situation. It suits the Labour Party, of course, because it means rising wages And the other way round—but not ending in utter ultimate disaster. That is the difference between us. If you have a surplus of jobs over applicants you get wages rising without necessarily increased production. I welcome the growing emphasis which we hear now throughout the country and from almost every speaker in your Lordships' House as to the necessity for increased production. That is a most welcome development in the situation.

LORD PAKENHAM

I do not want to interrupt the noble Lord, but surely we have been calling for increased production for the last seven years.

LORD BALFOUR OF BURLEIGH

I realise that from Six Stafford Cripps we often had a recognition of those fundamental facts. But until recently there has not been a universal recognition of the need for increased production—at least, that is how it seems to me. I am sorry, my Lords, but you must just take it from me; I suppose we are looking at it from different angles. Any indication from myself (or from any other noble Lord in this House) that the standard of living might have to be cut in order to save ultimate values has always been met with: "Oh, we know Lord Balfour of Burleigh: all he wants to do is to cut the social services." Do let us try to get away from that atmosphere. I have paid my tribute to the sincerity of noble Lords opposite, and I do not impugn any of them. But I wish they would realise that the ultimate danger of inflation, carried to the farthest point, is going to be worse for the standard of living of everybody in this country than any deflationary policy which we have as yet experienced.

To go back to the Budget for a moment, I should like to remind your Lordships of something that has been referred to several times already. More than one speaker has already mentioned the figures, and it is worth bearing in mind that the gold and dollar deficit monthly, without United States aid, has been, in March 75,000,000 dollars, in April 61,000,000 dollars, in May 67,000,000 dollars and in June 89,000,000. Those are not very comforting figures, including as they do 50,000,000 dollars, 51,000,000 dollars, 45,000,000 dollars and 47,000,000 dollars for European Payments Union. I must admit that it is disappointing that the import cuts have not produced a quicker result. One hopes all the time that that situation will rectify itself, but, in view of earlier anticipations, I feel that the full danger is still there, and that we must face the fact that further cuts in the standard of living will be necessary. I myself feel doubtful whether the Budget has been disinflationary enough.

The only other point of the debate to which I want to refer is the appeal of the noble Lord, Lord Macdonald of Gwaenysgor, whose sincerity is just as great as that of any other member of your Lordships' House. The noble Lord expressed his conviction—which I share to the utmost—that once you can make the people of this country aware of the crisis they will rise to it. Of course they will. That, indeed, is the only hope I have for the future. In the dark days of 1940, when we stood alone, I used (as we all did) to look around the world to see where hope was coming from. I used to pin my hopes to the fact that we should in time build up such an Air Force that we should be able to win largely through air power. My sheet anchor in these days, when the peril is just as great as it was in 1940, is nothing but the quality of the British people. But they have got to be made aware of the crisis.

The noble Lord. Lord Macdonald, asked, "How are we to get it across?" —and he referred to the eloquent speech made by the noble Lord, Lord Kirkwood, in this House a month or two ago. Unfortunately I was not in the House and did not hear that speech. However, my reflection on reading it in Hansard was: "I wish I had been there." If I had been here, I believe that I should have intervened to say: "That is true. But it is you and the likes of you who have got to bring this position home to the working people." It is no use my trying to do it. I have tried, and I am suspect and misrepresented. It is only noble Lords opposite who will be believed by their own followers. The noble Lord, Lord Macdonald, will forgive my saying so, but I think that in his intervention in Lord Blackford's remarks he accused the Conservative Party of being a Party of the employers. Well, the Labour Party call themselves the Labour Party. I always think they ought to call themselves the Socialist Party, but they do not. I deny absolutely that the Conservatives are the employers' Party, but the Labour Party make no bones about it; they claim to be the Labour Party, so I do not think that that was quite a wise innuendo. However, that does not matter.

What I want to say is that the noble Lord, Lord Macdonald, has far more power to go about the country and tell the people of this country of the danger in which we stand. I beg him not to pick one item of the Budget which is capable, as he gave it, of an unfair representation, about £50,000,000 being given to people who have already £1,000 a year each. That is not a fair representation of the Budget as a whole, and I beg the noble Lord, with his great sincerity and great power of persuasion, to go round the country himself, and to tell the people of the country that the danger in which they stand is not created by the Conservative Government. The noble Lord says that they are uneasy, because under the Labour Government they were happy. Under the Labour Government they were living in a fool's paradise. Now the stark truth has to be told to the people of this country, and if noble Lords opposite would speak as plainly in the country as they have spoken in this House to-day, nothing could be of greater help.

6.2 p.m.

LORD SALTOUN

My Lords, I thank the noble Lord, Lord Lloyd, for giving me the opportunity of assuring the Government that my gratitude is still very lively for their act of justice in abolishing death duties on the estates of men killed in action. If anything goes wrong with me, I think of that act of justice and am comforted. It is very creditable to the Government. It is a subject not well suited for a newspaper stunt. They were therefore under no compulsion and have done this purely from a sense of justice. I will not give your Lordships my views on the Bill now before your Lordships, but I should like to ask the noble Lord, Lord Lloyd, and the noble Viscount, Lord Swinton, who is to reply, to transmit to the Chancellor of the Exchequer Lord Kenswood's plea, with any further recommendation that I can add to it.

Nobody can be blind for six months without learning courage in a very hard school, and that perhaps is one of the reasons for the attraction which blind people exercise over their fellows. One thing which I and anybody who has anything to do with blind people know—I am not sure that I agree with the first remarks of Lord Kenswood—is that the expenses of being blind are very heavy. That point merits attention, and blind people deserve some extra personal allowance on that ground. One trains blind typists to hold their own with sighted typists, and in some respects they are even better. But the expense of carrying on their lives is much higher than that of sighted typists. Other instance could be multiplied, and I will give instances to the Government if they wish them. I hope, therefore, that my noble friends will make that representation as strongly as possible.

6.5 p.m.

VISCOUNT ST. DAVIDS

My Lords, in many ways I am sorry that I am speaking after the noble Lord, Lord Balfour of Burleigh, and not before, because if I had spoken before him he would have been able to let fly at me, as well as at my noble friend Lord Archibald. There is one thing on which I am quite sure he and I agree, as I think the rest of the House now agrees, and that is the great importance of increased production and at a proper price. That is the reason why I rise this evening, because I believe that this Government have made one great mistake which they will come to regret very bitterly in the course of time. I believe that this Government, by their financial policy in putting up the bank rate and restricting credit to industry, both decreased production and increased prices. I know that the bank rate is put up as a sort of gesture, but it is an expensive gesture. Obviously, the cost of any products which are made on credit—and almost all production is done on credit of some sort—is increased by just the amount by which the bank rate is raised.

But there is worse than that. Almost every industry in these days runs bank overdrafts or other credit facilities for carrying its stocks. If you cut down the overdrafts of industry, then you cut down its powers to carry stock. Now it is true that firms will try to de-stock by cutting prices. Of course, it is always possible for one firm to de-stock by cutting prices, but when all firms are trying to de-stock by cutting prices the result is that they do not de-stock, and the net result of the action of all the firms put together is that they stop manufacture. While their warehouses are full of goods which they cannot sell, they naturally do not make more. They slow down their factories or stop them. In my opinion, this is the worst thing which has happened to the country for a number of years, because it destroys something which we have been building up with, great care ever since 1945. We have been building up the confidence of the worker that his job is secure.

Lord Balfour said of this side of the House—and I am quite sure he is right—"You are the persons who must tell the people to work harder." I accept that. I think it is so. I believe that we are the people who must tell the worker to work harder, and I claim to have been one of the first to do that. I remember making a non-political speech while I was still in Naval officer's uniform in 1943, and saying that after the war we should have to work very hard indeed. It is a very good thing to tell the worker to work harder, but how on earth are you going to do it with any degree of sincerity when you proceed to cut production, put people on half time, or close down the factory? They will come to the conclusion that you are either insane or dishonest.

LORD BALFOUR OF BURLEIGH

May I say that I did not say anything about working harder? I said: Tell the people the economic truth of the situation.

VISCOUNT ST. DAVIDS

The noble Lord did say that we on this side of the House should urge the workers to work harder.

LORD BALFOUR OF BURLEIGH

I think I said that you were the people best fitted and able to explain the economic situation.

LORD PAKENHAM

I thought it was "working harder."

VISCOUNT ST. DAVIDS

I think that was the general impression we on this side of the House had. However, I will pass the point. What is the use of trying to do such a thing in this situation where the small manufacturer (as I well know, because I am in touch with them every day) is being forced to slow his factory down and, in many cases, to bring it to a stop because his finance is cut? It is simply hopeless in those circumstances to attempt to persuade the worker to work harder; it has destroyed his confidence.

LORD BALFOUR OF BURLEIGH

I am sorry to interrupt the noble Viscount. I really will try not to do it again. Would he not distinguish between essential and non-essential industry? Is it not valuable that labour should be transferred from non-essential to essential industries? Might that not be the reason for the restriction of credit in that particular case?

VISCOUNT ST. DAVIDS

I am glad to have that intervention. I was just coming to the point. Take the case of agriculture. The banks have been told not to restrict credit in the case of agriculture. It is all very well to tell the banks that, but credit becomes restricted to agriculture, and agricultural production is also slowed down, as also is the production of other industries whose credit is not cut—for this reason: that agriculture and essential industry do not live isolated in some weird Valhalla, detached from the rest of the world. It is encompassed about by its fellow men; it buys from the shops of its fellow men and eats with its fellow men; and it has to pay its bills. Anyone, if his credit is cut, goes circling around amongst his assorted debtors and gets his bills paid. So much of industry in our days finances itself to a great extent by letting its bills run on. Agriculture is a case in point: many fanners have as much as a year's credit with their suppliers. If you cut the credit of the rest of the country you also cut it to agriculture and essential industry. We know the result of this in the drop in production which has recently been announced—and I am afraid that that will not be the end of it. The Government may be able to reverse that by reversing their policy now, but I am afraid that unless they do it quickly they will have destroyed permanently that confidence of the worker in his position which we have been spending so much time and trouble in building up.

6.13 p.m.

LORD PAKENHAM

My Lords, I hope that the noble Lord, Lord Lloyd, who opened his innings with several boundaries—one of them at least at my expense and that of noble Lords on this side—will allow me to say a few words about the speech of the noble Lord, Lord Saltoun, and that of the noble Lord, Lord Balfour of Burleigh. I echo the tribute paid by Lord Saltoun to Lord Kenswood, and also his deep expression of sympathy with the blind. I would go further and add admiration for the perpetual buoyancy and courage of the blind and for their lack of self-pity. I would also add to the general congratulations extended to Lord Saltoun on what may be called the Saltoun Amendment—I am sure the Amendment will go down to history in that form. It fell to my lot to resist that Amendment, rather half-heartedly and not at all vigorously, when, as a member of the Government, I was placed in much the same position in which I imagine the noble Viscount, Lord Swinton, finds himself now in relation to the excess profits levy. The noble Viscount is a conscientious man, and I am sure he cannot be very happy about that particular task.

I do not think anyone has mentioned so far the pleasure which your Lordships must feel in the intervention of Lord Balfour of Burleigh, and I should like to express that pleasure now. I know that when a man of his great responsibilities feels called upon to speak impromptu he does it only out of a profound sense of duty. I think we all appreciate that, and if I join issue with him I hope he will not feel that it is in any partisan sense. I quite agree with the noble Lord that the call for harder work (or increased production, as I have it in my notes here), the call for the continual struggle against inflationary tendencies, must continue to be made. I agree that the warning must continue to be given that in certain circumstances living standards may have to be reduced. I regard these calls and these warnings as essential in these difficult times. In saying this, I speak as one who has on behalf of the Government in the past spoken repeatedly in this House of the need for this effort. I remember that when the great rearmament campaign was launched it was explained that living standards in certain respects would have to be reduced. I suppose that there has never been a time when we have been flooded with so much economic material. But I agree that we must all do more than we have done in making these facts plain to the country.

If I may mention one other point which was referred to by Lord Balfour I do it with diffidence, because it is the kind of point which it seems to me he would regard, perhaps, as being cheap or irritating. So far as we can make out, he does not agree in all respects with the present policy of the Government. He said so clearly this afternoon. He doubted whether the counter-inflationary tendencies in the Budget had been carried far enough. In that particular attitude we do not agree with the noble Lord. We consider that in that respect Mr. Butler probably chose the right course. The noble Lord probably has more information than I have at present, and he may be right. But what we do object to is that when Mr. Butler has explained that there is not, in his view, any need for any general cut in consumption, there should nevertheless be some reduction in the social services. That is the point: that Mr. Butler has said that there need be no reduction this year in general consumption. Lord Balfour might have introduced a different kind of Budget in which heavier sacrifices might have been involved.

I noticed at the end of the last debate that the noble Viscount, Lord Swinton, after a speech on which I hope I may be allowed to congratulate him—I say I this without impertinence: I do most wholeheartedly congratulate him—said: I feel that this has been a remarkable debate. I do not remember a debate on this subject in which there was so much unanimity and so many attempts at constructive suggestions. I could not help wondering whether that arose from my absence!

VISCOUNT SWINTON

I am sure we should have had more constructive proposals if the noble Lord had been present.

LORD PAKENHAM

Undoubtedly the noble Viscount's speech carried the whole House with him to quite an exceptional extent. I would refer for a moment—I am not going to try to cover that ground again—to the fact that of all his "seven pillars of wisdom" only one could be described as at all controversial. I am not suggesting that the others I were platitudes. I think it is very important that we have in this House a Minister in charge of the Economic Department. He picked out what seemed to him vitally important matters on which the House and the country should concentrate, and the only controversial one was the first, where he said that we should continue on the way in which we were going. He analysed the present policy very clearly and briefly in column 688 (Volume 177) of Hansard, where he referred to the present policy (that means the new policy, I think, introduced since the Government came in) as consisting of four main features: first, the import cuts which we introduced last November and again early this year"; secondly, by economy in Government expenditure "; thirdly, by the provisions of the Budget": and, fourthly, by the bank rate, and by restrictions of credit. About those, except for the Budget, I am going to say little this afternoon. We agree about import cuts, and, if the noble Viscount comes to the House and tells us that more import cuts will have to be made and if he makes out a good case, as I am sure he always would, then those also will have to be accepted.

As regards economy in Government expenditure, we have not seen very much of it. I do not go so far as the Daily Express this morning which treated the Government as an absurd lot of old women quite incapable of running what I think Mr. Baldwin once called a whelk-stall. Anyway, there was a famous story about a whelk-stall, but the Daily Express, a very interesting Conservative paper, dubbed the Government's efforts at economy as laughable. I am not trying either to agree with the Daily Express or to differ from them to-day. But I would touch briefly on the bank rate and the restriction of credit. I will reiterate our view that the restriction of credit by raising the bank rate has proved expensive, and a better method ought to have been found. I am not going to fight that? over again. I agree (and Mr. Gaitskell has made this plain on more than one occasion) that some restriction of credit would have had to be carried out if we were in power. Various warnings have been issued this afternoon, but I am not to-day going to advance any particular theory as to how far credit should be restricted at the present time. I recognise that it was necessary to restrict credit, and the bank rate was chosen as the method.

Then we come to the Budget itself, and there I should have felt it necessary to say a great deal if it had not been said already so well from this side of the House. As regards the excess profits levy, I would refer noble Lords to what the Economist said some while ago: The Government's performance at the Committee stage of the excess profits levy will surely vie with the tangle over rail fares as a principal monument to its muddle-headedness. I should have felt those words rather insulting, and should have hesitated to use them in your Lordships' House, but the Economist, which is, economically speaking, to the Right of the Government and has a tougher policy than the Government, made use of that language. The noble Lord, Lord Lloyd, who scored off me with so much elegance, introduced one argument about this tax, and one only; and in this connection he used the word "justification." He said that the tax was justified because at the Election the Government had said that something of this sort would come in. I can think of some comments, but I will not apply them to that situation. I feel that this might have been one of the pledges that the Government would seek leave to over-look.

I do not want to press the noble Viscount on this, whether or not he personally agrees with the excess profits levy, but I have not met any businessman in the country in the last six months who has had a good word to say for it. Would the noble Viscount not agree that, if a pledge is found to be impossible of fulfilment without grave damage to the country, that pledge should be overlooked? Could not the Government have said: "We made a fatuous pledge at the Election. We had been out of office for some time and had rather lost touch with things. Our leader has never been very intimately related to economics, and he has certain broad ideas which he has incorporated, rather late in the day, in the Election programme; and, what with one thing and another, we ask the country to overlook those unfortunate words"? I put it to the noble Viscount, in all meekness and mildness: Would not that have been a more proper course, in the public interest, than for the Government to say: "This is frankly absurd, but it is an absurdity to which we are committed and we prefer that absurdity to going back on our words "? So much for that.

I now come to deal with subsidies. which have been referred to earlier by various other noble Lords. The question has been dealt with factually and very informatively by the noble Lord, Lord Archibald. It has been dealt with in its broad human effect by the noble Lord, Lord Macdonald. I observe that the noble Lord, Lord Macdonald, has not stayed to hear my eulogies, but perhaps I may say this in his absence. I suppose there is no noble Lord in this House whose opinion about the effect of any proposal on the working classes, on the industrial workers of this country, is listened to more attentively than is that of the noble Lord, Lord Macdonald. He has offered the opinion that this is bound to be regarded as unjust, and that it will defeat the patriotic purpose of the Government imposing the tax. The noble Lord, Lord Balfour, has called on the noble Lord, Lord Macdonald, to present a whole case to the country. No doubt Lord Macdonald does when he speaks outside, but in this place surely it is our task not to embark upon global reviews of interminable length, but to try to pinpoint what seem to us to be the weaknesses of this particular feature of the scheme.

This alleviation of the income tax burden and, at the same time, the removal of the food subsidies seems to us a thoroughly evil feature, one which by itself condemns the Bill. I do not want to embark on an argument. Perhaps the noble Viscount will accept me as endorsing every argument which I have advanced hitherto on this subject in this House, and those which have been advanced, with much greater effect, by the personal authority of the noble Lords, Lord Macdonald and Lord Archibald, this afternoon. Surely, without using any language which I know irritates noble Lords (and I can imagine why; I say that again without sarcasm), about the rich and the poor, we can agree that this particular arrangement, whereby food subsidies are cut, thus raising the cost of living, while at the same time the income tax is reduced, constitutes a transference of income within the community. I am entirely ready to accept from noble Lords opposite that their ultimate purpose, as is the purpose of all of us, is to increase the total standard of life of the country, and in that way to benefit everybody, rich and poor alike. But I maintain that the method which they have chosen is one of increasing inequality, and that increasing inequality, at a time when we are told that sacrifices for all are necessary, seems to us not only morally wrong but socially and economically dangerous. That is putting it quite shortly, and I can assure noble Lords that there is no possible accusation of a lack of humanity when I make that political charge.

Before I conclude—I shall be only a few minutes more—let me turn to one or two other aspects of the scene before us. There is one particular question, of which I have given the noble Viscount notice, which interests me a great deal. I wonder whether he has been able to discover anything, and whether the present Government will be more successful than we were. What has puzzled me and others interested in economics during the last few years is the fact that these capital movements still exist. We are told that there seems to be no way of checking certain leakage of capital at critical times. I hope the noble Viscount received my message that I was intending to raise this point?

VISCOUNT SWINTON

Yes, I did.

LORD PAKENHAM

I wonder whether the noble Viscount has been able to discover how far this leakage of capital, which is damaging, represents illegal action. And, in so far as it does represent illegal action, what are the possibilities of prosecution? That really is a point that I put seriously before the House. If the Government succeed where we were not very successful, I shall be the more pleased than anybody.

There is one other particular question, of which I have also given the noble Viscount notice—I mention it briefly, though it illustrates a very wide question. The noble Viscount, in his most important and balanced speech on the last occasion, referred to the opportunities that we now possess of capturing the world market in civil jet aircraft. I entirely agree with him. That is a point in which I know he has taken an interest for a very long time, and one which has been alluded to by other speakers in more than one debate. I would say that this is one relatively small, though important, example of a very great problem, perhaps the greatest immediate problem in the next two or three years—namely, the question of transferring our resources freely, without any sort of compulsion, from less essential to more essential use. That matter has been touched on by the noble Lord, Lord Balfour, this afternoon, and on this point I agree with what was in his mind.

We had a debate on manpower in which very powerful speeches were made by the noble Lord, Lord Macdonald, and the noble Lord, Lord Kirkwood, and we had a most effective and illuminating reply from the noble Viscount, Lord Swinton. But I wonder whether we have in fact found the answer to this question. I certainly do not feel that we have it, and I do not think that the present Government have it, though they are trying very hard, just as we did. Obviously, one way of doing it is to adopt the very old-fashioned way—I do not attribute this to any noble Lords in this House—involving a very considerable degree of transitional unemployment. None of us cares for that. On the other hand, there is the method of dictation, which would be used in a totalitarian country. None of us would favour that course. Therefore, the question of how to persuade the people to do the work that is most useful to the country still remains.

The noble Lord, Lord Balfour, will probably agree with me that it is still more important to get people to do the right work at present than to get them to work harder at the work they are doing. A great many people are not working on the most essential things, although no doubt they are working as hard as they can at the jobs they are doing. Here, in the case of jet aircraft, is something which we can produce better than anybody else; and we are short of manpower. There are other problems which may arise elsewhere. But there is the question which has been raised here, whether to give some kind of guarantee to that magnificent firm who are concerned with the production of the Comet, which might make it possible for them to go still further ahead of orders. I believe that that idea is under governmental consideration. But when all is said and done, in my opinion we as a country should fail, and should deserve to fail, if, so to speak, we went to bed with the Comet—I put that in rather a whimsical way—

VISCOUNT SWINTON

That is a nightmare!

LORD PAKENHAM

I entirely agree with that description. But if at the end of the game, we were left, so to speak, with the ace of trumps up our sleeve, we, as a nation, should have made complete fools of ourselves. While I mention that as an example of my fears, what will make the greatest difference in the next few years in regard to our success or failure is whether or not we are able to secure voluntary transfer.

Here, in passing, I would put only one point to the noble Viscount for his consideration. I know how difficult it is for any Government to look ahead for some years and that it is even impossible for them to be certain as to what are likely to be the demands in regard to textiles or other of our industries. But once the Government have made up their mind, and once they have formed some view for the next few years in this respect, could not they announce, day in and day out, through the channels of publicity, where the pros- pects lie for the young man of to-day? I know that the noble Viscount is co-ordinator of public relations. There could be no better person for that position. I know that if there is a good story to tell, he will tell it better; and that if there is a bad one, he will tell it quite well, and will go on telling it still. But could he not see that something of this kind is done, so that people realise that, whilst there is not going to be a future along one avenue, there is going to be a future along another avenue? Just as people have been told in the past that they are needed in mining and in the fighting services, they should be told that the country needs them in this particular job. That is just one small suggestion in passing, in relation to a problem which I think will continue to bother us in the years to come.

As I draw to a conclusion, I must just say one word to reinforce what was said by Lord Macdonald about the plans for denationalisation. I am not trying to make a debating point here, but I noticed that last week (I think I am right in saying this), in his review of what was i needed from the point of view of saving our balance of payments, the noble Viscount did not deal with denationalisation. That may admit of another answer. He may have been leaving the controversial features for another day. But when it came down to the point, when the noble Viscount gave us a clear and generally understandable programme of what is required to put our balance of payments right, denationalisation did not come into it. Therefore, I would reinforce the appeals that have been made from this side of the House, to put aside those matters which cannot assist us in this most vital problem of all.

In my last few words, I would throw out this other rather enormous thought. I do not think that nationalisation is truly the complete answer, even in the industries where it was essential—and I believe that it was essential in all the industries where it has been produced or, at any rate, on balance, it has proved much more successful than any alternative scheme. Nor do I believe that private enterprise is the answer, even in industries where nobody has talked of nationalisation at all. Nor do I believe that dabbling in a mixed economy—a kind of halfway house between nationalisation and private enterprise—is the answer. Why I say that is that, whatever Government are in power, we must see that the ordinary people have a full opportunity of participation in these great industries. We are threatened with dangers to the human person by the growth of a managerial autocracy.

Quite irrespective of any political discussions going on at present, there is a lot of fresh thinking in the Labour Party. We hope too, that there is in the Conservative Party. That may be going on underground, but I am sure that it is going on very actively. But there is a lot of fresh thinking in the Labour Party. It is not a question of Bevanism or anti-Bevanism. One of the ablest people in the Labour Party, the editor of a new book of Fabian Essays, Mr. Grossman, of whom some of us are thinking with special affection and sympathy at present, has produced a series of ideas which have been carefully considered by The Times as possibly marking a great step forward in the thinking on the Labour side. Mr. Grossman has been called a Bevanite. I mention that only to prove that this has nothing to do with Bevanism or non-Bevanism, which, in my opinion, is an irrelevant and trivial issue compared with this great question that I am placing before your Lordships. The real question before the Labour Party, in my opinion, is whether we can find the means of giving this full participation to the human person in industry. That is a problem which concerns everyone in all Parties just as actively. If we look fifteen or more years ahead, our generation will be judged by whether we are able to give that fuller scope to the human being. That is the real, deep and most fundamental question of the present day.

6.39 p.m.

VISCOUNT SWINTON

My Lords, when this House is confronted with a Finance Bill it is really rather in the position of a cat looking at a canary in a cage: it can purr or do the opposite, but it really cannot do very much so far as the Bill of the year is concerned. On the other hand, noble Lords can give their criticisms and make constructive suggestions. Unfortunately, of course, those cannot have effect until another Budget is produced next year. By that time conditions may have changed, and even the Chancellor may have had a few second thoughts of his own. But I must congratulate your Lordships, if I may respectfully, upon having transcended, if not transgressed, all Rules of Order, and having indulged in an extraordinarily interesting debate which certainly included a number of constructive suggestions of a detailed kind, apart from the wide generalities of the discussion, which I can promise shall be carefully studied in the Treasury.

From many instances, I would, in this connection, refer to the matter which the noble Lord, Lord Ogmore, raised, about what allowances could be of special value and how they could be interpreted. These are the kind of points which do not always occur even to those who are fully competent to deal with them in debates of this sort. They are certainly the kind of things which ought to be studied carefully, because when you do give some kind of remission of taxation, for Heaven's sake make it effective for its purpose! It is people with practical knowledge of where the shoe pinches, and where the shoe pinches other people, who can give advice of the sort that is of value.

Certainly the debate has ranged tremendously wide. One of the things I ought perhaps to deal with at once is a point which was raised by the noble Lord, Lord Shepherd. Incidentally, I must say that if the opening batsmen were novices at the game they managed to make as good a stand as Hutton and his partner—though not for quite so long. They scored runs very well. Lord Shepherd put a very pertinent question to me. The Budget is founded on estimates, and as the out-turn of the first quarter shows a discrepancy of, I think, about £200,000,000 of expenditure over income, Lord Shepherd wanted to know if that means that the whole Budget estimate is falsified and that the large surplus—he agreed that we ought to have a large surplus—looks like vanishing into thin air. I can, I think, give him some reassurance. I will not make a bet as to what the surplus at the end of the year is going to be, but I can relieve him and anyone else who may be anxious by saying that this state of affairs is nothing at all out of the way, particularly this year.

I will give, briefly, certain reasons for saying that. As the noble Lord knows, what happens in the first quarter is no evidence of what is going to happen later because, oddly enough, people do not rush to pay their taxes as quickly as they can. This quarter there are certain special considerations. The first is that of defence expenditure, which materialised very slowly last year but is materialising much more quickly this year. Therefore there is a larger amount of defence expenditure proportionately to take account of in the first quarter of this year than came into the first quarter of last year. Another point is that the Defence Aid, which for the first quarter of this year is about £85,000,000, though it has been received, is at the present moment standing in a sort of suspensory account and has not been credited to the recipient Departments. So there is an undisclosed reserve of £85,000,000 which has to come off the deficit. It is rather the converse of the perfectly just criticism which the noble Lord made—though I was the first to point it out last time—of the figures of the balance of payments. The reduction of food subsidies did not have much effect in the first quarter.

Then there is a thing for which I am partly responsible in one of my odd Ministerial capacities. Both the Ministry of Food and the Ministry of Materials required a good deal of working capital at an early stage. Noble Lords know that there are all those purchases which I made—and which I think were very satisfactory—in deals with America. The result was that for purchases of food and materials (you have to buy when the buying is good) both Ministries wanted more working capital in the first quarter of this year than they had in the first quarter of last year. Finally, of course, you have always to remember that the big yield of taxation from business never comes in during the first quarter. That comes in during the third or more probably the fourth quarter of the year. Therefore I think I can give the noble Lord, Lord Shepherd, the assurance that he need not be anxious that there will not be quite a good Budget surplus.

The noble Lord, Lord Pakenham—I was grateful to him for what he said about my speech last time—asked me whether I could say anything about movements of capital and whether they are illegal. He confined himself really to capital movements, but there are odd ways, as he knows, of dealing in commodities, passing them through a number of hands and paying in a number of currencies, and these transactions are difficult to deal with though they are, perhaps, not very large. As regards capital movement, capital may be freely moved within the sterling area. The controls exercised in the rest of the sterling area are similar to those in the United Kingdom, and the official view is that there is no reason to suppose that, broad and large, they are not equally effective. Certainly this is accepted as a common interest and a common duty by all the partners in the sterling area. The only legal movement of capital out of the United Kingdom is, of course, with Treasury permission. It is allowed only if it is considered to be in the national interest. Normally, the Bank of England receive applications for transfer of capital and give or refuse permission after consultation with the Treasury and other appropriate Departments. The noble Lord asked if leakage of capital is criminal. If there is any breach of the provisions of the Exchange Control Act of 1947, that certainly is illegal. In any case where the Treasury solicitor and the Director of Public Prosecutions advise that the evidence is such that there would be reasonable hope of obtaining a conviction, a prosecution is most certainly instituted.

I come next to a very wide question which was dealt with by a number of noble Lords. It was really a combination of questions—how production stands, what prospects look like, and the effect of our monetary policy upon production. Noble Lords exercised great reticence in this case, and, if I may say so, I think that is characteristic of the wisdom and the sort of common counsel which has motivated both these debates. We did not engage in a long argument about whether using the monetary instrument was or was not necessary for the restriction of credit. I am not going into that now. What I think is very important, whatever view we may hold about the proper use of the bank rate and means of restricting credit, is that we should know whether the policy which holds the field for the time being is doing what it was designed to do or is having some adverse effect. Certainly we in the Government are not prejudiced at all in any way; we are the first people to want to be sure that any policy which is introduced is, in fact, having the effect which it is designed to have. If it were not we should be on the wrong tack, or should be using the policy too drastically, or not drastically enough. The great thing is that we should get at the facts. I have been at some pains to try to get at the facts and I think I can certainly give them accurately. And they are very important.

First of all, what is the object of this monetary policy? The object is two-fold—and I do not think it will be disputed. In the first place, it is to reduce pressure on the over-burdened national resources and, in the second place, to concentrate those financial resources, just as we must concentrate our material resources, where the need and value are greatest in the national interest. I would put exports easily first. Indeed, exports are even more vital to-day than defence, because our capacity to defend ourselves depends on our capacity to trade effectively. Therefore, I put the emphasis on exports and upon investment which will either help exports or save imports. Let me take an obvious example—the tremendous importance of there being no hold-up in the great development of oil refineries in this country and of the concomitant work outside it, which is going to be a colossal dollar saver and dollar earner. I think the result shows that that policy is working in the way we want.

I am glad to see that the noble Lord, Lord Kirkwood, has come to spend part of his birthday in your Lordships' House. In his absence we have all been giving him our best wishes, and on behalf of the House I wish him many happy returns of the day.

One noble Lord mentioned a figure of 10 points. I do not know where he got it from, but I think he made a mistake in some of the dots. It is not 10 points, but 1 point. There is some hold-up in production in some industries and I take the obvious ones to show that none of these hold-ups has anything to do with monetary policy. In textiles, production has been held up by reduced demand all over the world, but there are already some signs of improvement. I think the enormous amount of goods in the pipeline is clearing. I think my noble friend, Lord Balfour of Burleigh, will agree with this from his banking knowledge. Prices have been slashed heavily. The result is that some buying has been done and I am glad to say that the outlook is a little better already. One senses this more than one can show it from actual figures. It is much more the sense of the people who are doing the job, the feel that some improvement is coming there. But that could not have anything to do with monetary policy.

There has been a smaller production of vehicles. That was partly due to reduced demand in the world markets. The unfortunate cuts we had to suffer in Australia have taken some effect—I am not criticising, but they have had an effect—and there was a shortage of steel in the vehicle industry. The steel position is likely to improve, I hope, because the production of steel as a whole is becoming better. We have been very lucky, in spite of a strike, to receive a fair supply of American steel, and when the strike is over in America we shall certainly be further helped there. The third industry in which there was a set-back was the steel industry itself. That was temporary and due to two factors—shortage of scrap and a temporary shortage of coke. The coke position is improving and we are getting in better supplies both of home and of foreign ore. Actually I am told the May output, the figures of which have not been published yet, shows a distinct improvement.

I have mentioned, as I thought I ought to do in fairness, the three big industries where obviously there has been less production, and I have given reasons—and none of those has anything to do with monetary policy. The noble Viscount, Lord St. Davids, is quite wrong. Monetary policy has not depressed these industries. He must have been reading a text book. I wish he would go and talk to practical people. Industrial production as a whole has kept fairly steady. The figure for the year 1946 is always taken as 100, and I will take the four months from January to April, for which figures for this year are available. In 1950, which one noble Lord said was a year of expansion (I am not trying to score off the noble Lord; I will accept that it was a very good year, a "shining year" as another noble Lord described it) the index of industrial production was 139. Last year, it was 146, and this year 145. That is not too bad, and actually the May figures, I am told, look as if they will be 3 per cent. up on those for last year. I do not draw much from that fact, because Whitsuntide fell in different weeks: last year, Whitsuntide was in May and this year it was in June. Perhaps we had better "concertina" the two together and see how it comes out at the end of this month.

LORD PAKENHAM

The noble Viscount agrees that the figures in the absolute sense are rather disappointing, and he has given reasons. Normally one would expect a steady increase of 3 per cent. or 4 per cent.

VISCOUNT SWINTON

I am not sure. There are so many figures, about which we warned the House and the country. We must take into account the fact that it is much more difficult to export and there is a textile recession. I hope it is going to pick up. We are not banking on anything quite so much as 3 or 4 per cent. I am being factual. I do not want to be too hopeful and, on the other hand, I do not want the House to be more pessimistic than they ought to be.

I have given the reasons why these three industries were down. Let me give the figures for two other groups of industry which are more hopeful. If we take engineering, shipbuilding and electrical goods, excluding vehicles, we find that from January to April last year their index was 163, and this year it is 172. I think that that is rather hopeful. I admit that these are industries where we still expect to get an expanding export because the demand is not so satisfied. At the same time, it shows that an effort is being made and is not unsuccessful. The other increase is in building and contracting; the index figure for the first four months of 1951 was 121 and for this year 130. The increase comes from practically the same labour force in the industry. That is all to the good. It means better production.

I have made it clear that, whatever view one might hold about the bank rate and the proper method of restricting credit, the principles we are employing to-day have certainly not had any effect in reducing production and they have had an effect upon directing production facilities and resources into the right channels. The noble Lord, Lord Pakenham, asked me whether I could say anything in elaboration of what I said last time about civilian jet aircraft and the opportunity which we had. As I said, we have had that chance and it was up to the industry to exploit it to the utmost. I believe that I can give him some quite satisfactory information about that matter. Arrangements have been made between de Havillands and Short Bros. and Harlands, in Belfast, that a second Comet production line shall be established in Northern Ireland. That, together with further efforts which the parent company is making, should double the output of Comet liners. I feel that that is most satisfactory, particularly so far as Northern Ireland where there is a good deal of unemployment, is concerned. I have a certain personal interest in this subject, because it was I who, many years ago, when I was Secretary of State for Air, arranged the marriage of Harlands and Short's and started the aircraft industry in Ireland. I am sure that augurs well for the future, and it should give the noble Lord the assurance that—of all the dreadful phrases—he will not have to "go to bed with the Comet."

LORD PAKENHAM

I am glad the noble Viscount has been able to make this announcement, which gives pleasure to us all. I am sure that he has done, and will continue to do, everything that he can. However, I put it to him that there is still plenty of opportunity for greater production of the Comet, and I hope that he will continue to look into it.

VISCOUNT SWINTON

Within the physical limits. It is not like picking gooseberries, of course. The production lines have to be established, as the noble Lord knows, and the engines have to keep pace. But I believe that this is one of the greatest chances we have ever had, and not only for getting things delivered in two or three years. As I said last time, I feel that we have such a lead in civil jet aircraft, and these machines have established such a reputation for themselves, that we may not only get orders from all over the world but will possibly "collar" the market for a generation.

Not only have we the Comet: there is also the Vickers-Armstrong Viscount—and that should appeal to us in this House. The Viscount is a very good prop jet air liner. They have reorganised the production of this machine, and we can certainly look forward to a speeding up in its production. Moreover, they have done a good deal more sub-contracting, which is really the art in this business. By reorganisation and sub-contracting they hope to be able to double the production of the Viscount that was originally planned. Later on there will be the Bristol Britannia, a larger prop jet.

The noble Lord, Lord Shepherd, asked whether this was not the time to get together to see if we could not do something internationally about raw materials. He knows that that is always present in my mind. A great deal has been done—the noble Lord's Government started it, and we have carried it on—by the International Materials Conference in Washington, including the admirable work which Lord Knollys did during the year that he was there. Everything that can be done we will do. But the noble Lord may have seen the interest which Congress took in that Conference, which was not quite the same kind of interest as we are taking. It looked at one time as if Congress would kill it. I do not say anything critical of another institution, but I am sure that the Conference was greatly in the interests of both the United States and ourselves, so long as it did not meddle in things in which it was unnecessary to meddle. I am glad to say that the Act emerged from Congress in a form which will enable the International Materials Conference to go on functioning. I would repeat what I believe I said more or less the last time: that I do not think in matters of this kind the United States like being lectured from this side of the Atlantic, however sincere the motive may be. The best missionaries in America are Americans.

There is one other matter to which I should like to refer. The noble Lord, Lord Kenswood, made a moving appeal on behalf of the blind, and I have been at some pains to secure for him a full answer. He suggested that there should be a special income tax allowance for blind persons, or at any rate for those who are gainfully employed. I am not content just to tell the noble Lord that that proposal was turned down by his own Government two or three years ago: in fact, successive Governments have turned it down when it has been made in one form or another. I should like to tell the noble Lord why that has been the attitude of all Governments—and it is not in any way that we do not sympathise.

In the first place, you cannot confine this to the blind. You must concede the same claim to incapacitated persons, whether they suffer from blindness or from some other form of incapacity. Secondly, surely the best way of helping the blind or other incapacitated people is not by indirect tax relief, which can help only persons who come within the range of income tax payers (and the present Finance Bill will remove another 2,000,000 from that impost), but by giving direct help which will attach to all blind people. That is being given under our social services to-day, by providing training, and helping incapacitated men and women, including specifically the blind. The Royal Commission on Income Tax of 1920 considered this and other questions of allowances most carefully, and I am sure sympathetically, but found that this adaptation of allowances to the physical conditions of a particular taxpayer was not a practical proposition for the Inland Revenue to undertake. There is another Royal Commission on Income Tae sitting now, and if the noble Lord and those for whom he speaks wish to have the matter reconsidered I am sure that, if evidence is submitted to that body, they will give it an entirely impartial consideration.

I hope that I do not weary your Lordships, but the debate has ranged so wide, and has again been of such interest and, if I may say so, so co-operative in its substance, that I should not like to conclude without referring to the speech of the noble Lord, Lord Macdonald of Gwaenysgor. It is important that the Finance Bill, and, indeed, all our measures concerned with the balance of payments, should give confidence both at home and abroad. Indeed—I say this with deep sincerity—the whole object of the Budget, as of the other measures we have taken, whether we have been right or wrong in this or that detail, has really and sincerely been to subserve the supreme need of paying our way and building up our resources and reserves.

I spoke about subsidies last time, but in fairness to the noble Lord I should like to follow that up a little on the same lines. It is to some extent repetition. You cannot, of course (and I do not think the noble Lord would suggest this) have continually rising subsidies whenever the cost of food rises. Indeed, his Party have never contended that, and his Chancellors of the Exchequer have never contended that. It is really a question of degree, of how you can use your resources to the best advantage, and, I entirely agree with him, as fairly as possible. I am sure that the noble Lord would not for a moment say that in his opinion it was our intention that the Finance Bill should benefit our friends. But he said quite clearly that that is the sort of thing which is said out of doors. Let us both join in saying it is not true. I do not ask him to say: "You are quite right in the particular thing you did," if he does not believe it, but to say: "Where you were wrong, you were wrong from the right motives. You were trying to do the right thing, even if you did not do it in the right way." Of course, one may differ round a board table as to the best thing to do, but if we can both together persuade the country that what we are trying to do is to do what is right and fair, then, whether we may think each other wrong in this or that particular, a new atmosphere will get into the country, and that new atmosphere is absolutely vital. It belongs to our peace and it belongs to our salvation.

On the subsidies themselves, as I said last time, of course the ceilings were set, although food prices were rising. I am not making a debating point on this, but when Sir Stafford Cripps reduced his ceiling by £55,000,000 it was in a year when the cost of living—the cost of food—had risen by 14 points. The index has not risen anything like that this time. When Sir Stafford reduced the ceiling by £55,000,000 he did not—I am sure because he was not able to do so—give concessions in taxation such as have been given this time. Nor, of course, was there any increase in family allowances; nor was there any fall in other prices. It is important to take into account the fall in prices of other things which people buy. They are not so important as food—food is absolutely vital. On the other hand, if everything which is bought in the shops, from blankets to clothes, is coming down in price, it makes a great deal of difference, particularly to people with families. I have my grandchildren to contend with, and it makes a great deal of difference when their clothes and their shoes are coming down in price. There are all those things to take into account in making a fair assessment as to whether people have gained or lost, or how much they have gained or lost.

Believe me, we did not do this for fun. We never supposed that it would be popular. The last thing in the world it was meant to be was a political move. We did it because we thought it was absolutely necessary for realism here and also to carry conviction abroad—I do not mean merely to a few bankers in Zurich. The noble Lord will agree with me on this. It is not that we must convince a few international bankers. That is not what makes the Exchange move in our favour or against us. It is the confidence of the whole trading world in whether or not Britain is on the right road, that the pound is the right currency in which to do business. There is not the least doubt that it had a definite and favourable effect there, and certainly I do not think anybody can say that this Budget was designed to help our friends.

I know that 15 per cent. (or whatever it is) of the tax relief goes to people earning £1,000 a year. But is it wrong to give encouragement to people who are earning £1,000 a year or more? After all, the highly skilled workman or the designer deserves his incentives as much as anyone else. Apart from that (the late Lord Chancellor will bear me out here) the income tax structure is such that when you are giving these reliefs you cannot say that "A" hall have it but "B" shall not. It is like the case of relief for the blind, which successive Governments have had to turn down, and the noble Lord's own Chancellors of the Exchequer, when they were able to give relief, had to give it in exactly the same way. If you like to put it this way, the rain falls upon the just and the unjust, I am not going to say that the fellow earning £1,000, £2,000, or £5,000 a year, who is doing a first-class job, is not entitled to his encouragement.

I am not going to argue about the excess profits levy, although I have had a few pertinent questions put to me. It is getting late, and I will not pursue that interesting subject, except to say this. The noble Lord, Lord Pakenham, can hardly say that the introduction of the excess profits levy was done to help our friends. At any rate our so-called friends—if by that term is meant the business world—have not responded to that gesture of amity with any wild enthusiasm.

LORD KENSWOOD

I hope the noble Viscount will forgive me for interrupting now, but he has again mentioned the request that I made for a special allowance for the blind. I thought I had pointed out quite clearly that I was not making my appeal on any humanitarian grounds but on the grounds of pure economics. I think the noble Viscount is bound to agree with me there. I made my appeal because it would be an incentive to the blind to turn out more, or to turn to trades and professions which are more lucrative than those which are offered them under the Sheltered industries Scheme. I think the noble Viscount ought to agree with me 100 per cent. on this point.

VISCOUNT SWINTON

I was not denying that, if this could be done in practice, it would be an incentive to some of these people. What I did—and I went out of my way to answer the noble Lord in detail—was to give him the reasons why every Government from 1920 onwards had found that the suggestion was not a practical one. He must take that front me as a matter of historical fact. I offered him the opportunity of going to the Royal Commission which is now sitting and there putting his case and having it out with the Royal Commission.

I would close on this. Again in this debate, as in the previous one, the need of increased production has been pressed. The noble Lord, Lord Pakenham, said: "Well, it is right. There is nothing very new in that. After all, we have all been saying for some years that there is a need for increased production." What I think is new in it to-day, and what I think is hopeful, is that both in the last debate and in this, and, indeed, in speeches of people of all political complexions, there is a realisation that what is needed today is not merely increased production but increased production without rising costs—increased production at a price which will not price us out of the markets of the world. That, certainly, is what we must get, and that is what we are all out to achieve. I am certain that we can achieve it if only we can go forward together in this, whatever may be our superficial differences. If we have achieved it, then, without doubt, we have won through.

On Question, Bill read 2^a: Committee negatived.