THE ECONOMIC SITUATION

HL Deb 29 April 1953 vol 182 cc58-158

2.49 p.m.

LORD PETHICK-LAWRENCE rose to call attention to the Economic Situation; and to move for Papers. The noble Lord said: My Lords, a few days ago I was talking to a lady who voted Conservative at the last General Election. She said to me something of this sort: "Mr. Butler has restored the solvency of the country and re-established its credit at home and abroad. Under his financial leadership our people have won through to a position in which he feels justified in an all-round reduction in taxation. Instead of thanking God for Mr. Butler, and praising the people for their courage and enterprise, why do the leaders of the Labour Party go about trying to undermine our new-found confidence by casting unworthy doubts upon the reality of the transformation? "I take those remarks as the text of my speech, and I think that your Lordships will see that to some extent I shall supply an answer in what I have to say to-day. I propose, first of all, to state the facts; after that I propose to examine the causal antecedents; and, finally, I propose to discuss the right policy for us to pursue in the future. Before I come to all that, however, there are two preliminary observations that I should like to make. One is to point out that Mr. Butler himself would not, I think, accept as true the rosy and complacent view of the matter taken by the lady I have mentioned. To do him only justice, he has never attempted to conceal the true facts. The other observation is this: that no one is entitled to form an opinion as to future policy unless he has tried to understand what has happened, and why it has happened.

Let me now come to the facts. It is my intention to give those facts correctly and objectively. I would ask your Lordships to believe that, should I fail in that, it will not be through conscious misrepresentation, but due to my own limitations; for the facts are not easy to come by. When I was a little boy and went to my first "prep" school I was accounted rather good at sums, and that reputation has clung to me during my life. But I am bound to confess that I have found the very abundance of the statistical fare supplied to us an embarrassment of riches which has been inclined to produce mental indigestion. However, I will do my best. The first fact is that in the course of the year there has been an increase in the gold and dollar reserves of the sterling area amounting in all to some £120 million, after taking into account the American aid to us of almost exactly that figure, and taking into account, also, the interest that we have to pay every year to America on the 1946 Loan of some £1,500 million. This figure of £120 million surplus is to be compared with a deficit of some £500 million in the previous year. So that there has been an improvement from one year to the other of no less than £600 million.

The second important fact is that on current account during the year the United Kingdom had a positive balance of the sum of £170 million, exclusive of American aid, with the rest of the world. That compares with a deficit of £400million in the previous year, and represents an improvement of something like £600 million. The third fact is that to-day the pound sterling stands, in exchange with the dollar, close to the upper limit of the gold points, and therefore the prospect of sterling holding its own may be regarded as quite satisfactory. These are extremely healthy facts, and they are all of the utmost importance. I say, quite unreservedly, that Mr. Butler and the people of this country are entitled to the highest congratulation. For without such recovery we should have been to-day in imminent peril of bankruptcy, if not of starvation. Nevertheless, before we give way to unrestricted satisfaction, we have to remember that these criteria are not the only ones by which to measure national prosperity. I am sure that everyone here recognises that a man's personal balance at the bank is not necessarily the only means of measuring his financial position; and what is true of an individual is equally true of a nation. Accordingly, we are entitled to, and must, apply other criteria before we can satisfy ourselves that this situation is thoroughly to our liking. Therefore I give a further list of facts which have also to be taken into account.

The outcome of last year's Budget was a shortfall of some £420 million, con- trasted with the estimate, so that the overall deficit, instead of being quite small, is probably over £450 million—that is, taking into account the under-the-line as well as the over-the-line figures. Next, the total industrial production of this country fell by some 3 per cent. during last year. This was the first year since 1945 that it had not shown an increase, and in most years a substantial increase. Moreover, as Mr. Butler had estimated that production would increase by some £250 million in the year, the deficit as against the estimate amounted to at least £300 million, and probably substantially more. I quote that particularly, because I remember at one time asking the noble Viscount, Lord Swinton, who was answering for the Government, what estimates he could give me for the following year. The noble Viscount said that he was not prepared to give any estimates; that the Government were shy of producing estimates, because they might be falsified. But he said that he would give me one estimate, which was that production would increase by £250 million. I can only say that he was unfortunate in his example of the one thing that the Government could prophesy, because on that certainly they have not been as successful as the noble Viscount hoped.

I come now to the next important fact, and it is one to which I would direct your Lordships' special attention, namely, the stocks of the country—I do not mean stocks and shares, but stocks in the sense of physical items of production and of use. Taking into account the stocks actually obtained, and those in the pipeline, there was a decline in stocks of some £100 million this year, as against an increase of no less than £450 million in the year before, a drop of £550 million between one year and the next. And that does not take into account the drop in fixed capital, which on a certain statement—and I will go further into that later—was something like £35 million. The next item is unemployment, which rose during the year from some 350,000 to 430,000, an increase of 80,000 in the course of the year. Finally, I come to the question of exports, where there has been not a considerable but a slight decrease in value, although by volume the total exports have fallen by no less than 6 per cent., the rise in price having nearly, but not quite, covered the reduction in quantity. None of these second group facts is pleasant to contemplate, and I do not think I am exaggerating when I say that if the same trends were to continue unchecked into the future, they would seriously threaten the stability, and even the livelihood, of our people. I do not think this statement of facts will be seriously disputed, because I have taken them—I hope correctly—mainly from official publications.

I turn now to the second part of my speech, which is to be an analysis of the cause of the eight facts which I have enumerated. Here, of course, we are on much more debatable ground. Indiscriminate supporters of Mr. Butler are inclined to attribute all his success to his wise policy, and all his failures to malign chance. Equally indiscriminative critics are inclined to reverse the explanations. Mr. Butler himself, if I understand him rightly, claims a large, if not the whole, share of the credit for the pleasant facts, and argues that the unpalatable facts are to a great extent temporary and a measure of the success achieved, beyond his expectations, of his main objective. I do not find myself in agreement with any of these hypotheses. In my view, there are three main causes, not entirely mutually exclusive, of the good facts. These are: first, the drastic cuts in the volume of imports; secondly, the great change in our favour of the terms of trade; and, thirdly, the change in policy with regard to stockpiling, both by the Government and by individuals and companies.

As to the first point, the import outs, I do not think there is any real controversy. It was an essential though regrettable step which any Chancellor of the Exchequer would have been bound to adopt and put into practice. As to the second point, the favourable turn in the terms of trade—which probably accounted for no less than £330 million of improvement to us—this, in my view, was an international fact brought about by the lessening of demand in the world as a whole, notably, of course, by the United States of America who, in the previous period, or shortly before it, had spent vast sums on stockpiling. With regard to the lessening of demand for raw materials, I am quite willing to concede to Mr. Butler that the British slackening of demand was an ancillary factor in this fall.

Now as to the third point, the reduction of stockpiling, I think that is a matter which has not been fully considered by the great bulk of the people, particularly those outside the two Chambers of Parliament. I recommend anybody who wants to understand the facts accurately to read Command Paper 8803, the Preliminary Estimates of National income and Expenditure, 1948–52. There the facts are set out in considerable detail, and it will be seen that, whereas in the previous year—what is called 1951—the physical stocks of the Central Government, of companies and public corporations, and individual incomes, increased by no less than £465,000,000, in the year just ended they were reduced by £100,000,000. That appears on page 8 of the Command Paper; it is the item of £565,000,000 to which I referred earlier in my speech.

What I should like your Lordships to appreciate is that the main difference between 1951 and 1952 was that in 1951, a year when there was an immense demand for the country to be ready for all emergencies, and to be well stocked up in every important respect, the Government of the day spent great sums upon stockpiling. Owing partly to their providence in so doing, but also largely to the major change in the world situation, that stockpiling became unnecessary in the following year, and the incoming Government, though it found itself burdened down by the great drain of gold and dollars, found at the same time this very helpful condition of the stocks of the country. They decided, in view of that situation, to reverse the process. They did not make any large addition to the stocks taken as a whole, and they even allowed a reduction. Throughout the country individuals pursued the same course. Therefore, in one year we were turning gold into commodities; and in the next we were, to a large extent, reversing the process and turning commodities into gold. That may be a slight exaggeration in the second case, because we were not turning them into gold; but we were not adding to the stockpile—in fact, we were, to some extent, reducing it. That is a much truer representation of the facts than the one which is current in popular imagination.

I am quite willing to concede to Mr. Butler, and to the other advocates of dear money, that dear money played some part—though I do not think a part comparable with those of the other causes—is disinflation and in producing the satisfactory results of the first three facts of my catalogue. And I will add this: that because it is an old-fashioned policy which has been resurrected, no doubt it had some psychological effect on people who have long memories and who believe that substantial steps were being taken to resurrect the credit of this country. I concede all that to Mr. Butler and his advocates. I have dealt with this subject of dear money on many occasions in your Lordships' House and I have no intention of wearying your Lordships with a further long talk on it to-day. I will, however, say that, in my opinion, other methods and other remedies less deleterious to our economy could have been used to produce equally, or at any rate nearly equally, good results.

Dear money undoubtedly played a major part in turning back the tide of production, so that instead of increasing, as it had been during the whole post-war period up till then (and as Mr. Butler estimated it would continue to do in 1952), it actually declined, thereby creating unemployment and helping to create the Budgetary shortfall. I do not want to exaggerate: I am not saying that it was the whole cause; I know that there were other causes. I am, however, saying that it made a considerable contribution to these misfortunes. It also helped to reduce our exports by putting up the cost of manufacture and thereby to that extent pricing us out of the export markets. Moreover, it is to-day increasing the expenses of local authorities, and thereby contributing to the increase in rates which is taking place all over the country. I leave the matter there: I will not pursue it any further at the present time.

The main cause, however, of the Budgetary shortfall I would attribute partly to the fall in invisible items, notably due to the loss of the Persian oilfields, and partly to over-optimistic estimating. With regard to the latter point, I hasten to add that I am not blaming Mr. Butler and the Treasury for wrong estimates because, obviously, the many and grave international upheavals, and the uncertainty of the effects of the new financial policy, were bound to have results that it would have been difficult for anyone entirely to foresee. I am now in a position to sum up my conclusions with regard to the causes in the past by saying that in the year just ended there has been a very important improvement in certain respects and a serious setback in others. Changing world conditions have played a much larger part in both of these than most people recognise. Dear money may have helped to solve some problems, but it has created serious new ones in their place.

I turn now to the future. Here every economist and financier, including Mr. Butler and all of us who are taking part in this debate to-day, are confronted with a question mark. The economy of this country is not self-contained: it depends on the world as a whole. Some turn in the international kaleidoscope may at any moment throw our estimates into confusion. We may be on the threshold of an end to the Korean war and also of the cold war with the Soviet Union. The noble Lord, Lord Macpherson of Drumochter, has his name down to a Motion on the Paper which contains the expression "if peace 'breaks out'. "It may, my Lords. But, equally, it may not. Things may even—though we all fervently hope not—grow worse. A recession may start on the other side of the Atlantic, causing slump and unemployment in America, which may be exported to this country. We have to take now the action that seems best in the light of the facts and expectations that we have to-day. But before the year is out, we may find ourselves required to make great changes because of the changes that have taken place in the political, financial and economic scene of the world.

In the light of this fact, Mr. Butler's Budget seems to me to be somewhat inflationary. If I understand him aright, this is a risk which he is prepared to run, partly because his policy of dear money is deflationary and partly because he anticipates other deflationary tendencies. It seems to me rather a leap in the dark, but in certain eventualities it may be justified by the results. On the other hand, if other eventualities occur, it may give us a very bad bump. Personally, whilst I would agree that a home-originated recession can be and should be met by a measure of inflation, I am very doubtful whether a modicum of inflation here is the correct antidote to a recession imported from across the water. It might not merely fail to redress the balance; it might do a great amount of harm.

I turn now to other aspects of Mr. Butler's Budget. I do not propose to-day to discuss the distribution of the tax reliefs. Possibly some other speakers may care to do so. I will, however, say this: that I am heartily glad—and I think the view is shared by my noble friends on these Benches—that what is known as E.P.L. is to go. I am always opposed to those 100 per cent. taxes, which, by taking away all incentive to economy, promote extravagance and abuses of all kinds. It would appear to me that Mr. Butler, having thrown over in his Budget last year the rash promises of the noble Lord, Lord Woolton, has plucked up courage to throw over this year those of his own leader in another place. The exceptional qualities of the Prime Minister are known to most of us and we are all, on whichever side of the House we sit, appreciative of the honour recently conferred upon him by the Sovereign; but in spite of his many endearing traits, he can at times be an enfant terrible to his colleagues.

Before sitting down, I want to say one word more, and that will be about convertibility. Having been born in the third quarter of the nineteenth century. I have a nostalgia for convertible currencies, free travel and free trade; but I am afraid that none of these fits into the modern world as it is constituted at present. In the days of the nineteenth century, when we were the great creditor nation of the world, we opened our ports wide to the commerce of the world. The United States takes an entirely different view. Her Legislature is dominated by sellers rather than buyers, and by manufacturers rather than consumers. Senator Taft is alleged to have said recently, when confronted with our slogan, "Trade, not aid, "that he believed in the last two words but not in the first. We cannot dictate to our great and friendly neighbour her trade policy, and, while we acknowledge her great generosity to ourselves and our sister nations of Europe, we cannot count upon this aid from year to year. We cannot even ensure, as we saw in the recent case, that one of our firms submitting the lowest tender will get that tender accepted.

Those being the facts, I beg Her Majesty's Government not to embark on experiments of greater convertibility while the storms of economic instability are still raging, and while our own gallant ship is not fully recovered from the battering it received at a time when we in this country were fighting alone for the freedom of the world. I beg to move for Papers.

3.24 p.m.

VISCOUNT SAMUEL

My Lords, I do not propose to pursue the controversy between the noble Lord who has just spoken and the Conservative lady with whom he has been arguing, a controversy which to-day he has carried a stage further. Since I am not speaking on behalf either of the Government From Bench or of the official Opposition, I am exempt from any duty of making an analytical and statistical survey of the Budget, its causes and its effects, such as the noble Lord has undertaken to-day out of the fullness of a lifetime of knowledge of these subjects. I propose to deal with a few outstanding points, and with due regard to brevity. In spite of the arguments and the illustrations of the noble Lord, Lord Pethick-Lawrence, on the whole, viewing the subject with a serenely impartial eye, I am inclined to agree with the Conservative lady rather than with him as to the Budget. It seems to me, in the main, and in the hard circumstances of the time, an excellent Budget. There are no new taxes; some old taxes have been reduced; the high tide of taxation is on the turn. But this Budget is only a beginning. It is not to be accepted with unlimited enthusiasm. The boons that are conferred are substantial in themselves but relatively small. There have been important reliefs to industry in various particulars which should be an encouragement to production and to the export trade.

With regard to the standard rate of income tax, which must be the central feature of any Budget—for income tax alone brings in now about £2,000 million a year—the figure of 9s. 6d. in the pound, which has been maintained for so many years after the end of the war, is a monstrous figure; and the reduction of 6d., though it is very welcome, is little more than what an Irish orator once called a "fleabite in the ocean." The cost of it, out of the £2,000 million, is only, the Chancellor of the Exchequer tells us, about £134 million. A 9s. income tax leaves no margin for any possible emergency that may arise. The tax cannot be raised very appreciably above that figure. During the war the nation accepted such taxation. It said to the Government, "Tax us as much as you like, only save the country"; and no matter how high the income tax was put, no matter how high the surtax was raised, and all the other and many indirect taxations, the country accepted it as a matter of duty. But now I think public opinion is different: it is becoming impatient at this very high level of taxation in times of peace. The Chancellor of the Exchequer himself, in his Budget speech, used these words (OFFICIAL REPORT, Commons, Vol. 514 (No. 87). col. 51): No one would deny that the burden of taxation to-day is too heavy, both on industry and on individuals, and that it drags down initiative and enterprise. Those are very significant words, coming from a Chancellor of the Exchequer. He said: …the burden…is too heavy, both on industry and on individuals, and that it drags down initiative and enterprise. That must be a great evil to our national welfare.

The Chancellor of the Exchequer went on to mention one fact to which I have referred year after year, whenever I have had an opportunity of speaking on these questions: In recent years high taxation has been used as the instrument for warding off inflation. There, I think, and I have always held, that our financial policy has been on wrong lines. It has been misled by many of the economists. The policy of what is called "mopping up" the surplus spending power creates as much inflation as it prevents. It is reflected in prices. It tends to raise the cost of living, and thereby causes increases in costs of production, through higher wages, without benefit to the workers, and so reduces the value of the pound. The money which is taken by the State in this way is not sterilised. It is not, in fact, withdrawn from expendi- ture among the community, because it goes to the Government and it is spent, maybe on defence, maybe on social welfare. It may be advisable expenditure or not advisable, necessary or not; but in the long run it uses up materials and labour, and whether it is done by the State or by the multitude of the people the effect, so far, is in itself inflationary. And when Mr. Butler spoke of "the instrument for warding off inflation," he added, "and what a blunt instrument it is!" The Exchequer is now beginning, to realise that that policy is wrong. At a time of extreme emergency, and for a very short period, there may be no alternative; but in the long run there are many alternatives.

For my own part, I have never believed that high taxation and high prices can conduce to the welfare of the individual or to the prosperity of the nation. The right course is to handle this matter through a monetary policy—control of credits and the like; through restriction of imports, if again there arises a time of extreme emergency, when immediate action is needed, and there is no alternative to that course; but, above all, through persuading the nation to undertake voluntary savings. That, in the long run, is the best of all the methods of combating inflation. I do not see the noble Lord, Lord Mackintosh, in his place today. He has been for ten years Chairman of the National Savings Committee. I think that the House and the country owe a great debt of gratitude to him and to his colleagues for the work which they have done and which has not received nearly sufficient recognition. It has been said, quite rightly, that the pun is the lowest form of humour, and that among puns the play upon names is the worst. Therefore nothing would induce me to suggest to your Lordships who might be thought the most fitting one among us to be Chairman of a Committee which is appealing to the nation to put by money for a rainy day. But I will say this: that the noble Lord, Lord Mackintosh, and his colleagues have achieved great results.

The present total of savings is no less than £6,000 million, which has been achieved largely through the work of 170,000 savings groups, having a total membership of nearly 7,000,000. That is a massive achievement, and one which as much, perhaps, as any other single cause, has helped to save the situation so far as the stability of the pound sterling is concerned. For many years past there has been a hard battle of the pound—it suffered a great defeat with devaluation in 1949; but now, while I will not say that the battle of the pound has been won, certainly it is being won; and there is a better prospect than there has been for many a long year past of its becoming as secure and stable as in the days of old. Let me turn from the Budget and currency to say a few words with regard to exports.

LORD PAKENHAM

Before the noble Viscount passes to that topic, can he give us a broad idea as to how to reduce taxation?

VISCOUNT SAMUEL

By economies. I am coming to that in connection with defence a little later, but mainly by economies of one kind or another. And one hopes there will be a more buoyant revenue before long, if the world becomes more at peace and if the effects of the large new plants that are now being erected are felt and export is on a larger scale. I am not going to suggest any sweeping, particular economies in various points. I always rather regret that the noble Lord and his colleagues in the Labour Party, whenever anybody presses them for a reduction in taxation, say "What do you propose?" I certainly do not propose groundnuts schemes in Tanganyika or poultry farms in Gambia. If the noble Lord challenges me I would say that I was not proposing to use those particular means.

LORD PAKENHAM

I thought the noble Viscount said that the pun is the lowest form of humour.

VISCOUNT SAMUEL

I do not see any objection to that from the point of view of humour. I am sorry that the noble Lord should be so sensitive—no offence was meant.

With regard to exports, it is still not realised in many quarters that the encouragement of exports must involve the welcoming of imports. Some of my noble friends and others outside this House still will not realise that what is one man's export is another man's import, and that every cargo of goods that puts out to sea is an export when it leaves and an import when it arrives. One cannot stop importing and increase exporting. A lady acquaintance of mine said not long ago, when we were discussing the subject of matrimony in general, that her view was that every woman ought to marry, and no man. Well, that cannot be done; similarly you cannot have an export trade without an import trade.

The noble Lord who has just spoken said in the course of his speech that our difficulty in that regard arises largely from the protectionist spirit in the United States, and he very properly pointed out the disadvantages of that policy as affecting our own economy. But I think I ought to draw the attention of your Lordships to a remarkable statement which appeared in The Times two or three days ago, quoting the introductory words of a Proclamation issued by President Eisenhower to his countrymen. It is of great importance, and it reads as follows: President Eisenhower yesterday proclaimed the week beginning May 17 as 'World Trade Week'. This was the introduction to the proclamation: Whereas it is the policy of this Government to foster mutual understanding and friendship among nations; and whereas world trade, freely conducted by private enterprise, increases material well-being and develops friendly intercourse among free peoples; and whereas international trade among the nations of the free world adds to the economic strength upon which their common defence is based; and whereas increased international exchange of goods, services, and capital promises better economic utilisation of the world's resources and higher standards of living; and whereas expanded world trade advances the ideal of unity among all mankind and strengthens the foundation for lasting peace and prosperity…"— and there, I am sorry to say, the report ends in a series of dots. It does not go on to say how all this is to be achieved. But, at all events, there is a marked contrast between that, as a statement of policy from the head of the United States Government and of a Republican Party Administration, and anything that has come from the other side of the Atlantic for more than a generation past.

As the noble Lord mentioned, it is true that recently there has been in Seattle a test case that has attracted a good deal of public attention. It related to a contract for electrical equipment, by which 1,000,000 dollars could be saved if the corporation concerned got its transformers from England instead of from America. The matter is not yet decided; it is still under consideration. But the feeling here is, of course, that, in the interests of the economy of the world and in pursuance of the admirable principles laid down by President Eisenhower, it would be right for that contract to be given to the British company.

I do not know whether the noble Lord, Lord Balfour of Inchrye, who, I see, is going to speak later in the debate, will deal with this matter. I shall be very interested to know whether he thinks that the town of Seattle ought to accept the British offer or ought to adhere to the principle of "Buy American." Whichever is the view he takes to-day, I should like to know whether he would accept the same principle in the converse case. Supposing that in this country there were a municipal corporation which could make a saving of £250,000 by accepting a contract from America, ought it to accept it or ought it to be exhorted to "Buy British"? The noble Lord and I used to cross swords in another place twenty years ago when that was a leading national issue, and at that time I resigned from the Government of the day, together with all the representatives of the Liberal Party, because that Government had determined to introduce for the first time in the modern world an all-round protective tariff in this country, together with a protectionist barrier around the whole of the Colonial Empire. We resigned on that. I thought then, I have thought ever since, and I think to-day, that that action was right. But it is interesting to see that the world is moving in our direction, and now even from a Republican President of the United States we have those principles proclaimed in the clearest and most emphatic terms.

Within the past fortnight we have had in this House three successive debates that have covered the main issues of national and international policy. On April 15 we had a debate on Defence, opened by the noble and gallant Earl, the Minister of Defence. On April 23 we had a debate on foreign policy, and to-day we have this discussion on economic policy. All three are connected and cannot be separated by any rigid line, for the economic situation clearly depends very largely upon what we do in matters of defence, and defence depends wholly upon the course of international policy. When saying that, I am sure your Lordships would wish me at this moment to express our deep concern that the Secretary of State for Foreign Affairs is at present laid aside by illness, and our anxiety that that illness has not been taking a wholly satisfactory course. Most earnestly do we hope from our hearts that his recovery will be speedy and complete.

In these days momentous events are taking shape which must affect our whole economic situation. They began with the sudden change of tone and method in Russia, by the release of the fifteen doctors who had been sentenced on preposterous accusations, and, even more significant than that release, by the formal repudiation by the present leaders in the Kremlin of the methods of trial which had secured conviction in that case and, therefore, presumably, in other similar cases in Russia in recent years. That repudiation and that condemnation show, to my mind, that we have there new men of great courage, and it looks as though they are prepared to discard the deadly doctrine that the end justifies the means, which must be the destruction of Communism as it has been the destruction of every cause, political or religious, which has embraced it in the course of history.

President Eisenhower seized his opportunity with admirable promptitude. He delivered that great oration, wise in substance and magnificent in presentation, which has been acclaimed all over the world. And another significant thing has happened: that oration has been printed in full and broadcast to all the Russian people. That is the first time that the deadly secretiveness has been cast aside in that country. We have had now a Russian reply, semi-official but nevertheless authoritative, which shows a marked change from all previous communications, when one takes into account not only its contents but its tone. That has been received here and throughout the world with relief and hope. Let not the new and hopeful initiative be spoilt, the impetus dissipated, by interminable bargainings on matters of detail. Let East and West come quickly to terms on the main issues outstanding, shake themselves free from this long nightmare and step out together into the light of day.

3.47 p.m.

THE PAYMASTER GENERAL (LORD CHERWELL)

My Lords, it is customary at this time of the year, after the publication of the Economic Survey and the Budget proposals, for this House to discuss the economic situation. Every year, I think, between 1946 and 1951, I rashly took it upon myself to open this debate. The House will be relieved that last year and this year the task has fallen on the more capable shoulders of the noble Lord, Lord Pethick-Lawrence. I am sure that all who listened to his extremely interesting and balanced speech must have been grateful to him for putting the story before us and giving us an opportunity of discussing it. I think that we on this side of the House, and certainly even some noble Lords on the other side, must have echoed his nostalgic reminiscences and his desire to return to the situation as it used to be when he and I were young.

The House, I think, will also agree that it is a good thing to link with the general economic debate the special aspect brought out by Lord Macpherson's Motion. Couched in the terms in which he has tabled it, it is, perhaps, somewhat narrow, though we may hope it is especially relevant on account of recent events, as the noble Viscount, Lord Samuel, pointed out. The fact is, of course, that many of the problems which he has mentioned would arise not only in the very happy event of peace "breaking out" as he calls it; many very similar difficulties would beset us in the unhappy event of a recession in America. The real question, it seems to me, in its general form, is whether the Government are making plans to cope with a sudden change in economic conditions brought about by changes outside our control. I think that Lord Macpherson's point is only one special case of this. Not yet having heard his speech, I will say no more than that the Government are acutely aware of the existence of these problems and attach the greatest importance to them. There is no denying that they raise very difficult questions, and for some time now we have been making a special study of them.

I am always pleased to hear the noble Viscount, Lord Samuel, speak, especially from that Bench which is so near to Socialist Lords. To hear a whiff of realism introduced from his corner is always agreeable. I cannot help sometimes thinking of the noble Viscount as a sort of political baby-sitter, seeing that noble Lords on the neighbouring Benches do not burn their tongues on half-baked theories. He may even perhaps nurse them to political puberty and convert them ultimately, by his own less arid creed, to the views we hold on this side of the House. I am sure we all sympathise and agree with his desire to reduce expenditure and taxation. We are doing our best, and always shall do our best, to keep public expenditure to a minimum; but, of course, there is no denying that only major changes of policy can effect a major reduction of public expenditure. I hope he may be right and it may he possible to make such changes in a voluntary way. I am sure we shall all weigh most carefully what he has said. I will not enter into the very complicated argument about inflation, for that would take an economics and philosophy seminar most of one term to resolve; but it is an interesting topic, and if anyone wanted to go into that academic aspect of things I am certain it would be very rewarding.

I am sure the whole House will rejoice—and the noble Lord, Lord Pethick-Lawrence, led the way in this—in the amazing improvement in the country's economic position during the last year. To realise the real extent of the change, it is necessary to recall the position eighteen months ago. It was only on taking office that we discovered to our surprise, and I may say horror, what an appalling state of affairs confronted us. Who would have thought that a Government whose gold and dollar reserves at the time of the election campaign were flowing out at the rate of something like 10 per cent. per month, would not have thought it necessary or relevant to mention this vital fact to the electorate? The only warning given was in a speech at the Mansion House on October 3, in which the loss in the third quarter of the year was minimised. It was due, we were told, to "significant temporary and seasonal factors." The then Chancellor of the Exchequer judged, admittedly "only in the roughest terms," that the "deficit due to underlying influences would have been rather less than half the figures announced. "This was "not nearly so serious as the third quarter dollar deficit would imply." In fact, in the following quarter the deficit was over 50 per cent, larger, not half as large. Either the Chancellor was unduly optimistic or singularly ill-informed.

As soon as we took office we realised that, unless emergency action was taken, in a very few months our reserves would reach a point at which confidence in the future of sterling would evaporate, a run on the pound would occur and we should completely lose control of events. It is not really relevant to argue that we had stocks and not gold, because the financial world looks at the gold reserves and not at the stock position; and we really might have reached a most disastrous state if we had not been enabled to stay the outflow of the gold and dollar reserves. That was the heritage—I may say "mess"—which was left us by the previous Government. Immediate action had to be taken. Clearly this would not be very popular. To redress the balance when you are spending much more than you are earning is always unpleasant. I cannot refrain from remarking that it was a great pity that this action was not taken before. If the measures taken by our Chancellor of the Exchequer when we took office had been applied three months earlier, our reserves would probably be a good many hundred million dollars higher than they are. Still, it is perhaps too optimistic to expect a Socialist Government, having discovered a disastrous economic situation and decided on a General Election, to take such unpopular measures and to expose publicly the condition of the country's finances while the electorate were still considering which way to vote.

Well, measures were taken in time, but only just in time. Imports were cut. Commonwealth Finance Ministers were invited to a conference at which they agreed on the need to take painful steps in their own countries in order to safeguard the sterling area's position. The bank rate was raised. Reluctantly, some delay in completing the defence programme was accepted, and food subsidies were reduced. The state of our finances began to improve. The stern measures revived the world's confidence in sterling. It may be that that was a psychological effect, as the noble Lord, Lord Pethick-Lawrence, said. But there is no doubt that to-day the transferable sterling rate, which had dropped to 2.35 dollars to the pound, is about 2.76 dollars, very nearly the normal rate of 2.80.

The import cuts, which of course could not take effect for some months, began to improve the trade balance. In the second half of 1952 even the visible trade deficit had almost disappeared, a situation unprecedented in recent years. The O.E.E.C. countries showed sympathetic understanding of the position and refrained from attempting to impose counter-restrictions, so that towards the middle of the year we were able to begin to draw down the huge debit which had been run up with Europe. Though we still owe some £200 million to O.E.E.C., we have been able recently to earn a moderate surplus and have felt able to go some way towards liberalising our trade with these neighbouring countries. Partly as a result of our cuts in imports and partly as a result of changes in the world situation, the terms of trade began to move in our favour. Raw materials became cheaper, and, partly because of this, but mainly because of the reduction in volume, the cost of our imports fell from nearly £3,500 million in the year 1951 to nearly £2,930 million in 1952.

I think we are in fair agreement as regards the facts. The noble Lord, Lord Pethick-Lawrence, has endeavoured to explore to what extent these changes, which have had such a heartening effect, are due to purposeful Government intervention. He was by no means unfair on this, but I think we can claim rather more credit than he gives us. In the first place, the decision not to go on building up Government stocks at the same rate as in 1951 was an act of the Government which made a difference of many millions to our trade balance. To this we must add the calculated result of raising the bank rate. Clearly, this made it less attractive to hold large volumes of stock and probably helped to reduce the inventory volume in private hands. No one can call that fortuitous. Again, we had the direct decisions to reduce imports for consumption. These import cuts made a large difference to our balance of payments, and no one can deny that the Government were responsible for that. Then we had the sterling area import reductions, which were essential if the dollar gap was to be closed. Naturally the United Kingdom Government could not impose these, or even recommend them specifically; but no one can deny that the Government's action in calling the Finance Ministers of the Commonwealth together to discuss the deplorable situation had something to do with the very useful decisions taken in the various Commonwealth Parliaments. If they have resulted in a reduction of United Kingdom exports to some of the Commonwealth countries, we may regret it, but we have no right to complain.

In somewhat milder terms than some of our critics, the noble Lord, Lord Pethick-Lawrence, has endeavoured to show that much of the improvement in our position is due to an improvement in the terms of trade, and therefore may be regarded partly as fortuitous. Naturally, we recognise the importance of this factor and admit that conditions abroad play a large part in deciding at what price we can get our imports compared with the price we can charge for our exports. In the days when the terms of trade were getting worse, the Socialists always endeavoured to represent them as an act of God. I sometimes ventured to doubt whether this was altogether true. Some factors, of course, cannot be governed by Whitehall. But, like the noble Lord, Lord Pethick-Lawrence, I still have some belief in the old law of supply and demand. And when our imports were cut I cannot imagine that this did not have some effect in reducing prices.

LORD PETHICK-LAWRENCE

I said that.

LORD CHERWELL

I agree. The noble Lord has been much milder than some of our critics in his description of events. Whoever is to be praised or blamed, no one can deny that the balance of payments has greatly improved. As Lord Pethick-Lawrence said, the gold and dollar reserves during the last twelve months have gone up by 466million dollars, despite our having had to pay 181 million dollars in December, partly by way of interest and partly as repayment on the dollar loans made to the previous Government As the noble Lord pointed out, the balance of payments has risen from £402 million against us to £170 million on the right side. Great play has been made—not in this House—with the fact that in some published figures American defence aid was reckoned in the balance of payments. I have not, therefore, taken credit for it in the figures I have used. But I feel it is a little childish to think that a book-keeping figure like that can affect realities. Certainly it is not very gracious of the Socialist Party, whose balance of payments during their years in office was on the average (apart from 1950) £250 million a year on the wrong side of the ledger, to shake their heads and look glum simply because in some table or other £120 million of defence aid was added to the £170 million I have already mentioned.

The noble Lord, Lord Pethick-Lawrence, gave the impression that the improvement in our position had been achieved partly by running down stocks. The whole question of stocks is much more complicated arid difficult than is sometimes realised. As a matter of fact, so far as stocks in this country are concerned, there is no truth in the suggestion—and I think the noble Lord, Lord Pethick-Lawrence, admitted that. The volume of stocks to-day is much the same as when we took office. True, there are rather fewer stocks abroad and on the sea at any given time—it may be £100 million worth—but this is simply a result of the reduced volume of our imports. In any event, this is negligible compared to the total of stocks and work in progress, which is of the order of £7,000 million.

I do not know how many noble Lords realise how large this quantity is. It consists in the main of goods in process of being turned from raw materials to finished products. When people talk glibly of running down or building up stocks, it is well to remember that a change of plus or minus 1 per cent. may amount to £140 million, and nobody can claim to estimate the stocks with any accuracy. The fact is that stocks were being built up at a rate of £400 million to £500 million a year in 1951 and that we have not continued to build them up. They have reached a sufficiently high figure. We have, it is true, £100 million less afloat, so that an additional £500million of goods became available for other purposes in 1952. But that does not mean that we have run down our stocks in hand. The noble Lord, Lord Pethick-Lawrence, is good at sums, but so are other people. I wish to make it plain that you must not confuse the differential coefficient with the variable. The rate of build-up has gone to zero, but the amount of stocks has remained.

LORD PETHICK-LAWRENCE

As I think the noble Lord is rather criticising what I said, I should like to make my point perfectly clear. I did not say that we had run down stocks, except to the amount of £100 million, which I believe is correct. I did not criticise the Government for not increasing stocks, because I said that the world situation had changed, and they might well be justified in that point of view. What I did say was that when you are comparing the finances of one year with another, you are entitled to take into consideration the fact that whereas in 1951 we spent, with general approval, several hundred million pounds in building up stocks, it was no longer necessary to do that in 1952.

LORD CHERWELL

I am glad to hear the noble Lord make the matter so clear, but many of his colleagues outside this House have certainly taken the opposite view.

The noble Lord, quite naturally, is disturbed because national output in 1952 was a few per cent. down on 1951. It depends how you measure that, of course; I do not make it 3 per cent., but something more like 1 per cent., if all goods and services are taken into account. But naturally we regret this as much as he does. However, I should point out that it was higher than in any Socialist year before 1951. The main reasons why it was down are obvious. In their last two years of office the Socialist Government were so busy scrapping about steel nationalisation that they ignored the shortage of steel scrap that was developing. When there is a shortage of steel, all the vast engineering industries are hit, and I think it remarkable, in the circumstances, that no more damage was done. The other great shortfall was in consumer goods, especially textiles. When at the beginning of the Korean war the United States, and later the United Kingdom, went into the market, prices of wool and cotton rose, and so in consequence did the price of textiles. The panic buying which had set in when the war in Korea broke out gave way to sales resistance. And this natural reaction was magnified by Dr. Dalton's crusade advising all housewives to cease buying. These, I think, are the two main factors which reduced production in 1952.

The fact that the Chancellor's estimates for last year's revenue were not fulfilled is in the main a natural result of this fall in production. Taxes on profits and income tax were below the forecast figure, and Customs and Excise were down. There were one or two minor items, such as death duties, which yielded £23 million less than had been anticipated. Part of this was due undoubtedly to the lower value of securities on the Stock Exchange owing to the higher bank rate. But it is a fact that there were fewer deaths, perhaps because life is more worth living under a Conservative Government. Incidentally, it is rather amusing to think that the Socialists, who always insist that we put the interests of the capitalists first, should complain about this fall in Stock Exchange values. During their régime of planned inflation they used to boast of the high value of stocks and shares on the Stock Exchange, and claim that it was due to the confidence felt by finance in Socialist economics. That there was no such confidence was painfully brought home to them when they launched out into convertibility.

We have been challenged, not so much here as outside, about unemployment. It is quite true that early last year rising unemployment in the textile trade in Lancashire caused some anxiety. This unemployment was due partly to the aftermath of the Dalton crusade, partly to the high cost of textile raw materials in the previous year. As noble Lords know, the Government took immediate action. Orders for the Services were placed before the goods were really required, and some £20 million worth of textiles were ordered. In addition, the purchase tax was reduced by a quarter, and I am sure we are all pleased to note that the position has now eased considerably.

But it should be observed that though there are black spots in various regions, unemployment on the whole is less than 2 per cent. In fact, during our period of office the percentage of unemployment has been little different from the average during the Socialist régime from 1946 onward—at most only a small fraction of 1 per cent. of the labour force. And, at any rate, this Government have at no time let unemployment run up to some 2½ as the Socialist Government did in February, 1947, when one of their Ministers managed, despite repeated warnings, to let the country run out of coal.

The noble Lord, Lord Pethick-Lawrence, was disturbed, quite properly, by the fall in the volume of exports. Naturally, we all deplore this. But I might point out that the value of our non-sterling exports has been well maintained. The fall is almost entirely in the sterling area. It is a fall from a very high level which could not possibly have continued, for it was based on the inflated incomes enjoyed by many primary producers at the height of the price boom which followed the Korean war. Moreover, the Finance Ministers' Conference had agreed that Commonwealth countries should endeavour to reduce imports, and it was naturally difficult for some of them to discriminate in favour of sterling and against dollar imports. They could hardly have balanced their accounts without some reduction in imports from Britain. Anyhow, export prices went up by 5 per cent., so that the fall was partly compensated.

Then there is the question of investment. Here again, it is difficult to get an exact measure for investment. All sorts of unsuspected difficulties in definition arise—for instance, should the increased value of stocks in hand when prices rise be counted as investment, and vice versa? There are all sorts of forms of investment, and it is difficult to draw the line between non-productive and productive investment, about which we are mainly concerned. In 1952 we spent £625 million in investment in manufacturing industry, as against £585 million in 1951. It is quite true that prices rose to an even greater extent, so that the actual volume was no higher—perhaps even a little down. But, on the other hand, we built 240,000 houses in 1952, as against 195,000 in 1951, which I do not think the Opposition will condemn, even if they do not approve. Again, our balance of payments, as has been mentioned, improved by £570 million. That is also a form of investment and, in a sense, the most profitable form. So I do not think there is much to complain about on the score of investment. On the other hand, we fully realise the importance of improving our productive capacity and, indeed, many aspects of the Budget are calculated to achieve this end.

I have read carefully the ebullitions of many Opposition economic pundits outside this House about the Budget. I even forced myself to look at the television screen when former Chancellor of the Exchequer explained to the public with such amiable condescension his objections to this year's Budget. What has struck me is how little criticism there has been about the fundamental economic premise of the Budget—namely, that production should be stimulated to some extent by an easing of the burdens upon the nation. The noble Lord, Lord Pethick-Lawrence, himself agreed that this might be the right course. Of course, as he said, and as the noble Viscount, Lord Samuel, mentioned, international events may alter all our forecasts. The whole of the future can be judged only in the light of these happenings abroad.

I cannot altogether agree with the noble Lord, Lord Pethick-Lawrence, who, I think, feels that the Budget may be too inflationary. He is probably on the Conservative wing of his Party, if I may use that adjective without offence. Another leading Socialist has implied that the Budget is too deflationary; but as his opinions tend to oscillate somewhat violently from Right to Left, and as he seems to be in one of his Left-wing phases, I will not quote him against the noble Lord. But the word "inflationary" may have various meanings. Nobody would like to start on a motor-journey unless the tyres had been inflated to the correct pressure. On the other hand, no one would like to go up in a balloon which is inflated until it bursts. It is quite true that the degree of inflation or deflation at which we should aim is a vital aspect of economic strategy, and the whole question is whether the Chancellor's judgment in this matter has been right. My difficulty about the plea that the Budget is too soft is this. Socialist critics have complained that we are already suffering from a certain degree of unemployment, open and concealed. A tougher Budget would have created more unemployment. No doubt that is one way of solving financial problems, but we Conservatives do not believe in it We do not think it right to reduce imports by making people destitute so that they cannot buy. We are too well aware of the misery and despair caused by unemployment even to consider such a method of attacking the problem.

But if these arguments do not carry conviction, I would point out that, quite apart from the moral aspect, unemployment is economically wasteful. We believe that there is scope for increasing production and productivity. We believe that it is possible to expand our economy. We do not believe that the right solution is to throw up the sponge and cut down the standard of living of the people. I think in that we have the approval of the noble Viscount, Lord Samuel. We recognise, of course, the difficulty of ensuring the optimum level of output—of ensuring as high a level of employment and output as possible without jeopardising our balance of payments, without causing prices to rise and without innumerable controls and resulting bottlenecks. These things are not easy, and the Socialists' endeavours to strike a balance were certainly not uniformly successful during their term of office in preventing periodic crises.

All these questions were matters for anxious consideration by the Chancellor. As I have said, there has been singularly little criticism of the conclusion he reached. He hopes, and surely we must all hope, that production will rise sufficiently to meet the reliefs he has given in the years ahead. When we are dealing with figures measured in thousands of millions, and have reserves of gold and dollars measured in hundreds of millions of pounds, of course nobody can foretell the future. We agree entirely that the situation must be watched carefully, and that we must be prepared to take emergency action should events make this necessary. But I hope that the House will agree, as I think the country does, that the time has come to take a somewhat more optimistic view of the situation and not to play too much for safety, with the certainty of increasing unemployment and depressing the standard of life of the people. Unkind people might say that this difficult economic question is too recondite to gain or lose votes, and that it is for that reason that the Opposition have not bothered to criticise this particular aspect of the Budget. I prefer, as usual, to take the charitable view. My belief is that the reason they have not given tongue is that they consider the Chancellor's judgment on how much remission should be allowed is roughly correct.

Not only have Opposition speakers accepted the fundamental premise of the Budget; they have even accepted in considerable part the methods which are proposed for achieving this. Indeed, at times, they seemed hard put to it to find something about which to complain. At first the Daily Herald objected that this was a vote-catching election Budget. But in the same issue they had great headlines saying, "Bonus for the Rich." After some days—ittakes some little time for logical fallacies to become apparent to protagonists of Socialism—they saw that these two criticisms were mutually contradictory. Following the Prime Minister's remark at Glasgow that no immediate Election was in contemplation, I think the general line now is that this is a wicked Budget, an immoral Budget, which will be most unpopular with the great majority of the unhappy electors who have benefited by it. The Socialist ethic, as we know, is that the pleasure caused by any benefit a man may receive himself is far outweighed by the anguish of knowing that somebody else has received a greater advantage.

May I examine what the Budget has really done? The initial allowances for depreciation have been restored. Has anybody complained about that? The only objection I have heard is that we might have gone further. A term has been set to the operation of the Excess Profits Levy. The noble Lord, Lord Pethick-Lawrence, made mention of that fact, but the Socialist jibe is that it ought never to have been introduced. Purchase tax has been reduced. Surely the Opposition cannot complain about that. All that they have been able to do is to pick upon certain items like mink coats, and object that these, amongst all the thousands of other things, will in future be cheaper. As mink coats do not seem to be within the reach of anybody except the film stars—whose activities appear to be the main concern of many Socialists, judging by the space accorded to them in their favourite newspapers—this does not seem to be a very grievous matter. The fact that purchase tax has been reduced by a quarter throughout the whole range, so that all the articles upon which it is levied have become cheaper, is seldom mentioned, and still less welcomed, by the Opposition.

After all, quite a number of people will be helped by these reductions. Sixty million pounds a year less than before will now be paid by the citizens of this country, and half of this at least is in the least luxurious categories on which purchase tax is lowest and which, therefore, affect the ordinary citizen most. It will not all be spent on mink coats. In fact by far the largest part of the relief is given on articles bought by every class in the community. Is that such a bad thing? "Ah," say the Opposition, "these reliefs should have been selective. "I cannot help suspecting that one of their main objections to this all-round cut is that it deprives them of opportunities for obstruction whilst they argue the merits and demerits of each individual item. But offering opportunities to waste Parliamentary time is really not the aim, or should not be the aim, of any Government. It is true that the reduction in purchase tax does, of course, give benefit to some trades producing less essential goods; but some of these were in danger of being driven out of business by tie high rates of taxation—as Socialists representing the constituencies concerned have not been slow to point out. Had this been allowed to happen, we should have lost for ever many important forms of craftsmanship which have a valuable role to play in the export trade.

Then we have the all-round reduction of 6d. on all the rates of income tax—the "fleabite in the ocean" to which the noble Viscount referred. 'This helps 30,000,000 people or so, and must benefit some member or members of at least three families out of four—I am speaking of families in the ordinary human sense, and not as what the statisticians call "spending units." Apparently the Socialists think this is a wicked thing to do. The fact that the people are allowed to keep a little more of what they earn may positively encourage them to greater efforts. It is wonderful to see how this relief to more than half the nation has counteracted the violent centrifugal tendencies in the Socialist Party. Far be it from me to analyse the origin of these repulsive forces, but I am sure many observers must have been pleased to see the lion of Ebbw Vale lying down between the lambs of Lewisham and Leeds.

The late Chancellor of the Exchequer—and the noble Lord, Lord Pethick-Lawrence, has been eminently fair in this—seems to feel very strongly about these income tax reliefs. He even showed viewers a little table on the television screen to reinforce his case. "How terrible it is," he said, "to think that a bachelor with £500 a year should be relieved of £7 a year in income tax, whereas a married man with two children gains only 1d. a week!" He entirely refrained from telling his immense audience that the bachelor, who used to pay £63 a year, still pays £56 a year or over £1 a week, whereas a married man with two children who paid 6d. a week now pays only 5d. I confess that I was shocked by this. To omit to mention such vital facts and deliberately to give a misleading impression is difficult to reconcile with the high standard of frankness and honesty which we in this House are accustomed to take for granted.

Here, perhaps, I may turn aside for a moment to mention a great difference between the Socialist approach and mine on this matter. They seem to think that nobody has a right to anything he earns, but that he ought to he grateful for anything that the tax gatherer allows him to keep. A priori, in my view, a man's income, honestly come by, is his own. The lamentable thing is that he must be asked to contribute so much to meet the needs of the community. If the community can do with less, then it is only right and proper that people should be asked to contribute less. But to say that there is some law of nature by which the demands on everyone ought to be reduced by the same amount is utterly illogical. As was pointed out the other day somewhere, it is as though when a wedding is postponed and the wedding presents are returned, the man who had given no present should claim a share of the value of the presents which had been given by the others.

As I have said, this is intended to be an incentive Budget. Its object is to increase production. And this must be borne in mind when criticising its proposals. What the Opposition seem to deny is that people must be offered some reward for extra effort and extra risk. But they cannot alter the fact that this country depends for its standard of life on the goods we can import in return for our exports. To sell these exports we must be in the van of industrial progress, and our people must be prepared to take big risks in exploiting new foreign markets. But they will take these risks and make the extra efforts required only if they are offered some reward for success. I know that noble Lords opposite deplore this. Everybody, they think, ought to work his hardest for the good of the community.

But whether they like it or not, that is not the average man's way. They themselves admit that Pay-As-You-Earn has led to reduction in people's readiness to work overtime. Surely they do not claim that the moral outlook of the richer classes is so much superior to that of the wage-earner that they are likely to make extra effort and to risk more of their money if they are denied any hope of increased reward. People who say that Conservatives are immoral because they try to provide incentives for the managerial and investing classes to increase production and exports merely show how short-sighted they are. We have just as much compassion for the poor as Socialists have, if not more, but we are not carried away by emotional claptrap. We realise that the best way of improving the lot, not only of the ordinary man but of the aged and infirm, is to make sure that the economic position of the country is sound so that the welfare services need not suffer.

Nor do we object in principle to a reasonable redistribution of wealth through taxation. No one proposes, or suggests, that we should go back to the time a hundred years ago when a good many people had an income a thousand times as great as the average. But to-day the number of people whose income after tax is fifteen times the average can be counted in scores. If doctrinaire egalitarianism prevails, and rewards for risk and effort are reduced still more, both the quantity and quality of the country's production will inevitably fall. Already we have reached the stage when it would be quite impossible for a man, whatever his capacity, to build up a great concern like Morris Motors on whose exports to-day we so greatly depend. The mass of the people will lose far more if enterprise is stifled than they could ever gain by redistribution of the small amount of wealth left to the few exceptional individuals who create it.

I have endeavoured to give the House a rapid, if, unhappily, not very brief, review of the general economic situation as it appears to us. It has been described with somewhat different emphasis by Socialist speakers elsewhere. When in office it will be noticed the previous Socialist Government claimed that any improvement in our economic situation was the result of their far-sighted, carefully calculated measures. Any worsening was attributed to world causes. Today, perhaps understandably, their approach is different. Improvements are attributed to world causes; if anything should go wrong, I am sure that it would be put down to the action of the Conservative Government. This does not surprise me, or even shock me, as a physicist, for the principle of relativity asserts that the description of events depends upon the circumstances of the observer. And this principle apparently holds throughout the whole of nature, whether it is in defining the four-dimensional interval between two coincidences in the world of physics or in defining responsibility for the dollar gap in the world of economics.

If our description of trends and causes differs, there can be no difference in our description of the economic situation as a whole. Nobody can, or will wish to, deny that there has been a notable improvement. And at that we shall all rejoice. I think most of us realise, however, that the position is still precarious; that the battle is not yet finally won. America is now such a preponderating element in world economy that a recession there could have most painful repercussions everywhere. If the Americans were to reduce materially the volume of their sterling imports or the prices paid for them, and at the same time to intensify their sales efforts abroad, the dollar gap would widen once more and the results would be grave. I am sure that the whole House will agree with me when I say that we must nowhere relax our efforts. Only if we all do our best, only if we work as a team, can we win through. And I am sure that that is the intention on all sides of the House.

4.34 p.m.

VISCOUNT WAVERLEY

My Lords, my noble friend Lord Cherwell, by the speech which he has just delivered, has relieved me from any necessity to comment in detail upon the Budget; in any case, I had no intention of inflicting a lengthy speech upon your Lordships. But there are a few observations, mainly of a general character, which I should like to contribute to this debate. The noble Lord, Lord Pethick-Lawrence, in his interesting opening speech, did not find it necessary, for the purpose of the review which he gave to the House, to go further back than, I think, the beginning of the last financial year. I, on the other hand, feel that, in order to understand aright the circumstances in which we find ourselves to-day, it is desirable to cast our minds back at least to the middle of 1945, when a Socialist Government was returned to power in this country, for the first time in our history. We had then just emerged from a long and ruinous war. Not only had we suffered grave material damage in this country and elsewhere, but we had lost the greater part of our most valuable overseas investments.

In those circumstances, it might have been thought that a lengthy period of sacrifice and effort on the part of die whole community was needed to restore our economy. Circumstances, however, conspired to create, I suggest, a wholly false sense of well-being. I wish to make it clear that in what I am about to say I am only trying to be realistic; I have no desire whatever to appear censorious. We were all anxious at that time to find relief wherever we could from the stress and strain of the war. The Government, flushed with their success at the polls, were naturally eager to improve living standards and to develop the Welfare State, of which the foundations had already been laid. The emphasis, therefore, at that time was all on higher pay, shorter hours, holidays with pay, family allowances and so on. External aid, for which we should feel undying gratitude to our friends on the other side of the Atlantic and elsewhere, the existence of a sellers' market, and subsidies, all helped to obscure the economic implications of the situation in which we found ourselves. There was little or no reference at that time in any quarter, I think, to the crying need for greater production, and the result of it all was to create an illusion, a dangerous illusion, of prosperity without effort. That could not go on. Events marched to a crisis with the devaluation of sterling, by which temporary relief was obtained at the cost of creating new long-term problems. That devaluation was an expedient which cannot be repeated without risk of the complete break-up of the sterling area. We are not only the bankers, we are the trustees for the other units in the sterling area, and it is surely not difficult to understand the inherent instability of a system under which the value of an inconvertible currency is maintained by a system of controls operated by a number of wholly independent agencies.

I have no desire to pursue that topic in detail, even if I were qualified to do so, but I would venture to commend to the attention of noble Lords an article in last month's issue of the National and English Review by Sir Frederick Leith Ross, a man of very great experience in finance and public affairs. I do not agree with everything that he says in that article, but in regard to the situation throughout the sterling area, and the problem of convertibility, I think there is much in the article which we should all do well to study. I would only for the moment emphasise my conviction that convertibility is the goal towards which our economic policy should be directed. It is a goal which I recognise can only be approached gradually. It is one which I must say will not be attained without a marked increase in the productive effort of the community, and I trust (I hope that in saying this I shall cause no offence in any quarter) that Opposition leaders will recognise the responsibility that rests upon them in this matter. I do not think that when they were in office they gave wholehearted support to the late Sir Stafford Cripps when, somewhat belatedly, he began to stress the vital importance of increased productive effort and increased productivity, which is net quite the same thing, because we have to sell our goods on competitive terms.

VISCOUNT HALL

I should like to ask the noble Lord whether he can give a single instance of any occasion from 1945 to the present time when the Labour Party and the Trades Union Congress have not stressed the importance of increasing production.

VISCOUNT WAVERLEY

My Lords, I do not want to be controversial, but that very question has been put to me before, and I have been at some considerable pains to study pronouncements from responsible quarters in the Labour Party. I say that it is my belief that at that time far from sufficient emphasis was laid—and I am not trying to be censorious; I can understand the situation perfectly—upon the vital need for greater productivity. When one compares what was said on that subject with what was said upon ways of improving living standards, I think the justification for what I have said will be recognised. But if I am wrong, if indeed the Socialist leaders are so wholeheartedly in favour of doing everything possible to encourage greater production throughout the country, so much the better.

In that connection, it has been said already, in particular by the noble Viscount, Lord Samuel, that there is necessity for obtaining some material relief from the crushing burden of taxation, apart altogether from the question whether there is any moral justification for taxation on the levels to which we have had to submit in recent years. There I emphatically agree with the noble Viscount: when survival is at stake anything is justifiable; but if it is merely a question of effecting some degree of redistribution of wealth and the carrying out of some rather airy conceptions of "fair shares," or whatever it may be called, I must seriously question the justification for depriving people, to the extent to which they have now had to accustom themselves, of the produce of their own enterprise and effort. It seems to me, and I have said this once before, that what we have found in recent years in the matter of taxation might justify the description of legalised brigandage, altogether apart from the fact that such levels of taxation, as pointed out by the noble Viscount and others, sap enterprise and initiative, and discourage the thrift and savings on which the renewal and development of the capital equipment of the community depend. Therefore, for my part, I welcome the reliefs announced by the Chancellor of the Exchequer.

So far as purchase tax is concerned, I have always regarded that as, in essence, a bad tax. While I was still Chancellor of the Exchequer I said that I looked forward to the time when it would be whittled down to a luxury tax bringing in revenue of perhaps £100 million a year, as against a current yield of £300 million. I should like to see that tax disappear, apart from its possible uses over a limited field as a luxury tax, and with its disappearance I should like to see—I make no secret of this—the elimination of the subsidies, except in those cases where there is some special social justification for them. It seems to me that the maintenance of the existing system of subsidies is inconsistent with the preservation of the spirit of sturdy self-reliance which has been characteristic of our people in the past. I would go so far as to say that I sometimes think we have been in some danger of creating a generation of parasites.

Now, My Lords, the Chancellor, by the measures he announced in his Budget speech, has gone some way to restore an element of flexibility in our economy. As the noble Viscount, Lord Samuel, said, we cannot safely go on without some margin of taxable capacity, something on which we could draw to meet another emergency, if, unhappily, it ever came upon us. The rewards of those engaged in productive industry, in whatever capacity, must not be allowed to run ahead of productive efficiency. I believe that, properly viewed, the task before us is by no means hopeless. It seems to me that an all-round improvement in productive efficiency of no more than 5 per cent., if it could be achieved—and there are means known to all of us by which progress can be made—would make all the difference in the world. I therefore welcome the message of encouragement which the Chancellor has given. I have asked myself, as no doubt many noble Lords and others have asked themselves, whether, in what he has done, he has taken an undue risk. I do not think so—for this reason. I have been struck, as many noble Lords must have been, by the divergencies in the results disclosed at the end of the year from the original estimates. In the case of many items for which estimates were given there has been, in fact, a divergence of an order of magnitude quite comparable to the sums of money involved in the individual reliefs which the Chancellor of the Exchequer has given. In these circumstances, it seems to me that it is extravagant and rather foolish to criticise the Chancellor on the ground that in what he has done he has been taking an undue risk. In this matter, psychology is quite as important as economics; and even if the economics of a Budget are held to be questionable in some respects, if the psychology is right the Budget may be justified a hundred times over.

I welcome also the forward outlook of the Chancellor in his Budget. The annual Budget and the annual Appropriation Bill are essential features of our fiscal system, but nowadays, in budgeting, when a Budget is not merely an incident in the economic life of the nation but is itself an important instrument of economic policy, it is most important that there should be a forward view, extending beyond the limits of a single financial year, in the framing of policy. There again, it seems to me that the Chancellor of the Exchequer was absolutely right in giving a message of hope, and in putting squarely on the shoulders of the community as a whole the responsibility for justifying, by their efforts in the future, the concessions that have been given already and the further concessions which, if all goes well may be looked forward to in future years.

Finally, my Lords, I am sorry that by speaking now I forgo the pleasure of hearing what my noble friend and colleague Lord Macpherson may have to say in regard to the Motion which appears on the Paper in his name. In that connection, I would just say that, should circumstances arise creating a difficult economic and employment situation, there is contained in a Paper entitled Employment Policy, which was produced during the war by the Coalition Government, a complete study of the whole problem, with conclusions upon which all sections of Mr. Churchill's Government at that time were entirely agreed.

LORD SILKIN

May I ask the noble Viscount whether he would say that the conclusions arrived at in that Paper are, broadly speaking, valid to-day?

VISCOUNT WAVERLEY

I would say that, to a large extent, they are valid. At any rate, I would say with confidence that they merit study to-day in the light of any further experience that we may have gained in the meantime.

4.52 p.m.

VISCOUNT HALL

My Lords, we have listened to four remarkable speeches, and I am sure that I am expressing the views of my colleagues on this side of the House in saying that we are always ready to listen to a speech made by the noble Viscount, Lord Waverley. That does not signify for a moment that we agree with everything that he said; but we know that with his vast experience, his knowledge and his deep sincerity, he believes in everything he says, and we are grateful to him for the speech which he made this afternoon. Of course it is always a pleasure to listen to a speech by the "young man," the Leader of the Liberal Party. Indeed, it is remarkable that the two opening speeches to which we listened to-day were made by noble Lords who have long passed the age of three score years and ten. I should like to think that at any time in my life I could have made a speech which was so clear, so penetrating, and so useful, as the two speeches which were made by the two noble Lords on this side of the House.

I wish I could say the same of the speech of the noble Lord, Lord Cherwell. I really thought that his speech should have been delivered. I will not say centuries ago, but in the early days of the growth of the Socialist movement. It was a speech that really should have been prepared not for the next Conservative conference but for the last one. However, it was not delivered to but tried out upon your Lordships to see whether it was suitable for the next Tory conference. I strongly object to the aspersion which he made in regard to the integrity of Mr. Gaitskell. He implied that, when he was Chancellor of the Exchequer, Mr. Gaitskell failed to disclose to the House the financial condition of the country. I should like the noble Lord to reply to this straight question: is that what he means?

LORD CHERWELL

Neither Mr. Gaitskell nor any noble Lord in this House, so far as I know, disclosed to the country that our gold and dollar reserves were running down at the rate of 10 per cent. a month. I do not know whether noble Lords opposite knew it. Did they know it? If so, why did they not state it in their Election speeches? If they did not know it, how can they say that we ought to have known it?

VISCOUNT HALL

It is evident that the noble Lord is endeavouring to dodge the issue somewhat, and I should like to draw his attention to the speech which was made in another place on November 7, 1951, by the present Chancellor of the Exchequer. He was referring to a speech made by Mr. Gaitskell at the Mansion House on October 3 of that year, and this is what he said (OFFICIAL REPORT, Commons, Vol. 493, col. 191): Those who listened to him could not have doubted that whatever Government were returned to power an ugly situation would be bequeathed to them. In fact, the worsening has continued over the last weeks. Later in his speech Mr. Butler said of Mr. Gaitskell (col. 192): In his speech at the Mansion House my predecessor, on the best information then available to him, attributed much of the loss in the third quarter to abnormal and non-recurring factors. So far as the third quarter was concerned, those estimates were roughly correct, but some of the factors which we thought were exceptional have continued to operate. With the fuller information now available, and with the clearer view of 1952 which we can now take, our latest estimates reveal an underlying balance of payments even worse… Mr. Gaitskell in his speech replied (col. 210): The right honourable Gentleman was good enough to quote from some of the speeches I had made in recent weeks and I am grateful to him, because he, at least, did not pretend for one moment that we had failed to disclose the situation. That is the position.

LORD CHERWELL

No doubt my right honourable friend the Chancellor of the Exchequer is an extremely kind and charitable man. The fact of the matter is that in the third quarter of 1951 the gold and dollar deficit was 598 million dollars. Mr. Gaitskell, in his Mansion House speech, said that he thought only half of this was due to underlying causes—in other words, the deficit ought to have been about 300 million in the following quarter; in fact it was over 900 million. As I said, either he did not know about this, or he was unduly optimistic, or he was singularly ill-informed.

SEVERAL NOBLE LORDS

Withdraw!

VISCOUNT HALL

Well, my Lords, it is very evident that Mr. Butler is, at any rate, truthful and honest. I do not pretend—

THE LORD PRESIDENT OF THE COUNCIL (THE MARQUESS OF SALISBURY)

I hope the noble Viscount is not implying that my noble friend Lord Cherwell is neither truthful nor honest! There may be differences of opinion on this matter, but that implication might be drawn from the noble Viscount's remark. I am sure it is not one that the noble Viscount would wish to draw.

VISCOUNT HALL

Only in the same proportion that the noble Lord opposite seems to regard Mr. Hugh Gaitskell as untruthful and dishonest.

LORD CHERWELL

I did not say he was untruthful or dishonest; I said he was unduly optimistic or singularly ill-informed.

VISCOUNT HALL

But the noble Lord said that Mr. Gaitskell did not disclose the situation to the nation, which is not in accordance with the statement made by Mr. Butler.

My Lords, I do not wish to pursue that matter any further. In view of the fact that my noble friend Lord Pethick-Lawrence and other noble Lords who have spoken have dealt fully with the Budget, I am going to deal only with that matter to which the noble Lord, Lord Cherwell, towards the end of his speech referred, as also did Lord Waverley during the whole course of his speech. Whatever a Budget is—indeed, before a Budget can be made—the background of that Budget must be production and exports. In the short time during which I am going to address your Lordships, I propose to deal with those two points.

First of all, I thought the noble Viscount, Lord Waverley, was not quite so fair as he might have been with regard to the efforts which have been made during the whole of the period from 1945 till the present time by the leading members of the Labour Party and, in the main, by members of the Trades Union Congress. At no time—and I have followed this matter closely—could it be said that they have relaxed in any way whatsoever their efforts in relation to the question of production. One cannot deny the fact that their efforts were somewhat successful from 1945 until 1952. During that period of six years there was a gradual increase in production—indeed, the increase was at a rate greater than that shown in any other country in Europe. I am not suggesting that it was as great as the increase in production in America, but it was a steeper increase than occurred in any other country in Europe. It is only as the result of the return of a Conservative Government in 1952 that for the first time since the end of the war we have had a reduction in production. Such a reduction—

VISCOUNT WAVERLEY

I have been wondering whether, in the opinion of the noble Viscount, the efforts which, as he has said, were made over a long period of time from the quarters he has mentioned to inculcate economic lessons, including the necessity for increased production, have exhausted themselves during the short period when a Conservative Government has been in office, or whether it is not rather that what has come to an end is the sellers' market and the demand for supplies of all kinds stimulated by the shortages and the destruction resulting from the war.

VISCOUNT HALL

I grant the noble Viscount that point. I shall be coming to that matter during the course of my speech. I had hoped to be able to make a non-controversial speech upon this matter. It is the fact that there has been this reduction in production which is regarded by everyone as serious, and so far as I know every effort will be made by the leaders of our Party to remedy it—indeed, they endorsed what was said by the President of the Board of Trade in another place last week as to the need for increased production. But it is not only a question of a reduction in production; there is a reduction in the numbers of persons employed, and a reduction in exports. Indeed, it can be said that there is even a reduction in the standard of living of the people.

That is brought out in the Economic Survey which was issued by the Government. Last year less money was spent on food than in 1951 or in 1950. Only on Monday in another place the Minister of Food said that the consumption of butter in this country last year was down by 5 per cent. And I do not want to mention only butter; I include fats and food generally. There was a reduction in the consumption of vitamins by which our nourishment is now measured. The reduction was very small but there certainly was a reduction. I am not suggesting for a moment that it has made much difference to the lives of the people, with the exception of the many hard-hit individuals whose incomes are below the income tax level and who, unfortunately, will get no benefit out of the reduction in taxes. I do not know to what extent high prices and purchase tax are responsible for the falling off of last year. In household goods alone, the reduction last year amounted to something like £50 million, as compared with the figures for 1951, and £87 million compared with the figures for 1950. So far as textiles are concerned, the reduction was £25 million last year, compared with production in 1951, and £113 million compared with production in 1950. Those figures are rather striking.

As I have mentioned, year after year from 1946, production increased, but last year there was this sharp reversal. Conditions were different in other countries in Europe, it is true. In Denmark and Norway there was a decline in production of 4 per cent., in Sweden, 2 per cent., and there was no change in the United States. In Western Germany, production rose by 7 per cent., in France by 4 per cent., and in Canada by 3 per cent., compared with the figures for 1951. The reduction in production in this country, small as it is, is one of the vital matters to which the Government and the people should give their closest attention. I thought that the Economic Secretary in another place rather minimised the importance of this reduction, and that the noble Lord, Lord Cherwell, did the same this afternoon. A Report compiled by some economists was issued recently and in it they suggested that at this time production is some 10 per cent. below what it would have been if the increase of the last two years had continued. The report said that if we had had this 10 per cent. increase, there would be an increase in our national income of about £500 million. I am not attributing blame at all. I am simply referring to the losses sustained as a result of the reduction in production.

I was much concerned the other day to read a report in one of the financial papers which indicated that N.A.T.O. was ready to place an order for the purchase of some 150 million dollars' worth of ammunition—this was in March of this year—but when the tenders were received it was found that the tenders from this country were 10 per cent. above tenders received from the Continent, and the order was held up for some time. Fortunately, I understand that, as a result of negotiations, the order has now been placed in this country. I wonder whether the Government themselves are aware of the fact that a buyers' market, and not a sellers' market, exists at the present time. If those who desire to make purchases ask for tenders, then those who tender must watch their pricing at the beginning, otherwise they are ruled out. Here is one example of over 150 million dollars' worth of goods, the order for which was held up because the price quoted by the Government of this country was 10 per cent. higher than the price quoted by private concerns on the Continent. I am happy to think that nothing is likely to interfere with the £53,500,000 order for the off-shore purchase from British manufacturers of fighters for N.A.T.O., and other orders which, I understand, are forthcoming. That is all I am going to say about production now, but later in my speech I shall come to the need for increasing our coal production.

In addition to the fall in production, for the first time for more than five years we have had a fall in our export trade, a fall of no less than 6 per cent. in volume last year, compared with 1951. The situation was described by the President of the Board of Trade recently as one in which he had to face considerable difficulty. A little later he said, "We might have done worse, but we must do a good deal better." But he gave no indication of the prospect of an increase in future or, indeed, this year. We have now received the Board of Trade returns for the first quarter of this year, and these cannot be compared favourably with the figures for the first quarter of 1952. It is true that in comparison with the last quarter of 1952, there is only a small reduction, but in comparison with the first quarter of 1952 there is a reduction in value of more than £100 million in our exports.

What is more disquieting than anything else is that of the £100 million reduction, £97½ million is in articles wholly or mainly manufactured, and nearly 50 per cent. in the metal manufacturing industries, such as machinery and parts, vehicles, including locomotives, and ships. In aircraft there was an increase of £3 million, but in all other branches of engineering, some of which have had super-priority, there was a reduction in the first quarter of this year as compared with the first quarter of last year. Now to-day we are informed that there is likely to be a steady decrease in shipbuilding. At the present time there is a decrease in shipbuilding activity which is causing concern. Shipping under construction is down by 137,000 tons, and is 6 per cent. less than the tonnage under construction in March last year. Whilst it is true that the shipbuilders have a very good order book, there is always such a thing as cancellation, and in the last half of last year orders were down from 800,000 tons to 300,000 tons, a reduction of about 500,000 tons in the placing of shipbuilding orders in the course of one year.

When all this happens at a time of increased defence orders, I wonder what is going to happen when the defence orders begin to tail off? I am not going to trespass on the remarks of my noble friend, and I shall be interested to hear what he has to say in relation to this matter. Even with increasing defence orders and aid, which cannot continue, great efforts are still needed to increase production and expand our exports. I repeat that this is the most important task facing the Government and industry at the present time. Some of the difficulties are clearly brought out in paragraph 110 of the Economic Survey which states that: While some expansion in world demand may be looked for over a period of years, this cannot be relied upon to provide the rapid increase in export earnings which the United Kingdom needs to achieve. In order to pay our way and obtain the necessary imports, we shall have to increase our share in the non-sterling markets, particularly in Canada, the United States and Latin American countries, where our share is smaller than before the war and where the United States has clearly increased her share. Last year we increased our exports to the non-sterling countries by £30 million, but in the first quarter of this year there was a reduction of 4 per cent. in exports to non-sterling countries. The Government and industry must be on their tiptoes if we are to win this battle of exports. I thought that the Government were not as forthcoming as they might have been in stating in the Economic Survey their policy toward exports. They said that the policy of Her Majesty's Government is to create the economic conditions which will encourage an expansion of production for export and will clear the way abroad for selling it, but the actual job of expanding exports can be undertaken only by industry itself.

Government assistance, my Lords, should be given at every possible stage—I do not mean assistance in money, but encouragment in every way. I was surprised to hear the other day that the Government were to dismiss the superintending trade consuls in the United States. In fact, I understand that these men have been dismissed. They have done a first-class job of work, and if our dollar trade is to be expanded, this is just the time when their services are required. I should like to ask the Government who or what organisation is to do their work, or is this part of our selling organisation to disappear and no one to take its place? This action seems to refute the claim that the Government want additional trade in the non-sterling area.

I was pleased to note that the Government have now removed the ban which was imposed a year ago upon export credits, that exporters are to have a greater measure of freedom to extend credits to overseas buyers, and that the machinery is to be speeded up so that decisions can be made more quickly. Though this Department has been in existence for more than thirty years, and has done excellent work, I agree with the Report of the Select Committee on Estimates that its work is not sufficiently well known to manufacturers, both large and small. I hope that the noble Earl who is to reply will convey to the Board of Trade the desire that greater publicity should be given to the work of this Department.

One of the pleasing features in the March quarter returns was that coal exports had increased to 3,300,000 tons—bringing in some £15½ million—one million tons more than last year, and two million more than 1951. If coal exports could continue at the rate of that quarter, it would mean exports annually of 13 million tons, to a value of over £60 million, which would be a great help at the present time. Unfortunately, output is rather disappointing. This year the miners are taking their extra week's holiday, and this, with Coronation Day and the extra Leap Year day last year, means that there will be a reduction of something like eight working days for the miners this year as compared with last year. The only way in which a reduction in output can be avoided will be by producing an extra 7 million or 8million tons of coal during the course of the forty-nine or fifty working weeks, which means an increase of something like 150,000 tons of coal a week. At the present time the increased output is working out at only something like 30,000 tons a week, which is only one-fifth of the requirement. If that goes on, it means that this year there will be a reduction of something like 5 million tons on the output of last year. The economic consequences of such a reduction in output are, I think, too terrible to contemplate. It is rather surprising that, with something like 13,000 more men in the pits, compared with this time last year, and with the number at the coalface increased to over 300,000, which is the highest for some time, increased production is not forthcoming.

There are real grounds for anxiety, as will be seen from the fact that the National Coal Board and the National Union of Mineworkers are conducting a nation-wide production and efficiency campaign, and are informing the miners of the nation's requirements of coal as part of that campaign. Only on Saturday last the 115,000 miners and officials in the South Wales coalfield received a letter, jointly signed by the representatives of the National Coal Board and the Miners' Federation, drawing their attention to the urgency of greater efficiency and increased output. I hope that that letter will be effective, for so far, judged by results, the campaign has been disappointing, particularly in my own area of South Wales. It is distressing to those of us who have been so long and so closely associated with what was the most important coalfield in this country to know that during this postwar period both numbers and output are lower than they have been for the last seventy years.

During my lifetime I have seen in that coalfield a rise in production from about 20 million tons to 50 million tons, arid a fall from 50 million tons to about 23 million tons. The reduction at the present time is caused largely by a reduction of some 30,000 miners, but the majority of the miners in South Wales—who are amongst some of the best miners in the country, indeed, in the world—do not realise that their output per man-shift worked is the lowest of all the divisions in the country. This is somewhat disconcerting. The mines are mechanised. Most noble Lords know my views about a completely mechanised pit, or indeed, about a completely mechanised industry, particularly where you have thick seams. It is imposible to abolish the mechanised mine, but some of the men who have been trained in the old way of working, and are anxious to stay on, would do so if the Coal Board would pay some attention to the need for having some districts and some collieries not mechanised. If that were done it would secure the return of men who have long since left the collieries because they would not do mechanised work.

The majority of miners, all of whom believe in nationalisation, are anxious that it should be a great success. It can be said at the present time that the miners are better off than ever they were: they have a five-day week; if they work on Saturday it is at a special request, for which they are paid overtime. They have a fortnight's holiday; they have their welfare schemes; they have their pithead baths—indeed, they would not revert to the old system under any conditions. But now they should realise that they, with the Coal Board, are the trustees of the nation's greatest material asset. The nation willingly gave to the miners and said that they should have what they have got. There is now no employer to take from them what might be regarded (as was so often said) as part of their wages. There are no royalty owners taking royalties, other than the State: the industry and the royalties are owned by the State. The State has placed the industry in the hands of the miners and the Coal Board, and I am sure that the majority of the miners will not let the State down.

I should like to suggest to the Coal Board that possibly something more should be done in bringing home to the miners their greater responsibility. It is true that these small pit committees are doing excellent work. The other day I saw a report from Lancashire, where output has greatly increased. I wish that we could see some of these productivity units or teams, not working in the confines of one division, but being sent out, say, from the worst division to the best division, from the best division to the worst division, and to the medium divisions, thereby having an exchange of workpeople for a short period. That is the only way in which you can get a better understanding of the problems which are likely to arise. I hope that the National Coal Board will do something about that. One thing the miners always respect is a good frank talk about conditions; they like strong leadership, not only at the centre but also in the divisions. I hope that we are building up a partnership between the miners and the Coal Board which will see to it that this asset, now owned by the State, will provide not only a sufficient supply of coal for the domestic requirements, without rationing, but all that is necessary for the industrialists and, indeed, a substantial amount for export. When that is achieved, it can be truly said that the miners have appreciated the great effort that the nation has made to enable them to enjoy the conditions which they enjoy at the present time.

5.30 p.m.

LORD BRAND

My Lords, all your Lordships will have been impressed by the speech of the noble Viscount who has just spoken. It would be impertinent of me to say that I hope the Coal Board will pay great attention to what he has said. I hope the miners also will get to know what he has said, and somehow that his words will be spread among them.

I should like to say a few words about this question which has been referred to several times to-day, of the fall in production of exports, the increase in unemployment, and so on, during 1952. I remember well the crisis which began in 1929 and went on until 1933. What happened then was that prices began to fall. One country would get into balance of payments difficulties, as we have done recently, and would cut its imports. That inevitably resulted in some other country cutting its imports; and it went so far, if my recollection is right, that, by this reciprocal cutting of imports all round the world, in two or three years international trade fell to one-third of what it had been in the boom year of 1929, with a consequent immense fall in production, an immense fall in employment in all countries and, indeed, great depression.

I think the Opposition take the view, which is quite reasonable, that a great deal of the trouble that they left to the Conservative Government was due to conditions outside this country—the Korean crisis and all that followed from it. But it follows from that that they should recognise that a good deal of the unfortunate development in 1952 is also due to the crisis they left to the Conservative Government. All agree that our imports had to be drastically cut, and it is the drastic cut in our imports which, in my opinion, has to a considerable extent led directly to a considerable cut in our exports. Imports have fallen by 10 per cent. because we made them fall, and exports have fallen by 6 per cent. I should regard that as very much the consequence of the first step that we had to take. If imports greatly fall and exports fall, then certainly you will get a reduction in production, and some increase in unemployment. Therefore I regard these developments as being caused by the monetary policy, but only to a slight extent, and, in the main, by world conditions.

LORD PAKENHAM

Does that apply both ways—to the good factors and the bad?

LORD BRAND

Well, the monetary policy certainly had a good effect, and, of course, the difference in the terms of trade had a very good effect. I should hesitate to say that it had three-quarters of the effect, but certainly the terms of trade had a very great effect, and I think everybody admits it.

I hesitate to intervene, so to speak, between noble Viscounts of the eminence of Lord Waverley and Lord Hall. I should put Lord Waverley's point about what happened between 1945 and 1951 slightly differently. I should say that the Government during those years did not regard the external problem as nearly so important as the internal problem. They allowed the internal problem to have much too great an influence, and now, I believe, from what I read in the debates in another place, they are coming to see the vital importance of the external problem and to realise the necessity of putting that first.

I shall be very brief in my remarks on the Budget itself, because a great deal has been said already and time is getting on. The Chancellor was faced with a most difficult moment of uncertainty—uncertainty as to international politics; uncertainty as to the new American Administration's policy, and uncertainty, indeed, on what is going to happen in the United States. There is a good deal of feeling that there may be a turn in that country. I do not think that it is justified. I am sure that if there is any deflationary movement, the United States Administration will take every conceivable step to stop it, if they can. I was talking yesterday to an American who has great responsibilities. He said: "As soon as they see—or even before, if they can—the 'bubble on the boom,' they will take the most drastic action, even in the way of large reductions of taxation and so forth." I think we can take it that everything will be done there to keep things in balance.

Owing to all these uncertainties, the Chancellor had to, as they say in the City, "take a view." He took a view, as I understand, that effective demand might be less during 1953 than was justified by our productive resources; and, therefore, he plumped for a policy which might be regarded as somewhat inflationary rather than risk any deflationary policy. Of course, if our long-term savings are too small for our capital demands and particularly for the huge uncovered deficit below the line, and if the Government are driven to increase the short-term debt in order to meet these demands, then banking liquidity will be increased, and that may start some increase in inflationary conditions. If we have inflation, and other countries are going through a deflationary period, then the outlook for our exports is going to be even poorer than any noble Lord has suggested.

One thing is clear, and that is that taxation is now so oppressive that it is no longer an instrument of any use in combating inflation. I could not agree more than I do with the noble Viscount, Lord Samuel, that that is, and will prove to be, the root of our difficulties. I have plagued your Lordships with that view very often, and I hive seen my noble friend Lord Pakenham immediately rise like a fish to a hook—I hope it was a hook—and ask the question which he asked the noble Viscount, Lord Samuel, this afternoon. I have said to him before that if taxation is really too high economically, then it is no good asking, "Can you or can you not reduce it?" or "How will you reduce it?" it will be reduced. It will be reduced in the end, if you do not reduce it in any other way (for instance by much greater production which is what one hopes will happen), then by another devaluation. If the burden is too big, that is what will happen; the donkey will kick off by devaluation some part of its burden.

As to the different tax changes, I will say only that it is so highly important that our industries should be kept modern and should have funds for that purpose, that I should have preferred that all taxation remissions had gone in relief of industry, rather than so largely to the individual tax-payer. I should like to see the complete abolition of the undistributed profits tax and a reduction also in the distributed profits tax. I am aware that this would at once raise a cry of "Shareholders!" "Why should the shareholders be so well treated?" would be the cry. But if that argument should be put forward, the answer is that if all agree that British industry must be prosperous yet demand that shareholders and risk-capital savers must be punished more than any other class, we shall find ourselves in a complete dilemma. I should have thought that the shareholder was sufficiently dealt with now by income-tax, surtax and death duties. If you want to kill both him and the community together, put on in addition profits taxes sufficient to deny industry the funds which it ought to have. For these reasons I should like to see taxes on industry lightened, even though no remission were made to the ordinary individual members of the community.

As I say, I feel that the Opposition now are recognising our external problem to a greater extent than when they were in power. Nevertheless, the debates in another place, which I have read carefully, surprised me greatly. They seemed to show in a clear light a fundamental difference in the policies of the Parties. One policy is the Chancellor's of relying as far as possible on the free energies of the population, with the Government concentrating on the enormously important function of maintaining a stable balance of payments framework and ultimately reaching convertibility. That is the road which the present Government, as I understand it, intends to follow. Then there is the policy which (I am judging only from the debates in another place on this subject) the Opposition leaders appear now to favour—that is, further and further extension of Government control over competitive industry itself.

In various speeches in another place Opposition leaders have mentioned their wish that the Government should have a more positive policy. I did not gather what the positive policy they advocated was, but I suppose I am right in thinking that Mr. Gaitskell indicated what he himself meant by it in certain articles which he wrote in the Star newspaper, from which, if I may, I will make one quotation. He wrote: It is no accident that the industries where investment is going ahead most steadily and smoothly are the nationalised industries where the Government can guide and control and long-term plans can be made and carried out without the corroding influence of fear and uncertainty. I may say that the speech we have just heard from the noble Viscount, Lord Hall, can be looked at as a rider to that statement and to put a somewhat different light on it. But, of course, it is quite easy for a Government smoothly and easily to have large loans made for nationalised industries, if the savings are there.

The great problem we have is not to produce but to sell our goods abroad, and that, I think, is a task which Government is not fitted to carry out. If Government is going to be a carpetbagger all over the world and sell a thousand and one articles abroad, I think we are going to get into great difficulties. Mr. Gaitskell went on: I do not say that this alone is a sufficient argument for wholesale nationalisation. But I do not believe that we shall get industrial investment on the scale and in the directions that the nation requires without far more State participation, initiative and influence. That is the lesson which I believe experience will teach us even more vividly in the next few years. I do not know whether the Opposition really intend to back this policy completely and if so what their reasons are. One might think it is merely to keep up what one may call political momentum. Is it because the Labour Party thinks it must have momentum, and, if it can think of nothing else, is going to nationalise the first industry it sees? Or is it because Labour leaders believe that now that they have made private savings more or less non-existent the Government must provide all capital? Is it that they see the enormous difficulties produced by over-much taxation and are nervous about the available savings of the community, and that, therefore, since there will not be enough savings for industry, they had better take over industries and finance them themselves? But the State, of course, has no capital of its own, and if it does so act it must get the money required from the public, either by Government loans or by increasing savings—in other words, either by more taxation to increase them, or by inflationary borrowing and ultimately a lower standard of life.

It seems to me, from the speeches in the other place, that the Labour Party are on the way to going beyond being Keynesian and becoming much more Marxist, if they really intend greatly to increase the nationalised sphere of industry. It is interesting to note that Keynes, for whom, I think, Mr. Gaitskell has a great admiration, said in his last book: It is not the ownership of the instruments of production which it is important for the State to assume. In other words, there is no need to nationalise to gain Keynesian objectives. Perhaps, as I am quoting Keynes, and as I have read a recent article by Mr. Gaitskell in the Political Quarterly claiming that "equality" was one of the main economic aims of the Labour Party, I may quote what he said on that subject in 1936. Lord Keynes wrote: For my own part I believe there is social and psychological justification for significant inequalities of incomes and wealth, hut not for such large disparities as exist to-day. That was in 1936. I do not know what he would say to-day. I think he would say that those disparities have now been removed.

Since Mr. Gaitskell urges constant increase in the direct intervention of the State, I should like to quote briefly a recent book by an economist—one of the very foremost economists of the United States—whom perhaps the noble Lord, Lord Pakenhamknows—Professor Jacob Viner of Princeton University and formerly of Chicago University, who has just published a book containing lectures that he gave at the National University of Brazil in Rio, at their invitation. What he says is so pertinent to some problems that perhaps I may be allowed to read these extracts: There is one proposition, however, which will underlie all of this lecture, and which I regard as both theoretically plausible and as overwhelmingly verified by experience. Direct controls, because by their nature they involve the total or partial substitution of government decisions for the different decisions which the market would make if direct controls did not stand in the way, are inherently contagious: each new set of direct controls in a particular sector of the economy tends to make necessary the establishment of supporting or protective direct controls in the neighbouring sectors if the first set of controls is not to be evaded. And then he goes on—and perhaps the noble Lord will listen to this—

LORD PAKENHAM

Yes.

LORD BRAND

—and says: In modern experience, central economic planning has not only universally involved some measure of price inflation but has also involved relative inflation as compared to the free-market economies. I know of no exception to either of these two propositions, and this association of central economic planning with inflation is probably not merely an historical accident. He goes on to say that, as soon as a Government gets into foreign trade itself, then all foreign trade becomes a matter not of trade but of diplomacy, just as, for instance, when we monopolise meat control here and the British Government buy all meat in the Argentine, then it is not the private meat producers in the Argentine who come into the bargain on that side, but the Argentine Government. You then get two Governments bargaining, not about price but about diplomatic matters. That would increase proportionately, in my opinion, under greater State control of competitive industry. The last quotation I will make is this: … the repeated occurrence of balance of payments deficits is itself to a large extent a by-product of national economic planning. I believe investigation would show, moreover, that here also there is a marked tendency in practice for national economic planning to lead to autarky. It is, however, not with Marxist countries that we shall trade and compete, but with the freer countries—the United States, Canada, Switzerland, Japan, and I include even Germany. Germany at present is largely a country of controls, due to the consequences of the war, but I have no doubt that their great exporting industries will not be in the hands, ultimately, of the State. Therefore, I fear that if the Opposition again get a chance of pursuing further this policy which is now being advocated in another place, and clearly from the Press reports is being actively canvassed elsewhere—not, however, so much in trade union circles, I think—they will take any strength from this country to return to a stable balance of payments and to convertibility, or to enjoy a higher and stable standard of living.

5.55 p.m.

LORD MACPHERSON OF DRUMOCHTER had a Notice on the Order Paper to ask Her Majesty's Government whether, if peace "breaks out," they have made plans to deal with the economic repercussions which will follow; and to move for Papers. The noble Lord said: My Lords, the Motion before your Lordships proposed by my noble friend Lord Pethick-Lawrence calls attention to the economic situation. I wish to deal with one particular aspect of the situation which is to-day causing people in industry and commerce much concern and uncertainty—that is, the economic repercussions which will follow a sudden change towards peace. So, with the permission of your Lordships, and of my noble friend who has introduced the first Motion on the Order Paper, I am addressing myself to the terms of the Motion standing in my name, which I do not propose to move. Clearly, it has a close relation to the economic situation, and I hope that the course I am taking will be for the general convenience of your Lordships, and will not preclude the Minister who is to reply from answering my questions on the subject.

This is not the first time that this subject has been raised, and while it is generally agreed that it is a matter for some concern, I am sure that the country and industry would be relieved to know what steps the Government are actually taking to deal with the problem. The apparent change in Russia's attitude to the free world which we have witnessed in recent weeks is probably the most important development in world affairs since the end of the Second World War. However we may care to appraise these happenings, there is certainly evidence that the prospects of the end of the war in Korea, and consequently the possibility of settlement of our differences with Russia, are better now than they were before the death of Stalin. In the excellent speech that we had this afternoon from the noble Viscount, Lord Samuel, we heard him express similar sentiments, The Prime Minister, speaking in Glasgow just ten days ago, said: New men have obtained supreme power in Moscow, and their words and gestures and even…their actions seem to betoken a change of mood.

May I express the hope that this change of outlook or attitude by Russia will not be stifled by too chilled a reception, but that any gesture or approach they may make to us which has in it the possibility of a sincere attempt to deal with the differences between our two countries will be received gladly and frankly? I agree, too, with the noble Viscount, Lord Samuel, that I hope there will not be undue delay. In that connection, I may remind your Lordships of the words in the Gospel of St. Matthew, the fifth chapter, the twenty-fifth verse, where it says: Agree with thine adversary quickly, whiles thou art in the way with him.

The prospect of peace has it problems, as well as its hopes, for mankind. It is an ironical fact that war and rearmament are good for trade, and that hopes of peace send prices down and unemployment figures up. We have already seen what happened to commodity prices like tin, rubber, lead, zinc, and so on, and the great slump which took place on the New York Stock Exchange quite recently at the mere proposal to exchange a few hundred sick and wounded prisoners of war. That is just a foretaste of what will happen when the real peace comes. I remember what happened after the First World War—the great trade recession, the millions of unemployed and the despair and disillusionment which swept our country. Are we again to witness the bread lines of 1920–21 or the public soup kitchens at the street corners? Are we again to witness the decline of the morale of our people as a result of idleness and unemployment? Are we going to make half-hearted attempts to deal with the problem, too late and too little, after the rot has set in? It has always been the same ever since the Napoleonic wars: each war is followed by a trade depression.

There has been a great deal of reference this afternoon to what happened after the Second World War, but even in 1918, both here and in the United States of America, signs of a depression were already visible. Of course, during the early post-war years in this country since 1945 we had the good fortune to have a Labour Government in power and in charge of our affairs, and the situation was largely held in check by Mr. Attlee and his colleagues, with their controlled economy and their policy of full employment. Nevertheless, the world economic situation was deteriorating. Further disintegration was stopped by the outbreak of war in Korea, followed by a rise in prices and general business prosperity.

This time there is another aspect of the problem to be considered—that is, what will happen in America and its repercussions in this country. I was in the United States a little over a year ago, and the impression I formed was that the position of American industry then was very much like the position in England in 1940–41, with every other factory engaged in some kind of war work, and on all hands full employment on their colossal rearmament programme Have the Government given consideration to what will happen in America when rearmament orders stop and the stockpiles of essential raw materials have to be unloaded on to the market? America has a much-boosted free economy their traditional capacity for boom and slump is well known, and I fear the most serious repercussions on our economy if the matter is left unplanned and things are allowed to take their course. Our American friends are not too keen on planning; they think planning, especially planning which deals with their national economy, smacks of Socialism, and the American business man hates Socialism like the very devil. What happens in America is of the greatest concern to Great Britain, not only inside our own country but because of its possible effects on our overseas markets.

During the last few weeks, people in all countries, and nowhere more than in this war-weary land of ours, have had their imagination stirred by evidence that at long last it may be possible one day to see world peace. It is something which men of our generation practically know nothing about. Most of us in this House have spent the greater part of our lives working and striving and sacrificing to pay for old wars or preparing for new ones. We can hardly contemplate the measure of happiness and prosperity which will be ours if all the wealth and brains and effort which in the past have been spent on war and preparing for war are devoted to peaceful and productive purposes. I am reminded of the words of Longfellow: Were half the power that fills the world with terror, Were half the wealth bestowed on camps and courts, Given to redeem the human mind from error, There were no need of arsenals or forts.

I submit that it is every bit as important to plan for peace as it has been to plan for war. What a tragedy it would be if after the great effort we have made to prevent the free countries of the world from being engulfed by Russian Communism, Communism should come after all, as a result of unemployment, distress and misery, through our failure to prepare for peace!

I have no doubt, my Lords, that these matters have occurred to Her Majesty's Government, but many of us are concerned to know what plans the Government are making to deal with the situation. There can surely be no strategic or security considerations involved in planning for peace. And we can get on with these plans without letting up by one iota the other great tasks that we have on hand under the United Nations and as a member of the North Atlantic Treaty Organisation. We should like to know who is going to be responsible in the Government for those plans. To whom can we look for some report on what progress is being made in this matter? Are the Government planning to have discussions with representatives of trade and commerce, in order that plans may be prepared in advance to deal with this matter? Can we be informed what arrangements the Government are making for discussions with the United States of America, and the Governments of other free nations, so that there can be made the joint plans which are so necessary if the world is to be saved from a repetition of what has happened to us so often in the past? I appeal to Her Majesty's Government to plan and make sure that, when peace comes, its blessings will be enjoyed by our people, and that they will not be mocked of their heritage by our unpreparedness and neglect to tide over the vital interim period of transition from a war economy to a peace economy.

6.7 p.m.

LORD RENNELL

My Lords, I shall not detain you long, if only for the reason that the noble Lord, Lord Brand, has said a great deal of what I had planned to say, and I find myself in complete agreement with him. There are one or two points that I should like to take up, especially from Lord Pethick-Lawrence's opening speech, and from what your Lordships have just heard from the noble Lord, Lord Macpherson. In the first place, I should like to support Lord Pethick-Lawrence's plea for some simplification of the Papers relating to our economic situation which appear at this time of the year. The fare is indeed indigestible, and, moreover, is contained in a number of courses, some of which overlap—rather like mixing fish and joint on the same plate.

My complaint is not so much about the information provided as about the form in which it is provided. We have an annual Financial Statement, which appears just before the Budget; we have a Paper entitled Preliminary Estimates for National Income and Expenditure; we have the Economic Survey, and we have another Paper on The Balance of Payments. I believe that it would be possible to combine these Papers and the tables in them in one Paper instead of having three different documents which do not always appear simultaneously and which, on certain points, are extremely difficult to reconcile. While on that point, I should like to make one further plea in connection with the showing of the figures of our national economic situation and financial situation by asking the noble Earl who is to reply to this debate whether it would not be possible now for the Chancellor of the Exchequer to present full Budget Estimates and Budget Accounts in what is known as the alternative form which has been adopted for some years past in the Financial Statement.

This it not entirely a technical subject, and it has a considerable bearing on the figures which are being discussed by your Lordships this afternoon. As your Lordships are aware, at the end of the Financial Statement there are two sets of tables showing the Estimates of the previous year and the out-turn, in what is called the conventional form of accounts. On the opposite page the same figures are totalled under the alternative classification. I think it has long since been recognised that the old conventional form of issuing Budget figures and Estimates is outmoded by modern practice. Whilst the alternative classification is by no means perfect, it represents a great improvement on the form in which figures were formerly shown. The alternative classification has by now become sufficiently familiar to people who study such things for it to become now the standard classification, with the old conventional form shown side by side with it for some years to come, until it passes into oblivion.

My Lords, as it appears to me, and as is very important so far as other people's opinion abroad about this country is concerned, under the alternative classification, the annual current in-and-out payments on what might be called the current account on the Budget—that is, the over-the-line accounts—produce a considerably more favourable picture of our true Budget position than does the old form of accounts. As your Lordships know, the Budget figures above the line for the financial year which has just closed show a surplus of £80 million; but taken in with the below-the-line account, they show a substantial deficit. In point of fact, under the revised form of accounts the surplus is very considerably larger, because a number of items which formerly appeared above the line have been transferred below, being figures of expenditure which have to be met either out of surplus on the current account or have to be borrowed. In other words they are really in the nature of capital expenditure. I believe that our Budget position abroad (and I have recently come back from America and Canada) would have been regarded considerably more favourably if the alternative classification had been in common use, where the annual incomings and outgoings on current account were very much larger.

My reason for bringing up that rather technical point is that the economic position of this country depends not only on what we do but on what other people think we are doing. To a great extent the present strength of sterling is a reflection of the opinion held by other people abroad of our efforts. That opinion can be measured only in figures. The figures which are available—as I claim, the standard figures—are not a true reflection of our position, which in fact is rather better. I must say that my sympathies are largely with the lady acquaintance of the noble Lord, Lord Pethick-Lawrence, who I am glad to see associates with such sensible people. I rather wonder whether a service is always done by some acquaintances of the noble Lord, Lord Pethick-Lawrence (not the noble Lord himself), in their criticism of the figures of our effort and of our financial situation. That is especially true in respect of the effect abroad; it matters less in this country. I can only hope that the noble Lord, Lord Pethick-Lawrence, will continue to move in those same circles, because I noticed, in what he said, that he appears to have changed slightly over the last two or three years in regard to some of the doctrines which he himself held.

I remember a considerable controversy that I had with him about two years ago in your Lordships' House on rates of interest and rates of money—a subject which he brought up again to-day. I thought he was much less unfavourably impressed by the policy of tightening money and the effect that it had. In fact, he referred only to one point as a really definite black mark—namely, the effect that it had on production costs. The noble Lord, Lord Brand, also referred to that point. There is little doubt in my own mind that the cost of money has had some effect on production; but whatever bad effect it has had has been wholly outweighed by the deflationary effect and its effect on the general financial position. Above all, it has had a very considerable effect abroad, in making people there feel that we are taking things seriously enough to put ourselves and our trade in this country under the disadvantage of having to pay more for our capital and our current funds. But if that has had some effect on pro- ductivity, it has obviously had very little.

On the other hand, it has had a much more important effect, and one which I had not heard referred to this afternoon in your Lordships' House. Lord Cherwell and Lord Pethick-Lawrence dealt with figures of stocks that were being carried here. By and large, it appears to be true that stocks have not decreased in the country as a whole, though the rate at which they are being brought in has, as Lord Cherwell rightly said, decreased, because a level had been reached at which a further increase appeared to be unnecessary. But what is very nearly as important is that the cost of money in this country has encouraged people who hold stocks to dis-hoard them and let them out. Coupled with the removal of controls on so many of the primary articles required in manufacture, this has led to dis-hoarding of stocks on a very considerable scale. There is in fact practically no manufacturing concern in this country to-day that has not, in some form or another, dis-hoarded stocks. They have been induced to do that, partly by the cost of carrying them, but also largely by the knowledge that, with the removal of controls and the reorganisation of future markets, they had got into the position of being able to buy what they wanted when they wanted it, instead of having to take up stocks when they could and putting them in their backyard and carrying them on bank overdrafts.

I cannot give the figures this afternoon, because it would take too long, but if your Lordships will follow the course of commodity prices in, for instance, base metals, you will find that, with the exception of copper and various other absolutely key commodities, the reorganisation of open markets has been directly responsible for a decline in prices. A decline in prices of raw materials may, as many of your Lordships have said, have either an adverse or a beneficial effect in this country. Inasmuch as the raw materials produced within the sterling area go to the United States, and they pay less for them, it is, of course, an adverse factor. On the other hand, the figures in these documents which have been published show perfectly clearly that the terms of trade have been more favourable—and that during a period of sharply faking commodity prices. In other words, while prices were falling trade has been more favourable to us. We have had to pay less for commodities which we import; our customers in the sterling area who buy them have had to pay less too, but we have obtained higher prices for exports. Putting it another way, the period of falling commodity prices in which we are now—and which, as I see it, is likely to continue—is not having an adverse effect on our terms of trade.

That brings me to the subject which was raised by the noble Lord, Lord Macpherson. Of course, it is true that a recession on a considerable scale in the United States would have a profound effect on our economy and on the economy of practically every other country in the world, except, possibly, those countries behind the Iron Curtain. It is equally true, as the noble Lord, Lord Pethick-Lawrence, has said—in considerable contradiction to the views which many of his colleagues used to hold a short time ago—that ours is not an isolated economy; it is an economy which is as dependent on world conditions as is the economy of any other country; even the economy of the United States is dependent on world conditions. We cannot isolate ourselves by planned internal economy, by nationalisation, or by any of the other dogmas to which we have been treated over the last six or seven years. It was a common doctrine a few years ago that we could isolate ourselves from the impact of other countries. That is manifestly untrue; it has been shown to be so; and it is not a dogma which Lord Pethick-Lawrence has ever held. So I particularly welcome what he said this afternoon.

LORD MACPHERSON OF DRUMOCHTER

Before the noble Lord leaves that subject, would he not admit that any serious fall in commodity prices, especially in respect of primary purchases from overseas countries, must have serious repercussions on our export business, so much of which is done with primary producers overseas?

LORD RENNELL

All I know at the moment is that the fall in commodity prices, which has been considerable over the last eighteen months, has had the effect of improving our terms of trade up to date.

To continue with the subject which the noble Lord raised—which is the impact of the American economic situation on ourselves—and his inquiries about what steps had been taken or are being envisaged if a slump takes place. May I say that I think the noble Lord takes an unduly pessimistic view in what he says will happen in the United States—and he will, perhaps, allow me to correct his statement to What "might" happen in the United States, unless he sets up as being an infallible prophet. I think he is, to some extent, under a misapprehension which is fairly common in this country and is really innate in the series of articles which recently appeared in the Economist. It is a supposition widely held in this country that the United States during the last period of intensive rearmament has so developed its economy as to have what used to be spoken of as both guns and butter. In other words, they have developed their capital equipment to provide for practically full consumption of consumer goods in the United States at the present time, and have also developed capital equipment to produce armaments. That is only partially true. On the other hand, it is said that we in this country, owing to our more limited resources, have had to stint ourselves in capital development to provide for rearmament and have had to keep consumption very tightly screwed down.

The second premise may be true; the first premise is not, I submit, true. It is true that American production has provided for the ordinary consumer goods required from day to day. It is also abundantly true, as anyone who has travelled in the United States or knows anything about conditions there knows full well, that capital expenditure on public works, housing and suchlike, in the United States, has been very tightly held in check during this period of rearmament. And there are, as is well known, tremendous arrears of work requiring to be done in the United States to-day. School housing, for instance, is years in arrears. The same is true of hospital accommodation. Road building and road improvements are many years in arrears. And I am wondering whether the noble Lord is not under a misapprehension in his view of what will happen if rearmament is slowed down or substantially stopped over a period of time—no one is going to suggest, of course, that it can be stopped from one day to another. There is so much work still left to be done that can take up all the capital equipment which had been devoted to other production, and still require more. In other words, in regard to the slump which the noble Lord said will take place, and which I say might take place, there are a number of factors to consider—or perhaps I should say that there are a number of factors in the American situation which make it, in my view, improbable, rather than otherwise, that a big recession will occur in the United States.

Such being the case, so far as we are concerned the impact of more peaceful conditions—the "outbreak of peace" to which the noble Lord referred—or the gradual advent of more sensible ideas in the countries behind the Iron Curtain about what are the right relationships between the nations of the world, enabling us also to slow down on our rearmament programme, will immediately present us with several possibilities. One possibility is to use the capital we have got not for the building of war factories and the creation of more armaments, but for those many things which everyone in this country knows ought to be done and which we have not been able to afford. Secondly, the release of American capital for foreign investment is at the present moment proving a considerable problem to the United States. It is not true that the United States has unlimited capital resources that can develop the whole world. It has become increasingly difficult in the United States to persuade people to find the money to carry out the development overseas which they would like to do. But the change over of expenditure, the change over of production from war to peace conditions, is one which, in my opinion, can take place in the United States, and, above all, here, without the development of the difficulties which the noble Lord has at the back of his mind.

There is, however, one extremely limiting factor so far as we are concerned—and it is one to which Lord Brand has referred on many occasions in this House and to which I also have referred in the same context. That is the acute shortage of new capital created in this country. I do not want to pick out difficulties; far be it from me to do that—there are so many people in the world to-day engaged in trying to pick out difficulties—but it is really a little worrying to find these very guarded statements in the White Papers. For instance, in the Economic Survey, on page 50 it is written that: Last year, though the evidence is uncertain, personal savings appear to have increased; and it is to be hoped that this improvement will be maintained. That is pretty guarded. They do not display undue optimism. I will not go into the figures of savings: they are all very arguable, as the noble Lord, Lord Pakenham, knows. The figures published are usually residual figures, which change from quarter to quarter. But there is one other set of figures to which I wish to draw your Lordships' attention. They are in the other White Paper, The Preliminary Estimates of National Income and Expenditure. On page 7, in the third table, is the aggregate account of company earnings, taxation and savings. The table shows that after certain sums are paid out in dividends and certain provisions for taxation are made, there is left in the aggregate a balance of £1,319 million for 1952, which is substantially lower than the balance for 1951 and approximately the same as it was for 1950. That is the balance which corporations have, by way of accumulated depreciation funds and moneys not paid out, to re-equip themselves and modernise their plant. That is a dismally low figure.

All the figures of savings and the creation of capital give grounds for a great deal of anxiety. These funds cart obviously be increased by decreases in taxation, but what is needed is that the productivity of the country and the creation of capital should be steadily increased, because without that I find it difficult to see (and I know my noble friend Lord Brand agrees) how we are going to be in a position to finance expenditure which we know has to take place in this country and in those countries overseas for which we are directly responsible. A concession on depreciation was given by the Chancellor of the Exchequer. I will not go into that at this hour of the night. The Chancellor gave back again the allowance for depreciation on plant and machinery in early years. I should like to say one thing which I think needs saying. The extended initial depreciation is of value only so long as it remains. If it is withdrawn again after a couple of years, it has no effect except to provide a loan from the Treasury to companies for a brief period to pay for more plant. It is only if depreciation allowances for corporations are increased that modernisation and extension of plant become possible out of the corporations' own resources.

I agree entirely with the noble Lord, Lord Brand: I should prefer to see tax remissions given to companies and corporations rather than to individuals, and I hope that such further concessions as may become possible next year will be granted in that direction. It is obvious already, and nowhere so obvious as in the shipping trade, that the present depreciation allowances are totally inadequate. The depreciation allowed on ships is totally inadequate to keep our Merchant Service going. I think I am right in saying that the rate of depreciation of ships is 6¼ per cent. on values when the ships were built. By no stretch of the imagination can a ship be built on that scale of depreciation before the ship whose place it is to take falls to pieces. It is in that direction that the next concessions and relief must be given, and without that relief I do not see how industry in this country can get into the state of productivity in which we should all like to see it.

6.34 p.m.

LORD ARCHIBALD

My Lords, in the comparatively few years during which I have had the honour to be a Member of your Lordships' House, I have taken a particular interest in the debates on economic affairs which we have had from time to time. I think noble Lords will agree that they generally find the House at its best then, and the speeches, though not devoid of Party political content, at least, in contrast with other occasions, tend to minimise the Party political flavour. It was the more disappointing, therefore, that we should have had this afternoon from the Government's first spokesman such an extraordinary speech as that to which we listened from the noble Lord, Lord Cherwell. It covered a great deal of ground, but it was surprising for one omission: there was no reference to economies in Government expenditure. This was particularly surprising because the noble Viscount, Lord Samuel, had made reference to this question. It was one of the features of last year's Budget that expenditure was up by £200 million over the Estimates, and the Estimates for the year which we have just started show an expenditure of £108 million over last year's Estimates. I suggest that if these figures had been put forward by a Socialist Chancellor of the Exchequer we should have had denunciations of his extravagance, and I hope some reference is going to be made to that point. I do not propose to refer further to the speech of the noble Lord, Lord Cherwell, except to say, on his reminding us that the Prime Minister in Glasgow had reassured us that there would not be an early General Election, that if rumours of an early General Election become rife again, we must attribute them to the fact that the noble Lord's speech this afternoon can most charitably be described as electioneering, although probably not electioneering of a very high order.

In an interesting speech, the noble Lord, Lord Brand, said he thought that, on the whole, the monetary policy had had a good effect. I want to look for a moment at the monetary policy with reference to one industry. In general terms, what was the expected result of the Chancellor's action in raising the bank rate? We have had many references this afternoon to the falling off in production. in exports, and in trade and industry generally, which I do not want to exaggerate; but surely the whole point and purpose of raising the bank rate was to cause a decline in trade and industry. If it was not going to do that, it had no other purpose. I think the Chancellor has himself indicated that, and to my mind it was clearly implied in the speech of the Economic Secretary to the Treasury in another place during the Budget debate. The purpose of an increased bank rate is surely to restrict trade and industry and reduce employment. That is not something new. Noble Lords will probably remember the evidence of the late Lord Norman, then Mr. Montagu Norman, before the Macmillan Commission on Trade and Industry. In reply to questions by the late Lord Keynes (then Mr. Keynes), Mr.Montagu Norman made it clear that an important consequence of a high bank rate, and a quite deliberate intention in certain circumstances, was the creation of unemployment.

That has not changed. I am not saying—and I hope there will be no misunderstanding about this—that the raising of the bank rate was designed to create mass unemployment; but it was designed to create such a recession as would make it a deflationary instrument. I do not think there can be any controversy about that. Mycriticism of it is that it is a blind and completely undiscriminating instrument for the purpose. Further, I do not think the good effects that have been attributed to it really flow from it at all, hut flow from the other part of the policy which accompanied it—namely, the instructions from the Chancellor and from the Treasury to the banks as to the directions in which they should give advances and the directions in which they should limit advances. It is true, of course, that between November, 1951, and February, 1953, the dates for which returns have been made, there has been a switch of advances from the less useful to the more useful industries—that is, with one exception, to which I will refer in a moment. My point is that that switch of advances has not been brought about by the high bank rate, but as a result of the instructions given to the banks as to the credit policy they were to pursue, and that these beneficial results could have been obtained just as well without the dear money policy which is in operation.

We are all too painfully familiar with the other unfortunate results of the dear money policy, such as the increased cost of servicing the National Debt, but there is one other result to which I think no reference has been made this afternoon. As we know, for the past year there has been a drop in invisible earnings of some £85 million, which includes £30 million for the increased interest payment on sterling balances in London. The noble Viscount, Lord Samuel, in reply to a point made by the noble Lord, Lord Pakenham, said that among the things he would not do if he were a Chancellor striving for economy would be to embark on such a scheme as the groundnuts scheme. I think I am right in saying that the total losses on that scheme were of the order of £36 million. The dear money policy is costing us £30 million a year on these sterling balances in London, and there is not, to offset it, the social advantages to the native population of Africa which flowed from the groundnuts scheme. I believe that the only justification for the high bank rate which has been made in this House, in this debate or in previous debates, was its psychological effect at the time, in creating a sense of shock and urgency. It is too late to argue whether that is true or not, but, at any rate, it no longer holds good, and I would suggest that the justification for a high bank rate no longer obtains.

I want to carry that general argument over to one particular industry which is of tremendous importance to the economic affairs of the country, although it has not been mentioned this afternoon—namely, the agricultural industry. In connection with the flow of bank balances, I mentioned that advances to useful industries have in the main increased, with one exception, and the exception is agriculture. The amount for agriculture and fishing has gone down, I believe, by something like £2 million. Unfortunately, one cannot take agriculture by itself, and it may well be that it is rather more than a £2 million drop in the case of agriculture and an increase in the case of the fishing industry. In addition, the figures of the Agricultural Mortgage Corporation, which have just been published, show that advances during the past year have gone down by £460,000, while at the end of the year advances approved, but not yet made—waiting for legal formalities, and so on—have gone down by no less than £1,360,000. So that on bank loans and loans by the Agricultural Mortgage Corporation alone there is a drop of something of the nature of £4 million in the capital available for agriculture. That. I suggest, is a matter of great importance. We want an expanded agricultural production in this country. To expand agricultural production, as everyone knows, means more capital in. agriculture, and more, finance on which to base the expansion. How it can be expected that agricultural production will increase, when the flow of money available is decreasing, it is difficult to see.

I believe that a far greater amount of new capital is required in agriculture than is generally recognised. Anyone who is looking for a farm, particularly to buy, and visits, as I did a few years ago, a considerable number of farms on the market, cannot but be struck by the obsolete nature of the farm buildings in this country, with a few honourable exceptions where new buildings have been put up recently. In most cases, even where the buildings have been maintained in good condition—and that is not by any means always the case—they are generally a hundred or more years old, and, however good they may have been for their original purpose, they are quite unsuited to modern mechanised farming methods: they are wasteful of labour, and they tend, because of their obsolete lay-out and construction, to nullify to a great extent the mechanisation which has been carried out. I should think that probably hundreds of millions of pounds, possibly anything up to £1,000 million, of new capital is required to equip British agriculture with the type of buildings needed for modern conditions.

But farmers are not borrowing, either from the bank or from the Agricultural Mortgage Corporation, as they were a few years ago. Why is that? It is because the margin in farming just will not carry a 6 per cent. money rate. I suggest that, with the need for increased production in this country, and with the need, in particular, for increased agricultural production, there is a strong case for cheaper money being made available. I am not making the proposition that there should be cheap money for farmers only. I believe that you would take a burden off industry, off the service of the National Debt, and off the cost of interest on sterling balances in London by a cheaper money policy, and I hope that there may be some indication that the high bank rate and dear money is not to be a permanent feature of the policy of the Government.

6.50 p.m.

LORD BALFOUR OF INCHRYE

My Lords, your Lordships have had a debate which has been adorned by many authoritative speeches. All speakers, including the noble Lord, Lord Pethick-Lawrence, have paid tribute to the achievements of the Chancellor of the Exchequer. Full credit was given to the Chancellor for the improved position, but nevertheless I refer to The Times leader following the Commonwealth Conference, which said this: There has been no sort of public admission that further unpopular measures, in addition to those taken during the past year, will be needed. But it can scarcely be contended that the measures already taken will be adequate for the long-term purpose. It is on the long-term purpose that I should like to address your Lordships for a few moments. I would remark that hardly a word has been said in four hours' debate on the subject of the British Commonwealth and the recent Commonwealth Conference, the results of which showed the lines upon which Her Majesty's Government are thinking and wish to act. Our economic future, whatever may be the state of the world, must be linked to that of the Commonwealth and Colonial Empire, because a combination which produces four-fifths of the world's nickel, one-quarter of the copper, whose sterling area members produce three-quarters of the world's tea, half the wool, rubber and chrome, nearly half the tin, two-thirds of the manganese, a third of the world's hard hemps, a quarter of the coal and sugar, and various other primary requirements that I will not stipulate, cannot be ignored, either by the sterling or by the dollar world.

The Foreign Secretary, Mr. Eden, whose bad health we all deplore, and whose recovery we all hope for, and the Chancellor of the Exchequer, have both declared that there is "no intention of creating a Commonwealth economic bloc." This issue was summarised by the Chancellor of the Exchequer when he said (OFFICIAL REPORT, Commons, Vol. 510, col. 1683)—and I think he put it very clearly: The question was whether we should look outward or inward, whether we should aim at autarchy, self-sufficiency or whatever we like to call it, or multilateralism or widening of trade, whether we should look for the solution of our problems in restrictions or in expansion through freer trade and commerce. That was the question as put by the Chancellor of the Exchequer. Britain is now pledged by her leaders to work in favour of no restricted, favoured sterling Commonwealth-Western Europe trading area, but for freer trade and towards world free trade. This must carry with it the abolition of quotas, the drastic reduction, if not the abolition, of tariffs and eventually preferences, and, of course, the eventual convertibility of currencies. Your Lordships are always kind to noble Lords who do not take the conventional view, and I claim your indulgence when I say that I believe this policy may fail and is likely to break down in two directions.

First, is the American co-operation, essential to the success of this multilateral policy, likely to be forthcoming to the required degree? Will the Republican Party turn away from concentration on maintaining a balanced, self-sufficient, self-stimulating policy, and abolish or haul clown tariffs to allow us to close our dollar gap by the United States absorption of our exports? So far there has been little but words in that direction which are hopeful to Mr. Butler's policy. The noble Viscount, Lord Samuel, react us President Eisenhower's World Trade Week Declaration. The same week that President Eisenhower was making those fine statements, you can read the report in the Financial Times on the House of Representatives' Committee's hearings on the Simpson Reciprocal Trade Act Extension Bill. You can read the evidence of Mr. Strackbein, who is chairman of the newly formed Committee of Industry, Agriculture and Labour, and also chairman of the National Labour Management Council on Foreign Trade Policy, advocating higher and tighter U.S. tariffs and supported by numerous industrial witnesses. That is action; the other is words. Protectionist symptoms are, t think, expressed in the refusal of the British electrical tender and, I believe, to some extent in the atmosphere surrounding the resistance to the granting of certificates of airworthiness for our Comet aircraft.

The noble Viscount, Lord Samuel, asked me whether I approved of the refusal by the American authorities of the British electrical tender, which was lowest. Of course I do not approve of that refusal while there is a Government who are pledged to all the fine words which the noble Viscount read out in President Eisenhower's World Trade Week Declaration. If a Government are not pledged to multilateralism, dim I think—although I should regret it—that they are perfectly free to take what particular line they want. The noble Viscount, Lord Samuel, then asked rue what I should think if a tender submitted to a public authority in Britain from a foreign country was considerably lower. Quite frankly, if the margin was not too great, I should wish to see a British tender accepted, in preference to the slightly lower foreign one.

VISCOUNT SAMUEL

But suppose the margin was great, as in the case of America?

LORD BALFOUR OF INCHRYE

I think that is a hypothetical question, because we pride ourselves—and the noble Viscount has made many speeches on this subject—on our ability to compete in the world markets and to produce better and cheaper goods than anyone else. Supposing there were great unemployment in the British motor car industry, would the noble Viscount and his Party advocate the purchase of foreign motor cars for public authority use at a considerably lower price than British cars? I should like to ask the noble Viscount a question. I am sure he will not mind—a Roland for his Oliver. Supposing that there were unemployment in Coventry, and the London County Council wished to buy 1,000 motor cars, would he support their buying French Renaults or German Volkswagens?

VISCOUNT SAMUEL

That would not be a purely economic question—it would be a kind of philanthropic question. Similarly, in strategic cases, where you want to secure the production of a particular foodstuff, you might, in particular cases, prevent foreign imports from coming in. But I am dealing, by and large, with the whole system of trade. These are exceptional cases. In ordinary cases, where there is no unemployment, if the import showed a very considerable margin would the noble Lord, on grounds of principle, refuse it because of the plea of "Buy British," and if so, why should not the Americans use the plea of "Buy American"?

LORD BALFOUR OF INCHRYE

I believe that the Americans are perfectly at liberty to use the plea "Buy American" if they are not at the same time paying lip service to multilateralism, in the way that President Eisenhower is doing in his declaration. However, as the noble Viscount said, we could quote exceptional cases to each other, and we will not detain your Lordships on that. I think there is no difference between us, that all the symptoms of action on the other side are not towards a wholehearted acceptance of the Butler conception of multilateralism. President Eisenhower's words may be, but the actions so far are not; and it is, I believe, because the American Republican Party will not accept in full the Butler plan that I believe we may be disappointed in our expectations. I think it is more likely, as peace develops, that the primary commodity prices and metal prices will fall, and consequently we shall see a bigger deficiency in our dollar position.

I was very interested in the speech of the noble Lord, Lord Macpherson. I believe that if the United States cannot absorb fully and quickly the dislocation of turnover from arms to peace production, we may see some temporary recession in the United States; and a recession in the United States means that they will become less willing importers and more ardent exporters. It is interesting to look at the actual results of a recession in the United States on the American imports from the sterling area and from this country. Mr. J. M. Cassells, director of American Economic Co-operative Administration Special Mission to the United Kingdom, in 1951, in his book Three American Recessions 1929–30, 1937–38 and 1948–49 shows that after one year of recession, the total consumption of imports declined by 4 per cent. Imports from the United Kingdom declined by 33 per cent. and imports from overseas sterling areas declined by 34 per cent. In the recession of 1929–30, after three years of depression, United States consumption declined by 37 per cent. but their imports from the United Kingdom had declined by 77 per cent.

The second direction where I think Her Majesty's Government's policy is likely to break down is the open door trade policy with adherence to G.A.T.T. and subsidiary agreements, which leaves our domestic and Colonial markets exposed to a steadily increasing Japanese and German competition. The whole trend of Mr. Butler's policy is to accept this risk in the alleged greater interests of multilateral world trade stimulation. But the products which are coming on to the world's markets in increasing quantities are made by nations that do not carry the overheads of a Welfare State and which have standards of life that we would not accept in this country. In the face of this threat, we should have either to lower our own standard of life or give a measure of protection to our home and Commonwealth trade against outside competition.

There is nothing immoral in this idea of discrimination in favour of trade with our own Colonies and Dominions. I would pray in aid Professor Lionel Robbins. In Lloyds Bank Review of January of this year, Professor Robbins says: In a world in which high tariffs and other obstacles to trade are imposed by almost every nation, there is certainly no need to feel more guilty than the rest at arrangements which, if they restrict trade in certain directions, release it in others. And if the canons of international good behaviour are held to permit the formation of customs unions, there are few arguments in principle against the extension of preference. Each case must be judged on its merits and in relation to our general interest—which includes, of course, the maintenance of the political solidarity of the Commonwealth and the Western Alliance. Hence, my regret at the Commonwealth decision not to present a united front in favour of restoring economic liberties and shedding the shackles of G.A.T.T. and subsidiary agreements. It is true that the Commonwealth Economic Conference communiqué says that the effect of the support of members of the Commonwealth is to make possible some approach to the other contracting parties and to ease relations in certain directions. That passage is very indefinite, and I should like to hear from the Government at some time what is actually being done in the particular direction mentioned.

Nevertheless, I believe the Government are entitled to full credit in that it did succeed in preserving unity at that Conference, even at the cost of surrendering some of our hopes and some of the Government's principles. I believe that the Government's great achievement is in getting the Dominions to concentrate capital investment on producing things which are essentially aimed at closing the dollar gap. I would regard this last Conference, as an interim conference; and whether following that Conference we continue along the lines which Mr. Butler took to Washington depends upon America's views and America's actions.

My final word is this. If the Butler plan is not embraced fully in Washington, we may soon find ourselves marching along an alternative road of primary concentration on the sterling areas, the British Commonwealth and Western Europe. I believe that the revival of world trade has nothing to fear from such a policy. Always in the past an increase in Imperial trade has carried with it an increase in world trade. If America does not travel along the road of multilateralism for which Mr. Butler hopes, I believe Britain will travel along the alternative road, with full partnership of those who hesitated at the last Conference but who will be with us at the next Conference and thereafter along that alternative road.

7.7 p.m.

THE EARL OF PERTH

My Lords, in economic affairs I am a great believer in the individual and in individual initiative. To me, one of the most important developments in the last year in the economic field has been the fact that the Government have encouraged individual judgment and individual choice. Of course, in these days the broad economic policy must depend on Government control and direction; but I believe that wherever possible their aim should be to build a framework in which the individual can act. It is riot for the Government to act on its own account.

Having made this short economic confession of faith, I want to turn to a particular subject—increased savings. I speak of savings where the individual particularly is concerned. I noted with satisfaction that the noble Viscount, Lord Samuel, and the noble Lord, Lord Rennell, touched on this question, because, of course, savings are vital to the well-being of this country and, indeed, for the well-being of our Commonwealth. They are needed here for industrial re-equipment and so for the cheaper production of goods. In the Commonwealth savings are needed for the development of the output of primary products. Furthermore, an increase in savings at home will do great things for our trade balance, and it will also help to provide funds for capital equipment investment in the Commonwealth.

Lately, fresh encouragement has been given by the Government for industry to save, and something has been done for the individual. I believe there is a great opportunity for more to be done to encourage the individual worker to save. It is, indeed, from the worker and his earnings that we must hope for improved savings. He needs an incentive to save—for example, life insurance for his wife and children, recourse to a building society for a house or a particular luxury, such as a television set, if he wants it very much. I remember seeing the other day some figures which showed that 40 per cent. of the television sets in this country are owned by workers who earn less than £8 per week. That shows that, given an incentive, there is a possibility of saving being effected.

To-day, there is good prospect of a stable pound and a halt in the cost of living, and therefore I think this is an appropriate moment to make a real savings drive. This drive could be varied to suit and attract all tastes: for example, for those who like to have a go at the football pools, I suggest some form of premium bonds. Many people look on premium bonds as a terrible form or gambling, but I believe that we could so arrange things that there was no risk of people losing their capital; the most that, they would forgo would be the interest, and that would revert to the lucky people who drew in the premium drawings. Or, again, I believe that those who want a house might be given special encouragement and help in approaching building societies. There may be others who would like to invest in industry. There are many who do not know how to do it and it is not made at all easy.

That brings me to a particular point which I should like to call the mechanism of saving. In the U.S.A., an immense success attended a movement which is known as the "open-ended trusts" and, further, great success has attended company schemes for enabling employees to buy shares in the companies in which they work. We have seen various suggestions at home that such things as the penny share units should be developed. Again, I believe that the question of distributing shares, or other types of saving, should be carefully considered. For example, I think we might use such things as the chain stores; or the banks or the post offices might be persuaded to sell new wares. The Government themselves should, I believe, consider whether there is any direct action they can take to encourage saving: for instance, whether they could not do something to simplify the tax procedure for the small investor, or whether it really is worth while making these investigations of savings accounts. Then again, I believe that the Capital Issues Committee has some sort of ban on the investment trust movement which prevents it from making new share issues.

I have, I think, dwelt long enough on this subject. I hope that I have shown that savings are of great importance, that it is important to make a new savings drive and that there are many new ideas which should he explored in connection with this drive. The field is a wide and fertile one. I should like to make a specific suggestion—namely, that the Government should consider setting up a Working Party or Committee—call it what you will—to go into the whole of this question and to see whether and how we can encourage new savings. This body should invite suggestions from all corners, and the more imaginative and novel the suggestions, the better. In due course, the body would recommend to the Government which avenues offered the most promise, and the Government, in their turn, having decided which should be followed, should then leave subsequent action to the individual and individual initiative. That, I think, is where I started, so it is an appropriate moment to end.

7.15 p.m.

LORD BARNBY

My Lords, the two Motions on the Paper afford a sufficiently wide scope for dealing with both financial and economic thoughts. The financial ones have been dealt with. On the economic side, which includes the employment question, there has been a massive review from a great number of speakers. With your Lordships' indulgence, I will address myself particularly to one aspect of that overall question of employment and appropriate production in the country.

The Commonwealth Conference, which took place in the spring of this year, was followed by a Report which included the recommendation that it would be wise if the United Kingdom re-aligned its total production so that it concentrated less on exportable goods that could be easily produced by other countries, and transferred that productive effort to the type of capital goods which are so much in demand throughout the world, not only in the Commonwealth but in other countries. Anyone who has recently been in Australia—and I am sure the noble Lord, Lord Rennell, if he were in the House at the moment would agree with me, because he has recently returned from Australia—knows that the position to-day is the same as it was last year: Australia badly needs capital goods of all kinds for expansion, but this country is unable to supply them in time, even though the price may be right. The point, therefore, is that certain industries, hitherto contributing generously to export, should be substituted for others also capable of exporting. This, of course, would involve a great change-over of plant and employment.

Let me give textiles as an illustration: they have been mentioned. I suppose that the production in an area like Lancashire of capital goods of high engineering character, in place of cotton textiles, which have to be run with dollar-imported raw material, must be right; but that involves considerable fluidity of labour. How is this to be implemented? I raise this point to-day. While one cannot expect an answer on this point now from the noble Earl who is to reply for the Government, I hope that he will see fit to report in the proper quarter that it would be helpful if those industries which are so threatened could be given an early indication of what is in mind. Another angle to that is that a great deal of the plant of this country is of considerable age, and the logical thing would be to concentrate on the operation of effective plant and put to the hammer the less modern plant. That involves multi-shift operation, and that is the point which I hope the noble Earl will commend to the proper quarter; that some encouragement be given to industrialists to see how this desirable course is to be worked out.

Another angle to this question is its effect on textile industries. The noble Lord, Lord Cherwell, made reference to the unemployment which occurred in the textile industries in the severe recession of last year. I wonder how, in the ensuring that at all hazards there shall be full employment, there is going to be a plan dealing with the curious situation in industries which are subject to fashion changes or seasonal purchase. That is something on which those engaged in the industry would welcome guidance.

There was recently appointed a Committee to deal with the question of migration from this country. Doubtless that Committee will review the whole question, but there is one point in particular that I wish to raise, that of the impounded funds of migrants to Canada. I think that further consideration might be given to relaxing the restrictions on withdrawals by migrants. In urging consideration of that, I would draw the noble Earl's attention to the statement in another place last week that the permitted investment—that is, new investments authorised by the Bank of England—in Canada in 1953 amounted to £7½ million sterling. That is an encouraging indication of a new outlook by the Government. In that connection, I would ask the noble Earl whether he will urge on the Treasury, the Bank of England or Exchange Control, that consideration should now be given to permitting United Kingdom holders of dollar securities, particularly if they are other than common shares—that is to say, if they are bonds or preference shares—the privilege of switching from one investment to another and not to obligate repatriation or forced sale in Canada.

I appreciated the speech of the noble Lord, Lord Balfour of Inchrye. I think he made an extremely good point in suggesting that those who thought the United States are going rapidly to reduce their tariffs are mistaken. Moreover, I have a suspicion that if, as he suggested, there was a big inflow of goods purchased from countries with low wage costs (I do not call Japan a country with a low standard of living just because they can live on rice, whereas we live on meat), there would be a demand for safeguards, just as previously there was a need to give protection to British labour by the Safeguarding of Industries Act, when cheap French labour followed the devaluation of the franc. We all admire courage in this House, but I particularly admired the noble Earl, Lord Perth, in recommending premium bonds. I have a vivid recollection of a similar recommendation in another place after the First Great. War, when Horatio Bottomley was the leading proponent. I followed him and admired his courage, and the country admired his courage.

There is another matter with which I wish to deal, the question of purchase tax on textiles. There is no need to elaborate this matter, as recent letters in The Times make clear what is wanted. Why should textiles have been singled out not to receive any part of the reductions which the Government have given? It would not be proper for anyone connected with the textile trades to sit down without registering emphatic disappointment with the Chancellor of the Exchequer for singling them out for omission from any relief. And when that view is supported by no less an authority than an ex-Chancellor of the Exchequer, the noble Viscount, Lord Waverley, I wholeheartedly commend it to the consideration of my noble friend who is to reply.

7.27 p.m.

LORD MONKSWELL

My Lords, for some years past I have been greatly alarmed by the way this country is living on capital. I have followed the debate this afternoon with great interest. A certain number of noble Lords have touched on the subject, but I have not gathered very much from what they have said about it. To my mind, it is difficult not to deplore the way in which the facts which control financial policy are ignored. I am afraid I must begin with a few rather simple facts. Civilisation is due to and depends upon work; work produces capital, and the continuance of civilisation depends on more work, powerfully aided by capital. For maintaining any kind of real civilisation capital is absolutely necessary. Men and women will work to accumulate capital for themselves, and even more for their own children, but have little desire to do so for the benefit of the tax-collector. It follows that any capital tax, more particularly death duties, are the strongest possible deterrent to the accumulation of capital. On the other hand, the vast majority of people have a violent objection to seeing other people better off than themselves and are easily persuaded to use the political power they may have to plunder these others. In fact they are doing all they can to make impossible the accumulation of capital by the thrifty, who obviously are in a better position to do it than anyone else, if allowed to do so.

For centuries, capital was accumulated in this way; and, owing to the freedom from invasion enjoyed by this country and the comparative absence of civil war and internal disturbance, Great Britain probably became the richest country. In order to continue thus, capital must continue to be available and at least sufficient to maintain and develop our assets. I need not go at length into our present failure to save such capital. Every democracy lives in a state of constant danger lest the poorer majority should use its political power to plunder the savings of the past and so greatly to discourage future savings as to prevent them from coming into existence. To such an extent is this danger ignored that the great majority of voters, if they think at all (which is not very much as a rule), will cheerfully accept the view that thrift is nothing but a form of selfishness which may properly he hindered by the whole power of the State.

If ever there was a country where this danger is imminent, it is the United Kingdom at the present time, with its rapidly increasing, over-crowded population, with rapidly increasing social service subsidies, and with apparently an almost complete indifference to the dangers which threaten us. There is hardly a shareholders' meeting where the chairman does not point out the difficulty of securing capital sufficient to maintain, let alone increase, the productivity of his business. The demands of the tax collector are so enormous and overwhelming. The raiding of capital goes far beyond what is taken in death duties. Income tax, surtax, purchase tax, Customs and Excise are all now coming largely out of capital. Neither must it be forgotten that inflation is also a tax on capital. We are at the present time just keeping our heads above water by living on our reserves—and our reserves are the thrift of former generations. Up to now it has been possible to satisfy the tax collector by selling out capital for cash, which is the only form of wealth which can be used for Government expenditure. It is of no use for the tax collector to seize a house or factory or a street; he must wait until it has been sold for cash. Who is going to buy it when he knows it may be taken from him without compensation? A person is much more likely to spend his money on his own enjoyment and to show the tax collector an empty purse. I imagine this aspect of the matter must have occurred to the Treasury. It would be interesting to hear how long they think it will be possible to go on selling out capital for cash.

The Government's lack of knowledge and interest in questions of this kind appears to me to be staggering. On February 3 last I asked them for an estimate of how much capital was sold out and paid away in taxation in each of the years after 1945. I was blandly told that they did not know. I then tried the Bank of England; they did not know either. Another interesting subject is the Government's policy of starving the country in order to provide luxuries broadcast. I will not attempt to examine the social services in detail, but it is obvious that the provision of an adequate amount of meat is of far more importance than any social service. The absence of meat is at the present time having a most disastrous effect upon the power and will of our people to work.

As for the redistribution of wealth, I think it may safely be said that the more is redistributed the less there will be. What is wanted is much more investment, and that cannot occur until there is more capital to invest. More capital can come only from more thrift, and thrift is the one thing that our present system of taxation is seeking to destroy. Ignorant prejudice against owners of capital is an enemy as formidable as Hitler or Stalin. Of course some big capitalists spend thousands a year onthemselves—it is their incentive. But for every pound they have spent on themselves they have provided one hundred pounds in reproductive enterprise that enables the country to live.

7.34 p.m.

LORD PAKENHAM

My Lords, it would be possible to feel that this debate has been somewhat disjointed, and yet to appreciate that every contribution to it was highly informed and of a deeply felt character. I know that I am not expected to speak for very long, and therefore a number of noble Lords who are still with us will forgive me if I do not refer to them in detail, particularly my colleagues Lord Macpherson and Lord Archibald, who made contributions which I believe will be studied for a very long time to come. May I say to the noble Lord, Lord Balfour, how strongly I agree with him about the Comet? I am not quite clear myself about all the points, but I share his feeling about the atmosphere. I know the noble Lord is a brave man, but I hope that it will not be counted as courageous in this House to proclaim a Commonwealth point of view. It will he a bad day if that ever happened. I hope that general sentiments such as those of the noble Lord, whatever their applications, are shared by all of us in this House and that no one will venture to refer to the Commonwealth as a monopoly of any one section. I am not quite sure whether the noble Earl, Lord Perth, voiced a more courageous standpoint when he dealt with savings in a particular way. Whilst I do not agree with him on all his points, I will say that I agree absolutely about the need for hacking up the Savings Movement.

I think that everybody must feel that the noble Lord, Lord Pethick-Lawrence, presented the facts in a most fair-minded way. I do not think that has been questioned anywhere, nor do I think that any of the individual facts which he laid before us have been challenged. The only fact that perhaps I would add to those mentioned by him and the noble Viscount, Lord Hall, is a rather gloomy fact—I mention it really by way of application to something said by the noble Lord, Lord Brand, who I think has left us. We must realise that on the production side our share of world trade has been going down. It is not just a question of our own exports declining but, according to the figures quoted by the late Financial Secretary, Mr. Jay, in another place—figures which he quoted from a famous Bank Review—the United Kingdom's share in world exports has declined from 22.2 per cent. in 1951 to 18.4 per cent. in the third quarter of 1952. He argues there that that really does not give any ground for complacency. I realise that we on this side must never fall into the position of taking pleasure in our country's misfortunes; that, I think, is the most unfortunate rile that any Opposition could ever occupy. When we lay these facts before the House, it is in no spirit of that kind, but to explain to the Government the great difficulties which we think confront them and our country at this moment.

I will not say much about the speech of the noble Lord, Lord Cherwell. Of course, I was glad to see him back at the Box. But he has been dealt with so firmly and justifiably by my noble friend Viscount Hall that it is not for me to add to his castigation. I felt that his general point of view was perhaps not dissimilar from one which I came across to-day in an article in the current number of the Readers' Digest. The article is called, "Comrade Lindemann's Conscience"—which is, obviously, a very live topic in the House at the moment. I am very glad to welcome the noble Lord as a comrade—I hasten to say, if he will accept that description. At the end of the article entitled "Comrade Lindemann's Conscience," there appears this passage: In a comfortable restaurant…Lindemann, his helpers and his ex-victims"— I take it that his helpers are his colleagues in the Government and his ex-victims are the civil servants whom he probed so thoroughly— were celebrating. The spare, usually shy young man raised his glass. 'We shall have to use other methods in the future,' he said. 'But I think we can do it again'. That, I think, would describe the speech of the noble Lord this afternoon with a certain amount of fairness.

There are some things that the Government have done this year which I hope they will continue to do again. The improvement in the trade balance is something which we cannot learn of too often. But they have made some mistakes, and, certainly, some things have gone very wrong. Whether we should have done better it is impossible to say. Perhaps noble Lords will allow me to proceed, through general issues, to make a few remarks in reply to the noble Viscount, Lord Samuel, who, unfortunately, has had to leave the Chamber, as he courteously explained to me. It will be recalled that Lord Samuel was saying that we must bring down taxation. I rose, mildly and, I hope, deferentially enough, to ask whether he could indicate in the broadest outline how this was to be achieved. He tuned on me with all that mature vehemence which comes to him so easily and replied in effect: "Groundnuts to you!"—and that was really all the answer I received. I shall have some hesitation about tackling the potentate again. But I really was very glad to see him in such spirits. We often describe him as being as young as any of us, and I am bound to say that, in view of that answer, which would not have done injustice to a prize student at a preparatory school. I feel he is the most youthful of all of us.

The noble Viscount said that we want to bring down taxation. There, I am sure, we are entirely at one. But, as the noble Lord, Lord Cherwell, explained very clearly, it is very much easier to say that than to do it. When in opposition the present Government—and it is rather the way of Oppositions—declared, in various ways and at various moments, that if they were returned to office they would eliminate a great deal of waste. I do not think anyone can say that now that they have been returned they have been able to discover and eliminate very much waste. They are abolishing my old Ministry, and if I had been there it might have eliminated waste. But, as things are at the present time, I do not know if any great advantage is secured. I said in the debate on Defence, and I think the House will agree, that the present Government have discovered that our Defence arrangements were far better than they had supposed when they had only the information open to an Opposition.

Another method of cutting taxation would be to bring about some large reduction in the services provided, but Lord Cherwell has indicated, and, I hope, firmly indicated, that that is not in the minds of the Government. I will deal with that topic in a wider context later in my speech. I think we can take it that, without severe slashing of the Welfare State, which is not in the minds of the Government, there are no substantial economies to be effected in that direction. Another way of reducing taxation is to adopt what might be called a more optimistic attitude to the Budget problems and say that we do not need quite such a large surplus as we thought, or that we might, in certain circumstances, find a deficit perfectly legitimate. For myself, and, I believe, for my colleagues, it is right to say that I do not think many of us wish to quarrel with what Mr. Butler has done. I do not think that on the issue of a surplus any of us are prepared to set ourselves up as being able to point to a wiser decision than he has made. Finally, there is the question of the levy. That, in its turn, arises from production, and that is a matter which is very much in the minds of the Chancellor of the Exchequer and of the noble Lord, Lord Cherwell, who described this as "an incentive Budget." I am afraid I have not had time to look it up, so I do not know whether last year's Budget was described at the time as an "incentive Budget" or not. Perhaps it was, but with not quite the same blowing of trumpets. I think it was treated generally as being a new approach to the whole question of incentives.

The Times, which was not very kind to anyone in this connection, recently informed its readers that: The verdict on the strategy of Mr. Butler's first Budget a year ago was that it necessarily sacrificed the future to the present in that while it allowed for consumption to be substantially maintained, the incentive to invest in industry was not only not increased but positively reduced. It went on to say that most Budgets since the war have shown the same kind of tendencies. So The Times, looking back to the Budget of last year, regards it as an anti-incentive Budget. I do not think that we need differ from that verdict to-day. If the Government are saying that this is an incentive Budget, we can say that we hope it will add incentives; but the Government's past record does not inspire much confidence in my mind or in the mind of the paper which, along with the Daily Herald, is my favourite journal—The Times.

The noble Lord, Lord Brand, is not here so I will not follow up his point about undistributed profits. But I will say this—and here I speak for myself. Assuming that a certain amount is to be raised by taxing incomes, it has to be distributed between various income brackets, rich and poor. In a way, I sympathise with the idea that there should be less distributed in the way of profits, and more undistributed. If one could think of some method of bringing that about, it would have my sympathy and that of all of us. But that is not to say that I agree with Lord Brand that it is better to remove the tax on undistributed profits than to remove the purchase tax. I am not suggesting that for a moment.

I think that the only other large factor which affects production is the question of the monetary weapon. That is a very difficult instrument to use. At one moment we have something called "inflation," and at another moment something called "deflation." I think it is true to say that no one in this House, and indeed no one in the other place, has ever defined inflation to anyone else's satisfaction. I think the best definition of inflation and deflation was given by the late Mr. Ernest Bevin, who was loved by so many of us in this House. He said that inflation was the state of a Cabinet Minister returning home after making a successful speech at a dinner, and deflation was the state of the same man after he had awakened his wife to tell her about it. I think that goes as close to a definition as anything which the economists have been able to find.

As regards the monetary weapon, I would echo almost every word that has fallen—and quite a few have fallen, though not to-day—from the lips of Lord Pethick-Lawrence on that subject, at various times since the Election. We can only hope that the Government will use it more flexibly in the corning year than they have been able to use it in the past year. No one can tell how far these improvements and these deteriorations which we have seen in the last year can be attributed to the monetary weapon. I think that Lord Brand was inclined to say—I may have misunderstood him, of course—that a larger share of the improvements was due to the monetary weapon than of the things that have gone wrong. That is a matter of personal opinion. I think we must all feel that the monetary weapon has assisted materially to improve trade balances. But it has also played its part in bringing down production. So it has had a bad effect and a good effect. We must all hope that it will be used with more uniform success in the times that lie ahead of us.

I do not want to spend an unduly long time upon these matters, but I should like to deal with a fundamental issue which was raised by the noble Viscount, Lord Waverley. Lord Waverley stated a very frank and a very whole-hearted point of view. Incidentally, it was the point of view of an extremely able and distinguished public servant. I am sorry that he has now left the Chamber. I would have told him that I was going to reply to him had I known that he was going to be called away. I took down, more or less correctly, I hope—though there may be a word or two wrong—one key sentence in his speech. He said that if it was merely a question of the redistribution of wealth, he did not see any justification for depriving people, to the extent to which we have recently grown accustomed, of the results of their own exertions. I think that was the substance of what he said. In my opinion, that was a frank Conservative point of view. A good many years ago I remember reading in a leading article in The Times words which stuck in my mind. They put the noble Viscount's Feint of view in different words, but while The Times gave the practical viewpoint, the noble Viscount, Lord Waverley, combines the moral and the practical points of view. He thought that this was "legalised brigandage." The sentence that I recall reading in The Times leader was to this effect: Unfortunately, work is like heat. It is only when it is unequally distributed that it performs what the physicists call work. That summarises the classical case for a larger inequality of wealth.

The noble Viscount seemed to be looking at this question not only from the practical point of view of a system that will increase the national income, also from the point of view that something is being taken away that belongs to a man. It is almost like taking away part of a man when you tax hint beyond a certain point. I will not trouble the House with personal reminiscences, but I am bound to say that if a certain part of my income is taken away and used for the benefit of others in very great distress, I certainly do not feel that a wrong has been done. One cannot dogmatise, and I certainly do not stand for the principle of absolute and complete equality, but I certainly say that we have to consider in every case the common good and the benefit of the community as a whole. I repudiate absolutely the point of view of the noble Viscount, Lord Waverley, who feels that a degree of redistribution of wealth is in a moral sense "legalised brigandage."

Since morals have come into the discussion, I must say that I feel there was something utterly immoral, not in the men who worked it, but in the pre-war system. After all, it is quite wrong to think that everybody who possesses a large income has earned it or earned all of it. Most people obtain it by inheritance. And even if we take someone who has made all his money by possessing a large business, I would not agree that in some deep, moral sense he is entitled to all of it, whether or not his workpeople live in poor conditions. There is bound to be a difference between the two sides of the House on this question. We cannot conceal it. We all know it. We work together and at times of danger live more closely together, but we cannot hide the difference. The noble Viscount, Lord Waverley, has put his view and I have put ours.

The noble Lord, Lord Brand, asked whether we were moving away from the doctrines of Keynes towards the doctrines of Marx. Speaking for myself, we have no use for Marxism whatever on these Benches. But we do not believe that Keynes said the last word on economics. He was one of the most brilliant men of our century, but, as my noble friend Lord Pethick-Lawrence and others of my noble friends will no doubt point out, the Labour Party existed long before Keynes had any connection with active politics, and we take our stand on what is ordinarily called Christian ethics. That is our deep conviction, while fully conscious that there are Christians as good as ourselves among noble Lords opposite and outside in all Parties in the country. It is not enough to proclaim high-sounding doctrines. If, in fact, our system were reducing the standard of living, dragging down the life of this country, even if it were not just on paper, obviously there would be a serious case to be made out and we could not ignore it.

After taking part in so many debates circling round the central issue. I should like to point out what seems to me a fundamental difference of opinion between us and some noble Lords opposite, though not perhaps all. We believe that Britain was governed much better after the war than before the war. We believe that if we compare the present system under which we are being governed, even though it is being operated by Tories, it is still vastly superior to the system we had before the war. Then we found an atrocious waste of resources, and surely the atrocity was still more on the human than on the material side. Since the war we all—I am speaking not only for the Labour Party, but for the community—have accepted a new responsibility for the material existence of our people as a whole. In particular, the Government of the day have accepted the responsibility of seeing that a minimum standard of life is accepted and applied. I hope that does not mean that we on this side are complacent, that we think that all that would have to be done when we come back into office (and we certainly will) is to ask ourselves what we did last time and do it again. A lot of things went wrong, as they do in Governments. Problems have changed and appreciations of the situation grow deeper, one would hope, as the years pass. Certainly we have a lot to learn, as have all those who are human or live. But I suggest that in recent years right up to the present time the course mapped out by considerations of justice has tended to coincide with considerations of efficiency, although at times we may find the two paths diverging. I believe that is still the case, though noble Lords may produce an example of something that has moved away from social equality and yet benefits the community. On any occasion they do that, they must make out a strong case for anything which promotes social inequality before we are ready to believe that it will benefit the whole community.

In concluding, I would express our opinion about the record of the present Government and of Mr. Butler in these matters by saying that it is too early yet to say that the present Government and Mr. Butler have failed, and equally it is far too early to say that they have succeeded. We wish them well, not only because it is our duty to wish them well, but because we believe Mr. Butler and his colleagues carry a very heavy burden and are patriotic and brave public men. I would say to the noble Earl who is to reply, that we are grateful to him and the other noble Lords for listening to us and we hope they will benefit by our advice. I implore the noble Earl to have regard to the fact that we will never, never, never contemplate a return to that evil system which poisoned the whole life of our country before the war, and I beg him to take heed and let his colleagues know that we will oppose tooth and nail anything which seems to restore those terrible evils of the past.

7.58 p.m.

THE EARL OF SELKIRK

My Lords, in many ways we have had a remarkable debate, first, because it is the first general economic debate that the House has had for twelve months, and it is a long time since the House has gone so long without examining closely the economic position; and, secondly, because we have had no criticism of the Budget. If I may call to mind some of the rather more heated debates we had last year, I think it is a remarkable change that in this debate we have had hardly any criticism of the Budget, except from my noble friend Lord Barnby, who complained that there was no relief from purchase tax on textiles, although, in fact, that was given last September.

LORD PAKENHAM

I hope the noble Earl will not build too much on that. When we come to the Finance Bill, I fear that he may be somewhat disappointed. For the purposes of argument, he must assume that the general criticisms made elsewhere on behalf of our Party are those which will be made from these Benches.

THE EARL. OF SELKIRK

I am not asking the noble Lord to accept anything. I am saying that noble Lords did not criticise the Budget to-day, and that was all I intended to convey.

Let us go back twelve months. What were the two things in our minds? One was inflationary pressure, and the other the balance of payments. Those two matters have been solved in the last twelve months period, and that is lie outstanding contribution which Mr. Butler has made to this country. If I may for a moment criticise the extremely interesting speech of the noble Lord, Lord Pethick-Lawrence, I do not think he emphasised adequately the static state of retail prices over the last nine months. I thought he underrated a little the extreme importance which that necessarily plays in our affairs.

LORD PETHICK-LAWRENCE

When the noble Earl comes to read my speech, I think he will find that I used superlative adjectives to describe the importance of clearing up that unhappy position.

THE EARL OF SELKIRK

I thought the noble Lord was referring to the balance of payments, and not to the inflationary position in this country. Of course, I accept readily what he says. Mr. Gaitskell tells us that this has teen achieved with no effort and no sacrifice. Could there be a finer testimony to sound administration?

We in this country, as the noble Viscount, Lord Waverley, has said, are not only the bankers but also the trustees of the sterling area. Just as in the past they have often come to our help, so it is right that we should recognise that in this achievement all parts of the sterling area play a full part. That includes not only primary producing countries, but manufacturing countries, also. It is in their interest to produce stability. I would say to the noble Lord, Lord Balfour of Inchrye, that the remarkable thing about the Economic Conference was the measure of agreement reached in the main aim of freeing trade, including the movement towards freeing exchange of currency. I suggest to the noble Lord that in the association of Commonwealth countries there is nothing more important, whatever the policy may be, than that they should agree in the direction in which they are going. That still remains of importance at the present time. If I may say so, with respect, to the noble Lord, Lord Archibald, who made some comments on the dear money policy, I do not think he can calculate the advantage to this country of seeing the retail prices remain virtually static for nine months, when in the two previous years the movement was something of the order of twenty points. The advantages of that, both to the individual and the nation, can hardly be calculated.

The noble Lord, Lord Macpherson, asked what would happen if peace "broke out." I feel that the noble Lord seemed a little anxious about the dangers of peace. One of the disconcerting things of recent years has been that, although there has been a high level of stable employment inside countries, there have been violent lurches in economic relations outside countries. In other words, the mere maintenance of a stable economy inside a country is not enough to prevent difficult crises from taking place outside. To be quite frank, we have been faced with such a crisis every two years for the last five or six years. It is only fortunate that we have not had them inside this country, too. I think it is wrong that we should hesitate in any way, in what I may call this distracted world, to regard peace as an inestimable blessing in every way. At the same time, I do not think we should "count our chickens before they are hatched," because, however favourable the auguries may be, it will be a long time before anything like the cold war can be said to have come to an end. There is nothing at the moment to suggest that the free world can relax its defences—indeed, that was repeated last week in the N.A.T.O. meeting. This is really a Foreign Office and not an economic point, but I am emphasising it to show that we must approach this from a strictly practical angle, and we must maintain our defences for the time being. However, I recognise the force and importance of making sure that this matter is considered, whether it he a slackening or a recession of trade due to political or any other reasons.

I was glad that the noble Viscount, Lord Waverley, and the noble Lord, Lord Rennell, referred to the position of the United States. It would be utterly wrong to pretend that the United States is not fully alive to precisely this problem. This is exactly the propaganda which has been thrown against her for a long time by the Communists: that her prosperity depends almost entirely on rearmament. It so happened that when I was in New York last summer the representative of the United States thought fit to reply to that charge in the Economic and Social Council. He gave a long list of a variety of instruments in what I might describe as the economic armoury, which were available to the United States in the event of difficulties arising from a slackening of arms pressure. I feel that we must not go too far in saying that the United States will not take the most active steps to ensure her own interests, apart from those overseas.

I recognise that no responsible Government could possibly fail to give this matter proper attention. The noble Lord may rest assured that the Chancellor of the Exchequer, with his particular responsibility for external financial policy, has these various possibilities very much in mind. They are of concern to our friends on the Continent, also, and the last meeting of the Organisation for European Economic Co-operation paid some attention to the general question of maintaining stability in world trade. It is clear that the closest international cooperation will be called for in dealing with the kind of problem to which the noble Lord has properly drawn our attention to-day. However, our freedom of action in this country is necessarily limited, in the last resort, by the overriding necessity of balancing our overseas payments. I should here make the point that all the pressure which we are bringing to bear, and which the noble Lord's Government brought to bear, on export trade is bound to be felt in anything of this sort. So that, in so far as there are developments overseas, they will obviously be assisted in this matter. I would emphasise that this is not a kind of closed economy on which we can take any textbook decisions. The essence of meeting any situation which may arise is co-operation and an understanding of the problems elsewhere. I am sure the noble Lord will agree that nothing would be worse than to be highly prepared for entirely the wrong situation. It is impossible to anticipate just how the situation will arise, or to assume that the present situation will end anything like as suddenly as the recent world war did.

A good deal of emphasis in this debate has been laid on the question of savings. This aspect was mentioned by the noble Viscount, Lord Waverley, and the noble Lord, Lord Rennell; and the noble Earl, Lord Perth, also spoke at some length about it. We recognise that it is a matter of the greatest consequence, both in regard to small savings and to the broad savings in the country. I am inclined to think that the position is not quite so bad as the noble Lord, Lord Rennell, said. Table 18 of the Economic Survey shows the resources available to companies for adding to financial assets or reducing indebtedness of something of the order of £800 million in 1952. This is money which is not actually used for investment. Table 5, of the Estimates of National Income, suggests that there has been a considerable increase in personal balances. I should not like to say whether or not the figure given is accurate, but it indicates that there has been a considerable increase. And this is in spite of the fact that the balances of savings reported by the National Savings Movement are down by £80million. The explanation may be that considerable sums have been withdrawn and invested elsewhere, possibly in building societies or even on the Stock Exchange, in some form or another.

We would contend—and I think there is great support for this argument—that this Budget does a good deal to encourage saving. In the first place, the standard rate of income tax, which the noble Viscount, Lord Samuel, described as the centre of our taxation system, is reduced. I do not think there can be any question that that itself provides incentive, particularly for corporate institutions. There are the initial allowances, which are a direct and positive encouragement to savings; and, of course, there is the general reduction in cost. But far more important than all those is stability in value. There is nothing which makes a greater contribution or encouragement to savings than maintaining a stability of value. I should like to thank the noble Earl, Lord Perth, for his many suggestions for encouraging savings from the small man. There are, of course, difficulties, but anything which can make savings more attractive is of great value.

I will not say very much on the stock side, which has been raised by the noble Lord, Lord Pethick-Lawrence. Bluntly, I think the position is this. At the end of the year there was no fall in stocks and works in progress, except in regard to a very small percentage of those held overseas. Therefore, while there has been no build-up, the actual stocks are about the same at the end of the year as they were at the beginning.

I should like to pass for one moment to the general situation in which we find ourselves. As a result of two world wars we are a debtor nation, and we have considerable liabilities overseas both, shall I say, in sterling balances and dollar balances, and, indeed, in Europe. But what is vital is the amount of our turnover in export trade, which may be running at something like £8,000 million or £9,000 million, visible and invisible exports of all kinds. I agree with the point made by the noble Lord, Lord Pakenham, that one of the most serious aspects is that our trade to-day is tending to be less than it was.

LORD PAKENHAM

The noble Earl is so interesting that I hesitate to interrupt. My figures were admittedly for the end of last year. That is still the position, is it?

THE EARL OF SELKIRK

In matters of world trade the position is difficult to bring up to date. I am speaking of 1951, which figures are the latest available, so far as I know. The position is more serious to-day, in that we have passed from a seller's market into a buyers' market. We are meeting extensive Japanese and German competition—particularly the latter—and, of course, we have at the present time very little economic aid and we have to pay interest on, and repay in dollars, what we borrowed at an earlier date. Therefore, the position we have to face to-day is indeed a critical one, and I am glad that this point has been brought up, particularly by the noble Viscount, Lord Hall.

May I give one or two illustrations? Before the war we were the largest exporter of manufactured goods. To-day, the United States has drawn level with us in this field, and only for one short moment since the war have we actually held our pre-war share of manufactured exports. Japan. which in 1948 had only one-tenth of her pre-war exports of manufactured goods, now has nearly half; and Western Germany, which in 1948 had one-eight of her pre-war exports, has now, although she has not regained her pre-war share, a volume of exports 35 per cent. above her pre-war level. In textiles, the United States exports before the war were one-seventh of those of the United Kingdom. To-day, they are about one half; while, of course, Japan has nothing lie regained her prewar level. In chemicals, Germany was leading the world before the war, followed by ourselves. To-day it is the United States, followed by ourselves, with Germany rapidly overhauling us. I give this picture to emphasise the extreme and intense vigorous competition into which we must enter if we are to maintain our position. It is for that reason that the need for incentives is emphasised in the Budget.

Having looked at the difficulties we face, let us now look at the advantages. Of course, as the noble Viscount, Lord Samuel, said, everyone who sells also buys, and everyone who goes into the export market naturally wants to get something out of it, otherwise he would not go into it. That of itself is something not entirely of a disadvantage. I am glad to say that the picture of production is tending to improve. We fully recognise how unsatisfactory it is, but it is beginning to improve. The noble Viscount, Lord Hall, quoted the exports for the first quarter of this year as being less than those for the first quarter of last year. That need not be taken too seriously, because the exports for the first quarter of last year were exceedingly high, and higher than it is believed could possibly be maintained.

May I turn for one moment to the general question of production? Production was actually flattening out in the Spring of 1951. These movements are very slow, and we must not necessarily expect things to develop too quickly. It is at least encouraging that the curve is now going up. Particularly after what the noble Lord, Lord Archibald said, I should like to turn to what I think is one of the most important of all industries, and that is agriculture. I am glad to say that the results of agriculture are very encouraging. We have every reason to believe that our aim of 160 per cent. of pre-war production, which was announced in April, 1952, will be achieved. What we do know is that since 1951, production has gone up from 141 per cent. to what is now a provisional figure of 150 per cent. of the pre-war level; and recent reports indicate that that increase should be fully maintained this year. What is particularly encouraging is that the British farmers appear to have achieved a higher rate of increase than has any other country in the world. I think that is something of which we can be rightly proud. The Budget brings certain advantages to the farmer not only in income tax but also in initial allowances. What is undoubtedly of great importance is the opportunity given to those unfortunate farmers who had to have their herds slaughtered because of foot-and-mouth disease to elect to be taken on the "herd basis. "I believe, too, that while some of the farming population were a little reluctant at first, they are gradually becoming appreciative of the advantages of a free economy.

I am sorry that the noble Viscount, Lord Hall, has gone He made a most important speech this afternoon, and we were delighted to hear it. I am glad to say that I agreed entirely with what he said. Although the results in coal have been somewhat disappointing, the most recent reports are more encouraging. I would emphasise that the Government attach the greatest importance, and hang high hopes, on the movement made by the National Coal Board on the one side and the National Union of Mineworkers on the other: led by Sir Hubert Houldsworth on the one side and Mr. Arthur Horner on the other. This is the first time that anything of that character has been carried out, and we have great hopes that it may achieve considerable results.

The position in regard to steel is encouraging. The rate of production in the early part of the year was higher than it had ever been before, and we hope to have an output of 17,500,000 tons by the end of the year, which should be enough to meet all essential requirements for defence and export. A very remarkable development in oil has been made. Considerable investments have been made in refineries in this country, giving an increased production of 40 per cent. in refined oil. This is of enormous credit to the industry as such. The textile industry is still on the way to recovery. The recovery in wool is almost complete, and rayon is doing well. The recovery in cotton has been slower; in the first week of March production was still about 21 per cent. below the level of 1951.

I will not detain your Lordships much longer but perhaps I might just say this: that we regard this as a time of great opportunity, because things are changing abroad and one does not necessarily know which way they will go. We have this advantage: that there is an adequate supply of raw material and that the only limit to production is demand. That means everything that is comprised in the word "salesmanship": price, quality, and date of delivery. In this atmosphere I am sure it is right for the Government to decide to do less and make the private citizen do more; and it is for this reason that we have freed many markets: the markets in lead, zinc, fertilisers and other commodities. I was much struck by what the noble Lord, Lord Brand, said, that controls can be contagious. That is extremely dangerous. But I hope that freedom also will be contagious. We believe that this freer market will give flexibility and adaptability and that it will also bring stability to the buyer. We do not in any way object to long-term contracts but we do think that bulk buying has not brought stability. I am not saying that there are not cases where it should do so. But, at any rate, we do not object to long-term contracts when they tit special circumstances. Where, however, as so often happens, the agreed price varies widely from world prices, then either the producer or the consumer is dissatisfied. Each case has its own special requirements.

Freedom brings responsibility with it. We wished to make this an incentive Budget as definitely and clearly as possible. Of course this Budget is a risk: every Budget is. However, I am sure it will succeed if production is geared to a higher level. That must be the emphasis. I suggest that this Budget has brought light and hope to millions in this country. Many items have been de-rationed and others will follow. We have succeeded in carrying a heavy burden of defence expenditure, but we have reduced taxation while at the same time preserving the essential social services—housing, education and health—the Estimates for which have been increased in this year. I suggest that this is a tremendous achievement, and it may well mark the turning point in the economic history of this country.

8.24 p.m.

LORD PETHICK-LAWRENCE

My Lords, at this late hour, I am sure I shall be serving the general convenience if I make my few remarks brief. We have listened to a most courteous and informative speech, for which we on this side of the House are very grateful. I certainly share, and all noble Lords on these Benches share, the wish expressed by the noble Earl who wound up for the Government for the prosperity of the country in the forthcoming year. I remember well that when I was Financial Secretary to the Treasury, my chief Mr. Philip Snowden (as he then was) had introduced a most controversial Budget. In accordance with the annual custom, a very wealthy Member of the House of Commons, Mr. Samuel Samuel, gave a Budget dinner at which members of the Opposition and of the Government, all the leading financial persons in the House and in the City of London, were present. So far from controversy, we had a most delightful evening; and we drank only one toast. That toast was "The Public Purse". With those remarks, I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.