ECONOMIC PROBLEMS

HL Deb 12 November 1952 vol 179 cc253-312

2.55 p.m.

LORD LUCAS OF CHILWORTH rose to call attention to economic problems, with special reference to the decline of our industrial production; and to move for Papers. The noble Lord said: My Lords, the Motion standing in my name upon the Order Paper was, as your Lordships know, originally in the name of my noble friend Lord Hall. Your Lordships will, I am sure, regret the cause of his absence, which is ill-health. The noble Viscount was in great pain when he addressed you a week ago this afternoon, and his doctors advised him not to subject himself to such an ordeal as standing here to-day. Hence I am deputising for him.

In opening this debate, I am very conscious that we had in your Lordships' House a week ago a good debate on the economic aspects of the gracious Speech; but I think we shall all appreciate another opportunity of going into some of the points in greater detail. That was the object with which this Motion was placed on the Order Paper. I do not intend to survey the whole of the economic scene. I do not intend to deal with quite a number of things in respect of which I could criticise the economic aspects of the gracious Speech—for instance, the lack of any policy on the part of Her Majesty's Government to deal with such matters as private monopoly, when the whole of the legislative programme of the coming Session is to be the denationalisation of public monopoly. There is no thought—expressed, at any rate—that Her Majesty's Government are going to do anything to do away with the restrictive practices which at the present time are increasing the cost of living to the general body of the citizens of this country. So far as I can see the Ministry of Food—a Ministry, incidentally, which has always been far more interested in the maintenance of distribution profits than in low prices to the consumer—is going to continue paying £3 million a year to compensate meat distributors for not distributing meat. Those matters will doubtless provide us with an opportunity of debate on some future occasion.

I intend this afternoon to return to the subject upon which I ventured to address your Lordships a week ago, because I view the main problem confronting this country to-day as, if I may so put it, how "John Bull, Ltd." can pay its way. That is what really matters. After all, running a country is very much like running a business, if only folk have the sense to see it, with the Government as the board of directors and the Members of both Houses of Parliament as shareholders' committees. I listened to practically every main speech made in another place during the debate which finished last night, and I listened to every speech in your Lordships' House on Wednesday of last week. But I have failed to discern any policy as to how we are going to increase our productivity, how we are going to increase our exports, how we are going to bring the prices of those exports down and how we are going to reduce the prices at home. The problem has been posed by many speakers and, if the noble Viscount, Lord Swinton, will allow me to say so, by nobody better than he did a week ago when he made, again if he will permit me to say so, one of his better speeches. When he keeps off Party politics the noble Viscount really is worth listening to.

What did he say? I quote from the OFFICIAL REPORT of November 5 (Vol. 179, Col. 76): I think we are winning through. We have done this very largely by restriction. It was absolutely necessary to do it, but you cannot go on like that. You can reach a stage of magnificent equilibrium at which you export and import nothing. The noble Viscount went on: Therefore, we must bend all our efforts to production at home and to production in the Empire. The noble Viscount did not say how. He did allow himself one remark in reply to the observations I made about the overbearing weight of taxation: he said that it touched a responsive chord in his breast.

Then we had a speech from the Minister of Labour in another place on behalf of Her Majesty's Government. This is what he said—I quote from the OFFICIAL REPORT (Commons, Vol. 507, Col. 626) of November 10: Indeed, the picture varies in different industries, but nobody, I hope, would be so bold as to deny that in these directions we are facing a new challenge to our skill, our ingenuity and our salesmanship. The way to meet that challenge lies in strengthening our competitive position by higher productivity and lower costs. He went on to say: What it means is that we must try to enable industry…to modernise and expand its plant, machinery, and so forth. We knew that—but how? We may find some ray of hope in the speech made yesterday by the Chancellor of the Exchequer, although I see that the Financial Times this morning characterised the speech as being full of "oracular ambiguity." This is what the right honourable gentleman said on November 11 (Vol. 507, Col. 777): I would put the issue thus: the question we have to face is whether we are to continue to expect to dip freely into the public purse, regardless of the cost to ourselves as individuals and to the prospects of our survival as a great trading nation, or whether we are going to brace ourselves and accept the need for further sacrifices. I have no doubt where my duty lies. It is to make effort worth while and expansion of production possible. The right honourable gentleman went on to say this: I agree that the present level of taxation weighs heavily on enterprise, initiative and thrift, but the task of reducing it cannot be an easy one, though it still remains a prime objective of the Government. The right honourable gentleman has said in his public speeches that he has no magic wand. Neither has industry. If one surveys the difficulties that are confronting industry to-day throughout the world, one sees that they are of a desperately serious character.

When I addressed your Lordships a week ago, I mentioned that 50 per cent. of our markets overseas are now import-restricted. Just look at the position regarding export subsidies which is growing up in Europe and Scandinavia, with Germany in the lead. It is a most vicious form of cut-throat competition which I hope this country will never get into, because there is an end to it, and a very dangerous end. But our exporters have to face it. Whilst these competitors of ours are being subsidised in their exports, what are we doing? What are we doing to help our manufacturers to meet this competition? Her Majesty's Government's idea of helping them appears to be to clamp yet another tax on them in the shape of an excess profits levy. What is the Chancellor of the Exchequer, in effect, saying to our exporters who are struggling to get into dollar markets and into markets in the sterling area? He is saying, "Go on. Show all the enterprise you can. Take all the risks; and, if you can show more enterprise than you did in 1947, 1948 and 1949, and if, by any chance, as a result of showing that enterprise, you make a little more profit, I will come along and take approximately 74 per cent. of it." Is that the way to encourage enterprise? Is that the way to help our exporters meet the competition which they have to face?

My Lords, it is a tax which is a dishonest tax. I have here a document called Britain Strong and Free, and another one called The Manifesto of the Conservative and Unionist Party for the General Election of 1951. This manifesto is signed by the right honourable gentleman who is now the Prime Minister. I will not read to your Lordships all it says on this subject. Noble Lords opposite know it, I expect, better than I do. An excess profits levy was mooted by the Prime Minister in the 1951 Election to catch a few votes by promising the people of this country that the Government were going to make sure that the arms manufacturers did not make excess profits out of the rearmament programme. The net result is the excess profits levy, which has been clamped down on everybody, whether or not they are interested in armaments, even if they are as far removed from the rearmament programme as the North Pole is from the South. It has been clamped down upon our exporters and those who are struggling to build up the trade of our country. I repeat, the excess profits levy is a thoroughly dishonest tax. It has no friends whatsoever, and I dare swear that there is no noble Lord sitting on the Benches opposite who would get up this this afternoon and defend it. What is it going to do? In the year 1952–53 it is going to bring in £1 million out of an estimated revenue of £4,500 million.

LORD HAWKE

One million pounds?

LORD LUCAS OF CHILWORTH

One million pounds in this coming year, and £100 million in 1953–54, if the profits are then as they were when it was introduced.

Here is a tax condemned by the whole of the accounting profession. It is interesting to see what that very well-informed journal, the Accountant (speaking, I suppose, on behalf of the accounting profession) says: Presumably the chosen instrument for the exaction of the levy is the income tax inspectorate, a body so notoriously understaffed that it is officially admitted to be inadequate even to bring in the taxes already in force. It seems that tax evaders are to be given a new lease of life while inspectors sit laboriously ticking through special notional schedules of capital allowances for excess profits levy purposes, equally laboriously prepared by accountants who could have been doing something far more useful. The journal comments that this is an odd way to reduce our 'swollen bureaucracy'. The Chancellor of the Exchequer said yesterday that he had reduced the Civil Service by 4,000-odd. I wonder whether that is a net or a gross figure, and whether it includes the swollen staffs of the Inland Revenue?

THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT SWINTON)

I can tell the noble Lord that when the Chancellor of the Exchequer said he had reduced, he meant that he had reduced.

LORD LUCAS OF CHILWORTH

But even Chancellors of the Exchequer do not mean all they say.

VISCOUNT SWINTON

I am sorry, but I resent that. When the Chancellor of the Exchequer, in a considered speech, says that the numbers of civil servants are 4,000 less than they were some months ago, I think in both Houses of Parliament that should betaken as a correct statement.

LORD LUCAS OF CHILWORTH

I readily accept that. But I maintain that if this tax is to be collected either those staffs may well have to go up, or the income tax collection will lag even worse than it is lagging at the present time. My Lords, we are at the dawn of a new Elizabethan Era, and we have heard a good deal in recent months about returning to, and rekindling, the spirit of the merchant adventurers of the first Elizabethan Age. If one compares the lot of the would-be merchant adventurer in the year 1952 with that of his forbear of three hundred-odd years ago, what do we find? At least the merchant adventurers of those times did not have income tax to contend with. I believe that income tax originated about fifty years ago, in the days of Mr. Gladstone, and then it was introduced only as a temporary tax.

Let us consider the position of the merchant adventurer of to-day. I choose as my example the very personification of private enterprise, the individual whom the Conservative Party always say is their special preserve—the little man. He is the man who left the bench of his employers with his bag of tools in one hand and his few pounds of savings in the other, or the man who left the office stool to gamble his skill against the world, to start out on his own. After years of hard work and after ploughing his profits back into his little business, he builds up and up and creates his little proprietor-controlled limited company—the very backbone of British industry to-day. There are in this country approximately 250,000 companies of this kind, with a paid-up capital of £2,250 million. Compared with the paid-up capital of £3,900 million of the 12,000 public companies, the £2,250 million of the small private limited companies is very much on the low side, because the real capital employed in these businesses could be double and treble that figure through the ploughing back of profits.

To-day, the little man hears the call to expand and to increase, to show the spirit of the old-time merchant adventurer. If he can get past the Chancellor's embargo, and if he is lucky, he goes to his bank and borrows some more capital, upon which he has to pay about 5½ to 6 per cent. Then, by dint of hard work he increases his business by 50 per cent. To take an example, a turnover of approximately £100,000 would show a profit of perhaps 10 per cent., which is £10,000. If he increases his business by 50 per cent. to £150,000, with £15,000 profit, he cannot remunerate himself one penny more—not one penny. He was allowed £2,500, or 15 per cent. of his profits, when he was earning a turnover of £100,000, and that is all he is allowed to-day. My Lords, he is now arriving at middle-age, the time in a man's life when he looks forwards and not backwards. He calculates that all he is, in effect, doing is to build up an asset upon which the Inland Revenue will descend when he is foolish enough to die, and will dissipate his estate in death duties. If, by any chance, he should think of drawing out his profits in order to take out an insurance policy to meet death duties, he will find that he will have to pay more in tax than he would draw out of his business. This is an interesting point. I mentioned that this man had made £15,000. If he wanted to draw out that £15,000 in order to cover his further taxation he would have to draw out £15,449. That is the reward of the merchant adventurer.

Do we expect, and is it fair to ask, so much of the vast mass of these small men, who have shown all this courage? Is it fair to say to them: "Go on and risk the lot; risk your all. I, the Chancellor of the Exchequer, will take practically all of it if you are a success, but if you are not, you find your way to Carey Street alone "? Would your Lordships take that risk? I say that is what is handicapping the development of this country to-day. I am not going to blame Her Majesty's Government for this. It is something which has been building up over years and years, until to-day it is the chief concern of those of us who have had any industrial experience and are anxious to see our trade and commerce expand.

The noble Viscount, Lord Swinton, speaking of salesmanship and the necessity for salesmanship, said something last week that is very true. He spoke of the need for men who could go out and sell our products in overseas markets; and he cited a case in which it really mattered whether we got orders or whether we did not. I absolutely agree with him. But there are a great many people who have a false idea of how indus- try is composed to-day. I expect that the man to whom the noble Viscount referred, who went out and got a 3,000,000-dollar order, was a high executive of one of our large companies, a man who was highly paid and remunerated for his services. I wonder whether the noble Viscount has worked out how much was left to that man after he had been rewarded for his successful effort. The trouble is that industry to-day finds it difficult to pay salesmen, on results, a remuneration which ensures that their net return is a real incentive. To ensure that the salesman does get such a real incentive is the only way to achieve our aim. The proper way to reward enterprise is payment by results.

To-day the situation is such that the better the results a man achieves the worse off he is. If you were to ask any of my three noble friends, Lord Macdonald of Gwaenysgor, Lord Lawson or the noble Viscount, Lord Hall, all of whom have worked at the coal face, how they would wish to be remunerated, I know that they would all answer that they would wish to be remunerated on the basis of their own individual effort. And that is what we have got to do. We have, in that and other ways, to increase the efficiency of our salesmanship. I wonder whether the Government method of salesmanship is good enough. I cannot help wondering whether, at a time such as this, when we have to meet such competition overseas, our trade agreements are in the right hands. I do not want to be personal in this matter, but I cannot help thinking that a military career is a poor training for the chief salesman of Her Majesty's Government, the Secretary for Overseas Trade. I am not at all certain that civil servants, admirable though they are as advisers, are the best people to go out into these new countries for the negotiation of trade agreements. I expect noble Lords would like to put to me the question, "If you want to increase the incentive, and if the correct policy for Her Majesty's Government is a reduction in taxation, how are you going to get back what you give away?" My Lords, you cannot. You have to look—

VISCOUNT SWINTON

My Lords, I am loath to interrupt the noble Lord, for I am deeply interested in the speech which he is making—and I may say that I am somewhat heartened and encouraged by it. But there is something I should like to know. May I take it that the noble Lord who is opening this debate is acting as Leader of the Opposition, and that in this plea for the drastic reduction of industrial taxation and taxation upon highly paid executives in industries, he is speaking for his Party?

LORD LUCAS OF CHILWORTH

I am speaking for myself—I suppose I am entitled to do that in your Lordships' House. My Leader, the Leader of the Opposition, is here, and if he wishes to address your Lordships no doubt he will take advantage of the opportunity of doing so.

VISCOUNT SWINTON

I shall speak for my Party.

LORD LUCAS OF CHILWORTH

Very likely the noble Viscount has received his instructions; I have not. I am not pleading for relief of taxation on high executive. What I am pleading for is that the enterprise of the individual shall be given a chance, because that is what is going to increase our productivity right the way through, from top to bottom. We have all said in our time that taxation is not wealth, that the only real wealth we can have is productive wealth. Now let us see whether we believe it. It is no good uttering platitudes about the unquenchable spirit of the British people, if we are always going to throw buckets of cold water upon it. I agree absolutely with the Chancellor of the Exchequer in this respect: I hope it will be the policy of Her Majesty's Government to keep the benefits that we have gained for everyone in this country over recent years, and to give freedom to our people to go out and show their native initiative. That is how we shall win through in the battle which we are fighting to-day. My Lords, I beg to move for Papers.

3.27 p.m.

LORD HAWKE

My Lords, when I saw the terms of this Motion on the Order Paper, and having during the last day or two read the reports of the debate in another place, my heart went out somewhat to the noble Lord, Lord Lucas of Chilworth, because I thought that the speech which he had written for the occasion had obviously been torpedoed in the last two days. In the event, of course, he has made a speech of a totally different character, a speech which was of the greatest interest. And I think its chief interest lies in the fact that a great deal of it was not endorsed, or indeed welcomed, by his noble friends behind him. Therefore, I think it is now clear that the noble Lord, Lord Lucas, in appealing for the use of incentives to secure increased production and so on is not propounding views endorsed by the mass of the Labour Party, which apparently does not believe in incentives. That, to my mind, was the most interesting feature of the noble Lord's speech. But I think he fell into what I believe is a fundamental error—often apparent in speeches made from the other side of the House: that of thinking that Governments do more things than, in fact, they really do. It is not Governments who increase productivity or lower costs: it is human beings. It is the purpose of Governments to try to produce the right atmosphere in which human beings can operate.

The greatest economic problem of the world is the dollar unbalance. Our economic problem is that of our balance of payments, production and efficiency. These problems have always been with us, and now we have the problem of markets. We have a buyers' market in a great many things, but not by any means in all, and a race of business men has grown up who I venture to think may have lost the old art of how to sell. I should be interested to know whether the Government have any steps in view to assist the selling side of industry abroad. In the great struggle that lies ahead of us I particularly welcome the step of calling the Imperial Conference, first to develop our resources, to do without dollar goods, secondly to develop the production of goods we can sell for dollars, and thirdly to provide the markets which we require. I hope that there will also be some discussion about the better management of the sterling area. I, for one, was greatly shocked at the impact of the Australian reaction to the crisis. I hope that if the same thing should happen again, things would be conducted differently. After all, the sterling area is only a microcosm of the International Monetary Fund, except that the sterling area works and the International Monetary Fund does not. But we might well look at some of the technical machinery of the International Monetary Fund when the question comes of dealing with these up and down balances of sterling countries. If we can run up bills of hundreds of millions of pounds with the Colonies, why on earth cannot the Dominions run up a bill with us temporarily?

If we have to develop the Empire by lending money, it means, first of all, that we must have a favourable balance of trade, and, secondly, that we must have savings to invest in the loans. Fortunately, savings breed a favourable balance of trade, so that if we get the savings the chances are that we shall at the same time get the favourable balance of trade. The third thing we must have is diversion of our effort. The Empire is crying out for goods to modernise ports, docks, railways and roads, and for a hundred and one other things, but we are either not making these goods or not making them fast enough. I greatly welcome what we may call the Butler policy, which has led to a considerable diversion of effort and which, as soon as greater quantities of steel come into the market, will lead to still more diversion away from the goods which we use in our homes, towards goods for developing the Empire and armaments. There is no doubt that the savings we need and the diversion are greatly inhibited by lack of incentive, because of taxation.

I think the noble Lord, Lord Lucas, said what everyone, regardless of Party, in his heart knows: that we are grossly overtaxed, high and low. On the other hand, money has to be found, and I should welcome the noble Lord's suggestion as to where the money to replace the profits tax should come from, or which expenditure should be cut. In any case, I think we are preaching to a willing ear, because the Chancellor of the Exchequer himself admits that taxation is far too high. Furthermore, he agrees that our overheads are too high. If he wished, he could reduce the whole of the overheads of the nation at one fell blow by cancelling out these contra entries—the purchase tax and food subsidies. An enormous lowering of overheads would result. Still, that may not be what is in my right honourable friend's mind. Obviously, if the Chancellor can make economies, we have to reduce taxation in some way that will encourage the diversion of industry and the savings of the nation. That is a difficult thing to do.

There is a school of thought which says that the only way we can do it is to take a large slice off income tax. I do not adhere to that school, because, apart from the question of whether that method is just—and I have my doubts about that—it is questionable whether our balance of trade would stand the impact of what would undoubtedly be a large purchasing power released in the country. I suggest that there are more profitable alternatives. My view is that the first priority should be a greatly increased wear-and-tear allowance in industry for machinery and buildings, so that we should be more on a par with the Japanese rate of wear-and-tear allowance. Of course, I heartily agree with the noble Lord, Lord Lucas, that the profits tax is the next thing that should go, because undoubtedly it is the last straw that breaks the camel's back. I know one firm who has deliberately refrained from building a new factory to create employment in this country by making goods for export, because they think it is too big a risk, and they can allow the manufacture of their products on the Continent under licence. That is the result of the profits tax.

When we come to the question of increasing the incentive for individuals, whilst the way I am about to suggest has, I agree, a greater incentive power for savings than for increased earnings, at the same time it is not without incentive power for increased earnings. The Victorians reckoned that a man should save one-tenth of his income. I suggest that everybody in this country should be allowed to take out insurance premiums up to one-tenth of his income free of income tax and sur-tax—maybe with a top limit, which should be a substantial one. I suggest that the resulting policies, when they mature, should not be aggregated for death duties. I think that would provide a very strong incentive to save, and though admittedly the money would flow into the hands of institutions, which are not quite the same as those of the private investor, so far as the investment of risk capital is concerned, yet it is the best way I can see in the circumstances. Then, I think, the Chancellor of the Exchequer should look seriously into the incidence of death duties on private firms and private companies. Relief in that direction would also be a substantial incentive to plough back, build up and save. So much for the incentives to save.

Having got the savings, the diversions, and the balance of trade, how are we to develop the Empire, both for its resources and as a market? It is my belief that development by purely overseas capital is now out of date. One must have a strong admixture of local capital in all great development schemes. I suggest, in parenthesis, the rather bizarre thought that you cannot freely have local investment without a Stock Exchange, because otherwise investment is a one-way street: you can put your money in, but you can never get it out again. I leave that matter to be thought over. Of course, there will be no development schemes, and no market for our capital goods or our consumer goods, unless there is prosperity in the Empire. I suggest that the old-fashioned idea that Britain thrives on cheap food and cheap raw materials is to-day a complete and utter fallacy. In the world today it is the lop slice of the incomes of Governments and individuals which is spent on imported goods. If you have too low prices for the basic materials, the top slice shrinks; and the first result of the shrinkage is that development schemes are cut down arid that the imports, particularly of British goods, are cut down with them. So I hope that the Imperial Conference will set up some Working Parties to see whether there are any other commodities, other than foodstuffs (where there is often a guarantee already), where some form of guaranteed prices or markets can be offered.

It is not always ourselves who should be called upon to offer the guarantees. After all, the first people who benefit by these matters are the local government themselves, and they should be the first people to put up the schemes and the guarantees. But there is no reason why we should not be called in to underwrite those schemes—indeed, it is our duty, as the centre of the sterling area, to do so. If we perform that service we have a perfect right to ask for some advantage in return. Though that advantage may not be a tariff advantage, there are various other advantages which we could be given. Up to date, I feel that the Chancellor of the Exchequer's measures to get us out of our difficulties are absolutely admirable. I merely ask my noble friend whether he will convey my humble remarks to the Chancellor, in the hope that he may find something in them worth considering.

3.45 p.m.

LORD STRABOLGI

My Lords, the noble Lord, Lord Hawke, has enunciated some startling heresies. He chided my noble friend Lord Lucas with being out of step with his Party. I shall be interested to hear what the Government spokesman has to say about the one constructive suggestion for reducing expenditure which we had from the noble Lord, Lord Hawke. We had some most interesting proposals for reducing taxation, and I applaud them all. I am always for reducing taxation—it is far too high in this country. I have been saying that for years: I said it before the war, when I first entered this House, and I used to say it in the House of Commons. But the only proposal for economy suggested by the noble Lord, Lord Hawke, was to do away with food subsidies. I understand that that is one of the tender spots in the Government's armour. They "swore blind" from every platform at the Election that they would not touch food subsidies, and, although they have only done a little in that direction, the proposal to do away with them altogether by a spokesman on the Government side is startling.

LORD HAWKE

I think the noble Lord should couple it with the other side of the picture. The two entries cannot be considered separately.

LORD STRABOLGI

I said that the noble Lord had made a number of interesting proposals for reducing taxation, but that this was his only suggested economy.

We hear a lot about the new Elizabethan age, the merchant adventurers, and so on. The gentlemen adventurers of the first Elizabethan age had a great danger to face when they went on their expeditions—namely, that if they were caught anywhere in the new world, in the Western hemisphere, they had to face the Spanish Inquisition. To-day the merchant adventurers of the second Elizabeth, if they are successful, or if they are caught (put it how you like), have to face the Whitehall Inquisition, the Inland Revenue Inquisition. Which is the worse I really do not know. At any rate, the gentlemen adventurers of the first Elizabeth did build up some very great fortunes by that private enterprise which so appeals to my noble friend Lord Lucas. I agree with the noble Lord. While 80 per cent. of our economy is dependent on the capitalist system, we must try to make it work. My complaint against the Government is that they are not giving it a chance. The Conservative Party are supposed to uphold, support and defend the capitalist system and the Church. They defend the Church, but they do not defend the capitalist system—they do not give it a chance. The ordinary, lieges, while they are waiting for a welcome change of Government, are going to suffer in the process.

What I find so curious, and, indeed, alarming, is that, apart from the noble Lord, Lord Hawke, in all these debates which we have had over a series of years now in various Parliaments, under two different Governments, on the sad plight of the economy of Britain, I have never been able to discern a constructive plan. I have been unable to discern a constructive plan at all, with one small exception, in the speeches from Government Benches in recent debates. The one exception—which reminds me rather of the man who had to economise and who gave up taking Punch—is the cutting down of the Civil Service by 4,000 bodies. Of course, everyone always says that the Civil Service is swollen and too big; and bureaucrats are always unpopular. But I saw in the evening paper in the Library, on my way through to this Chamber, a headline saying that the Civil Service are demanding an increase of £12 million a year in salaries. I do not know that we shall be much further forward, even if we cut down by 4,000 bodies, if the remainder are to get another £12 million in salaries. I do not see where the economy comes in there. Indeed, I feel like the poet Omar Khayyám in the Fitzgerald translation: Myself when young did eagerly frequent Doctor and Saint, and heard great Argument About it and about: but evermore Came out by the same Door as in I went. I never find the plan.

While it is easy to say that we should economise, no one else suggests what the economies should be. I am going to say that before we are through with this business we shall have to adopt all the economies anyone can think of. I believe that we are in a very serious position. If it is a fact that the Chancellor of the Exchequer cannot reduce taxation, as he has said, and if he admits, with all his unique knowledge and advice, that taxation is too high, then our situation is desperate and we shall have to find means of making economies, not only in armaments, as my noble friends on these Benches say, but also in all directions, as the noble Lord, Lord Hawke, and others have said. I think we shall have to face up to that.

The question of incentives has been mentioned, and Lord Hawke pointed out that the British manufacturer is given too meagre allowances for wear and tear of machinery and buildings. I entirely agree. But he is also given much too meagre allowances for replacements of machinery. As the noble Lord, Lord Hawke, said and also as my noble friend said, it is perfectly true to-day, with, of course, many exceptions, that a great many manufacturers in this country are not replacing their machinery and their plant as it becomes worn out, because there is not sufficient incentive to do so, for the allowance is not high enough. The result is that our production and our whole economy is suffering. That is why we have the all-round falling off in production which has caused so much disappointment since the figures came out—the 3 per cent. fall over the last year. There are, of course, certain manufacturers, the old-established family businesses, who pride themselves on their industries, who will go to any length to keep them up to date and modernise them. I know of many such cases. But many others will be dissuaded or discouraged from replacing or modernising their plant and machinery because the incentives and rewards are not high enough.

I do not know whether the noble Viscount, Lord Swinton, is a hidden Socialist, a fellow-traveller with the Labour Party, but, failing that, if he wants to make the capitalist system work he has to encourage these manufacturers to modernise their machinery. In this we are a long way behind the Germans, the Japanese, the French, the Belgians and everyone else where the incentives are higher. If my noble friends on these Benches do not like that argument, all I can say is that until we get a change of Government we have to make the best of things as they are and encourage this Government to keep our people in employment and keep their wages up. When we come in again we can take our own steps, and I am sure that they will be very successful indeed.

Another matter which I think has been mentioned already, but which I want to stress, is that of the steel shortage. The shortage of steel is very serious indeed. I am glad that the noble Viscount, Lord Swinton, is winding up this debate, partly because he always makes a very interesting speech, and, secondly, because he has the responsibility of providing the raw materials. If I may, I want to make this point very strongly to him. The quarterly quota of steel is published, so that the exporters and users of steel know approximately what steel they can have in the forthcoming quarter. But it is published only at the end of the previous quarter. For example, the quota for the third quarter of the year is not made known until nearly the end of the second quarter.

VISCOUNT SWINTON

No. It may not be known to the noble Lord and, as a matter of fact, it is not published at all, but it does not work in the least in that way. I am sure the noble Lord is not misrepresenting the position at all, but actually I fixed the allocation for the first quarter of next year some weeks ago. It has been fully approved by all my colleagues, and it is then sent out to industry. But, in addition, every Department has a right to allocate forward at least 70 per cent. of what it has had for the previous quarter.

LORD STRABOLGI

I am afraid we are rather at cross purposes. I am talking of the user of the steel. He does not know in time how to plan ahead.

VISCOUNT SWINTON

Yes, he does, with great respect, because the Department sub-allocate the moment they get their allocation.

LORD STRABOLGI

I will give an exact case where there is difficulty at the present time. Perhaps it is not a vast industry, but it concerns the erection of stands for the Coronation. It will use a great amount of steel, and the people who have the responsibility for putting up these stands—which is important, after all, for the visitors who will come to London for the Coronation—do not know what steel they are going to get.

VISCOUNT SWINTON

With great respect, that must be nonsense, because I have taken the greatest care to assure the Ministry concerned that they will have all the steel which is required for the stands at the Coronation. They know that, and I have no doubt that every contractor who receives an order knows it. It really is not true.

LORD STRABOLGI

Perhaps the noble Viscount will allow me to send him certain correspondence which will bear out what I say at any rate in part. We may both be right, but if the noble Viscount will look into that matter he will save a great deal of inconvenience and trouble.

VISCOUNT SWINTON

It would be dealt with more quickly if the noble Lord sent it direct to the Minister of Works, who is the Minister in charge.

LORD STRABOLGI

The correspondence originally came from the Ministry of Works, but as the noble Viscount and I seem to be at cross purposes I will send it to the Ministry of Works, and I will send the noble Viscount a copy if he will read it.

VISCOUNT SWINTON

Yes.

LORD STRABOLGI

I have substance for what I say, and I hope the noble Viscount will not take what might appear as a criticism amiss.

May I remind your Lordships of what is the real cause of our present troubles, or the main cause? It is not the fault of this Government, and it is not the fault of the last Government. The main cause of our trouble is what is called the cold war. Until that cold war can be resolved, I do not see much hope for world recovery. I believe that the cold war is hurting us more than it is hurting the people it is supposed to injure—Russia and her allies and associates. To begin with, it is hitting our trade very badly indeed. To give just a small example—rubber to China. We are not allowed to send rubber to China because it is strategic material. But the Government of Ceylon, quite legally and properly, have just entered into a big barter arrangement with the Pekin Government of rice for rubber. Therefore, the rubber which should have come from Malaya and gone through Mincing Lane and helped to pay for our imports, now goes through Ceylon from the Ceylon Government direct. May I give another example? We are not allowed to send a great many articles to China which, after all, is going to be an immense market in the future. The Chinese are numerically the greatest people in the world, and they could undoubtedly absorb a great many of our capital and manufactured goods. The Japanese are allowed to deal in many articles that we are prohibited from sending to China from this country at the behest of the American authorities in Japan. We lose the business, and the Japanese gain. No doubt the Chinese lose also, because they pay more for the Japanese goods than they would for ours. They would buy from us if they could. That is only one example.

This cold war in commerce is deadly for this country. We have to find markets wherever we can, and in the past we never allowed politics or religion to interfere with our commerce. As I have said before in your Lordships' House, in the past we have dealt with cannibals, with infidels, with Moslems and with everyone else, without going into the question of what sort of Government they had. We have to do that as a trading people. We are not a naturally great Power; we have not great natural resources and huge land masses. We have to depend on our brains, skill, wits, energy and enterprise. If we are hampered by politics, as we are under the cold war, in the end it will ruin us. Secondly, of course, the cold war leads to an immense expenditure on armaments, which uses up the steel and metals required for our industry, uses skilled men and leads to terribly high taxation which the noble Lord, Lord Hawke, my noble friend Lord Lucas and I have all deplored. And, of course, it leads to a general unsettlement and uncertainty in the business world. This is not a foreign affairs debate, and I do not want to make it one, but I believe that that is the foundation of our present troubles; and it our present troubles are not decreasing I am afraid it is due to that. If the Government have any real proposal that might improve the situation, I shall be glad to hear it, and I hope that the noble Viscount, Lord Swinton, will be able to tell us more than another place was told in the two days debate which has just been concluded.

There are certainly signs at present, not perhaps of slump, but of recession. There is to-day serious unemployment in the docks—we know that. There is a falling off of shipbuilding, which a year ago was flourishing; we now have 200,000 tons less shipbuilding on the stocks than we had a year ago. There is also a falling off in the demand for shipping: last month we had 290,000 tons of shipping lying idle. These are signs, in addition to the well-known sign of the buyers' market, that matters are not improving.

I mentioned just now the effect of the cold war on our trade, and I must return to that subject for one moment. What alarms me is that the cold war is causing us very serious difficulty in our traditional markets in many parts of the world, where the people were used to our methods. If we delay the return of these markets to our merchants and manufacturers, we may lose them finally. I have also mentioned the cases of Ceylon, of rubber, and of Japan and the semi-strategical goods that she sends to China. There is also a vast trade going on through western Germany, a vast smuggling trade with the countries beyond the Iron Curtain. I dare say that it is very risky, but it is very lucrative. It is in many cases a trade in goods which we could legitimately and properly supply. But, as I say, these are just examples of the mischief which is being done by the continuation of the cold war; and until we can get a complete change, which may take a long time, our situation is one which requires very serious examination. No method and no measure that can help above all to encourage commerce and industry, to reduce taxation, and to improve our balance of payments can be neglected.

4.3 p.m.

LORD ROCHDALE

My Lords, the noble Lord who has just sat down will forgive me if I do not follow him in the points which he has dealt with in so interesting a manner. I certainly agree with him on one point which he made, and which other noble Lords also have made; and that is the enormous importance of the rehabilitation of our industry. I want to deal with one point in connection with that matter, which has been very much to the fore in Lancashire. I refer to the question of the scheduling of a further development area. Little has been said, except for a passing reference by the noble Lord, Lord Strabolgi, about the present trend in employment, but I am rather inclined to think that such references as have been made outside this House have at times been rather too coloured by the disastrous setback which the textile and all kindred industries had in 1951. I say "too coloured" because one might have imagined that that setback had not been foreseen, whereas I am inclined to think that some of it had been foreseen. There are those in Lancashire to-day who as far back as 1948, a time when the textile trade was still enjoying a sellers' market, realised—and indeed, voiced their fear—how dangerous was the position of some of those textile areas, where such a high proportion of the insured population was employed in one or other of the textile industries. That fear was voiced, as I say, but nothing was done.

Let me underline the point by indicating the proportion of workers employed in textiles in some of those areas. The average is over 35 per cent. of the total insured population. In some areas, the proportion is over 45 per cent. The full weight of those percentages becomes clear when one gees over the Pennines to the north and finds that the comparable figures in those areas—shipbuilding areas—are perhaps a third or a fourth or a fifth of that percentage. Yet, despite those high percentages, nothing was done. It was only in the summer of 1951, when public opinion in Lancashire realised how serious the position was becoming, that the Government announced their intention to schedule a new development area in the north of Lancashire.

I have referred to 1948, when the Party of noble Lords opposite were in power, but I have done so not with any intention of being critical in a party way. What I have mentioned is a fact. It is also a fact that the whole policy of the distribution of industry can be regarded as a non-Party policy. That policy was started in the 1930's, and the Act which the Labour Government passed in 1945 was, in fact, on the stocks before the General Election. I believe that actually it was introduced by the noble Lord, Lord Woolton, and was given a Second Reading, before the Election. But nothing was done, and it is only now that something is being done in North-East Lancashire by way of scheduling a new development area. But better late than never! Yet, though I welcome this step now, it is not far removed from closing the stable door alter the horse has escaped.

As I see it, there are two possible reasons for having a development area anywhere. The first is the original reason, which was to redress a social injustice in an area in which there had been excessive and prolonged unemployment, due to the existence of a single industry which was at that time very depressed. That is one reason. The other, and the reason which I believe is more than ever important to-day is to provide a variety of industries—I think we call it "diversification of industries"—in those areas, so that at any one time the ups and downs of different industries can be reasonably hoped to even themselves out, and so that available labour forces will be able to maintain a steady production and a steady output. This is clearly the most efficient and, in the national interest, most desirable and likely way of maintaining a high national production—which is one of the principal matters which we are discussing this afternoon. Therefore, whilst I welcome very much this new development area, and whilst I realise that there is some justification for criticisms of detail because this or that neighbouring town has not been included in the particular development area, I have my doubts whether, in present circumstances, the machinery which exists under the 1945 Act is adequate; whether it is not perhaps too rigid to deal with the circumstances as we find them to-day. They are very different from the circumstances which existed when the original Act was passed in 1945.

During the post-war boom, there were many industries that could almost be said to be falling over each other to try to find places where they could expand, where there would be available labour, and where they could get permission to build so that they could develop new plants. And here, I can speak with a certain amount of personal and satisfactory experience. In those days, there was no dearth of applicants from those who were prepared to be directed by the President of the Board of Trade into this or that development area. But now, I believe, the situation is quite different. Now, when industry is realising that efficiency and the ability to put up the keenest competition in the various world markets is necessary for our very existence, firms will think twice before starting up any new plant, particularly in view of the tremendous cost of equipment and, as my noble friend Lord Hawke and others have said, in view of the tremendous deterrent effect that the high rate of taxation may have, particularly against new enterprises. I believe, therefore, that they will think twice before they start trying to put up new plants in any particular area, unless they are absolutely certain that that area offers them, so far as possible, what they regard as ideal conditions for their particular type of industry. I am not for one moment trying to pour cold water in any way on this new development area, but what I do see is that its successful development may take longer than, and may never be quite so complete as, that of the areas which are already working so satisfactorily elsewhere in the country.

That leads me to this conclusion, and I should like to put it in the form of a question to my noble friend who is going to reply. Has the time not perhaps come for the whole policy established under the 1945 Act to be urgently reviewed, and perhaps widened? Let me give a simple parallel. Let us take the case of a road that needs mending. All the main potholes have now been filled up. The potholes that still exist are few and can easily be avoided. Has the time not come to consider the resurfacing of the whole of the road? I am aware that the President of the Board of Trade and his colleagues can exert an influence as to where in the country, whether to a development area or elsewhere, new industries should go, because they can deny or grant licences; but it is only in the development areas that my right honourable friend can give practical financial assistance—and even then he can do so only by encouragement, not by direction.

As I have tried to suggest, as attractions in potential new development areas are becoming progressively fewer, is there not a case for these development area powers, as we know them to-day, to be extended, so that the President of the Board of Trade can assist in the introduction and establishment of new industries in places outside development areas where some special and dangerous circumstances may perhaps exist? I can think of various possible circumstances, but the one in particular that I have in mind is in an area where employment, though perhaps reasonable to-day, perhaps even at a high level, may be dependent on a very narrow range of industry, and therefore always with the risk of heavy unemployment should that particular narrow range of industry have a mild recession. I am inclined to think that there may be a strong case, on grounds of that sort, for widening the existing policy. I think that is a point of view which would find support with my friends in Lancashire, who I know are pressing that the proposed development area in the north-east of the county should be extended to cover the whole of what may be called the textile belt, instead of merely the very restricted area which the President of the Board of Trade has announced so far.

The most recent issue of Her Majesty's Government's own publication Bulletin for Industry begins in the second line with these words: Industrial change is a condition of survival. I could not agree more with that statement. I believe that the ability to achieve that change, to which my noble friend Lord Hawke has referred on more than one occasion, is closely allied with this question of the distribution of industry and the whole question of development areas. I therefore hope that my noble friend will perhaps be able to offer me some encouragement in regard to a review of the whole policy to which I have referred.

4.17 p.m

VISCOUNT ST. DAV1DS

My Lords, I have attended many debates in this House, but seldom have I attended a debate in which I was so little in agreement with anything that anybody has said, including, may I add, one or two speeches from my own side of the House. One thing that I did take rather hard from the other side was the accusation that members of the Labour Party are opposed to incentives. I cannot see any reason why we should be opposed to incentives: we want to attract people into doing things. But what we on this side of the House do object to is the form of double-barrelled incentive, by which those with large incomes are given an incentive to do better by reducing their taxation so that they will have more money in their pockets, whereas, under the same Budget, those with smaller incomes are apparently supposed to be driven to work harder by having less money in their pockets. That sort of double-barrelled incentive is utterly wrong. That was done in the last Budget and, what is more, it seems to me that it was deliberately done.

It may be said that all Front Bench speeches are not necessarily in the Party line, but I remember an occasion when a noble Lord on the Front Bench of the Conservative Party suggested that more production would be obtained from the working man if furniture were made more expensive, so that he had mote incentive to work harder to buy it. If that is the system of incentives of which the Conservatives approve, I must say that I cannot go with them.

VISCOUNT SWINTON

I do not know who made that speech, if the noble Lord has quoted it correctly. It is not a statement of Government policy.

VISCOUNT ST. DAVIDS

It was made from the Conservative Front Bench. I did not mention the name of the noble Lord because he is not present in the House, but it was certainly made from the Conservative Front Bench. I remember I had considerable difficulty in retaining my seat at the time. I very nearly leapt out of it with rage, but I find that I frequently have to "stay put" and keep silent, and I managed it on that occasion.

I agree that taxation is disliked by everybody. I do not like it any more than does anybody else. If the world was differently organised I believe it would be possible largely to do away with individual taxation, but as the world is organised now I am afraid we have got to have it, because if we do away with it we then do not have the funds to pay for other things which are dearer to our hearts than the abolition of taxation. That is all there is to it: it is a matter of balancing major evil against minor evil and doing the best we can. The only taxation that I believe is thoroughly wrong at the moment is that which stops the improvement and replacement of capital goods needed for production—not merely in industry, which has already been mentioned in this debate, but especially in agriculture. A lot has been said about death duties, and so on. But death duties do not take away the capital from a limited liability company; they merely redistribute the shares. What a death duty does is to take away the capital from partnerships and individual businesses which, above all, include farms. There are very few farms which are organised as limited liability companies, and such as are so organised seldom have shares which are saleable. So when it comes to a matter of death duties the farmer generally finds that he has to sell off stock and carry on his farm on a less productive basis, a thing which should not be tolerated in these days. I believe there might be some purpose in changing the basis of death duties as regards the farm so as to put the money back into agriculture—not necessarily by cancelling death duties on the farmer, but possibly by letting him retain the money in the form of a loan attached to the farm and not to the man.

As I said, the reason why I believe that these income tax impositions on the replacement of machinery are bad is because they cut down production. For that reason I should like also to complain about the cuts which have been made, not only by this Government but, equally wrongly, I suggest, by the last Government, in the matter of the improvement of the capital of nationalised industry. In the debate yesterday we heard about the cuts that were made in the capital programmes of the electricity boards in the matter of rural electrification. Similar cuts have been made in the capital expenditure of all the big nationalised industries and this I believe to be a direct route to national bankruptcy. We must improve the machinery of production of all kinds in this country as best we can. The reason we are in our present position is, because we are lagging behind, and the only way to stop lagging behind is to get ahead with the job of recapitalisation, at almost whatever cost. The present Government could considerably help in the recapitalisation of our industry also if they would reverse some of their policies in regard to the building programme. I personally greatly applaud the building of more houses. Obviously it is a splendid thing; we want more houses. But it is a terrible thing to do that at the expense of building more factories.

VISCOUNT SWINTON

We are not. However, I will deal with that.

VISCOUNT ST. DAVIDS

I understood that you were.

VISCOUNT SWINTON

We are certainly not, and I will give the facts to prove it.

VISCOUNT ST. DAVIDS

I am very thankful indeed that you are not. If the noble Viscount says that, I am sure he is right. Another form of capital cut which is thoroughly bad is of course the cut in the building of schools. Education is as much a necessary tool as anything else in such a highly complicated industrial society as this country has. You cannot run a complicated machine or build up production unless you have well-trained men to do it, and I believe that in cutting the school building programme this Government is committing what is, in fact, a crime. Quite apart from the individual angle (upon which perhaps I should not speak in a debate on economics, although almost anything is in order in your Lordships' House) it is surely a method of mortgaging the future if we stop building schools at the present time.

Now I should like to say a word about the textile slump. Here I must admit to having some interest because I am concerned in textile manufacture. I do not believe that the textile slump had really very much to do with textiles as such. I believe it was part of the troubles caused by the deflationary tendency, admittedly started under the last Government, which has been carried on and intensified by the present Government. As your Lordships know, if you have less money in your pocket and you find that you have to cut down on something, the first thing you do is to put off buying a new suit. That, I believe, is the whole story of the textile slump. When people found they had not quite so much money in their pockets the first thing that they cut down on was textiles. I believe that the only way to reverse that slump in the long run is to reverse the present deflationary tendency.

In regard to the matter of putting new industries in development areas, I was glad to hear Lord Rochdale say that he thought the Act, he said of 1945, but I believe it was actually 1944, was inadequate. I remember the circumstances of that Act very well. As originally drafted, the Bill contained considerable powers to finance new businesses in development areas. Indeed, it costs a lot of money to bring a business into a development area. I have personal knowledge of that because I have set up a business in such an area. When a business comes into a new area it finds that there are no workers who are trained to carry on its particular processes, and before the business can become efficient it has first of all to train every single worker that it takes on. The cost may well be in the nature of £100 a head, and that cost falls entirely on the new industry coming into the area. It would not fall on that same industry if it were set up in the old area where that industry normally belonged. In other words, it is a sum entirely resulting from that industry going to that place, and not a sum which is retrievable by any normal business means. It is a pure loss.

When the Distribution of Industry Act first came in, powers were given to the Treasury, acting on the advice of the Development Areas Treasury Advisory Committee, to make grants to businesses going into such areas, in order to counteract that particular trouble. But the friends of noble Lords opposite, who at that time, in 1944, were in a majority in another place, removed those powers. I realise that the noble Viscount, who is to reply, if he knows the Distribution of Industry Act, will get up and say that powers to make grants still exist. But if he will take the advice of the Treasury solicitors, he will find that owing to various cuts made in the Act, though the word "grant" still remains, there is no power to make grants, and no grant has in fact been made. If Her Majesty's Government really wish to bring about a better distribution of industry they might consider revising that Act so as to make it possible to give grants, so that the new businesses going into these areas would not suffer from these particular difficulties.

I do not wish to speak for very long, but I should like to return to the charge upon one matter with regard to which the noble Viscount, Lord Swinton, and myself have already been rather at logger-heads in a previous economic debate. That is the matter of the bank rate. I know exactly why the noble Viscount's friends raised the bank rate. It was an action taken exactly in line with what is laid down in the old banking text-books. I have been reading one such work; it was not a Socialist text-book. I recall that the noble Viscount rather accused me, in the last economic debate, of reading only Socialist text-books on the subject. This, as I have said, was not one of that kind. It is a work which was written by a banker in the year 1929, and it tells me exactly how a country increases it; supply of gold by increasing the bank rate. There is a certain amount of truth in it, but of course circumstances have changed since those times. We are now far more dependent on our solid exports than we were then. What is more, market margins are much smaller, and competition is much keener than it was at that date. The fact is that when you put the bank rate up you make all production in the country a fraction more expensive. That is a fraction that we cannot to-day afford. If you put up the bank rate, of course, you put up the price of all other borrowing in the country. That means that you put up the price of money; and this, in the end—and it is not a very long process—means that you put up the price of every manufactured article.

I could cite quite a number of examples in support of this point, but I do not want to make a long speech, for there are a number of other speakers to follow me. I cannot see why noble Lords opposite continue to hang on to this bank rate: it is doing harm; with the restrictions in overdraft, it is killing small industry. The only people it does not hurt, of course, are the really big companies, which are able to expand or contract in a way which the small companies cannot, and, of course, certain financial gentry The banks say they do not get this extra money. I am not sure that I take the bankers' advice on economics, but certainly I will believe the chairmen of the major banks when they say they do not get it. I am sure they know their own figures. But the fact is that something like £100 million is going into someone's pockets. It is going into the pockets of various financial gentry. It is a lot of money, and one of the reasons why these gentry are so rich is that it is going into their pockets. This is doing harm to the entire industry of this country. The only people it seems to be helping in any way are various people who may have helped to finance the election of the Party of noble Lords opposite.

4.37 p.m.

LORD FAIRFAX OF CAMERON

My Lords, I should like to join with the noble Lord, Lord Hawke, in saying a word of welcome to the Conference of Commonwealth Prime Minister's. This gathering, to my mind, is part of the second half of our recovery effort. The first half, the stopping of the immediate and disastrous drain upon our resources, has been achieved successfully; and this is the second part, or part of the second part, to restore once again our strength.

May I say a few words to your Lordships with respect to trade within the Commonwealth and with Europe? I believe that if production is flagging, or not increasing as fast as it might have been expected to do, it is due as much as anything to flagging trade outside this country. I believe that trade has flagged in the world to-day. Trade is flagging everywhere. It has done so particularly, I think, in Europe and in the Commonwealth. For that, one might partly blame import restrictions, but I believe that a great deal of the blame must be laid also upon the increased competition for existing markets.

The Conservative Party manifesto of a year ago stressed the need for expanding trade as part of the Government's programme, and it is only natural that Her Majesty's Government should look to the Commonwealth, first and foremost, in seeking to achieve that, and that they should make that the basis of their efforts. But I believe that Her Majesty's Government and the Conference of Commonwealth Prime Ministers should also include, or try to include. Western Europe in the measures which they set out to put into operation. Obviously, one cannot draw the Western European countries into the Commonwealth Conference. But one can at least bear them in mind in forming a plan, so that one can see them and deal with them afterwards. I believe that in our efforts to expand trade we must not only look within the Commonwealth but also must consider Western Europe as a whole.

I believe that the economic position of the Dominions has changed quite a bit in the last twenty years—one may almost say since the time of the Ottawa Conference—and I think that two things have happened. First of all, there has been a growth of secondary industries in some of the Dominions, particularly during the war, and since die war (the most notable case, I think, is that of Australia) and there is a desire to protect these industries. That is something which is comparatively new. A second thing which I believe has happened is that the Dominions, not unnaturally, tend to regard the United States as the economic and financial hub of the world, and they tend to give rather mo-e attention and weight than they did before to the opinions and desires of the State Department. Perhaps they also show an understandable desire whenever possible not to disagree with America.

In the last twenty years the Dominions have developed a number of economic connections outside the Commonwealth, and these are new factors which we must take into account in considering trade with the Commonwealth and what the pattern of that trade is to be in the future. I saw a statement in the Press some time ago that Pakistan had declared that she did not intend to have any more Imperial Preference. Australia has a number of new secondary industries, as the noble Lord. Lord Lucas, mentioned last week, and she is much more interested in protecting these industries than in preferential arrangements for selling the goods of other countries in her own markets. That is something we have to understand and accept. Canada is closely linked to the United States in a variety of ways and, in any case, is outside the sterling area. The Dominions have these new developments of their own and have made arrangements of their own, and, frankly, I do not think we are going to get much from them in the way of preferential agreements, however much some of us may regret it.

I do not believe it is now easy to reconstruct the preferential system of markets within the Commonwealth. If the General Agreement on Tariffs and Trade—G.A.T.T.—is discusses at the Commonwealth Conference, there can be no doubt that there will be some different views upon it. No doubt some may not think it in their best interests to modify the existing arrangements. It is our special responsibility in Great Britain, while giving full weight to our own requirements, to bear in mind the requirements of the other nations in the Commonwealth. I agree that since the war tariff preferences have to a great extent become redundant. There has been a system of exchange control, which is the most powerful preferential system one could have. Secondly, during the war and since there has been a growth in the system of long-term contracts, particularly with primary producers in the Dominions, who probably prefer long-term contracts to any other means of assuring them a market. Thirdly, there has been the imposition of quotas to control trade instead of tariffs. Finally, there has been the sellers' market, which made it easy to sell any goods we had, but that situation is changing. I believe it is harder to alter G.A.T.T. now than it has been at any time in the past.

Another point we have to take into account is that the economic policies of many countries have been framed with the existence of G.A.T.T. very much in mind, and have been made to fit into the restrictions and safeguards that exist under that Agreement. If we now destroy G.A.T.T. completely, we do not know what else we may be damaging in the process. It may be a jump in the dark. I find it easy to understand those who say that we should leave G.A.T.T. alone, but I do not think we can do that. I believe it is impossible to leave G.A.T.T. where it is, unmodified. For example, I saw a paragraph in last Friday's Daily Telegraph to the effect that the most-favoured-nation clause is to be waived for the Schuman Plan countries in respect of coal, steel and semi-manufactured goods. So far as I gather, that has been agreed, and a spokesman of G.A.T.T. said that the clause was likely to be waived. It was quite a definite announcement. Of course, that is a complete breach of G.A.T.T. It is something which every member of G.A.T.T. has to take into account, because it means that the Schuman Plan countries can put a tariff wall round themselves, and we shall be on the outside. Already the steel productive capacity of the Schuman Plan countries is nearly four times that of the steel production of the Commonwealth.

LORD LUCAS OF CHILWORTH

My Lords, would the noble Viscount, Lord Swinton, be good enough either to corroborate or correct that? Because, if it is true, it is a very serious statement.

VISCOUNT SWINTON

I think it would be convenient if I spoke presently.

LORD LUCAS OF CHILWORTH

I mean, when the noble Viscount winds up.

LORD FAIRFAX OF CAMERON

I should be grateful if the noble Viscount could enlighten me upon that. The fact is that the Schuman Plan countries are already very strong. If it is true that the most-favoured-nation clause is to be waived in respect of these articles for these countries, that is going to place us and the Commonwealth at a very considerable disadvantage. I do not believe that we can leave the situation like that.

The second reason why I feel that some modification of G.A.T.T. ought now to be made is the need for greater protection for some British goods within the Colonies, particularly for textiles. The difficulties have been due in part to the difficulty of selling in the Colonies in competition with Japanese goods. There should be some sort of protection, so that we can sell our higher-priced goods in competition with lower-priced goods. At the moment, that is impossible other than by the imposition of quotas, and I do not know how effective they are in protecting our own products. While considering our attitude towards G.A.T.T., I think it is important to differentiate between modifying G.A.T.T. and sweeping the whole of it away. I am certain that when many people talk about sweeping G.A.T.T. away altogether, they mean in their own minds modifying it. I think it is dangerous to use the wrong term, because it is apt to destroy the confidence and good will that is essential between the nations when dealing with this matter.

I hope that the Commonwealth Conference may be able to agree on limited modifications of G.A.T.T., so as to allow low tariff areas in the British Commonwealth—for instance on the same lines as the Schuman Plan—and in that way enable us to give protection to certain specified goods in certain areas. Of course such a system would not embrace the whole Commonwealth. Secondly, I think it is desirable that the making of secondary tariffs should be permitted between us and other Commonwealth countries, if they so desire, and with European countries. After all, the European countries are important to us; we are very close to them, and we have to work in with them. I feel it is desirable, if there are to be low tariff areas here and on the Continent, that there should be secondary tariffs on both sides between the two areas. That, of course, can be achieved only by waiving the most-favoured-nation clause.

This particular subject is a very controversial one. What I advocate is local modifications of G.A.T.T.—because I think that G.A.T.T. has to stay and I can understand why countries like the Dominions I have mentioned must, for the reasons which I have indicated, stick to the present arrangement. But I believe that the British Commonwealth is large enough to permit different parts of it to do different things, and large enough to accommodate the various needs of its members. We should not all have to do the same things always at the same time. We should be able to understand each other's problems, and should be able, by agreement, good will and confidence in each other, to do the things we most particularly desire to do for the satisfaction of our needs. I believe that most of all the Commonwealth can accommodate this, because it is not founded basically upon an economic pattern. It is based upon something much greater and deeper, and more spiritual than that. It can allow of different directions in these lesser things, such as economy and finance, yet still stick together and be the great thing it has always been in the past.

4.54 p.m.

LORD SALTOUN

My Lords, I should like to express to the noble Lord, Lord Lucas, the pleasure with which I heard the remarks he made this afternoon. He preached, if I may say so, upon the old text, that The Devil was sick, The Devil a monk would be. But he has added himself to the noble Lord, Lord Quibell, and the noble Lord, Lord Ogmore, both of whom often make speeches which find great acceptance on this side of the House. I hope that the noble Lord, Lord Lucas, will long continue to do so. It is quite true that the noble Viscount, Lord St. Davids, restored us to politics again, but I hope, at any rate so far as the noble Lord, Lord Lucas, is concerned, that when The Devil is well it will not be a case of The devil a monk was he! With what the noble Lord said about the weight of taxation I entirely agree. But there is another factor which, in my opinion, is at least as important, and possibly more so—namely, the complication of our system of taxation. Income tax and cognate law is so complicated that in some cases men cannot tell whether they owe tax or not. It is so complicated that there are many points which are known only to men in the Department, who have spent their whole lifetime in the Department. As far back as twenty years ago I heard the Department compared to the College of Jesuits, who had inherited teaching in theology, which makes them more able theologians than anyone else in the rest of the world. I say that a man has a right to know clearly for himself, in the ordinary case, whether tax is due or not. It is a necessary thing for industry, because industry is not planned from year to year; it is planned for years ahead. A man ought to know more or less the system on which he will be taxed in future years, and not merely for one year.

In spite of all these considerations, Governments, one after the other, have avoided the task of codifying the law. One of the reasons we are given is that the law is constantly changing. We are told that it must change to meet evasion. The result of that is that not only has our industry to carry the burden of this enormous Old Man of the Sea, but the old man is constantly kicking and throwing his weight about, so that poor Sin bad is at times compelled to stand still. The noble Viscount who is to reply for the Government in this debate knows as well as I do that all trade and industry come to a kind of standstill three months before the Budget. I suggest that for sound finance—and this is not me, but Bastable on Public Finance, who will be out of date, no doubt, when reason goes out of date, but not before—the taxing Statutes should be as simple as they can possibly be made; they should not readily be changed; and the Chancellor's needs should, in the main, be met by raising, or, when possible, lowering the rates of existing taxes.

As to evasion, evasion differs. Some evasion is apparently considered legitimate, and other evasion is not. I do not know whether I should say so, but I have heard the Law Officers of the Crown in another place describe, with more or less accuracy, and denounce an avoidance of tax, which later on the Law Officers of the Crown described as an innocent transaction, for which the perpetrators would have been blameworthy had they failed to carry it out. So the Law Officers of the Crown on the same transaction are not always consistent. But, seriously, I think that too much is made of this danger, possibly for political reasons. I suggest that, so far as possible, we should put taxation questions out of politics. For in a land where some 4,000,000 people have, without any blame, avoided excessive hours in their regular occupation in favour of gainful employment in some outside occupation, in order to avoid P.A.Y.E., I think perhaps we can now learn to take a more reasonable view of this matter. If we codified the law as it stands at present I do not believe very much serious evasion would be possible. But there certainly would be some evasion. For when the burden is intolerable and unfair, it is then that people go to great lengths to avoid it. Commerce has long made a habit, like nature in our bodies, of building a cyst round some objectionable body, and so sealing it off. But where the tax is constantly changing it becomes a kind of cancer which in the end will devour the body on which it feeds.

5.0 p.m.

LORD SHEPHERD

My Lords, I wish to deal in the first place with the subject which has been raised during the course of the debate—namely, taxation. I then want to say something about the present financial position, not only in this country but in the world. Then I wish to make a reference, which I hope will be helpful to the noble Viscount who is to lead from the other side, concerning raw materials. I hope that in so doing we may be able to conclude the debate upon issues which are of real importance and which may be useful to us all in the information which may be forthcoming.

First, as to taxation: I believe we are all agreed that if more taxation is being levied than is actually required for the good government of the country, something should be done about reducing it. It does not, however, follow that high taxation is necessarily bad or evil. If the taxation, although high, is being properly and profitably spent, then it may be a good thing for the country as a whole that we should do collectively for ourselves some of the things we cannot do as individuals. Now if there is a view on both sides of the House that we are levying too much taxation to-day for the well-being of our country, and if there is a suggestion that we should co-operate in trying to bring about a cessation of the taxation that is unnecessary, I do not think we should be unwilling to participate therein.

High taxes at the present time have been rendered necessary for three reasons. Out of every pound that the Chancellor of the Exchequer took from us last year—I am now quoting old figures that I myself have used—9s. 6d.was spent on rearmament and armaments and on the payment of interest on the National Debt. Almost 50 per cent. of the whole of the taxation of the country is spent in that direction. The second item of expenditure has reference to the social services—the services whereby we are trying to lift the people of this country from the C.3 condition we used to hear so much about during the First World War. The amount spent upon that comes to about 7s. out of every pound. The third item has reference to the general expenditure of administration and the like, amounting to about 2s. 6d. Now will those who demand, in season and out of season, without specifying proposals, that taxes must come down, please tell Her Majesty's Government and Her Majesty's Opposition on which of those three categories they want the reduction to take place? If that were done, and we then examined the taxation that we levied, we should be on the high road to helping one another, as Parties, to bring about a proper state of affairs.

I want to make one additional reference, arising out of something said by the noble Lord, Lord Hawke, and a matter dealt with by my noble friend, Lord Lucas, concerning incentives to manufacturers and others who want to renew their industrial plant and find themselves in difficulty about it. My first point would be a question: Are manu- facturers the only people in the country to receive support of this kind? Are they the only people who have to renew either themselves or their plant? I venture to believe that if we examine the position of every man and woman in this country engaged in work or in business, we should find that they all have a similar problem.

The manufacturer is thinking about his factory, about his machinery and about other implements of his trade. But the workman whom the noble Lord opposite, Lord Rochdale, knows quite well, the cotton operative, has also to think about maintaining the human machine in being. What is more, he has to think about the renewing of that human machine through his family for manufacturers who are to come. The manufacturer gets a gross profit, out of which he makes his payments, and the human machine receives a gross wage, sometimes with help from the State. But out of their respective shares they have to provide for the renewal of their machinery—either that which goes into factories dead or that which goes into factories alive. I do not believe that there is a real reason for increasing the allowances paid for these purposes unless a proper case is put up. Moreover, I think it would be found that if most of the cases were examined, they would be refused any benefit of taxation for that purpose. There are a few cases, however, that are entitled to consideration. A firm may have been engaged in an industry before the war, or before our present troublous times. The amount of money the firm put by each year was quite sufficient then for the renewal of machinery, but they now find that, because of other difficulties, they cannot renew the machinery under the new conditions. Where there is a case of that kind it ought to be examined. Whether relief is given by means of payment to enable the machinery to be paid for if bought, or whether it is given by relief of taxation, is a matter for decision.

If you grant relief from taxation as an incentive to enable a firm of manufacturers to improve the efficiency of their works, it does not follow that when the relief has been given the benefits will be seen in an improved factory. I am old enough, I am sorry to say, to remember the day when income tax in this country was 6d. or 8d. in the pound, and I remember quite well income tax being raised to 1s. in the pound. One would have thought that in those days every manufacturer had sufficient money to renew his machinery or improve his factory every year, if he wanted to do so. But in those days, despite the fact that income tax was very low, we were being beaten out of the markets by the rising German production, by the American production and by the Japanese production. In my early days the Party opposite—because of the circumstances resulting—had to run a campaign in favour of taxation by tariffs, in order to make the foreigner pay for his footing in this country. If, therefore, under the new dispensation, we are going to do something for manufacturers who wish to renew their businesses in this way, we shall have to be very careful that the money allocated by the State is spent for the purpose for which is was given.

The second part of my remarks has reference to the condition of affairs in which we find ourselves in this country and in the world generally. When this Government came into office they inherited a condition of affairs that they did not like—noble Lords opposite are continually dinning that into our ears. But it is also true to say that when the Labour Government came into office, in 1945, they found a condition of affairs which they did not like either. The nation was almost in a state of bankruptcy. We had been living on a basis of Lease-Lend, and all at once Lease-Lend was withdrawn from us, and we did not like it at all. I would make this prophecy: that when the next Government take office they in their turn will not like the condition of affairs in which they will find themselves. The reason is that the evils of our time affect not only our own country; those evils are affecting every nation in the world. And we can no more build up great prosperity in our own country, regardless of what other nations do, than we can cause this country to fly to regions where there is a better climate than ours.

The present Government have proceeded on certain lines. First they decided, almost as soon as they came into office, that they were going to stop a considerable quantity of imports coming into the country because the country could no longer pay for them. They also decided that they would raise the bank rate as a means of stabilising finance. Later on, in the Budget, we found that further steps had to be taken. Further embargoes were placed on imports, and the bank rate was raised to 4 per cent. We have to ask ourselves at this moment whether the action taken by the Government is good for the country and good for our trade with foreign countries. Let me make this admission at once. If the Party to which noble Lords on this side belong had continued in office, we ourselves should have had to restrict imports, and we ourselves might have been compelled to raise the bank rate. But I think that if we had continued in office we should have made sure that our proposals were not entirely on the negative side. We should have thought out proposals of a constructive character, which would have enabled us to build up our trade and commerce with our Commonwealth and with our competitors in other parts of the world.

It may be—and I am making this observation for the express purpose of asking a question—that Her Majesty's Government at this time are thinking out ways and means to develop our future prosperity. If they are, we on this side of the House shall be very pleased to hear from the noble Viscount to-night some of the proposals which the Government have in mind. All we know at the moment is that under the present negative condition trade is declining; there is a fall in production profits are showing some tendency to decline there will be a failure of tax revenue; there is a fall in demand, and there will be a growing unemployment problem arising, due to lack of purchasing power.

My next question to the noble Viscount is this: Assuming that he is right that we should have followed the same line as this Government have done, are Her Majesty's Government trying to do what I am certain we should have tried to do to construct a new order of things? The noble Lord, Lord Saltoun, made a suggestion, I understand, that I should not introduce politics into my speech. I am going to do so only once, and I hope to do it quite inoffensively. We on this side of the House believe in the co-operative form of society, and especially that form of society which has reference to production and distribution. As I understand it, the Party opposite think in a contrary way. They believe in competitive enterprise: not in co-operation but in competition. If that be a fact, I want to express this view, and then I shall have finished with anything in the nature of polemics in this speech. I cannot think that the present Government, if they play up private enterprise, are going to take us out of the difficulties in which we now find ourselves, because in the nature of things the trade and industry of the world will have to be on a co-operative basis, and must not be carried out by men and women clawing at one another's throats. It is essential for the prosperity of business that those engaged in it should produce enough—or, if your Lordships prefer another word, should produce "a sufficiency." Under a competitive system it is quite impossible to do that. A competitive system of enterprise can produce too much or too little, and it can continue to produce too much for a long period or too little for a long period. But to keep on the even keel of a sufficiency is beyond its power, because to do so society must have knowledge of what the people require, and the ways and means by which those requirements are to be met. Under competitive enterprise, where businesses are fighting for their own hands, the acquisition of information of that kind is out of the question.

Now I want to turn for a little while to raw materials. After all, we have the Minister of Raw Materials here. He is a man whom we greatly honour, but that does not mean that we must always agree with him, and it may well be that in future we shall disagree with him just as frequently as in the past. But we are anxious that in this matter, at any rate, he should be successful in providing the manufacturers and others of this country with the raw materials which are and must be the basis of our industries. I have here one or two figures that I want to give your Lordships. In 1949 the importation of raw materials was at the rate of 64.5 per cent. per month.

VISCOUNT SWINTON

64.5 per cent. of what?

LORD SHEPHERD

I will put the other point first if I may. The year 1947, in this importation of raw materials, was taken as measuring 100. In 1949 (that is, the year in which we were compelled to revalue the pound) our imports of raw materials were £64.5 million. In 1950, they were £83.1 million and then in 1951 they rose to £142.9 million, showing a very large and definite increase.

LORD HAWKE

Is the noble Lord quoting the terms of volume or money?

LORD SHEPHERD

Both. The figures I am quoting are taken from the Digest of Statistics; they can be seen there. They are an estimate provided by the Government as to what the imports of raw materials were in those years.

LORD HAWKE

But in volume or in money?

VISCOUNT SWINTON

Are those figures in volume or in money?

LORD SHEPHERD

In both. There has been a proper allowance made in this particular column whereby the years can be compared side by side, because prices varied in the respective years. I want to compare the figures I have given with some recent figures. In June of this year, from 142.9 the corresponding figure has come down to 108. In July, it remained at 108. In August of this year it came down to100, and then in September of this year there was a further reduction to 96. There is an indication that raw materials are becoming short in this country, comparatively speaking. I am quoting those figures because I am going to ask for information concerning the figures and concerning our fear that we are likely to lose ground in raw materials. We are most anxious to know what is the policy of the Government respecting raw materials, whether we are really going back to competitive enterprise, as we have done in several cases, or whether we are going to act as Her Majesty's representative indicated in June at the United Nations Conference called for the purpose of considering these matters.

It may interest noble Lords to hear a short quotation from a speech made by the noble Earl, Lord Selkirk, who, it will be remembered, represented the Treasury in the United States at that time. This is an extract from a report of his speech: Another disquieting factor was that violent swings and lurches in the balance of international payments had occurred, not as the outgrowth of changing phases in the trade cycle, but while the general level of activity in most countries had been high and reasonably steady. It then went on to say: No one really gained, and everyone lost, by wild swings in primary product prices, and Lord Selkirk suggested consideration of the idea of long-term stabilisation agreements on the lines of the wheat agreement, although not necessarily using the mechanism of that agreement. My Lords, we are very much in line with the noble Earl in that statement. We believe that if the raw materials of the world, which are short, are to be available everywhere, their supply must be organised and their distribution ensured. We believe that it can be done by these long-term agreements such as the noble Earl spoke of in New York, and upon which he was undoubtedly primed by the Treasury. As I understand the noble Viscount, we are going back on those conditions, we are restoring competitive enterprise, and whether we get the products or not will depend on our ability to pay in the markets that are being established for the purpose.

I want now to take that point a little further. As I have already spoken for a fairly long time, I shall probably conclude when I have finished this point.

VISCOUNT SWINTON

No, please continue.

LORD SHEPHERD

In another place yesterday, the Chancellor of the Exchequer made a statement arising out of a speech made on the previous day. The statement was to this effect [OFFICIAL REPORT, Vol. 507, Col. 772]: While stocks of particular commodities have varied considerably over the seasons, as they always do, nevertheless total stocks of imported food and raw materials in this country have been rising steadily ever since we took office. The first point on which I should like some explanation is why food and raw materials are put together. Can they be separated, so that we may see whether there is a balance between the two or whether the increase is predominantly in one or the other? Another extract from the OFFICIAL REPORT in another place to which I should like to draw your Lordships' attention serves the same purpose. Mr. Gaitskell said [Vol. 507. Col. 788]: … raw material imports… have fallen some 16 per cent. in value, whereas food imports have fallen about 3 per cent. and manufactured goods about 1 per cent. If we look at the raw material imports and the changes which have been taking place, we can see at once what the large items are. Out of a total reduction of imports for these nine months of £229 million, no less than £200 million is accounted for by the fall in the imports of raw cotton and raw wool. These are very striking and remarkable facts. If one looks at the quantity figures as shown in the Board of Trade Journal, where there is a comparison for the first nine months with the average of 1951, the quantity reductions are 30 per cent. for soft wood, 40 per cent. for cotton, 42 per cent. for cotton piece goods and 17 per cent. for wood pulp. I should like the noble Viscount, if he would be willing, to enlarge upon that matter, because if it be true that stocks of food and raw materials taken together have shown an increase, and if it is clear that in raw materials there has been a great reduction in imports, is the general level reached by a larger importation of food, despite the falling importation of raw materials, or vice versa?

I have one other point, and then I will finish, and it has reference to the European Payments Union. It will be remembered that when the European Payments Union was first established, large payments of gold were made by European nations to this country, and in view of our shortage of gold and dollars those payments seemed a heaven-sent thing to the Chancellor of the Exchequer. In actual fact, was the payment of gold by European countries to Great Britain a sign of the strength of those countries, or was it an indication of their weakness? We now know that it was an indication of their weakness, because they had to take steps immediately to rectify the position, and they protected themselves against the exports of this country. Moreover, we at the same time decided on a holiday from rationing by the importation of a good deal of meat and other commodities. Therefore, during the past twelve months, instead of receiving gold from Europe we have actually been paying out gold to meet our excesses. Again, I ask this: Was the payment of gold by Great Britain to Europe a sign of our strength or a sign of our weakness? I venture to say it was a sign of our weakness. We should only do it because we were compelled to do it.

Finally, I want to suggest to the noble Viscount, first, that a Labour Government might have followed their line in curtailing imports, and we might have done so also respecting the bank rate, but we should have made constructive proposals, too. What are the constructive proposals of the Government? We are extremely anxious that the view expressed by the noble Earl, Lord Selkirk, at New York, should prevail—namely, that we should co-operate in producing and in distributing raw materials rather than fight about them. I should like to know from the noble Viscount whether there has been a change of Government policy. Are we now to believe that the doctrine put forward by the noble Earl is no longer recognised, that we have gone completely back to the competitive system? Finally, can we in Europe and in America try to reach a co-operative basis for conducting our trade, so that men and women may know that when they buy and sell they are buying from and selling to friends, and that there is no aim on the part of either to secure advantage, the one over the other?

5.32 p.m.

VISCOUNT SWINTON

My Lords, noble Lords on both sides of the House are very sorry that the noble Viscount, Lord Hall, is not here to take part in this debate, particularly because of the reason which prevents his being here. I hope that noble Lords opposite will convey our sympathy to him, and that he will soon be back with us again, without the pain which I know so often afflicts him.

This debate is really a continuation of the debate on the Address list week, on which I spoke at some length; and I think I shall best serve the interests of the House if I try to cover, I hope at not too great a length, the matters raised in this debate, and other matters germane to them, which perhaps were insufficiently covered in the last debate. Let me come first to the detailed points raised by the noble Lord, Lord Shepherd, in his winding-up speech. I make no complaint of the fact that he did not tell me until just before he rose about the figures he intended to refer to. Unlike the noble Lord, Lord Pethick-Lawrence, I do not carry every figure in my head, so I have not come forewarned and forearmed with all the figures that Lord Shepherd quoted to me. But I think I know the situation well enough to give him an answer which will be both true and, I hope, satisfactory. I tried to follow the noble Lord's quotation, and I have discovered it now. What he was quoting was the figure of average monthly imports, by value, in each of the years 1947 to 1951. Of course they would vary, because prices varied.

LORD SHEPHERD

If the noble Viscount will look at that paper again, I think he will find that proper allowance has been made for value.

VISCOUNT SWINTON

Do let me answer! I have been looking at it most carefully and I have also had it checked by the experts. I agree that the figures which the noble Lord read out show a great variation, but they are figures of imports by value. Quite naturally, they show an enormous variation. When the Korean war broke out, owing, one might say to unco-ordinated buying (I do not think anybody in the United States today will mind my saying that) prices rose to enormous heights. The price of wool in Australia rose; the price of everything rose. Then that panic buying stopped and prices fell again, and they have fallen very substantially.

What really matters is not what was the monthly rise or fall of imports, in price, or even in volume. What is important is that at any given moment the stocks of materials for our industry in this country should be adequate. I can give the noble Lord, as I gave to the noble Lord, Lord Pethick-Lawrence in the last debate, the most complete assurance that our stocks of materials in this country are wholly adequate at the present time. They have, in fact, been increasing, and it is the considered policy of Her Majesty's Government—we certainty have a constructive policy in these matters—to import all those materials which are necessary for our manufacturing industry in adequate quantity for that industry. We certainly have done it up to date, and we shall continue to do it.

The noble Lord said that we were taking a risk by freeing markets, and he asked: Might we not find that we did not get the materials, or that the price went against us? He takes the view that if you have competitive buying you get high prices, whereas we take the veiw, based not on any academic idea but on practical experience, that generally when you get competitive buying you get cheaper results than you get out of a monopoly. I do not want to be polemic, but you have only to compare the prices charged by the nationalised industries of this country and the prices on the metal markets of those metals which I have freed—

LORD SHEPHERD

May I intervene for one moment? The noble Viscount did not correctly report me, as he will see if he looks at Hansard. I made no reference to the use of the markets because they raise prices. I know quite well that in the markets prices go up and down. I did not make any reference of that kind.

VISCOUNT SWINTON

Then I do not know what the noble Lord's complaint was in regard to my releasing certain metals to the free metal market. I will certainly give way to him in order that I may know how I was wrong.

LORD SHEPHERD

I have been making the point that metals are scarce throughout the world. Probably they are more available now, because there has been a fall in demand. I agree that if the demand increases it will have the effect of putting up the price on the markets. But it may also have the effect that the materials would not be properly distributed because of the competitive system under which they were handled. The point that I was making was that of the noble Earl—that if we have something like the wheat agreement, buying the raw materials and looking after their distribution, then, whether materials are plentiful or scarce, there will be fair shares.

VISCOUNT SWINTON

I quite agree, but that has nothing whatever to do with freeing a market. The International Materials Conference in New York have nothing whatever to do with bulk buying, nationalisation, or State buying. As a matter of fact, the Americans would never have come into it if it had, because the one thing to which the American Administration, whether Democratic or Republican, was unalterably and, I might almost say, fanatically opposed, was any form of State enterprise or State buying. Certainly, we should never have got the Americans to co-operate with us on the International Materials Committee if the operation or the success of that Committee had depended upon nationalisation or bulk buying. What they did was to say: "Here is a material which is scarce in the world to-day, which is needed for defence and the other essential programmes of different countries. Let us then settle, in consultation, how much of that material should be bought by each country, whether it likes to run its business as a Socialist enterprise or as a free enterprise." That was the way it worked.

It continues to operate in that way, I am glad to say most successfully, where materials are scarce. It is operating in copper, nickel, cobalt, tungsten, and others things which are scarce. There is no point in having it operate where there is far more material available and on offer in the world at the moment than there is a demand for. That merely keeps bureaucracy at work with nothing to do. But the Conference is there, and it can always be called into action in the event of a shortage. If there should come a shortage of some commodity which is now in generous supply, then immediately the International Conference can take that material into consideration; and if the parties to that agreement are satisfied that the commodity ought to be controlled, in the sense of the amount which each country is to have or to be able to buy, that can be taken in again.

LORD SHEPHERD

I should like to thank the noble Viscount for that full explanation. He will remember that when he made the announcement the other day about the freeing of zinc I asked that question, but the noble Viscount did not then give me an answer. I am glad that he has now done so.

VISCOUNT SWINTON

I did not answer on that occasion simply because I did not understand the object of the question. There is really nothing between us in this. That policy is the policy which we certainly stand for, and from discussions I have had with countries of the Commonwealth I am assured that it is the policy for which they also stand. It is one of the matters we shall be pursuing further at the Imperial Conference. I hope that I have satisfactorily disposed of the question of materials. I am glad to get it out of the way to our mutual satisfaction.

The noble Viscount, Lord Hall, last time also raised the question of the prospects of unemployment, and he connected it with production. I do not think I dealt at length then with prospects of unemployment, but I dealt fully with production. It may be that I did not deal quite fully enough, or, perhaps, at all adequately, with employment. Therefore, I should like to say just one or two words on that subject to-day. Unemployment, and particularly persistent unemployment, in an industry or an area, naturally calls for sympathetic consideration and for action. But we must have a fair sense of proportion. The yardstick which the Socialist Government themselves took for full employment—I am not making any Party point out of this; it was stated by the Socialist Party that it was common ground when the policy of full employment was agreed between us in the National Government—was a figure of 3 per cent. of unemployed. That, in the industrial population to-day, would be about 600,000. One naturally wants it to be lower. Today unemployment actually is just under 2 per cent.—that is to say, it is below the 400,000 mark. The Minister of Labour, who is certainly very understanding in these matters, as I know noble Lords opposite will agree, has said that, taking everything into account, he would be both disappointed and surprised if unemployment reached 500,000 this year. Textiles, of course, have been the black spot. All over the world textiles have encountered a slump. The Government have taken action in this connection. We placed the special Service contracts of £20 million or more, and purchase tax remissions were made in the Finance Act. This last was an exceptional course, and the remissions were probably right in that case; but let it not be thought that the mere removal of purchase tax is really going to be a great incentive. It is certainly not going to be a great incentive to exports.

As my noble friend behind me has mentioned, the worst hit part of Lancashire has been made a Special Area—it is never too late to mend: he wanted the Labour Government to do it and he wanted us to do it earlier. We have considered what he said about Special Areas. Really, what his argument came to was that you ought to have no Special Areas or, in a sense, that every area ought to be a Special Area, or every area ought to be a Special Area whenever the need arises for it to be a Special Area. But if you have the same incentives and inducements in every area then there is nothing to attract a factory or the man who is going to erect the factory to go to the depressed area (if I may use the old phrase), rather than to the place which is easy for him to go to and attractive to him. The fact is that you make a Special Area attractive to such people by holding out special inducements, such as building licences and the like. It may be that the Government build a factory and let it at a particularly favourable rent, or that special housing arrangements are made and so on. These facilities are provided in the Special Area because you want to make that area attractive whereas before it was unattractive. You cannot make that sort of thing general, otherwise the attractions of all areas would be on a level. I apologise for this flash of the obvious. Equally, if it is right to have a Special Area you must not have too many of them, or in your Special Area—in Lancashire, for instance—you will not get any benefit. I am glad to say that employment in textiles has markedly improved. Unemployment in textiles has fallen from 161,000 in May to 76,000 in September. That does not mean that matters are right yet.

VISCOUNT ST. DAVIDS

There is one point I should like to mention with regard to this matter of unemployment in the textile industries. Often the figures are not as revealing as they might be because the textile workers, on finding that there is unemployment in their particular line, may have gone off into a different industry. Could the noble Viscount also give figures showing this, when he is dealing with unemployment in textiles?

VISCOUNT SWINTON

If these people find employment in other industries I am only too delighted. As I said on the occasion of the last debate, even when this recession in the textile industry is over I do not believe the market will ever return so that the peak in textile employment is regained. If some of the people who have been thrown out of work in the textile industries are finding work in other industries I am absolutely delighted.

I have given the numbers out of work. I will now give a figure which I think is also reasonably satisfactory. If you go outside textiles and clothing, where unemployment has fallen by 85,000, unemployment in other industries has increased, as between May and September, by only 8,000. I think it fair to give these figures because when dealing with these matters we want to see things in a reasonable and fair proportion.

LORD STRABOLGI

Does that include men in the docks for whom there is no work.

VISCOUNT SWINTON

It includes everybody—I am dealing with the total figures of unemployed, in the aggregate.

LORD STRABOLGI

Including the docks?

VISCOUNT SWINTON

Of course the figures include the docks. People in employment or out of employment are in employment or out of employment, whether their normal work is in the docks, the factories, road haulage, railways or anything else. The total figures of employed and unemployed include all workers, whether they are working or, unhappily, for the moment failing to find work.

The last time I gave to the House pretty full production figures. I showed where production prospects were satisfactory, and where they had suffered a decline. It was said then, and it has been said again to-day, that the Government have had neither foresight nor policy. Both those statements are untrue. We both foresaw and said that exports would be increasingly difficult in a buyers' market, with increasing competition, so we deliberately adopted what I might call a flexible policy. I see that the word "flexibility" was laughed at. I do not see anything foolish or risible in flexibility. Rigidity is a much worse thing. We did that so that the home market could be expanded where that could be done without prejudice to, and indeed with advantage to, the export market, because we want to keep a reasonable level of production in the factories, whether we are manufacturing for home or export, in order to be able to produce at competitive costs.

We have directed our financial and material resources to help our export industries. We are accused of having no policy or foresight. But the extra one million tons of steel which the Prime Minister got for us in the United States a year ago was of the greatest possible help. The production of steel, in which this ingot steel helped, is very encouraging. The October steel output is at the rate of 17 million tons a year. That will enable us to meet developing needs. That will enable us to increase—I have already done so—the allocation of steel to shipbuilding. I do not think the noble Lord, Lord Strabolgi, need be very gloomy about shipbuilding. Completion this year is higher than a year ago. There has been a very small drop in the total gross tonnage under construction, but the large yards are booked for three or four years ahead. My anxiety, and the reason I want to give shipbuilding all the steel it can use, is to get the ships completed in time.

Then we have been able to increase considerably the amount of licensed building, which is of such importance in expanding the number of factories. Let me here correct the noble Viscount, Lord St. Davids, who is always most sincere and most inquisitive, but nearly always wrong on his facts. I can assure him that the increase in the building of houses for the people, about which he complained—well, expressed some anxiety, or shall we say accepted with resignation—

VISCOUNT ST. DAVIDS

I am very pleased that the number of houses should be increased. I only hope that it is not at the cost of things which we may need very badly later on.

VISCOUNT SWINTON

I am glad to set the noble Viscount's mind at rest. He can join in full support of the Government, like the noble Lord, Lord Lucas. I assure him that we are not in the least prejudicing factory building by the increased house building. Indeed, as I told the House last time, I have already allotted for the first quarter of next year 20 per cent. more steel to licensed building, which is largely factory building and does not include house building, for which I allocate separately. And I have every intention of keeping that up through the whole of next year. I think that is a complete answer to the charge that we are curtailing industrial development and that we have no policy.

The Opposition have contended that the value of factory building under construction was less in the third quarter of this year than in the corresponding period a year ago. When we came into office I found that so much factory building had been started in 1951 that most of the steel we could provide had to go to complete the work which was in progress in 1952. Consequently, much less new work could be started, and this produced a disproportionate fall in the value of work in progress at the end of the year. Sir Francis Drake said in his prayer that it is not commencing but carrying through work until it is fully completed "that bringeth the true glory." The glorious and sensible thing to do here was to finish as quickly as we could what was begun. That was much better than delaying it and starting other work. Much begun, nothing done! Anybody can tot up an account like that, but that is not a sign of satisfactory progress. Now, with steel improving, we can do much more and the programme for industrial building for 1953 will be at least one-fifth larger than for 1952. I give this assurance: not only will the programme be larger, but that programme will be carried out. The factory building covers only part of investment in industry. Re-equipment is also important. If we take industrial investment of all kinds, including plant and machinery as well as building, I am advised that it is probably that the volume of investment undertaken this year will turn out to be at least as great as in any post-war year.

I spoke last time of the importance of salesmanship, and I was asked to-day what the Government were doing to help firms to sell. The initiative must be with the firm. It is only the firm which can know what it is producing, the quality of its goods and delivery prospects. Only the firm can know the competition it has to meet, the requirements of the market and the idiosyncrasies of the individual customer. Where a firm knows its business the Government give all the help they can. A sound firm has no difficulty in getting foreign currency, particularly dollars, to extend advertising and marketing. Moreover, it will get dollars to establish or expand a subsidiary company in North America where it is likely to lead to an increase in dollar exports. A reasonably long view is taken of the phrase, "where it is likely to lead to "—it is not just a question of "Will it happen next year?": three or four years are taken into consideration. That is a valuable help, because if a firm has an American subsidiary, it makes business easier in many ways. It is easier for the firm to get British goods into America, as well as to sell them when they are there. It is a means of sang more of the firm's British manufactures and also a dollar-earner on its American side. Therefore, the Treasury and the Bank of England rightly take a generous view of projects of that kind.

In addition to that, the Export Credits Guarantee Department gives special guarantees for sales promotion and market development in Canada, the United States and the dollar countries of Latin America. A firm can insure against loss if the cost of a market survey should not be recouped over a period and against failure to profit by any special promotion or sales campaign. The noble Lord, Lord Lucas, knows these facts well. A firm can also get help, guarantees or insurance in what they call a production joint venture, which enables the manufacturer to cover himself from the time he buys his raw material until the time when he completes his sales. That is most important as a counterpart to credit. The House will remember that this is a business in which we have all shared. It is not many months ago that I came to the House and asked for a considerable increase in the amount of funds available to the Department to grant this kind of credit, which shows that firms are taking advantage of it. In my view, that is the right way to encourage enterprise arid initiative.

Let us see what happens as a result. I was able to give the latest figures of production, about which I was not so happy, but the October export figures are definitely encouraging. The monthly average of United Kingdom exports—and I exclude the re-exports these are genuine products of the United Kingdom—in the third quarter of 1952 was £191,300,000. The October figure for United Kingdom exports is up to £218,500,000. It is quite true that October had one more working day than the previous month—perhaps it has on the average—but, even so, this is a 10 per cent. increase in the daily rate of export over the third quarter. It is true that one would expect the October figure to be a little higher than the average figure for the previous quarter, or the September figure, but an increase of this size is definitely encouraging.

But the most encouraging feature of all is that in October our exports to the United States and Canada, which totalled £28,600,000, are an all-time record for a single month. Never before or since the war have we exported so much in a single month to the United States and Canada. What is equally satisfactory is that I am assured that the increase, compared to the figures for the third quarter (I asked to have the latest analysis that could be given, provided that it was a safe analysis), is spread over all the main groups, including vehicles, machinery and, I am delighted to say, textiles. In the past year, when we have had to curtail our imports the restriction has been, as it had to be, almost entirely from the non-sterling area. Imports from the sterling area have remained more or less constant. On the other hand, the reduction in our exports has been very largely to the sterling countries, who were compelled for the time being to restrict their imports, as we were ourselves. Our exports to non-sterling countries have remained relatively steady—they have, in fact, been about £2 million a month less in the third quarter of this year than the 1951 average. The substantial increase in exports to all markets which we are now able to record in October probably reflects a further improvement in exports to the non-sterling countries.

A great many interesting speeches have been made about taxation, and some unusual views have been expressed from unexpected quarters—it may be a circulation about the House; I do not know. I am delighted to think that so many of us—there were one or two exceptions on the Benches opposite—feel that it would be a good thing if we could reduce taxation on industry. The noble Viscount, Lord St. Davids, does not agree. He does not like the carrot; he likes the stick—he is all in favour of corporal punishment where the capitalist is concerned.

VISCOUNT ST. DAVIDS

I did not say anything of the sort.

VISCOUNT SWINTON

It is not going to be too easy, but that is no reason why we should not bend all our energies to it. I was particularly interested in some of the suggestions made by my noble friend Lord Hawke. I am not going to commit the Chancellor of the Exchequer at this time, but I am sure that he will be interested, as everybody in this House was, in the suggestions made by the noble Lord. There were two points in his speech which particularly interested me. I have always felt that where we can give relief in taxation the important thing is not to distribute more money for people to spend, but to give every encouragement to plough back into industry and increase the amount which industry spends in improvement, replacement, and so on. I was also interested in what the noble Lord said about incentives to staff.

I was asked a specific question—I think by my noble friend Lord Fairfax, who made an interesting and understanding speech about Empire trade—about the Schuman Plan and the most-favoured-nation rule. The position is really nothing new. Everybody agreed that the Schuman Plan should go through, and wished it well. We could not join in it. We were a little more forthcoming than noble Lords on the opposite side of the House, but none of us, I think, felt that we could be complete partners in the Schuman Plan. On the other hand, we were not going to take a dog-in-the-manger attitude and say: "If we cannot come in, you cannot have your plan." That we shall watch and co-operate in. But from the start it was a corollary of the Schuman Plan that in coal, and in certain types of steel, there should be free trade between the partners. That was always understood. That meant derogation from the most-favoured-nation rule, and therefore, it had to go to G.A.T.T. Whether formal assent has been given, I am not sure. But that followed what was the anticipated course when the Schuman Plan was broached. I would add only this. It has always seemed to me that whereas, under G.A.T.T., every kind of blessing was heaped upon a complete customs union, Imperial Preference, which is a lesser form of association and which lays much less of a ringed fence against all the outside world, is regarded as anathema. That has never seemed to me to be logical or sensible. I think when we are discussing G.A.T.T., both with our partners in the Empire and with others, as we shall have to do, that is the kind of thing that might be said in a friendly way.

I have practically finished. The noble Lord, Lord Lucas, said—and here he was at one with some of the other members of his Party—that we had no policy on production and export. Really, to be accused by the Opposition of having no policy is a classic instance of Satan rebuking sin. By a comprehensive policy, resolutely pursued, we have saved this country from bankruptcy and restored an overall balance months ahead of our target time. Nothing short of that comprehensive policy could have saved us. It was comprehensive in two ways: it was comprehensive in the measures it involved in this country, and it was comprehensive in the action we concerted in co-operation with our Commonwealth partners.

The noble Lord said that if they had been in office they would have done something with the Empire. Well, what is the first thing we did as soon as we came in and saw the mess? As soon as we saw how dangerous the situation was, we immediately invited them to come into conference with us. In the first instance the policy we and they had to pursue had to be restrictive, because all of us were living beyond our means. But all the time looking into the future, we saw the need of expanding our trade. In a few weeks our Commonwealth partners will be with us again. We shall then seek with them the means of developing the resources of the Commonwealth and Empire; of increasing our mutual trade and, together with them, of expanding our trade with the whole world. All those three elements of policy are necessary, and they are in no way conflicting. Indeed, they are complementary and they are all essential to maintaining and improving our trade balance and our reserves. In the meantime, at home we have deliberately pursued a policy which will encourage production and export.

LORD STRABOLGI

Any economies?

VISCOUNT SWINTON

Yes, certainly.

LORD STRABOLGI

Which?

VISCOUNT SWINTON

Which economies? Well, the things that you have been complaining of. I have got rid of timber control. There is one, and there are plenty more. I could give the noble Lord a good list. He was complaining about the Civil Service. I do not want to digress on this, but really he is not quite so simple as he appears to be. He said that a lot of civil servants are asking for a rise in salary, and he asked what is the good of having 5,000 fewer civil servants. Surely, if you kept the numbers of the Civil Service as they were and they got a rise, you would be paying out more than if they had been reduced by 5,000. I really thought that even the noble Lord's arithmetic would run to that.

Let nobody underrate the difficulties which face us in a buyers' market and in a highly competitive world. We are back again to-day to a situation where the seller is courtier and the buyer is king. Every one of our customers knows and appreciates the skill of our workers and the quality of our goods. But that is not enough. To-day, delivery and price have again become the vital factors. I have indicated already to the House ways in which we are trying to help industry in this task. I think it is the right kind of planning. We are not trying to do everybody's job for him, but we are trying to have a broad strategic planning and direction with a maximum of tactical freedom for individuals and individual firms. In agriculture, which we debated yesterday—and upon which, if I may say so, the Under Secretary made such an admirable and comprehensive reply—we are pursuing a policy which will both increase production and add to the productive value of the land at the same time. Already we are seeing results. There are 1,500,000 more sheep and lambs, 1,000,000 more pigs and 150,000 more acres under the plough. Is that no policy, and is that no result? Recent events have shown that, as is quite right, the country is judging us by results. We need not be ashamed of what we have accomplished. But what we have accomplished must be an incentive to us all to further effort and a united effort. We are on the right road, and we shall go forward together, with confidence and with resolution.

LORD SHEPHERD

My Lords, may I have permission to make a slight correction?

VISCOUNT SWINTON

Yes.

LORD SHEPHERD

I have looked at page 86 which is headed "External Trade," and I have discovered a figure "(1)" which I seem to have overlooked. I admit that the figures I quoted referred to prices.

VISCOUNT SWINTON

I, too, have to make a withdrawal if I may, because I have been corrected. I apologise to the noble Lord, Lord Strabolgi, for saying that unemployed dockers were included in the unemployment figures which I quoted. It appears that if they are on the register of the Dock Labour Board and are dockers for whom no work is available, they will be drawing the £45s. per week attendance money from the Dock Labour Board, and therefore they do not come in as "out of work" in Ministry of Labour statistics. I am very glad to have got this right. They are not included in the unemployment figures. On these mutual admissions, I think we can close a very agreeable debate.

6.15 p.m.

LORD LUCAS OF CHILWORTH

My Lords, I agree with the noble Viscount: it has been a most agreeable debate. I am grateful to him for the trouble he has taken to reply so fully. The noble Lord, Lord Saltoun, in a very complimentary reference, could not make out whether I was a saint or a monk. I was only giving tongue to the very simple principle that I learned very many years ago—that it is the hope of reward that sweetens labour. That has been my experience, and it is one of the guiding principles I have always adopted.

I do not deny anything my noble friend Lord Shepherd has said, but I do not agree that tax reduction has necessarily to be taken out of anything to which you have set your hand. The noble Lord mentioned rearmament, social services and administration. If economy can be effected in administration, it should always be done, but I sincerely believe that what we have to do is to find the wherewithal out of increasing production and economic expansion. I know the noble Viscount will agree with me that on a contracting economy everything we hold dear goes, and the first people to suffer are the workers who have to stand in the unemployment queue, and their wives and children. We have to expand our economy; we cannot contract it. Out of that expansion we have to find the wherewithal for decreasing our taxation. I sincerely believe that we have now reached a stage of diminishing returns, and we have to see the level of taxation spread over a far wider economy and a more profitable economy. That was my simple thesis. Although there were some very stern faces round your Lordships' House when I started on this theme, there has not been one noble Lord who has spoken who has disagreed with me; and that is, I think, one justification for my taking the line I did. I now beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.

House adjourned at eighteen minutes past six o'clock