Lords Sitting of 21 July 1953

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers
The Lord Ebbisham—Sat first in Parliament after the death of his father.
COVENTRY CATHEDRAL BILL
Read 2ª.
WEST BRIDGFORD URBAN DISTRICT COUNCIL BILL
Read 3ª, with the Amendments, and passed, and returned to the Commons.

CONFERENCE OF FOREIGN MINISTERS
2.36 p.m.
EARL JOWITT: My Lords, I should like to ask Her Majesty's Government a Question of which I have given them Private Notice. Before asking the Question, may I say—and here, I am sure, I speak for the whole House—how glad we are to have the noble Marquess who leads the House back with us again, safe and sound from his journey. I hope that the temporary indisposition from which he suffered has been cured by that best of all doctors, a sea voyage. My Question is: Whether the noble Marquess will take the opportunity at some time of making a statement in your Lordships' House relating to the tasks which he undertook in the United States.
THE LORD PRESIDENT OF THE COUNCIL (THE MARQUESS OF SALISBURY): My Lords, I should like to thank the noble and learned Earl for the kind things he has said. I had an agreeable and interesting visit and, I hope, a fruitful one; but I am glad to be back. With regard to the statement, as your Lordships know, there is to be a debate on foreign affairs on the 29th of this month, and I should rather keep the main body of what I have to say until then. But I thought it might be for the convenience of the House if I made a brief
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statement to-day, and I propose to do so at half-past three.
EARL JOWITT: I am obliged to the noble Marquess. I do not know whether he can indicate at this stage if he will speak fairly early in the debate on foreign affairs, so that we may have an opportunity of dealing with his statement.
THE MARQUESS OF SALISBURY: My Lords, I think it will probably be for the convenience of the House if I speak first or second; and no doubt that can be arranged with the noble and learned Earl. In any event, I shall speak in the early stages of the debate.
EARL JOWITT: I am obliged.

NUCLEAR ENERGY POWER STATION
2.39 p.m.
VISCOUNT FALMOUTH: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government the proposed size of the new nuclear energy power station about to be built at Sellafield for commercial purposes; the estimated cost per kilowatt installed including the reactors, the estimated overall thermal efficiency, and the estimated cost per unit sent out on a 60 per cent. load factor.]
THE PAYMASTER GENERAL (LORD CHERWELL): My Lords, it is incorrect to describe the purpose of the plant to be built at Sellafield as commercial. It is an experimental power station, and Her Majesty's Government are at present unable to commit themselves to estimates of the kind asked for by the noble Viscount.
VISCOUNT FALMOUTH: My Lords, arising out of that Answer, I am sorry to hear that the noble Lord cannot give the reply which I had hoped for, and which has been more or less given in publications of learned societies, In view of the great interest that has been created in nuclear energy in technical circles, I should like to ask the noble Lord whether it is not possible for those interested, especially consulting engineers, who are now getting inquiries from different parts of the world as to whether they should establish stations developing nuclear energy or ordinary coal stations, and are

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unable to give any reply, to be brought into contact with the Government developments. This might be done either through a council or lectures, or something of that sort, or by persons who have these matters directly under their charge. Consulting engineers would then know what reply to give to their clients who are asking them to deal with these important matters. I know that the noble Lord cannot give a definite reply to this question, but I hope that he will be able to discuss it with his advisers, to see whether some means can be arrived at to enable technical people closely interested in the matter to be kept in close touch with developments.
LORD CHERWELL: My Lords, we will certainly consider that point sympathetically and see how soon and in what way we can carry out the desires of the noble Viscount.
LORD REA: My Lords, I should like to ask whether the noble Lord is aware that the factory at Sellafield is on the fringe of the last of the most beautiful unspoilt parts of the country. Would he ensure that this enormous sum of, I believe, £10 million which is to be spent on the extension of it is in respect of a factory which will not become obsolete in the foreseeable future?
LORD CHERWELL: My Lords, it is difficult in these matters to say what the foreseeable future is, and whether a thing will become obsolete in that period. When the first steam engines were built it was impossible to say whether they were in their final form, or whether they would have to be changed and become obsolete fairly soon. Naturally, everything possible will be done to satisfy the noble Lord's wishes.

BRITISH SHIPS AND CHINA TRADE
2.42 p.m.
LORD WINSTER: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they have any information to the effect that British ships which are, or have been recently, engaged in the China trade will be refused bunkers in United States ports.]
THE SECRETARY OF STATE FOR THE CO-ORDINATION OF TRANSPORT, FUEL AND POWER (LORD LEATHEAS): My Lords, I have no doubt that the noble Lord's question is concerned with the introduction by the United States Government on July 6, of new regulations governing the supply of petroleum products to ships in United States ports. These products, which include marine bunker oils and lubricating oil and grease, were previously dealt with under a general export licence and could therefore be freely obtained by ships calling at American ports. The effect of the new regulations is that an individual export licence is now required for the supply of these products to any ship which falls into certain categories, namely: ships which have called at Macao or a Far East Communist port since January 1, 1953, and ships which are bound for any such port within 120 days; ships which are to carry within 120 days any cargo which is known to be destined for any such port and is not covered by a United States export licence; and ships which are registered in or on charter to a Soviet Bloc country, or on charter to a national of such a country.
The first point which I should like to emphasise is that these restrictions are in no sense aimed only at British ships. They apply to all foreign ships that may enter ports under United States jurisdiction, whatever their flag may be. There is no question of discrimination in favour of United States ships, because they are already prohibited from trading with Chiness ports. Secondly, the regulations do not of themselves prohibit the supply of bunkers; they provide only that an individual export licence must be obtained for the supplies for each ship. While it is true that the regulations came into force only a fortnight ago, Her Majesty's Government have so far had no report of an export licence having been refused in respect of a British ship. In at least two cases which have fallen under the new regulations a licence has been granted and bunkers have been obtained without any significant delay to the operations of the ships concerned. Her Majesty's Embassy in Washington are in close touch with the United States Department of Commerce on the administration of this control as it affects

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British ships, and will investigate immediately any case in which difficulties may arise.
LORD WINSTER: My Lords, I thank the noble Lord for that full and helpful Answer, but may I express the hope that he will follow this matter carefully, because it is one which will affect not merely ships engaged in the China trade but ships engaged in the Eastern trade generally? I appreciate what the noble Lord said about there being no discrimination against our ships in particular, or any discrimination in favour of American ships. But it is the fact that British shipowners engaging in trade with China have to get a licence from the Ministry of Transport, and the British ships which are trading with China are trading only in non-strategic materials and are complying with the resolution on the subject passed by the United Nations. In all those circumstances, it seems unfair and unkind that our ships should in any case be refused bunkers, and I hope that that matter will be followed up, in case any refusal of bunkers occurs. I am sure that the noble Lord will appreciate, too, that American bunkers are much cheaper than British bunkers.
LORD LEATHERS: My Lords, I can assure the noble Lord that all the points he has raised will be carefully watched. It is not easy to make any statement, in that the objective of the United States goes beyond what we have laid down in our own regulations. All this will require careful consideration, and the noble Lord may be sure that everything will be watched continuously.
VISCOUNT ELIBANK: My Lords, closely related to this subject, may I ask the noble Lord whether he is aware that, whilst legitimate British trade with China is under criticism, the United States last year bought from China goods valued at nearly 28 million dollars?
VISCOUNT STANSGATE: My Lords, may I ask whether the Government intend, in the interests of our own traders, to issue some reply to the very damaging report by the McCarthy committee?
THE MARQUESS OF SALISBURY: My Lords, perhaps that is a matter which I can answer. I have not yet seen the
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report itself; all I have seen have been reports in the Press. I will, however, take an early opportunity of looking at it, and at other documents at the same time, and perhaps it may be possible for me to say something on them in the debate next week.
VISCOUNT STANSGATE: I am obliged to the noble Marquess.
LORD BARNBY: My Lords, reverting to the original reply and arising out of it, may I ask the noble Lord a further question? In view of the acuteness of feeling in the United States on the matter of trade between the United Kingdom and China, as is brought home to those of us who are in constant commercial relationship with the United States, and the widespread misconception existing in the United States, would he feel it worthwhile to make representations in the proper quarter that the appropriate media in the United States—the British Embassy or British Information Services—should be used to bring about a greater understanding in the United States of the difference between, strategic and non-strategic rated materials, in so far as they fall within the categories of trade between the United Kingdom and China?
LORD LEATHERS: My Lords, that rather presupposes that nothing of that sort had been done already. I assure the noble Lord that it has been constantly represented and will continue to be the subject of discussion.
LORD MATHERS: My Lords, for the purposes of clarification, will the noble Lord say whether the reference to "one twenty days" in his original reply meant one hundred and twenty days?
LORD LEATHERS: I am sorry if I have misunderstood the noble Lord's question. Am I asked whether the words "one twenty days" really mean a hundred and twenty days?
LORD MATHERS: It is the expression used by the noble Lord. I am asking him whether, when he referred to "one twenty days"—it might mean one period of twenty days—he meant one hundred and twenty days.
LORD LEATHERS: It means a continuing period of up to 120 days.

NEW WEST END HOTEL
2.50 p.m.
LORD BLACKFORD: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether, since the junction of Conduit Street with Bond Street is one of the most congested spots in London, the plans for the new building in course of erection at this corner allow for the frontages to both streets to be set back at least 10 feet; whether the new building is to be a large hotel; and, if so, whether the entrances will be arcaded to decrease interference with traffic.]
LORD MANCROFT: My Lords, I am informed that the local planning authority—in this case the London County Council—gave permission on April 13, 1953, for the erection of a hotel on this site in Bond Street. As regards the size of the hotel, I understand that it is to have something in the region of 240 rooms. To give a measure of comparison, that is about the size of Claridge's and the Dorchester, or half the size of the Savoy and Grosvenor House. The main building, according to the plans approved by the London County Council, will conform to the existing building lines on Bond Street and Conduit Street, just as those of the new Time and Life building do on the opposite corner, but an arcaded footpath, affording a clear width of 10 feet, will be provided within the building along the whole length of the Bond Street frontage. This will enable the road in Bond Street to be widened, and it is a condition of the planning consent that the developer shall consult the London County Council's chief engineer in regard to the line of widening. The main entrance to the hotel will be from Conduit Street, and the approved plans make provision for cars to drive in and out within the curtilage of the building. I have taken the liberty of putting a set of plans and elevations of this hotel, which I hope may be of some interest to your Lordships, in the Royal Gallery.
LORD BLACKFORD: My Lords, I beg to thank the noble Lord for his very courteous reply and also for the trouble he has taken in placing a set of plans in the Royal Gallery for us to study. I
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am gratified to see that two of the objects mentioned in my Question—namely, the widening of Bond Street by 10 feet and the arcading of the entrance to the hotel—are being fulfilled. But will not the noble Lord make representations to enable the Conduit Street frontage also to be arcaded, so that that street, too, may be widened by 10 feet, because there is no doubt that there will be very great congestion in Conduit Street when this hotel is built? Also, will the Government realise that this site is about the least suitable in the whole Metropolitan area in which to construct an hotel? Have they comprehended that the existence of the Cumberland Hotel, on a less congested site, is still a very great interference with traffic? Is it generally understood that, if we are to cope with the greatly increased motor traffic, which is inevitable as time goes by, we have to think years and years ahead, and make plans accordingly? What apparatus is there for ordinary citizens like myself to have prior knowledge of these stupid plans, so that we may start agitating early enough?
LORD BARNBY: My Lords, before Lord Mancroft replies, may I associate myself with the thanks expressed by my noble friend Lord Blackford to the noble Lord for having taken the trouble to put these plans in the Royal Gallery for us to see? I would also associate myself in general with the remarks of Lord Blackford, and perhaps I may be allowed to go a little further, in view of the strong feeling in this matter, and in view of the great national loss caused through the delay to traffic in that area, and particularly in Bruton and Conduit Street. Is it too late that there may even yet be a complete abandonment of the idea of building an hotel in that region?
LORD MANCROFT: My Lords, these are two very important questions, and they go a little further than the actual scope of the original Question. With regard to traffic in Conduit Street, that, clearly, is a problem, and I can assure the noble Lord, Lord Blackford, that my right honourable friend the Minister of Transport and the Commissioner of Police are considering it very carefully. If I may say a word in regard to the whole of the wider question of planning, this thought occurs to me: we have delegated legislation in this case to the planning authority, who are the London

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County Council. Many of us have in the past questioned the wisdom of delegating too much, but it does seem to me a little difficult, having once delegated that legislation, to be constantly jogging the elbow of the authority to whom we have given the power. The London County Council and not the Minister of Housing and Local Government are the planning authority here. The noble Lord, Lord Blackford, asked what he personally can do. Well, my Lords, the London County Council is a democratically elected body, elected by the ratepayers of London, and the Council's proceedings are held in public. There, I should have thought, lies the solution to the noble Lord's grievance, rather than asking that the powers of the Council should now be curtailed.
LORD GIFFORD: My Lords, does not the noble Lord think that the importance of having a really first-class modern hotel in the centre of the West End of London may be worth even some slight additional traffic congestion in that area?
LORD MANCROFT: My Lords, my opinion in this matter is clearly not worth while, but the London County Council are obviously in agreement with Lord Gifford.

ISLE OF MAN (CUSTOMS) BILL
Brought from the Commons, endorsed with a certificate from the Speaker that the Bill is a Money Bill within the meaning of the Parliament Act, 1911; read 1ª, and to be printed.
MONOPOLIES AND RESTRICTIVE PRACTICES COMMISSION BILL
Brought from the Commons; read 1ª, and to be printed.
REGISTRATION SERVICE BILL [H.L.]
Returned from the Commons, agreed to.
POST OFFICE BILL [H.L.]
Returned from the Commons, agreed to.
FOUNDLING HOSPITAL BILL [H.L.]
Returned from the Commons, agreed to with Amendments: the said Amendments considered and agreed to.

FINANCE BILL
2.56 p.m.
Order of the Day for the Second Reading read.
LORD CHERWELL: My Lords, it might be thought, since the country in its wisdom has decided that this House should have no say in money matters, that our consideration of the Finance Bill would be a pure formality. But I think it is really much more than this, for so many Members of this House have such wide experience and such deep knowledge of economic matters that their views must carry great weight. Even if our discussion cannot alter this year's Finance Bill one way or the other, noble Lords may hope that the words of wisdom which fall from their lips in to-day's debate may find a reflection, even if perhaps only a pale reflection, in the proposals that the Chancellor of the Exchequer brings forward next year. It may seem a long time to wait, but we must hope that the harvest will be worthy of the seeds planted to-day.
I do not think there has been a less controversial Finance Bill for many years. It is the first time since 1946 that the Budget Resolutions have been passed in another place without a Division. Even the Committee stage of the Bill went through that House without any all-night Sittings. Whether this should be regarded as a tribute to the Chancellor or as a symptom of fatigue on the part of the Opposition it is not for me to say, but I am inclined to think that it is because the country an a whole feels that the Budget is on the right lines and the Opposition know it.
Deciding on the broad outlines of the Finance Bill has become infinitely more difficult than it used to be. In the old days, all the Chancellor had to do was to consider what changes were foreshadowed in essential Government expenditure and to decide what changes in taxation were required in order to find the necessary money. In those days Government expenditure amounted to

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less than 10 per cent. or so of the national income, and changes from year to year in peace time seldom amounted to as much as 1 per cent. of the national product. Such small changes scarcely affected to a perceptible extent the economy of the country as a whole. Nor was it held to be the Chancellor's job to affect it. Indeed, any Chancellor who had been suspected of wishing to intervene in the country's economy would have been condemned out of hand. Today, the situation is quite different. More than a third of our total national income is spent by the Government, and in one form or another, therefore, has to be abstracted from the pockets of the people. Indeed, if local rates and National Insurance contributions are included—as was brought out in a most useful study published in The Times last week—the proportion is nearer two-fifths. Inevitably, the Budget must have important repercussions on business and trade throughout the country.
Whether we like it or not, therefore, the Chancellor of the Exchequer has to consider not merely how the Government are to pay their way, but what the effect of his Budget will be on business activity, employment, prices, and so on. Moreover, in making his decisions, his hands are tied by the fundamental, inescapable need to achieve a balance between imports and exports. And, in dealing with this aspect, he has to have regard to the balance of payments, not only of the United Kingdom but of the sterling area as a whole. In the old days this harsh problem scarcely existed. Before 1914, the value of our exports of goods and services exceeded the cost of our imports so much that we were sometimes able to invest abroad as much as 10 per cent. of the national income. A prosperous concern, such as the Empire then was, had no need to worry about balance of payments difficulties.
The First World War weakened our international position, but by the latter part of the 'thirties we could once again face the ups and downs of trade with comparative calm, thanks to our relatively large gold reserves. In 1937, for instance—admittedly a very good year—they were equivalent to something like nine months' imports. With reserves of such an order of magnitude available, a fall
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in the demand for our goods abroad, or a rise in the price of our imports, could be faced without alarm. The situation is very different to-day, when our gold and dollar reserves would barely pay for the goods we import every three months. And the situation is much more serious, since we now have overhanging us sterling liabilities to the Commonwealth and Empire, and to foreign countries, amounting to some £3,500 million—four times our gold and dollar reserves. In 1937, these liabilities were only £800 million and were fully covered by our gold reserves.
As I have said, once it is admitted that the Chancellor, in his Budget, is bound to intervene in the general economy of the country, his task becomes exceedingly difficult. It is easy enough to enumerate what should be the objectives of economic policy. We must have full employment; we all agree that anybody prepared to work should be able to find a job. We should aim at maximum output. Clearly, the greater the country's total production, the more there will be to share out. We should stabilise prices. It is surely unfair that the real value of people's savings and covenanted benefits should be whittled away by constant falls in the purchasing power of money. We should free the people from controls. Everybody wants to get rid of all these restrictions and interventions, which hamper our activities and reduce our productivity. All these are highly desirable objectives and everyone, I believe, would wish to achieve them. But, constricted as we are within the straitjacket of the absolute need to balance our trade with the outside world—in other words, to pay our way—it is not easy to devise an economic policy that will satisfy all the objectives.
Anyone who thinks at all deeply on these matters must realise that they tend, unfortunately, to some extent to conflict, and we must therefore inevitably be content with less than the ideal solution. Exactly how and where to balance them is bound to be one of the most anxious tasks facing any government. On the whole, I think the Government have been fairly successful in dealing with the very difficult situation which they inherited. The appalling drop of 10 per cent. per month in our gold and dollar reserves has been checked; and although unhappily this required cuts in our imports,

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I do not think that these have created any serious hardship. In spite of the reduction in the food subsidies, about which the Opposition complained so vociferously last year, food consumption in the first quarter of this year was higher than in the first quarter of any year since the war. Tea, eggs and sweets are no longer rationed. Sugar we expect will be off the ration within a few months. The rations of meat and bacon have been improved, and, as I have said, consumption has risen. And a number of other controls have been relaxed or completely removed. And yet, with all this, retail prices during the last year have risen by only 2½ per cent.
Last spring, owing to the general fall in the demand for textiles, we were all very anxious about the unemployment in this industry. Indeed, the Government had to take exceptional, almost emergency, steps to deal with it. I am sure we are all glad that in June of this year un-employment in the textile and clothing industries was only 21,000, as against 158,000 the year before; a reduction to less than one-seventh. In general, too, employment is not unsatisfactory—98½ per cent. of the working population; that is, about one person in seventy unemployed. When we remember that at the time of the Beveridge Report it was thought prudent to assume that normal unemployment would be of the order of 8 per cent., it would be hard to complain about a figure one-fifth of that amount.
LORD PAKENHAM: May I just interrupt the noble Lord? I do not think that he and I would differ about this. That was certainly never the assumption made by Sir William Beveridge (as he then was) of what was likely to happen.
LORD CHERWELL: I think that if the noble Lord looks at paragraph 441, and Appendix A, paragraph 14, he will see that I am not misquoting.
LORD PAKENHAM: I gather that the noble Lord will not be here when I reply, but I will reply, nevertheless.
LORD CHERWELL: I shall look forward to reading the noble Lord's reply in Hansard. It will, I am sure, be as adequate as usual.
Last year, also, considerable misgivings were, very naturally, expressed about the fall in industrial production. This, of
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course, is a very grave matter to which we have given anxious attention. In the engineering industry it was due in considerable part to the shortage of steel which developed in the second half of 1951. I do not myself believe that this would have been allowed to arise if the leaders of the steel industry had not been distracted by the imminence of nationalisation. But I had better not say any more about this. It would be nice for once to be complimented on a statesman-like speech, and I know that that happens only if one refrains from criticising anything the Opposition may have done, or, better still, if one can manage to throw a few bouquets across the Floor with a straight face.
Another important reason for the drop in the Index of Production was, as I have said, the fall in demand for textiles. To some extent this was no doubt due to world conditions, but, as I have said before, I do not think we can altogether acquit Dr. Dalton of blame for it—his notorious speech advising buyers to strike against the high prices of clothing will be within the memory of many Members of the House. It is unfortunate that the mischievous utterances by politicians are so apt to be more effective than their more serious—and statestnanlike—exhortations. Since then, there has, fortunately, been a notable improvement in the Production Index. I am sure the whole House will be glad to know that it has risen considerably since last summer. Indeed, allowing for normal seasonal variations, it has gone up by something like one-tenth. I do not want to make too much of this, as we had some leeway to make up, but I am sure the House will be glad to know that production is now higher than it was in 1952 or in 1951.
It is a truism to say that, in the long run, a country can consume only what it produces; unless we can produce more, our standard of life cannot rise. Conversely, the more we can produce the better off we shall be. Short of working harder, or working longer hours, therefore, the only hope of improving our living standard is to get more output for the same effort. We can do this only if we seize, all our opportunities to combine and develop our capital resources, our technical skill, our technological knowledge and our managerial ability in a major productive effort. The closer harnessing of technical progress to industrial

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and agricultural production is of prime importance.
As I have frequently said, and as is emphasised in the recently published Report of the Advisory Council on Scientific Policy, this country would have much to gain by employing in industry more men with scientific and technological training. Abroad, with their great technological institutes, scores of thousands of highly trained men are available to direct and manage industrial concerns in which novel processes are being developed or new methods of manufacture initiated. I believe that the British people have a natural bent for this sort of thing; and, indeed, it is wonderful how much we have been able to accomplish, lacking, as we do, technological universities such as exist in almost every other industrialised country.
Unfortunately there seems to be a snobbish idea that only a man who is adept at the arts, who can discuss the metres used by Latin poets or the aberrations of mediæval kings, can be called an "educated" man, even though he may not know how his wireless set works, or indeed how electricity is produced. But, stimulating as some people may find the verses of Catullus, reading them scarcely increases productivity. New inventions and discoveries likely to assist the country in its hour of need are far more apt to come from people who have studied the rude materialistic aspects of applied science. It is because we realise this that the Government are determined to assist technological education and, in spite of the obstacles interposed by some of our well-meaning, but misguided, highbrow friends, I trust that we shall, in the not too distant future, be able to give our young men opportunities equal to those enjoyed abroad to equip themselves for the professions which lie at the root of all our industrial processes.
Despite these handicaps we have succeeded since the war in starting or developing industries in this country which in our more prosperous days we tended to overlook. Petroleum refining has been put into operation on a large scale, which should save us scores of millions of pounds which formerly we had to pay across the exchanges every year. Our aircraft industry leads the world in quality, if not quantity. Perhaps I may
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remind noble Lords that there has been for a number of years now a specialised technological institution at Cranfield for the study of aircraft problems. Our chemical industry also holds its own. Indeed, many knowledgeable people think that one of our new synthetic textile fibres may replace nylon in many important applications.
But, of course, management and technology alone cannot do the trick. At the root of the matter is the willingness of all to work harder and more effectively. The vicious fear that a man might work himself out of a job must be dispelled. The real danger to employment is not that production may be so big that the product will not be wanted. It is that we may fail to put our backs into our work, that we may let our costs rise until the price of our manufactures is so high that they become unsaleable abroad. That is the real road to unemployment. For if we fail to export we shall not be able to import and we shall go short of the raw materials essential for our manufacturing industries.
The great trade unions have an important rôle to play in making these elementary truths clear to their followers. And, I am glad to say, the leaders of many of them are doing their best to drive home these simple facts of life. It would, of course, be much easier and perhaps more popular for them to decry any call for more exports or for higher production, as Mr. Bevan did when he described exports as "the will-o'-the-wisp of private enterprise" or as Mr. Strachey did when he said: "You remember the old 'Produce more' cry? I suppose we shall get it again after this war too." But to reach the top in a great trade union a man needs more than glibness and spellbinding phrases. He requires brains and vision and courage. And I am glad to see that the leaders of the T.U.C. are not afraid to exhort their followers to increase output—even if I may not always see eye to eye with them as to how much industry ought to spend on wages and how much ought to be set aside for re-equipment, expansion and so on.
Unlike academic Socialist politicians, Conservatives realise the impotence of Government exhortations alone. They believe that you must offer an incentive to people if you want them to risk their money and their effort in order to produce

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saleable goods. There are few indeed who will work without financial reward, though perhaps the member of the Opposition Front Bench who said yesterday, in another place, that such people were only to be found in monasteries or nunneries had temporarily forgotten the existence of your Lordships' Chamber, and the valuable unpaid work done here by noble Lords.
There must—and Mr. Stokes was not the only Labour speaker to recognise it—be some recompense for a man who refrains from consuming all he earns and is prepared to invest his savings in some risky project no less than for the roan employed in the factory that results from this investment. If we are to invest more in productive industry we must find people willing and able to finance it. Taxation has made it so hare to put money aside for investment, and so reduced the reward for success, that it is very difficulty to finance risky enterprises—and all novel enterprises are bound to be risky.
Firms are hard put to it to-day even to maintain their equipment at modern prices. They have to set aside sums enormous in comparison with pre-war figures, just to replace worn-out tools so as to keep the business running. Even more has to be set aside if the firm is to expand its activities. When we remember that all money set aside for such purposes is labelled with the pejorative word "profits," and that firms have to pay perhaps three times as much as they used to for new machinery, it is not surprising that it is difficult to find sufficient fresh capital to expand or to start new enterprises. And if a firm does so, and really puts by enough money to increase output and provide goods for the public, or for export, not to mention work for its employees, it is abused and the shareholders are described as "profiteers." It is a mystery to me why people who have contributed something to the country's wealth should be exposed to such attacks if they make a fortune, whereas people who win prizes in football pools, or people who are paid scores of thousands of pounds for an hour's boxing, or for clowning on the stage, or for posturing on the silver screen, are admired and even idolised by the same public.
My Lords, the main aim of the Bill before us is to encourage production so
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that we may be able to export enough to pay our way without lowering the standard of life of the people. First and foremost it is intended to be an incentive Budget. We hope it will help to stimulate trade and industry and give it greater opportunity and incentive both to produce more for our home needs and to develop our export trade. The measure most immediately directed to this end is the increase in initial allowances for new plant and buildings. Clearly, the more up-to-date the tools the greater the productivity—unless of course, some short-sighted users object. Any fiscal measure which encourages the use of labour-saving machines will, I am sure, be approved by this House. I may add that I sincerely hope that greater attention will be devoted to working this new machinery (and for that matter old) on double or treble shifts.
A further measure to stimulate the expansion of industry, particularly new processes, is the abolition of the excess profits levy. I think it is generally agreed on all sides of the House that this is a tax that will not be missed. Finally, in the Finance Bill 6d. is taken off the income tax. As I have said it is imperative to give people, and for that matter companies, an incentive to produce as much as possible. We cannot change human nature. And unless extra effort promises some extra reward, you may expect, but you will certainly not get, the extra effort. We hope that this reduction in the standard rate of tax may have a stimulating effect. As we anticipated, the fact that 6d. off the income tax helps a man who pays a great deal of income tax more than a man who pays little has caused a good deal of outcry from the Opposition, especially during by-elections, though their protests do not seem to have attracted very many votes. The reason, no doubt, for their lack of success is that the ordinary elector is quite clever enough to see—however glibly and sometimes even dishonestly the issue may be presented—that you cannot relieve a man of income tax if he does not pay any.
Despite these alleviations, however, taxation is still far too heavy to be healthy. Unless one subscribes to the view—which we certainly do not—that "the gentleman in Whitehall knows best," one cannot really be content that more than one-third of the national income should be taken out of people's pockets and spent by the Government. Even in

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Biblical times a tithe was considered plenty. Unfortunately, as things have developed it is not easy to see how to make a significant reduction. Broadly speaking, of the total Government revenue, defence and the service of the National Debt take about half and the social services nearly three-quarters of the remainder. Only about one-eighth is applied to the ordinary, old-fashioned processes of running the country—police, law courts, administration and so on.
Great economies would clearly involve policy considerations. But worth-while savings can be made and are being made by good housekeeping. The Civil Service has been cut by 22,000. Various Ministries have been amalgamated and overheads will be correspondingdly reduced. A number of controls have been abolished, with resultant economies. And, on the whole, ordinary Government expenditure, apart from defence expenditure, has fallen since the Chancellor took over, despite rising prices. It is remarkable, all things considered, that we have not suffered greater hardships. We have had to find this year something like £800 million more for defence than was required on the average in the last five years of the Socialist Government. Furthermore, we have received in aid only £150 million per annum, whereas the previous Government received on the average something like £340 million a year, or more in real terms, with which to close the dollar gap. On top of this we have over the last two years been obliged to pay back something like £60 million a year in dollars as repayment of capital and as interest on the loans made to our predecessors.
But, my Lords, even though, as I have indicated, our situation at the moment is not unsatisfactory, we are by no means secure. All of us are determined to maintain employment; all of us want to keep prices from rising; all of us realise the need to raise output; and all of us would like to reduce controls. But, as I have said, these objectives, not easily reconcilable amongst themselves, are dominated by the paramount need to balance the sterling area's trade with the non-sterling, world. To do this against German and Japanese competition will tax all our efforts.
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The sterling area's current transactions with the rest of the world approach something like £10,000 million a year. A worsening of our position by only, say, 3 per cent., which might very easily result from a fall in earnings or an increase in expenditure such as we have often experienced in the past, would cost us some £300 million. It is clear that in order to prevent the complete exhaustion of our reserves, which to-day stand at £850 million, we might in such circumstances be forced to restrict imports drastically, with consequent food shortages and unemployment. It is for this reason that we must all try to maintain our exports by increasing output without raising prices, and make sure that we earn enough to pay for our daily bread. I am sure the official Opposition realise this as clearly as the Government. And I am confident that we shall all work together and try and rebuild the country's position until once more we can face with confidence whatever storms may come. My Lords, I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read 2ª—(Lord Cherwell.)
3.27 p.m.
LORD PETHICK-LAWRENCE: My Lords, some three months ago, when we had our last debate on finance and economics in this House, we had only recently learned the facts of the Chancellor of the Exchequer's Budget, and on that occasion we dealt with the main features of that Budget in our debate. To-day, the noble Lord, Lord Cherwell, has opened this Second Reading debate, and has made some references to the Budget and the terms of the Finance Bill, for which we are grateful. And we are grateful to him, also, for the moderate tones in which he disapproved of some of the views of the Opposition. If he did not live up entirely to his own proposal to throw bouquets at the Opposition, I am bound to admit that the number of brickbats he threw across the table were, at any rate, considerably fewer than I have known him to throw in times gone by. Lastly, with regard to his speech, I would say this. The fact that no vigorous attitude has been taken up by the Opposition towards the terms of the Finance Bill and the Budget must not be taken to mean that the Opposition entirely concur in the provisions of the Bill. In fact,

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though the noble Lord was speaking on behalf of the Government—and therefore was commending the financial set-up of to-day—it seemed to me that in one or two matters, at any rate, he very strongly disapproved of the financial set-up. The fact that he took that line excused him from a very vigorous defence of the Chancellor's proposals.
I have no intention of taking up the time of this House by repeating some of the arguments and re-presenting some of the layout which I ventured to lay before your Lordships on the last occasion upon which we had a financial debate. Still less have I any desire to rake over the embers which blazed up, or, shall I say, flickered up, in another place during the various stages when the Budget and the Finance Bill were discussed. It seems to me that that would be a waste of your Lordships' time, particularly as I consider that the tendencies to which I drew attention on the last occasion finance was before this House have become a little more marked—not a great deal more marked but a little more—than they had when I was speaking here at the end of April. The precarious balance of trade is a little more in evidence—a little less precarious perhaps. The slight improvement in production to which the noble Lord referred—and I think he referred to it with moderation—has become somewhat more marked; and production has nearly climbed back to the level of two or three years ago. We are again wistfully hoping for peace, or at least a ceasefire, to break out in Korea. There seems to me, therefore, to be little purpose in taking up the same line again, and I would venture to follow the noble Lord along the general line of his speech in discussing the outlook for the future rather further in advance than is covered by the financial statements for the year, looking forward a decade or even more, and to where the finances of the country are drifting in the years to come.
I am sure that I shall have widespread support in the House when I say that no
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one can look forward to the prospects for the future with any complacency. In common with the noble Lord, Lord Cherwell, I have no doubt that most of your Lordships who are listening to our speeches here to-day have read the interesting articles that appeared in The Times newspaper at the end of last week, and I think there will be substantial agreement with the well-informed diagnosis of the situation which was given in those articles. Perhaps I may be allowed briefly to summarise their main conclusions as they appear to me. In the first place, there is no likelihood whatever that the running costs of our domestic services will decline. On the contrary, it is almost certain that in every one of them there is likely to be an increase.
In the second place, with regard to military costs, the costs of defence, I am afraid that it is unlikely that we shall see any substantial reduction; they even may tend to go up rather than down. Further than that, we urgently need capital for the development of our railways, our roads, our docks and for productive industry generally. Above all these, there is likely to be some £80 million additional expenditure when the cost of the British Army in Germany is transferred from German to British expenditure; and beyond that we have to allow for at least £100 million, possibly considerably more, owing to the fact that the American people, as represented by their Congress, are intending to reduce the amount of military aid, and possibly civil aid, which they have sent to this country in recent years. And to this, I myself would add an additional item for the large amount of money which we may have to spend on Colonial development in a special direction, to which I shall refer later. I understand that the noble Marquess, Lord Salisbury, now desires to make a statement on an entirely different matter; I will give way and perhaps I shall be allowed to resume after the noble Marquess has spoken.

CONFERENCE OF FOREIGN MINISTERS
3.35 p.m.
THE MARQUESS OF SALISBURY: I am most grateful to the noble Lord, Lord Pethick-Lawrence, for allowing me to intervene to make what I can assure your Lordships will be a brief statement on my visit to Washington. I do not propose to-day to anticipate the foreign affairs debate which, at the request of the noble Lords opposite, has been arranged for July 29 and which will give an opportunity for a full discussion of the recent Washington talks. Meanwhile, however, I feel that the House may expect me to give a very brief account of what was achieved at Washington. The aim of Her Majesty's Government, as you know, was to maintain the momentum of the policy laid down in the Prime Minister's speech of May 11.
Her Majesty's Government have had two main objectives since that date. The first is to bring about a meeting between the three Western Powers and the Soviet Union, with a view to composing, or at least easing, the differences between them. The second aim is to maintain and strengthen Western unity by further developing the institutions upon which the safety and prosperity of the Western world depend, such as N.A.T.O. and the various European organisations—the Coal and Steel Community, the Defence Community and the European Political Community. The original plan had been a meeting at the highest level, preceded by an equally high-level meeting between the heads of Governments of the United States of America, France and this country. For a number of reasons, including the illness of the Prime Minister, this particular plan could not be achieved, as your Lordships know. In order to retain the initiative, an intermediate meeting of Foreign Ministers was arranged, therefore, in Washington.
Our discussions there were mainly concerned with policy towards the Soviet Union and the satellite countries, with the German problem and with the connected problem of European unity within the Atlantic Community. We also discussed the position in Korea and in Indo-China, and I had some valuable conversations with the United States Secretary of State
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about Egypt. The Washington communiqué and the Note sent by the three Western Allies to the Soviet Government, which have been circulated in a White Paper, show clearly what has been achieved. If I may, I would briefly summarise the results as follows:—

(1) We agreed upon an immediate invitation to the Soviet Government to early four-Power talks.

(2) These talks will deal with, first, the key problem in our relations with the Soviet Union—namely, Germany—some solution of which is essential for any genuine relaxation in European tension, and, second, with Austria, which ought to be the easiest problem to solve between us and the Russians.

(3) It was agreed that further four-Power meetings at the highest level and with an even wider agenda were not excluded, if the situation seemed to require them.

(4) It was agreed that N.A.T.O. and the European institutions I have mentioned above, and more especially the European Defence Community, were fundamental to Western security and to the maintenance of international peace and must be further strengthened and developed.

(5) It was also agreed that these institutions corresponded to the lasting needs of their members, were necessary in themselves and therefore were not to be regarded as linked up with existing international tensions. This I would regard as of especial importance.

(6) Our note to the Soviet Government shows clearly that the three Western Allies, in agreement with the German Federal Government, wish to do everything in their power to reunite Germany in conditions of genuine freedom, and so contribute to the security of all countries.

It is the sincere hope of the three Powers that the Soviet Government will respond to this invitation and so enable us to work out together the means for a relaxation in international tension in Europe, just as we hope that an armistice in Korea will lead the way to a similar relexation of tension in the Far East, including South East Asia.
As regards Egypt, the House will have noted that General Sir Brian Robertson

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has returned to Cairo. I will say no more now than that our talks in Washington confirmed the wide measure of agreement between us and the United States Administration on the Egyptian problem and more especially our common view that the maintenance of an effective base in the Suez Canal is an essential strategic interest of the free world. Our position remains that we are willing to resume negotiations as soon as the Egyptian Government is ready to do so. In conclusion I should like to pay tribute to my two colleagues, Mr. Foster Dulles and M. Bidault, for the friendly and cooperative spirit in which they tackled our joint problems.
EARL JOWITT: My Lords, there is a good deal to ask and say about this statement, but, following the example of the noble Marquess, I think it would be much more convenient if I postponed questions and comments until we nave our foreign affairs debate next week. Therefore, I propose to-day merely to thank the noble Marquess for making his statement.
VISCOUNT STANSGATE: My Lords, as the noble Marquess is the only firsthand authority in this matter, will he permit me to ask one question? Is it the Government's policy to re-unite Germany, and that the re-united Germany should be a member of the European Defence Community?
THE MARQUESS OF SALISBURY: My Lords, if the noble Viscount will allow me, I would prefer to follow the example of the noble and learned Earl, Lord Jowitt, and suggest that all these matters should be left to the debate next week. I can give the noble Viscount an assurance that I shall be very ready to answer on that occasion. I do not think I should do much good by answering supplementary questions to-day.
VISCOUNT SAMUEL: My Lords, on behalf of noble Lords who sit on these Benches, I should like to thank the noble Marquess for having, in spite of the fact that we are to discuss foreign policy next week, made an interim statement on the important conversations that have taken place in Washington. We are all glad that he was able to report so large a measure of common agreement. Undoubtedly, the most important outcome of those conversations has been the
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despatch of an invitation to Soviet Russia to join in four-Power conferences on the same level. Whether the change in Soviet policy extends to the basic objects of their State, we do not know; but undoubtedly there has been a great and significant change in the tone and temper with which they are conducting their affairs. Without entering further into these matters, for the reason given by the noble and learned Earl who leads the Opposition, I think I may say that all of us in this county, of all Parties and schools of thought, most earnestly hope that that invitation will be accepted by the Soviet Government. We trust, too—and we have no doubt—that this change in the temper of their policy will not be met on the side of the Western countries by a spirit of sceptical suspicion, but rather in a spirit of full reciprocity. For the rest, we would only thank the noble Marquess for having rendered, by his visit to Washington, yet one more to his many services to the country.

FINANCE BILL
3.45 p.m.
Debate on Second Reading resumed.
LORD PETHICK-LAWRENCE: My Lords, if I may now resume my remarks on the Second Reading of the Finance Bill, which has been interrupted by the interesting and important intervention of the noble Marquess, I would begin by recapitulating in a few words the last sentence or two of what I was saying before the interruption took place. I was recalling the points of view put forward in the articles in The Times. I was saying that they suggested that while the running costs of the Services, and the costs of defence, were not likely to fall, but, on the contrary, were likely to increase, and certainly increases are to be expected in the cost of the domestic services, there would also be large additions to the bill for capital development to be looked for in the future. I therefore pose this question: Is this formidable bill one that can be met? The answer which will develop from what I have to say hereafter will be, Yes, on certain conditions.
It is of prime importance that we should all be realists in these matters, whether we be Socialists, Conservatives or Liberals—and I venture to suggest

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that in some respects we are all, in different proportions, all those things—and we must be prepared to accept the logic of events. We cannot, even if we would, go back to the old world of the nineteenth century, with its undisputed British predominance in manufactures and commerce; with British policing of the high seas and control of the far and near East; with its class prejudices, its sex exclusions, its internecine fights between capital and labour, its restrictive practices, its treatment of the sick and the aged. In the first part of the twentieth century, partly as a result of the great wars, two leviathans have arisen, and we have to live in the same world, with them in the future.
So far as this country is concerned, the situation is rather like that of a human being going into a bathing pool and trying to swim in that pool in which there is at the same time an elephant and a rhinoceros: it can be done, but it is not easy. If we are to trade with these leviathans, we must do so, to some extent, on their terms; and if they will not take our imports in exchange for their exports to us, we may have to discriminate against them and seek food and raw materials elsewhere. That is easier said than done, because to a large extent it will require prior capital development of the countries which are the sources of this food and raw materials. Noble Lords may remember that, before the break in our discussion, I said that I would refer later to an additional item, which I do not think was mentioned in those articles in The Times—I refer to the great increase in expenditure which may have to come from this country for development in our Colonial Empire, and possibly in some of the countries which are in close association with us, for the express purpose of developing markets to us of the food and raw materials which we require.
Then we must recognise that, with regard to Asia, we have to accept, and not merely grudgingly acquiesce in, the new relationships between Europeans and Asians. I say that all those countries are fortunate which entered into this new partnership in a spirit of good will, and did not wait for the new position to be forced upon them. I do not propose to dwell on that: still less do I propose to dwell on the situation in Africa. North,
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South, East, West or Central, all of which fill me with considerable alarm. I do not do that because I should be wandering far away from the subject of to-day's debate. But I would say that untoward developments in Africa may well have repercussions in the world of finance, considerable in any case, and shattering if the worst were to happen. Therefore, the first condition of the survival and prosperity of this country is that we should face the world not as a single country but as one of the Commonwealth—primus inter pares very likely, but not a controlling Imperial Power—and that within the Colonial Empire we also recognise partnership and not dominance. I would go a little further than that, because outside our Commonwealth and Empire there are countries belonging to the sterling area, and there are countries in Europe, who look to Britain to give them a lead, both in finance and trade and in their attitude to world problems.
Turning from these overseas questions, I come to the domestic side. I begin with what I described a little earlier in my speech as class prejudice. I believe that we have learned in this first half of the twentieth century that people have different functions to perform. We have gone a long way from the exaggerated and insulting, class distinctions. We know now, and realise, that all these functions are necessary to civilization, and that the performers of every one of them are entitled to our respect. If there are to be differences of remuneration they must not be too great. There must no longer be vaunted luxury in juxtaposition to grinding poverty. We have come a long way. I am not quite sure that we have finished the road, and we probably have further to go; but the changes from the nineteenth century conceptions are tremendous. If you turn to the question of sex, sex dominance and sex exploitation have largely gone. The wasteful shutting out of women from certain occupations has very largely disappeared. Nearly every avenue is open to men and women, irrespective of sex. There are still a few relics—exclusion from your Lordships' House for example, and unequal pay for equal work. We must tidy up these remains. We must do away with these things, not merely as a matter of justice between one sex and another, but because every such exclusion and hindrance is

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a waste to the body politic which needs the best person for a job, and needs that those persons shall be satisfied with the wage they get for their work.
Then I come to the internecine strife between capital and labour. I remember the days when there was a dog fight between the two factors in industry. It is much less than it was, but it has still further to be reduced. With this we must get rid of the restrictions upon output to which the noble Lord himself referred, which arose in the first instance largely because of the attempts by employers to impose humiliating and exploiting conditions on their workpeople. We must remember that restrictive practices are not confined to one side in industry. There are restrictive practices by employers and manufacturers who hope by their restrictions to exploit the community and the consumer in their own interest. Both of those restrictive practices have to go. Of course, in every class of society—this is my experience through my life, and I think other noble Lords will agree with me—there is a certain proportion of slackers who want to get paid, rewarded or honoured for doing as little as possible for the benefit of the community. The danger is that the pace of the worst, the least efficient, tends to become the pace of the whole; and that is one of the great dangers which we have to meet and overcome in seeking to increase the output of the country. All sections of the community must set their face against the slackers in their own section of society.
Now a word about old age. One of the stupidest forms of waste is the rigid insistence on a fixed and identical retiring age for all workers in all kinds of employment. What is right for heavy manual labour may be all wrong for mental, or other labour. I notice that in politics, which are very strenuous in some respects, we have, not only in your Lordships' House but in the House at the other end of the passage, eminent examples of men who have passed well beyond the forties, fifties and sixties, and have got well into the seventies, and possibly even into the eighties—far beyond the Psalmist's allotted span of three score years and ten. On the other hand, there are some men who are born old, in the sense of being work shy; others who are old at forty or fifty, and some who are still in their
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prime in their sixties and seventies. When I say "men," of course I include both sexes, just as a master who for the first time was addressing a co-educational class in his school, who kept on referring to them as "boys," at last recollecting himself said, "Of course, boys always embrace girls." Therefore, my second condition for survival and prosperity is that we have to use our individual common sense and be prepared to be flexible, and, above all, to realise that the people of this country must play as a team in a game which can he played only by a common effort, and not play as individuals, each for his own hand and each for his own selfish ends. Unless we do that, then in very truth we shall lot be able to have prosperity, even if we are able to survive. During the war, we pooled all our resources, and, to the amazement of the world, we once again, in the words of Pitt:
"Saved ourselves by our exertions and Europe by our example."
In this economic battle we have in some ways an even harder task; but having lived, as I have, a long life as a member of the British race, I have a supreme faith in our people, in their sense of reality, in their toughness in the face of difficulty and trial; and I am confident that if they are led by leaders who have both wisdom and vision, we shall come through.
4.1 p.m.
VISCOUNT WAVERLEY: My Lords, when I addressed you three months ago in the last debate, to which the noble Lord, Lord Pethick-Lawrence referred just now, I said that I thought the Chancellor of the Exchequer had been right to risk deliberately a Budget deficit by granting tax concessions designed to encourage productive enterprise. The time has not come for a final judgment, but I certainly do not think that any ground has appeared in the intervening months for changing that view. The situation which confronts us to-day presents a number of encouraging features. After a period of anxiety, to which the noble Lord, Lord Cherwell, referred, there has been a notable recovery in certain sections of industry, in particular in the textile industry; and in the woollen section of that industry, to which my noble friend referred, there has been recovery. The motor car industry has done particularly well in the matter of exports; and in

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various sections of the chemical industry there is steady improvement to be recorded.
In addition to the main features of the Finance Bill, there are a number of miscellaneous provisions, unconnected, none very important or costly, all tending to enhance the atmosphere of uplift, which is the dominant characteristic of the Bill. The central provisions are, of course, the abolition of the excess profits levy, the restoration of initial allowances, and the reduction of the basic rate of income tax. The Bill is much lighter than usual. In the final speeches in another place—which I have been at pains to read—very little criticism was made, except on quite minor points of detail, such as the exemption of cricket from entertainment tax and the reduction of purchase tax on luxury articles. As Lord Cherwell commented, there was at no time any Division on the Budget Resolutions. So far in this debate, however, we have heard very little on the substance of the Bill. I do not know whether that is customary in this House, in dealing with a Bill of this kind.
THE SECRETARY OF STATE FOR COMMONWEALTH RELATIONS (VISCOUNT SWINTON): It is not out of order to refer to it.
VISCOUNT WAVERLEY: It is not what I was accustomed to in another place. I must confess that I came here with a lively expectation of having from my noble friend a detailed and pellucid exposition of certain provisions of Part III of the Bill. I did not have it, and I am not going to rush in where my noble friend thought it better not to tread. I suppose that those provisions are, in effect, the first concern of the inquiry of the Royal Commission on Income Tax and of the Millard Tucker Committee. I venture to think that when we receive the next Finance Bill, we shall find in it an adequate reflection of the recommendations of the Royal Commission made as the result of these vitally important investigations.
I have said once before that the machinery which we have in this country for the assessment and collection of direct taxes is the most perfect thing of its kind in the world. It might well prove to be our undoing. Lord Cherwell referred to what he called the pejorative word
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"profits." I wonder whether all of your Lordships fully grasped the implications of that reference. May I venture to expand for a moment? I certainly think it is a great pity that we have not been able to find a new term for the surplus which emerges in every thriving industry—not a disposable profit at all, but something which must be retained to preserve the very life of the industry. Now, my Lords, taxation deals with that surplus as if it were ordinary profit. We need more and more of such surpluses. The paramount need everywhere to-day is increased productivity, particularly in the exporting industries. Everyone knows—it has been said again and again—what are the necessary ingredients for the solution of that problem: better and speedier and more effective application in industry of the results of scientific research; the employment of more and more scientists and highly trained technologists in industry. I do not think the situation is quite so bad in that respect as is often represented, but we in this country, by comparison with other countries in competition with us, still have a long way to go.
Nevertheless, I should say that substantial and almost spectacular progress is, in fact, being made. We want better training of foremen and managers, and we want better human relations. All these things are essential. There are encouraging signs. But we have to meet to-day much keener competition from Germany and Japan. As Lord Pethick-Lawrence pointed out, we have to face, in certain directions at any rate, a tendency to increased costs in our own industries. We shall be faced with a problem when we take over the full cost of the Army of Occupation in Germany; and the generous contribution that America has been making, which has so assisted our finances and our balance of payments, cannot continue indefinitely. Those are undoubtedly grave aspects of the matter. At one point in his speech the noble Lord, Lord Pethick-Lawrence, painted an attractive picture of somebody, presumably representing this country, wallowing in a pond with an elephant and a rhinoceros. It would have been more serious if he had said a hippopotamus, because, after all, that is an aquatic animal. But whatever Lord Pethick-Lawrence had in his mind, that suggests

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to me an awkward and perhaps embarrassing situation; and it may be that we shall have to get out of that particular pond and cultivate suitable water sports with other associates, those who are nearer to us and perhaps, in some respects, more congenial to us. I welcome very much what the noble Lord had to say about all that.
Africa presents us with a very great problem, and truly what happens in Africa may have a profound effect upon our economy. But I do not know whether the noble Lord, Lord Pethick-Lawrence, has been following closely a tendency which has become very marked in recent months—at least I think so—towards a freer use of British capital in development overseas. There have been a number of indications of this, and those who are responsible deserve great credit for the imagination and foresight which they have exercised in promoting and supporting these movements. We may come to rely very largely on the results of such development.
I warmly welcome, also, the stress that is now being laid by responsible trade union leaders and by many former Socialist Ministers on the vital necessity for increased productivity and increased investment. In some respects, we see there a very welcome change, and I particularly welcome the tone of the noble Lord's speech and its constructive character. While, as I have said, there are encouraging features, we still have a very long way to go. There is no reason at all for complacency, either on the part of the Government or of any section of the community, employers or workers, or whoever they may be. As the noble Lord said, we have all of us got to be realists, stern realists, and it cannot be made too clear that on the reaction of the community to the present concessions will depend all hope of future relief and, perhaps, our ultimate standard of life.
4.12 p.m.
LORD BRAND: My Lords, from what some of your Lordships have said, I believe I shall be in order in taking a rather wide view of what one is able to say in this debate, because I want to make some reflections on our economic and financial position and some comparison of policy as regards the Conservative side, on the one hand, and the Labour
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side, on the other. I take the Conservative policy as that exemplified in the Chancellor of the Exchequer's speeches and actions, and I think I am right in taking the Labour policy as that set out, for the moment at any rate, in the document called Challenge to Britain which is to be submitted to the Annual Conference of the Labour Party and which sets out a very detailed policy indeed.
First, I should like to make a few remarks on the results of the Chancellor of the Exchequer's policy. As others of your Lordships have said, the crisis is overcome for the time. We are now making, I think, a surplus, even before taking credit for American aid. In 1953, up to the end of June, our gold and dollar reserves have increased by some 520 million dollars, of which only 167 million dollars were aid. This has, I think, been accomplished in the main, first by the very favourable change in the terms of trade; secondly, by a big reduction, in volume as well as value, of imports in 1952, though this volume appears to be climbing again now; and, thirdly, by the maintenance, more or less, of the value of our exports, our dollar exports being somewhat higher. Moreover, I think the Commonwealth Conference was exceptionally successful in inducing other sterling area countries to reduce their imports—not only dollar imports but also imports from Europe which were costing us gold through being settled via the E.P.U. We should remember that terms of trade which are favourable to us are uafavourable to many sterling area countries, particularly the Colonies, because the prices of their products have fallen. By these means we have staved off an alarming crisis.
The other side of the Chancellor's policy was the process of reducing taxation, which we should like to see go much further, but how far it can go seems to me doubtful, as it looks—I think your Lordships have heard observations this afternoon to that effect—almost certain that our expenditure must automatically go on rising. Meanwhile, production is up. I have not been able to ascertain where the increased production is going to, whether it is going to stocks or to consumer goods. Certainly, there has been a good deal of spending. I am told that, probably due to the Coronation.

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400,000 television sets, worth, including purchase tax, about £25 million, were sold in less than four months. The underlying trend so far as consumption goes seems to be upward.
Of course, higher production is not all "jam," because it means higher imports. There are signs of this; and the question, therefore, has to be asked, are we consuming more than we can afford? Is the home demand too high? While this is uncertain and while our reserves are so low, our balance of payments so precarious, our Government expenditure and taxation so vast, our risk savings so limited, it seems to me that any equilibrium we have now reached has perhaps a rather temporary look. Any recession from abroad in our present state of weakness would be bound to be serious, and, to my mind, the possibility of real convertibility which we could maintain by our own efforts through thick and thin seems still a good way off. Great help might no doubt be given to us by the pursuing of a freer policy by the United States, or by their being able to discover some means of greater foreign lending, but the difficulties of doing this on a large scale are formidable.
In the main, each country must solve its own problem. What is our answer? In what direction shall we seek a solution? This question perplexes everyone, of every Party. I want to ask what answer the two main Parties give. The Conservative answer, as I understand it, is that the Government's aim should be not themselves to take over the task of commerce and industry, but to create a framework of stable, convertible currency and stable prices, within which the native energies, brains and vigour of the community could have free play; that taxation should be reduced, if possible, and that in any event inflation must be eliminated. This involves restraint, through fiscal and monetary measures, of domestic consumption, to allow the use of more resources for increased exports as well as an increase of savings. How can such a policy succeed in the face of constant increases in wages and prices?
I agree that the progress towards convertibility of United Kingdom sterling is highly desirable, for several reasons. First, it is unthinkable that the sterling area should hold together in the long run
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without convertible sterling. We are the bankers of the sterling area. Depositors and clients want a banker to pay them back in the same coin as they have paid into the bank. We cannot possibly suppose that the sterling area will always regard a currency as good if the policy pursued by a country may at any time lead to a further depreciation. Therefore, from that point of view convertibility is highly desirable. Then again, the general convertibility of the main currencies of the world is necessary if the greatest possible increase in world trade is to take place. Such an increase would be the greatest help of all to us in the solution of our problems. Convertibility is also necessary to encourage the maximum free flow of capital internationally. This is almost equally as important as increased trade.
It is only when the lenders, the creditor countries, feel that they are lending to countries which will be able to repay them, and if the currencies are strong and convertible, that free lending will take place in the world. At present, as you can see if you look at South American countries, an enormous obstacle to investment in such countries is the complete instability of thecurrency—I refer particularly to Brazil. Generally, as Mr. Rooth, the President of the International Monetary Fund recently said:
"Steps to convertibility and monetary reconstruction are the most important of all means in helping expansion and a balanced growth of world trade, which in turn is the most important element in maintaining a high level of employment and real income and in developing productive resources."
As your Lordships no doubt know, in the last two years there has been a general movement, particularly in Europe, away from the use of direct controls and in favour of monetary and fiscal measures to create stabilisation, and generally this policy has had striking results. I should like to refer your Lordships to a very comprehensive document which is published each year—namely, the Report of the Bank for International Settlements, which I remember Lord Keynes told me in Washington was, he thought, the best that was published, and that if you were to read it you would get from it all the figures you wanted about all the main countries of the world. I thoroughly

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recommend it to your Lordships. Nevertheless, I recognise that convertibility imposes certain restraints which we must live up to—about reducing or containing our consumption, and about living within our means. The question is, shall we do so? In addition, it is true that the sterling area system plus an inconvertible sterling acts like a sort of protective shield for British industry, and to that extent is useful. If we had convertibility, our industry and trade would require to be fully competitive with the conditions of other countries. I should like to emphasise that the Conservative policy—
LORD PAKENHAM: May I interrupt the noble Lord, who is always very generous about giving way? Before he leaves the Conservative policy, would he tell us whether the Conservative policy is the same as the policy he himself recommends, or is there any difference between them?
LORD BRAND: I was coming to what I myself believe is the right thing at the end. I do not think I shall be highly constructive, but perhaps the noble Lord will wait to the end.
LORD PAKENHAM: Certainly.
LORD BRAND: I now want to contrast that which I understand to be the Conservative policy (I have no right to say that I fully understand it) with the Labour Party policy as represented in Challenge to Britain. To begin with, may I say, without offence, that it would surprise me very much to learn that the best brains in the Labour Party had taken a serious part in hatching this programme, because, to use some exaggerated words, I think it is an enormous hotch-potch of everything; but there I may he perfectly wrong. It appears to be a catalogue of all the things that might be worth doing, first, if Governments and officials always knew better than other people; secondly, if great inflation were thought to be not undesirable—although it refers to uncontrolled inflation as being a bad thing; thirdly, if the fact that some of the things in the catalogue are entirely incompatible with others is thought to be no disadvantage. For instance, the plan indicates a large number of schemes involving, in my opinion, vast additional expenditure and large-scale inflation, with, at the same time, an imperative injunction to industry
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to cut down production costs. Again, while it promises
"sufficient encouragement to venture capital on risky projects,"
it couples with that promise the threat of legislation to prevent much in the way of distribution of dividends. I do not think that is a sign of very great encouragement.
Labour, with a capital "L," appears throughout as a sort of beneficent and omniscient goddess, clothed with quite miraculous powers. For instance, it is said that if savings are insufficient, Labour
"will see that enough saving is made"—
presumably by additional taxation. Well, if we have that on top of the present taxation, it will undoubtedly be inflationary. Then, Labour will see that
"there is an adequate supply of risk savings at cheap rates"—
presumably also out of taxation I do not know where else it will come from. The Labour Front Bench have not the savings in their own pockets, and therefore it must come from the taxpayer. Who is going to see how this risk capital is spent? Is there to be a great new institution, and how much will it know about how these risk savings should be spent? Anyhow, such a course is directly inflationary. No mention is made of any aim towards convertibility. Perhaps that is natural in view of the fact that the programme would certainly lead to inflation. The only reference to currency is:
"We must tighten up currency controls."
Perhaps the most remarkable promise is that
"Labour will introduce legislation to place the necessary powers for ensuring full employment on a permanent basis, subject to appropriate Parliamentary safeguards."
Well, I have never heard before that legislation can ensure full employment. It seems to me to be King Canute, with a vengeance!
LORD PAKENHAM: May I interrupt the noble Lord again, as I am sure his words will be widely followed in certain quarters? I feel he ought at least to read a little more of that quotation. It says:
"Labour will use direct controls to ensure that resources are not wasted through inflation."

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I understood the noble Lord to say (but I was not hearing perfectly at the moment) that this document regarded considerable inflation as not undesirable.
LORD BRAND: In answer to the noble Lord, I would say that it is difficult to know what it desires, because while that sentence is in—that Labour says that uncontrolled inflation is undesirable—the whole document would lead to great inflation. Perhaps the Labour Party have not adjusted the two sides; but there is no doubt what the result will be unless you scrap all the part that leads to inflation. I daresay that in compromising one perhaps put in things that are inconsistent; and that seems to me a strong characteristic of this document.
There is one sentence that has a certain amount of pathos about it. It says:
"It is no good Whitehall working on blueprints for increasing and expanding engineering exports unless the Government have power to ensure that the blueprints are put into effect."
But does anyone suppose that Whitehall is the best instrument for drawing up blueprints for the engineering industry? Surely the engineering industry knows more even than civil servants in Whitehall, able as they are. It seems to me that one would think that British industry and the British people were merely sitting by, waiting for orders from Whitehall. The guiding idea of the programme appears in the statement in the very first sentences:
"British capitalism long ago entered on its decline."
If the view that British industry is moribund is really held, then the suggestion of nationalisation is understandable. But why should it be moribund? What about private industry in the U.S.A., Canada, Germany, Holland, Sweden and Switzerland. Are we in this country so much more inefficient and stupid that we cannot run industry as well as they can? I do not think so. Unfortunately, while the proposal to nationalise arises, I understand, because private industry is decadent, it is remarkable that the only industries which it is proposed to nationalise at the moment are the very successful ones—engineering, aircraft and chemicals. On what ground that is suggested, is uncertain. I do not suppose that it would be so that they might join
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the moribund troop. The argument seems to be that such industries must export much more, that much more capital is wanted, that there are no private savings; and therefore, the Government must provide the capital.
The document proceeds to say that
"What a free enterprise system cannot do is to direct the flow of capital into specific industries,"
and that therefore the Government must. What a strange statement to make! What is the great capital market in the City of London doing? Its whole object is to direct capital into those channels which are shown by prospectuses to be flourishing, able to supply goods, able to sell them, abroad or at home, and, generally speaking, to match capital and the demand for capital. Naturally, that flow is directed by market forces, by the possibility of a company making a profit. You have only to look at last week's papers to see that millions of pounds were provided for industry, and particularly for the engineering industry. When I read about directing the flow of capital into specific industries, I sense a faint but distinct aroma of groundnuts, of capital being directed by people who do not know about industry into a direction which they think will be highly satisfactory and profitable but which does not turn out quite like that.
Apart from nationalisation. Challenge to Britain has one broad proposition for curing the dollar gap. That solution, as I understand it, is the tight organisation of the United Kingdom, the rest of the sterling area, and the O.E.E.C. countries in a joint planning co-operative group. All these countries are to discriminate against dollar imports and have tighter exchange controls. In return for agreeing to these methods, the United Kingdom will supply loans on a large scale, without expecting any payment until later on, for the development of food and raw material exports. Each country, it is said, must know its exact part in the plan over several years. I myself believe that whatever merits such a scheme has, it is impracticable. I think the other sterling area countries will not join us in a cold war against the United States—a step which looks like, though I do not think it is intended to be, a method of baling us out in our difficulties. Moreover, is it likely that we shall have these gigantic

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resources to lend abroad if all the other inflationary projects of this programme are also to be carried out? The programme does not mention the question where the resources are to come from.
Now a few words about my own conclusions, about which the noble Lord wanted to know. I consider that the Labour policy, as set out in this programme, of combined nationalisation, plus inflation, plus a proposal to form a protective bloc, is impracticable and against the country's interests. I believe that the Chancellor's policy is on the right lines, and, as I have said to your Lordships, the same policy has met with very considerable success in a good many other countries. Here we labour under great obstacles, more almost than in other countries, because we bear greater burdens. For example, we are banker to the sterling area; we have to pay huge debts; we have to build up reserves—all of these require a surplus; we have to lend to undeveloped countries; we have to export much more; we ought to invest much more in industry. Our taxation is huge, and no one sees any means of reducing it. In the face of all this, we have to maintain our current consumption as best we can, and as wages and prices go up, as they appear to be going up, we have to provide reserves for increased current consumption or, somehow, to keep current consumption down. If all these burdens are too great, we risk inflation again. Then our competitive power fails and our only recourse is to devalue again. Yet all economies, in production, in subsidies, in social services or in defence are politically difficult.
One always comes back, therefore, to what other noble Lords have already mentioned—the necessity of increasing our efficiency and our productive power. But there are difficulties here, as we all know. I think the obstacles are less in the new industries than they are in the old, and no doubt difficulties come both from the management side and from the side of the men. I should like to draw your Lordships' attention particularly to a sentence which appeared in a report in The Times on July 16 of a meeting of the Transport and General Workers' Union. The Times report said:
"Many workers suspected higher productivity merely meant higher profits for the employer."
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In this connection, I was very glad to hear what the noble Lord, Lord Pethick-Lawrence, and the noble Viscount, Lord Waverley, said. I think that both of them wished the idea somehow to get through into the country that we are all partners in industry—management, labour and shareholders alike. But here, as reported in this paragraph to which I have referred, are men who apparently feel that higher productivity will not benefit them or the country. They think it means only higher profits for the employer—that was the effect of what was said.
Of course, to-day there is hardly any such class as "the employers." There are thousands, tens of thousands, and hundreds of thousands, of shareholders, and shareholders who have great difficulty in making any savings at the present time. Their savings are essential to us, and what do they get as a return on their savings, if dividends are paid? If they are in the sur-tax class, three-quarters of what their holdings yield goes to the Government anyhow, and is used to pay for the social services and so on. Is it not tragic that the wage earner should consider it criminal and destructive of both his interest and the country's interest that shareholders should get some dividends? That is an idea which I believe it is absolutely necessary to alter. Even if we get greater production, my belief is that we shall never be likely, from the existing amount of international trade, to get a sufficient surplus for all our needs. Our imperative need, therefore, is greater international trade, and the best approach to that is that all great trading countries should recover their equilibrium and make their currencies ultimately convertible one with another. For this reason, I believe that the Conservative policy is fundamentally right, and if the Labour policy is not to support convertibility, then I believe that policy is fundamentally wrong. But, of course, convertibility, as I say, is quite a long way off; it has many obstacles to overcome.
I should like to make one or two final comments. I have criticised Challenge to Britain, but on more than one point I support it. I believe that it is right in recommending a closer organisation of the sterling area. We are the bankers of the sterling area countries, and their

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monetary and fiscal policies are of vital importance to us. If they are wrong, we pay the penalty, because they can come back on our reserves. I do not believe that mere central bank co-operation, or even Government co-operation, from a distance, is sufficient. I believe that it is absolutely vital to us to follow closely the policies of those other countries and to have some definite machinery for doing so. My view is that something similar to the organisation of the O.E.E.C. is desirable for the sterling area. The second matter on which I agree with Challenge to Britain is in its call for sacrifice and its statement of the critical problems before the country. I agree with it in its call for
"sacrifice not only of material benefits but of many cherished habits and traditions."
It does not go into any detail to show what these words mean, but the sentiments are admirable.
My Lords, I have referred hardly at all to the very important matter of United States' policy. The United States suffers as we do from ingrained prejudices—one of them is tariffs. If nothing can be done about tariffs, and lending to the outside world by the United States citizens or industries is not possible on a large scale, and if United States Aid more or less disappears, then the non-dollar countries must, I think, maintain quantitative restrictions against dollar imports, when they have no means of paying for them available, or put themselves in a position to compete with the United States by lowering their rates of exchange. But the great obstacle to any such devaluation, is that you do not simply do it once and, so to speak, take your medicine, and determine that you will so act that it shall not be necessary to devalue again. Immediately you devalue, if prices rise, then wages rise, and you face the same old problems all over again. This last tendency towards the vicious circle, which is now almost a tradition and a habit with us, is perhaps the greatest handicap of all, and one of which we must rid ourselves.

BUSINESS OF THE HOUSE
4.48 p.m.
EARL FORTESCUE: My Lords, may I interrupt the business for a short time in order to make an announcement. As there are nineteen speakers on the Motion to be moved by the noble Viscount, Lord Samuel to-morrow, it has been agreed, through the usual channels, that we shall sit right on until we finish: there will be no adjournment for dinner.

FINANCE BILL
Debate on Second Reading again resumed.
4.49 p.m.
LORD SHEPHERD: My Lords, a year ago the Second Reading of the Finance Bill was moved by the noble Lord, Lord Lloyd, and it fell to me, as a junior Parliamentarian on this side of the House, to reply to him at once. I am very glad that on this occasion more experienced members of our two Parties have been engaged. The debate has been graced by a Motion from a member of the Cabinet itself, and we have had a reply from my noble friend Lord Pethick-Lawrence, than whom there is no more clear-sighted economist in this country. I hesitated at first as to whether I, with no pretence to economic knowledge, should intervene in the debate at all, but I came to the conclusion that, after all, this House consists not merely of economists or of lawyers, or of any other groups of skilled persons: it comprises ordinary men as well. And I felt that it might be desirable that an ordinary man, with no very extensive or special knowledge, should say a few words about the Bill and about matters that arise out of the Bill.
There seems to be a tendency to presume that the financial condition of the country, as seen through the eyes of the Chancellor of the Exchequer, is not too bad. There seems to be a feeling that we ought to be very thankful now that things are so good in that respect. I look to the speeches of the Chancellor of the Exchequer to find out what he himself has to say. The first thing he has to tell me is that the Budget Estimates of a year ago failed very badly. He budgeted for a surplus above the line of £510 million: the actual surplus above the line was no more than £88 million.

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Under the line, he budgeted for a deficit of £506 million, whereas the actual deficit was £524 million. He prophesied that there would be an overall surplus of some few million pounds. The actual result was a deficit of £436 million. I am not going to say severe things about that result. I am, however, going to ask noble Lords opposite to consider what they would have said about a similar condition of affairs if the Chancellor of the Exchequer had been a Labour Chancellor. I would add to that question another—namely, if the Chancellor was so far wrong last year in his Estimates, what guarantee have we that he will be any nearer this year? Can we assume, remembering these facts, that this year's Budget, which has been belauded so much, is going to lead to better things?
The Chancellor of the Exchequer gave two main reasons why there was a deficit last year. First of all, there was an increase in defence expenditure of £365 million—that is to say, £1 million a day extra. About that I would say that if the Government found it necessary to expend that money, and if they desired to proceed to more intensive rearmament, then we have no complaints to make. It is a part of a deficit created by an anxiety to protect the people of this country from difficulties abroad, and noble Lords on this side are more than sure that they are right in giving support to it. The second point mentioned by the Chancellor was that during the last financial year there had been an increase in the cost of the National Debt of £42 million, owing to the higher bank rate. If we look in the Financial Survey, we find that it states that in the last calendar year, for the same reason, there had been an increase in the charge of the National Debt of £60 million. We agree with the noble Lord who spoke last that taxation is still very high. We do not believe in high taxation for the sake of high taxation, but we say that if we are to reduce taxation in some directions, then we ought not to miss a direction of this kind. I suggest that we take serious thought about reducing the bank rate once more, in order that Government borrowing may be done at a much lower rate than it now is, and in order to prevent the necessity for the Chancellor to raise taxation again to make good the increased charges from this cause.
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I should like to make one other point about the increased bank rate and the result it is likely to have elsewhere. It was mentioned in the debate in another place that recently the Birmingham City Council have been to the City of London to raise a loan of £10 million, instead of obtaining it from Government sources. They found themselves under the necessity of paying not 3 per cent.. the sum to which they had become accustomed, but 4¼ per cent. On that £10 million the people of Birmingham have to pay an increased interest charge of £125,000 a year. The speaker in another place, a man of authority in Birmingham, said that it was quite usual for the City of Birmingham to find itself in the position of borrowing £10 million a year. Therefore, if this loan were to go its full course of seventeen years, and Birmingham has to borrow £10 million every year to the end of that seventeen years, the extra charge to the people of Birmingham would ultimately be at the rate of £ 2,125,000 a year. In other words, to meet the extra interest, due to the higher bank rate putting up the interest rate, the people of Birmingham would have to pay an additional rate of 5s. 8d. in the £—and therefore in many directions are likely to be less prosperous because of that.
I should like to refer to the statements made in the course of the debate by the noble Lord, Lord Cherwell, and the noble Viscount, Lord Waverley, concerning production. We all recognise that there must be increased production, not only in order to provide our people with the standard of living we think they are entitled to but also in order to export abroad to buy the foodstuffs and raw materials required in this country. The question is, how is that to be accomplished? Frequently the same people who talk about the necessity for more production also argue that the standard of living is much higher than it ought to be, and eight to come down. They say that we ought to consume less, so that our manufacturers will have more goods to export to places abroad. On Saturday The Times pit this case very clearly in a leading article. I hope your Lordships will allow me to quote briefly from it, in order that I may get hold of the point to which I want to draw your Lordships' attention. The article says:
"…there is no real scope for acceleration in the increase of production by the rate of

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capital investment unless saving is greatly increased and the standards of consumption are correspondingly lowered."
Therefore, we have to assume, from the leading article in The Times, that consumption in this country has to be greatly reduced. What I again want to know is how this is going to be accomplished.
The Times leading article went on to tell us some of the things thought to be necessary for the occasion. It said that the old must be prepared to work later in life; the young should work harder and for longer hours; there should be flexibility of labour; there should be keener management; and there should be an ambition to acquire and exercise skill in all its ramifications. I still want to know how it is going to be done. Let us take the question of reduced consumption. Does "reduced consumption" mean that less food must be eaten by our people? The Times does not tell us whether that is so, or not; but does it really mean that we have to consume less food? If we do consume less food, what effect is that going to have upon the trade of this country with New Zealand, Australia and Canada? From where will the people of those countries get their money with which to buy our manufactures if we reduce our purchases of food from those countries? What will happen to the shipping interests in Britain, which have done so well in recent years in the carriage of food to these shores, if they have a smaller quantity to bring over? Surely, those are not difficult points to answer. Does "reduced consumption" mean that we have got to wear fewer boots and shoes, or buy fewer boots and shoes? If that be the case, what will be the effect of that reduced consumption on the boot and shoe factories in our land? Will it be necessary in those factories, due to the reduced consumption of boots and shoes, for men to work harder and to work longer hours; or will the inevitable result be an increase in unemployment? I think it is a serious matter when a request for increased production and a demand that consumption should be greatly lowered are linked together.
Take the question of clothes, both for men and women. If we are to wear fewer of these things, and not buy as many as we have been doing, what will be the effect upon the shopkeepers of London, and of
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all towns, large and small? Will they do as much trade as they have been doing hitherto? Surely the answer is, No. And if the shopkeeper does not do the trade, does that not mean that he will be sending fewer orders to the mills and factories? Surely the answer is, Yes. Surely it means that the textile areas—in particular, Lancashire, Cheshire and Yorkshire—will suffer once more from a reduced consuming power of the people. Then there is the subject of beer. Have the people of our country, because of their low consuming power, got to drink less beer? And if they drink less beer, how will that effect the brewing interests? Will they be particularly glad of the event? I am a teetotaller myself, but I am not bigoted, and I do not suggest that a person should refuse to drink beer merely because I do. But I would say this. It would be a serious matter for us, in a financial sense, if the people, by drinking less beer, forced the brewers to pay less in the way of taxation, which in turn might cause the Chancellor of the Exchequer to increase income tax, in order to make up the shortage. When we come to consider all these questions, I feel sure we shall realise that we shall not increase the productive power of our country, or our power to export commodities, by an impoverishment of the people. We shall improve our productive power only when our people are in a state of prosperity. There must be other ways of achieving greater productivity than a serious reduction in consumption.
It has been suggested by one or two noble Lords to-day that one of the faults of present conditions is that the State is taking too much of the national production. I have certain figures here which I should like to put before your Lordships. In 1951 the gross national product was £12,254 million. Of that, the Government took £4,644 million. That withdrawal left in the private sector £7,600 million. I was curious enough to look up the figures for the year 1938, and they are these. The gross national product was £5,132 million. The Government revenue taken from that was £1,017 million, leaving in the private sector in that year the sum of £4,115 million. Then, as a plain man, I again began to ask myself some questions. It is said that this revenue is spent by the Government and abstracted from the taxpayer—I think the noble Lord,

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Lord Cherwell, used those phrases. But how much of the revenue of the Government is sent hack to the private sector, either before it is received by the Government, or immediately thereafter? All this money which is brought into the hands of the Government is not spent by the Government, in the ordinary sense of that word.
There is the debt interest, for instance, of £600 million, which is immediately paid over to the private sector. It ceases to be part of the national sector; it goes back into private hands, and is spent by private persons in whatever way they choose. Subsidies amount to £397 million. There again, there is a transfer of money from the public sector to the private sector. Insurance, amounting to £468 million, is a payment back from the public sector to the private sector. Grants to persons represent £394 million; and grants to local authorities in relief of rates are no less than £376 million. In other words, last year, out of a total of £4,644 million taken by the Government in taxation, £2,237 million was returned to the private sector by the methods I have recited. There are one or two other cases which could be added. What the Government actually spend themselves could be stated on these lines: on defence, £1,415 million; on national health, £418million; and on civil expenditure, £427 million. Those three items balance the other items I have mentioned concerning the return of moneys to the private sector. Apart from the above, the Government invested (they did not spend) £600 million, making very nearly the complete sum taken over by the Government. That seems to me a most important matter, and it ought to steady the nerves of anxious people.
There are two ways, as I have said before, of spending money. Money can be spent by people in this country individually. In certain cases it is better that the money should be spent by individuals; but in other cases the people can spend money to greater advantage if they spend it together. But when we are talking about expenditure of Parliament or of the Government, or of local authorities, we should always remember to ask ourselves: How far is this a joint expenditure, out of which we jointly get a benefit, or an expenditure that means nothing to us at all? If we do that, we
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shall not be so seriously alarmed by the growth of expenditure either in the public or in the private sectors as we now appear to be. One other point about this refers to the social and health services. We think in terms of hundreds of millions of pounds when referring to the social services, and we sometimes assume that there has been a very great increase in the past few years in the expenditure on these services. Yet it noble Lords will look up the facts they will find that proportionately that is not so.
The cost of the social services in 1938–39, represented 9·2 per cent. of the national income of that time. In 1950–51 the cost was 11·7 per cent—an increase of only 2 per cent—and in 1951–52 it became 11·5 per cent. But, say the Committee who have been examining this subject, if the conditions of the population in 1938 had been the same as in 1951, then from £50 to £80 million of extra expenditure would have had to he added to the cost of the social services in 1938, bringing the proportion of expenditure from the national income for 1938 to the level of last year. I am not saying for a moment that we should look upon the rise in expenditure on the social services with closed eyes. I believe that in this field, as in every field of human activity, there will be opportunities of retrenchment and reform. It is our duty to watch those services and make sure that we are not spending money wastefully. But I do suggest to noble Lords, as I have done before, that perhaps the wisest expenditure of a country or of individuals is to spend on health, building up the stamina and intelligence of the nation, so that its people can compete in the work of enriching the world and themselves.
I do not wish to say anything more than that, but I should like to refer once more to the speech of the noble Lord who spoke immediately before me. If he had been an ordinary politician and not a banker, I should have assumed that his reference to the policy of the Labour Party was meant to detract attention on this side of the House from the condition in which the finances of the nation are at the present time. But I will not impute that to the noble Lord, because I know of his reputation and the way in which he deals with these matters. But I would remind him of something he omitted to

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say, which is that what he was reporting from was not the actual policy of the Labour Party but a series of proposals which are to come before the National Conference.
LORD BRAND: I was reporting from the programme to be put before the Annual Conference of the Labour Party by the National Executive of the Labour Party.
LORD SHEPHERD: If it is quite clear that the noble Lord understands that, and noble Lords understand that, they will realise that until these proposals have been before the annual Party Conference, they must not be accepted.
LORD BRAND: I fully understand that.
LORD SHEPHERD: All well and good, but I am not going to be led astray in dealing with the pamphlet, although I understand that my noble friend will be making reference to one or two of the points which have been raised. This discussion has had value. It has been made clear from this side of the Table that we are as much interested in the welfare of this country as are noble Lords who sit on the other side. We are anxious, even when critical, only to co-operate with the Government, and with noble Lords on the other side, in doing, things which are necessary. But we hope that we shall be candid with one another, and that we shall not have brought into this House a Budget statement which appears on the surface to be good and prosperous when in fact it is the reverse.
5.15 p.m.
LORD RENNELL: My Lords, I had intended to raise one or two points arising out of the remarks of the noble Lord, Lord Brand, but before doing so there are two or three points in Lord Shepherd's remarks which I find it difficult to leave unchallenged. The noble Lord, Lord Shepherd, referred in the early part of his remarks, and on previous occasions, to the standards to which we are "entitled"—in inverted commas—and then went on to wonder whether a restriction in domestic consumption must involve (or at the time he suggested it might involve) a reduction in the consumption of food and clothing, the only two categories to which the noble Lord
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referred. So far as I am aware, neither in The Times nor in your Lordships' House has there been any suggestion that a reduction in domestic consumption should involve a reduction in the amount of food or clothing consumed.
LORD SHEPHERD: What I indicated was that guidance was not given as to which subjects were to be reduced. What I have been trying to point out, however, is that we are spending more money, say, on the bank rate and other things which might deprive us of our ability to purchase. What I wanted to know was whether, as a result, we were to go short of those commodities.
LORD RENNELL: It seems a pity that the noble Lord chose to single out food and clothing as the examples on which possibly a reduction might take place. I am coming to this question of bank rate in due course. May I continue by saying—and I believe practically every one of your Lordships will agree—that no man or woman in this or in any other country is "entitled"—in inverted commas—to anything unless they work for it. That is the principle which has been recognised in no less a place than in Challenge to Britain, where on the first page the noble Lord will no doubt have read that the plan there outlined and, indeed, any other plan, financial or economic, put into force by any Government in this country to-day involves:
"Sacrifices not only of material benefits but of many cherished habits and traditions."
That statement occurs in this particular document, and that is at least one statement with which I think we on this side of the House can wholeheartedly agree. So far as reduction in domestic consumption is concerned, without going into any argument about a reduction in the two categories to which the noble Lord referred, I might point out, as merely one example, a possible reduction in the number of television sets purchased, which might allow a surplus available for export. However, I want to come back to what the noble Lord, Lord Shepherd, has said about the bank rate later.
To take the main theme of the discussion this afternoon, I feel that there has been a little too much assumption by the noble Lord, Lord Shepherd, and possibly even the noble Lord, Lord Pethick-Lawrence. that we on this side of

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the House feel that, as a result of the Budget this year, the position is vastly improved. I think it has been improved. I think that the general feeling in the country, and the general acceptance of the policy involved in the Budget, has had a definitely good effect. But that is far from saying that either the financial or, above all, the economic position of this country is favourable. I am inclined to take perhaps a less optimistic view even than that which the noble Lord, Lord Brand, takes, because it does not seem to me that the surplus on our balance of payments is accumulating either as much or as quickly as it ought to. There are now several indications that the accumulation of the surplus is tending to slow down. We have had the great advantage of having a more favourable export trade by reason of the fall in prices of certain imports. On the other hand, the reflection of that fall in the cost of imports—
LORD PAKENHAM: I think the noble Lord is saying something he did not mean. He said we had a more favourable export trade.
LORD RENNELL: I do not think I said that. I believe I said that I thought the surplus which was accumulating as a result of our export trade was not as favourable as it should be, and that the surplus was slowing down.
LORD PAKENHAM: I was only trying to be helpful to the noble Lord.
LORD RENNELL: May I continue? The value of imports which go into our exports has been more favourable for the last twelve months, but that, unfortunately, has not reflected itself in the costs of production. And there is one figure which comes out very clearly in the Summaries of Statistics in this country and in other statistics that are published about this country and Europe generally, which I find very disquieting. Lord Pakenham will no doubt take up this point. If he will look at the trend of wholesale prices in the Summary of Statistics—I am taking the summarised figures at the beginning of the book—he will see that there has been a continuous fall since the spring of 1951 right up to date—and a fall of very considerable dimensions. That has not reflected itself in any way in retail prices or in the cost of living. In point of fact, as wholesale prices have fallen, so retail prices and the cost of living have risen steadily.
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If you will relate that to wages, you will find that the increase in wages in this country has been of approximately the same dimensions as the rise in the cost of living. In other words, real wages are approximately at the same level. I am not commenting adversely on that in any way: it is probably necessary that it should be so. What I am commenting on adversely is the fact that both should have taken place: that there should have been a rise in wages coupled with a rise in the cost of living. I find it disquieting that, with a fall in most import items and with a fall of wholesale prices in this country and in the world generally, there should have been no slowing down in the rise of the cost of living.
That means, in other terms, that in spite of the fall of wholesale prices and import prices in this country we have not the benefit in our export trade that we might have and would have had: and if the trend in wholesale prices continues level or rises upwards, the reflection of that on our balance of trade will be extremely serious. I do not know whether the apparent slowing up of the surplus on our foreign trade at the moment is due to a less competitive position in this country as a result of those tendencies or whether it is due to other causes; but I think that that is one of the black points in our present economic situation—and it has, of course, a direct relation to the policy which has been pursued hitherto and notably to one of the points to which Lord Shepherd referred.
The fact of the milder is that in spite of the present Government—and, indeed, many economists and experts in other walks of life—having made efforts to halt the trend towards inflation which was only too apparent up to 1951, those efforts have not been singularly successful. This includes the financial measures which were taken and which I believe were necessary. All the figures which bear on the latent and underlying causes of inflation seem to me to be rather disquieting. Bank advances have come down to a great extent. Bank deposits have risen steadily. The velocity of circulation appears to be not slowing down but rising. Money in circulation is rising and turning over rapidly. So that, in spite of the higher bank rate and the higher cost of money—and I will come back

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presently to Lord Shepherd's point—it does not seem to me that the efforts which have been made to restrict inflation have been wholly effective. Therefore, so far from following Lord Shepherd in the direction of hoping that there will be a reduction in the bank rate, I can see no prospect of that until a reversal has taken place in the upward trend of the cost of living, retail prices, and wages. I believe that a reversal of those two trends is the one essential thing to create the more favourable balance of trade, without which I do not see how we can get within even talking distance of convertibility.
There is a cure for the financial and economic position of this country; and, of course, it lies in the sacrifices to which this document Challenge to Britain makes reference on the first page. Here the flatter is made abundantly clear. The cure is to submit to those sacrifices of material benefits which have been cherished habits and traditions. That does not necessarily mean a reduction in domestic consumption, but it does mean that large increase in domestic production to which Lord Brand and others have referred. Our main difficulty is that, with a static labour force, which is what we have, we cannot increase our production without a larger man-hour output or (or probably both) an increase in our technical equipment. The latter involves, inevitably, capital investment. For the last five years, during which mainly the same speakers as have addressed your Lordships to-day have spoken, this question of the lack of available capital has been the main theme running through the debates in your Lordships' House. The problem is still with us: and we are no nearer a solution than we were when we first started talking about the matter at the end of the war.
The fact is that we are not producing enough to create the capital to re-equip ourselves and to make that overseas investment which is essential to our continued existence. The alternative is to obtain capital for investment from overseas. That appears to be unlikely for as far ahead as we can see. The only solution, therefore, which remains in our hands, is to produce the additional capital ourselves, and that additional capital can come from a static labour force—a
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labour force, that is to say, static in numbers—only by an increased output from all those 22 million-odd men who are employed in production in this country. Without that capital re-equipment and new capital investment, as a result of invested capital falling into obsolescence and breaking down, as all capital investment eventually does if it cannot be renewed, and renewed at the greatly enhanced costs of to-day, not only shall we remain in the static position in which we are, a rather precarious static position, but that position is bound to grow worse.
The main difficulty with which we are faced, and with which we in this House ought to be concerned, is much less the Budget figures of from one year to another—and a good deal can be said about that too—as that we cannot at our present rate of production and saving continue to finance our own capital requirements. So far as Budget figures themselves are concerned, I do not follow, and I do not wish to take your Lordships into, the devious paths of above and below the line accounting in a Budget. I should like to say only that I hope the revised form which is now published in parallel with the old traditional form will become the accepted form; and if the noble Lord, Lord Shepherd, will consider the figures in the revised alternative form, the rather unjustifiable assumptions that he made about deficit will not, in fact, be borne out. I think that, for everybody's sake, the time has come when the form in which Budget figures are drawn up should be revised.
There is at long last one perfectly simple problem, and it is one to which I hope and think all Parties and all people, both in this, your Lordships' House, and in the country, will devote themselves. It is, how to produce more out of a given labour force that is willing to work and that can continue to maintain its present standard of life. I have no word of criticism against wages rising consistently with the rise in the cost of living, but I have the greatest possible criticism of a policy which allows the cost of living to rise and therefore forces wages up. I do not believe that the cost of the existing bank rate on Government finance has the slightest effect on greater or less production but I believe it has a tremendous effect in preventing people from wasting

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money. The old adage of "Easy come easy go" is truer of easy money than in any other walk of human life. When I read in the Challenge to Britain:
"We will see that there is adequate supply of risk capital at cheap rates,"
I can only conclude by saying that I hope a merciful Providence will protect us from the provision of cheap risk capital for investment in enterprises like the Colonial Development Corporation, the Overseas Food Corporation and oversized aeroplanes. I should like to add that, so far as local borrowing is concerned, many of the remarks which the noble Lord, Lord Shepherd, made about money returning, money that has been taken through the Budget and is returned to the public, applies with equal force, of course, to the cost of the City of Birmingham Loan; but a higher rate on the City of Birmingham Loan will make the City Fathers a little more chary of spending money, and will leave a little of the surplus capital available for investment in productive industry.
5.36 p.m.
LORD HAWKE: My Lords, I have on these occasions often spoken on the subject of savings, but this afternoon I am not going to tread that well-worn path. I should like to follow up my noble friend Lord Rennell in one particular, and make one humble suggestion to him. Arising out of his disquiet that the index of raw material prices is falling while the index of wages and cost of living is still continuing slightly to rise, I suggest to him that that is the double march towards equilibrium—that had raw material prices not been falling and the other index slightly rising, there would not have been the slightest chance for industry to operate at full capacity and to dispose of its resulting products.
As regards the formation of capital, up to quite recently undoubtedly the question of steel was the great handicap. Now that steel is available, I believe that there is a certain degree of money capital which can assist to a rather greater extent than is generally believed, though I also believe that in the majority of cases those resources are not such as are available for taking the more extreme risks. The noble Lord, Lord Shepherd, in his approach to these matters, showed a delightful mixture of the modern scientific and the ad hoc; and, when he
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talked about the Budget, I thought he rather mixed up the two. His Party were, I think, the creators of the Budget as an economic instrument, and he denounced the last Budget as a great failure, not because it was wrong as an economic instrument but because its figures and estimates of income and expenditure in the outcome turned out to be considerably wrong.
I should like once again to take up with him the question of the bank rate and the national debt. I assure him that it is an absolute and complete delusion to think that this £40 million, or whatever is the extra cost, is wasted. The spending of that £40 million is part of a system of controls, one might say, which has probably saved the Government £400 million and the entire citizens of this country possibly as much as £1,000 million; because, undoubtedly, without the check to inflation of the higher money rate as one of the most important instruments in that check, inflation would have gone on at a very considerable rate throughout last year, inflating the Budget figures and the cost of living figures.
LORD SHEPHERD: Is it not within the noble Lord's recollection that the effect of the bank rate has been slight and mainly psychological, and that the adverse balance had to be fought by positive weapons, like the keeping out of imports? I think the noble Lord is trying to put over too much. The balance of payments has not been brought to its present condition merely by the operation of the bank rate.
LORD HAWKE: Certainly not. I said it was one of the—I called them "controls" for lack of a better word. Cuts in imports were another.
As regards the attack on articles in The Times, I suggest that they should be addressed to the Editor of The Times rather than to my noble friend on the Front Bench, because am quite unaware that the Conservative Party have adopted in toto the leading articles in The Times, as the noble Lord rather led me to believe they must have done. I believe that this particular Finance Bill, giving effect to the Budget, has got to be looked at merely as an episode in what I hope will be a long innings by my right honourable friend the Chancellor of the Exchequer.

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One has to go back to that disastrous day in September, 1949, when we devalued the pound. At that time the importers of this country—and the Government were the biggest importer—greatly overestimated the impact of British economy on world trade. They thought that in time Britain would tend to pull world prices down, and offset some of the loss from inflation. As a result, they ordered goods short, to arrive in 1950. Whereupon, by the luck of the game, one may say, we were overtaken by events in Korea. We know what happened. Consumers all over the world leapt into buy before things became impossible to obtain. They scented world war. The stocks of raw materials in the world were inadequate, so prices rocketed up; and, as they leapt, consumers and merchants all over the world picked up as bargains anything below replacement cost; industry found its stock of cheap raw materials running out, and had to replace it at ever higher prices; and that, of course, led to the great outcry in regard to the shortage of capital for industry. They needed enormous liquid capital to finance these very highly-priced stocks; and in turn, of course, the prices of their manufactures went up, too.
Our exports flourished but, on the whole, exporting industries, ever chary of charging too much, did not succeed in charging the outside world high enough prices for our products. As a result, we generated an extremely large trade gap, resulting from a great deterioration in the terms of trade. Confidence in the pound became seriously shaken, both on account of the gap and the distrust by foreigners of the ability of the Government of the day to take the right steps to put the situation right. At that stage noble Lords opposite declared their innings closed, and my right honourable friend the Chancellor of the Exchequer went in to bat on one of the stickiest wickets which any man could hope to see. Every stroke he made had to be with a dead bat—there were import cuts, a restriction in credit, an increase in the bank rate and a very austere Budget.
Now throughout 1952 these steps were very successful. Helped by steps taken in the sterling area, the very high prices of our imports fell, and towards the end of the year it began to be clear that some-
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thing slightly more free in scoring strokes might be attempted. Each of the steps that I have outlined played its part in this improvement in the state of affairs. The consumer economy in this country was never expanded sufficiently for it to be able to swallow the increase in prices of raw materials, so that in itself tended to generate a fall. There was, in fact, a slight check to our manufacturing activity, and that might easily have gone too far if Mr. Butler had listened to some of the advice he received in framing his recent Budget. Fortunately, he and his advisers reckoned that much of this advice, which pointed out that the economy was in danger of inflation, was probably slightly out of date and in the Budget which we are talking about he has been able to offer some relaxation—a relaxation which in itself might not have been enough, were it not for the fact that it was obvious that in Coronation Year the British people were going to spend a lot of money. In the result, industry has been kept on a more or less even keel. We have not had the inflationary boom that we had in 1951–52; nor have we had the equally disastrous slump which might very easily have occurred.
I do not want to go far into the future like Lord Pethick-Lawrence, but I do believe that we are always bound to live in a precarious state. After all, we are a debtor nation. Moreover, we are a debtor who tends to borrow short and lend long, which is always a dangerous situation. Equally, the services we receive from the world are more important to us than those which we render to the rest of the world are to them. Nowadays, they make their necessities locally. It is only the top slice of private and Government income abroad which tends to be spent on British goods. That is why we are so vulnerable to any considerable fall in commodity prices. For that reason we need very large reserves, and I, for one, can see no chance of accumulating those reserves at the present price of gold. In such circumstances, I submit that we should always examine with sympathy and care any schemes produced for the production of floor or basic prices within the Empire, or even within the world, for any of the more basic commodities.
My Lords, one could say much more if one did not have mercy on one's

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hearers. But I submit that Mr. Butler has done remarkably well. He has steered the economy between a boom and a slump; he has used skilfully all the weapons at his command, whether it be the bludgeon of the Budget or the rapier of credit control. I do not believe that any man could have done more, and I think we owe a lot to Mr. Butler and his advisers.
5.49 p.m.
LORD PAKENHAM: My Lords, I am sure that we all sympathise with the piety of the noble Lord opposite who has raid his economic leader a handsome and, I am sure, absolutely sincere tribute. We are always interested to listen to the noble Lord, because he says what many other noble Lords are thinking, even though from this side we do not feel they are necessarily thinking very clearly. But although the noble Lord is a most candid orator, he will forgive me if I take exception to one phrase that fell from him in the course of his cricketing analogy. I do not think he intended it this way but most likely it will be read like this. He said that in 1951 the Labour Government declared their innings closed. That will be taken to mean that they ran away. I hope that he had no such intention in mind.
LORD HAWKE: After four years in office they went to the ballot. If they had wished to stay in, they could have done so.
LORD PAKENHAM: The view was held throughout the country that important steps had to be taken to rectify the national position, and if the noble Lord is saying that the Labour leaders ran away, in view of the strenuous efforts they made during that Election he is saying something that is quite unworthy of him. I have my own leaders and must speak plainly, but I do not want to whip up this nice, quiet debate—almost "demure," to use Sir Winston Churchill's word—into a partisan controversy. The noble Lord, Lord Brand, did the Labour Party something of a service by publicising the new programme, which he had clearly read with considerable care. If I may drop back into the language of my own profession, I would give him an alpha-beta for knowledge. He seems to ignore that it sets out to fight inflation, even though he does not agree with the way it does so.
LORD BRAND: If the Labour Party are fighting inflation, they must abandon most of the document, because most of it is inflationary.
LORD PAKENHAM: That is a matter of opinion. The noble Lord thinks that any Labour programme is inflationary. We have crossed swords fairly often in the House, and we know one another's point of view. He has said over and over again that any Socialist policy is inflationary. It is therefore not surprising that the Socialist policy for the Election is inflationary in the mind of the noble Lord but not inflationary in the minds of those who sit on this side of the House.
LORD BRAND: May I direct the noble Lord to the comments of the New Statesman on this pamphlet? Perhaps he would read an article in that paper, which I do not often read; but I did happen to read this one which pointed out the same thing: the endless expenditure involved in the projects of this programme, without any sense of priority or of resources being available.
LORD PAKENHAM: I am in no way disloyal to the New Statesman, even though I say that I have not read it very much lately. As noble Lords opposite have disclaimed responsibility for Time Times I may at least be allowed to do the same for the New Statesman, which is not an official Labour Party publication, though full of stimulating thoughts.
The noble Lord, Lord. Brand, asked, what is the City doing. What do we think the City is doing? Through the noble Lords, Lord Brand and Lord Hawke, it has, I think, done a very good job of public relations in your Lordships' House to-day. We have heard the City point of view expressed. The noble Lord, Lord Brand, has stated the orthodox City point of view. I am not going to try to contradict or refute that in a few sentences, but I would say that the fundamental point of difference between the noble Lord and this side of the House is simply this: He seems to conclude that public interest and private interest coincide where the activities of, at any rate, the reputable firms in the City are concerned. There might he a few black sheep, but we are not concerned with them. We are concerned with the great firms, and I believe he considers that large-scale activity on their part must

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necessarily conduce to the national interest. I understand him to mean that the City, the great, reputable City of London, leaving out the little regrettable people, directs money where most profit is to be found, and that in the long run that is about the best test which, in this vale of tears, we can apply.
LORD BRAND: I would put it like this. If a banking concern wishes to offer an investment to the public, the first thing it wants to know is that the people who sponsor the investment are thoroughly reputable, thoroughly honest and thoroughly experienced in their trade—particularly thoroughly experienced; that they know the whole thing backwards; that they have been working in their great company for years and years; and that they have built up a great trade, export and home. That they should have done so is obviously in the interests of this country and the world at large to whom they sell goods. The issuing house wants to know—your Lordships know how very good a prospectus has to be; it is enormously important never to deceive anybody—that the goods it is offering are good, that the figures are absolutely correct, and that people will, on the whole, get a good investment. But the vital thing is that the people making the issue know their business backwards, like a great lawyer knows his profession.
EARL JOWITT: Or ought to.
LORD BRAND: But when you come to the Government entering the difficult field of risk investment, why should Whitehall know anything about that? Who can trust them, even if they work through a great Government corporation? Who can trust them to know something which they have not followed all their life, which is not in their bloodstream at all? They have to do the best they can and hope that, for example, groundnuts, or something else—say, the Colonial Development Corporation business—will come out all right. But Government would not know these businesses backwards, and that is, in my opinion, the foundation.
The noble Lord asked: What does the City do? It trusts the people of this country, the great concerns that have built up their businesses and made a
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great success of them. These great concerns want more capital and can give figures to show that their business is very satisfactory. They are able to say they know the countries, wherever they are, in which they are operating. They know their business backwards and how to sell their goods; but the Government do not know anything of that kind.
LORD PAKENHAM: I am grateful to the noble Lord for proclaiming the faith in him. I am not reflecting on individual patriotism in the City any more than he is reflecting on civil servants. I know that he has been employed in both ways and he is impartial between them, so far as humanity is concerned. The noble Lord assumed that where the great reputable houses of the City are concerned, their private interest will coincide with the public interest. That is how I see it, after his exposition.
LORD BRAND: If by their private interest the noble Lord means the prosperity of great concerns which are working in the interests of the community, I certainly say so. I say that it is in the interest of the community that they should make a profit. It is not in the interest of the community that they should make no profits but losses, and gradually disintegrate and bring disrepute on this country, and knockout our export trade and so on. You want a prosperous trade.
LORD PAKENHAM: In other words the "invisible hand" of Adam Smith, as proclaimed in The Wealth of Nations in 1776. I can only say that we on these Benches do not share that philosophy. I am only asking what criterion they should apply. The noble Lord says that they must apply the criterion of private profit, and he maintains that if they do that they will be applying the best criterion from the national point of view.
LORD BRAND: My Lords, I am sorry to have to interrupt again. I should like to ask whether the noble Lord's criterion is losses. If so, how long does he propose that the Government should continue in business?
LORD PAKENHAM: I do not think I will reply to that joke. It is not, if I may say so, a very new one to me. The noble Lord, Lord Brand, has apparently

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taken private profit as the test. I would say that private profit throws seine light on the question of whether a particular line should be pushed. There is also the question of the national interest. Should export and investment industries, for example, be developed, rather than consumption industries? There are obvious choices of that kind where the national interest might come into conflict with the private interest of these reputable undertakings. I hope that I have sufficiently indicated my point, and have explained why we do not accept the noble Lord, for all his very sincere studies of these matters, as a very impartial umpire between the Labour Party programme and the Conservative Party programme.
The noble Lord, I am sure, approached this problem with naïvety. I am often told that I am naïve, and I try not to take offence. So I hope that the noble Lord will not mind when. I say that he comes with complete naïvety to these two programmes. He says, in effect: "Let us see what the Conservatives say? Ah! yes, that seems to be pretty good sense. And what do the Labour Party say? Oh!that is dreadful rot. "That, putting it bluntly, seems to be the conclusion to which the noble Lord has come. Now the noble Lord whether consciously or unconsciously, is a distinguished Tory. I am not saying that he has any official connection with the Tory Party, but he definitely takes the old-fashioned Tory point of view. And we salute him for it. But, if he will allow me to say so, to ask us to accept him as umpire would be like asking the Australians to accept Bedser as an umpire in the next Test Match.
LORD HAWKE: I think they would love it.
LORD PAKENHAM: I believe the noble Lord who has just spoken thinks that Bedser is an Australian, which really would make his ancestor who gave so much fame to cricket turn in his grave.
LORD HAWKE: I can assure the noble Lord that he is also the Australians' nightmare as a bowler.
LORD PAKENHAM: I will not make the same joke twice, for I am sure other noble Lords' powers of apprehension are not less speedy than those of the noble Lord who has sought to trip me up. I
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will now, if I may, come to the general theme of the debate—I hear a noble Lord say: "Hear, hoar!" I think that the noble Lord, Lord Brand, will agree, however, that probably no one ever gave way for quite such a long period of time at the opening of a winding-up speech as I have had the honour of doing this afternoon. Let me say at once that I do not regret it. But at the same time, I would take credit for it.
All Governments have their weaknesses. It will fall to the noble Earl who is to reply to mention the weaknesses of the Labour Government. The noble Lord, Lord Hawke, has already touched on the subject. There is no doubt at all in my mind as to a prevailing weakness of the present Government, and it is a characteristic which is very unattractive to all outside the administrative hierarchy now running our affairs. I would say that a particular quality of the present Government is that of complacency. I hope that the noble Earl will not feel it necessary to say, "We have no intention of being complacent," for we feel bound to fasten that label on the Government. They were not complacent at the beginning of their term of office, but as time goes on they seem to be getting more and more pleased with themselves. They are getting a certain amount of praise from various quarters—some impartial and. some not—but no praise that they are receiving is anything like the praise they are giving themselves. Let us now glance at one or two facts which have been touched on already. There has been a remarkable recovery of our reserves in the last year. Let us give all credit to the Government for that. I am not a bit inclined to say that everything the Government have done is bad. Not at all. There has been this recovery of our reserves. It is true that the reserves are still about two-thirds, very roughly, of what they were when the present Government took office. I think these are the latest figures. Therefore, we all agree that the reserves are far less than they should be. But there has been a steady improvement in recent months, and we give the Government credit for it. And they are entitled to take any credit they can secure.
And now I call in aid the noble Lord, Lord Brand—I do so with great pleasure after my, possibly, rather personal remarks to him just now. I call him in

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aid because I am grateful to him for his frank recognition of the fact that the biggest single factor in the improvement has been the better terms of trade.
LORD BRAND: I gave a list and I put it first. I will leave the rest to the noble Lord.
LORD PAKENHAM: At any rate, the noble Lord gave it a very prominent position. I do not know whether the House requires that point to be laboured. In Table 150 of the Statistical Digest, we observe that the terms of trade from our point of view got steadily worse for some time until 1951. If you take 1950 as 100, you find that in 1951, the terms of trade had deteriorated to 113. Since then there has been a steady improvement. When this particular figure falls, that is all to the good from our standpoint. In 1952, the figure was 105, and in May, 1953,the figure for the terms of trade had come down to 91. I am told by experts—I have not checked the figure myself—that in the last two years, this improvement in the terms of trade, for which I do not think the Government can take very much credit (the noble Lord, Lord Hawke, would attribute some credit to the present Government but this improvement in the terms of trade has been primarily outside the control of the present Government) has been worth to us as much as £600 million a year. That is to say, our trade balance would be about £600 million a year worse if the terms of trade were what they were two years ago. So, as the result of factors which are mainly outside our control—some would say, wholly outside, though Lord Rennell argued rather the other way—there has been an improvement of trade balance by £600 million a year.
LORD RENNELL: The noble Lord would agree—would he not?—that the release from control of a number of primary raw materials has contributed to a fall in price of those raw materials and, therefore, to improvement in the terms of trade.
LORD PAKENHAM: I will not stop to argue that now. I should have thought that that was not a substantial factor. I am only putting to the House that the change has come about through something which is primarily outside our control. In a leading article in the London
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and Cambridge Economic Bulletin for June, 1953, we find three other factors singled out. They are: a substantial return of short-term capital from abroad, restrictions of imports, both here and in other sterling countries, which are now being relaxed, and the reduction of the imports of raw materials. This last followed a setback in certain industries. None of these factors is likely to recur in the form we have known them—of course, we do not want the last one to recur at all. We must assume that, coupled with the great improvement in the terms of trade, this improvement has been brought about through movements or acts which, so far as we can see, cannot be expected to bring about any similar improvement in the future. That is why I say that those who take pleasure in the existing position are living in a glass house. The Economic Bulletin is fairly authoritative: it is included nowadays in The Times review of industry. The Bulletin says:
"The dominating feature of our economic position is the precariousness of our external position both for the relatively short run and for years to come."
I do not think the noble Lord, Lord Hawke, from what be himself said, will disagree with that wording. Certainly the Government cannot be allowed to give the impression that the position is anything but extremely precarious.
How are things moving? On past occasions, noble Lords have credited us with a genuine desire to see things getting better. I think the noble Earl will credit us with at least that much of patriotism and good will. Of course, it is our duty to bring out the dangers, as noble Lords opposite did for a number of years. But I am sure the noble Earl will assume that we should be happier if things went well than if they went badly. Let us take production; and we are all agreed about the importance of production. Here the noble Lord, Lord Cherwell, rather startled me. The nobleLord was good enough to say that he had to leave the Chamber, and we understand the engagements which have withdrawn him. I understood him to say that production has increased about 10 per cent. in the last year. If that is what he did say, it was a very surprising thing to say.
LORD RENNELL: I thought the noble Lord said 2 per cent.
LORD HAWKE: I thought he said 2½ per cent.
LORD PAKENHAM: I withdraw and apologise. Clearly my hearing is deteriorating, but some of us on these Benches understood him to say 10 per cent. Perhaps, when he comes to reply, the noble Earl will tell us which it was. If it was 10 per cent., that was a very surprising statement. I was going to refer the House to the statement made by Mr. Butler, the Chancellor of the Exchequer, in another place on July 13. He said that the figure for May was about 3 per cent, above the May, 1951, level. I think that may well be about 2 or 2½ per cent, above the 1952 level. So that would fit in perfectly well with what the noble Lord said about production increasing about 2½ per cent. on last year. But certainly on these Benches we understood him to say 10 per cent., and we should like that to be cleared up.
Before the speech of the noble Lord, Lord Cherwell, we regarded the production record since this Government came into power as disappointing. Of course, I know that noble Lords opposite are just as keen on production as we are, but if we turn to the Monthly Digest of Statistics, Table 31, and run through the years from 1946 to 1952, we find 87, 92, 100, 106, 114 (that was 1950), 117, and then, in the first year of the present administration, 114. There is this downward trend. I do not know the figure for May; we have only the indication thrown out by Mr. Butler. It is not in the Digest. The present position appears to be that the production figure has crept a little way past that of 1951. Perhaps it is not unfair to say that we are just about back to where we were in 1951 after two bad years. After two unsuccessful and unhappy years, during which the present Administration have been in power, we have worked our way back to the happier era of the Labour Administration.
LORD HAWKE: That was the top of the Korean boom.
LORD PAKENHAM: Two years ago—that is the comparison Mr. Butler has taken. I do not know what is called the "top of the boom." It was certainly after the Korean war had started: it had been going on about ten months. But the point I am trying to make, for the benefit of the noble Lord, is that there
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was a steady increase in production year after year until the present Government came in; then, possibly as a result of their measures, possibly, if you like, as a result of necessary measures which they took (I am not going to argue that), there has been this decline in production. Production has been struggling back to where it was. That is an unsuccessful record, and a very disappointing story, There is no sign of any new magic in the Budget policy of last year, and up to, the present, although is early to judge, there is no sign of any great magic in the present Budget.
I should like to stress another point for the benefit of the noble Lord. I think we are all agreed that what matters tremendously is not just the total volume of production, but the production of metals, engineering goods and vehicles. This point was made by Mr. Gaitskell elsewhere. I take the figures in Column 7 of Table 31 of the Digest, which come up only to the end of March. The figure for March this year is only 127, and for March, 1952, 134, so that, according to the latest figure, the production of these vital articles was actually clown this year, and these are the things on which we shall depend when it comes to expanding export trade.
LORD HAWKE: The noble Lord has been arguing a lot and, quite innocently, I think, wrongly. A great deal of this production did not go into consumption at all. If the noble Lord asks anybody connected with trade, he will find that inventories were very heavy, and any slackening off in production has been where those inventories were being cleared off. It is not fair to take production only: it is production plus consumption that matters.
LORD PAKENHAM: I do not think it is unfair to take the figures of production from the Monthly Digest. We have been taking them from this publication for the last seven or eight years. That gives the latest figures open to a member of the public, and it is open to the spokesmen of the Government to interpret them or explain them in any way they can.
LORD RENNELL: Is the noble Lord referring to Column 7? If so, the figures are up, not down.
LORD PAKENHAM: I do not know what figures the noble Lord is talking about. My lot are down.
LORD RENNELL: The production figure of the total of metals, engineering goods and vehicles for the first three months of this year are 124, 127 and 127, which is about the same as for the same period last year, the same as for the same period the year before, and larger than any total of the years quoted.
LORD PAKENHAM: I am giving the figure for March, 1951, and not the figure for the first three months of the year. We cannot carry this very far. I make the figure for the first three months of 1952, 387, and for this year, 378.
LORD RENNELL: And for 1951?
LORD PAKENHAM: I was taking 1952. The figure for this year is slightly up on 1951, if the noble Lord wants it—and down on 1952. That is not very satisfactory. I would ask the noble Earl to give us the latest figures: we have only figures up to the end of March. I feel that I have, at least, made out a case for being far from happy about the production of these essential goods. So much for production.
As regards exports, there again I cannot feel, under the present dispensation, although the Government are just as keen as we are on raising exports, that the story is particularly satisfactory. We look at the figures for export volume and we find for 1947, the index of 62; for 1948, 79; 1949, 87; 1950, 100; 1951, 101·2; and 1952 down to 95. There again, for the first time, when this Government come into power, there is a drop. Perhaps the noble Earl could spare me a moment. I realise that I am putting up some points which are rather new to him, but at the same time, so to speak, one point is overtaking another.
THE EARL OF SELKIRK: I apologise to the noble Lord. I was looking up a point.
LORD PAKENHAM: I do value the kind of reply which the noble Earl will give to this particular point. I know that it is particularly difficult, and will tax his great powers to the utmost. I hope the noble Earl will attend to what I have just sail which is that, for the first time, when this Government come into power,
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we find the annual figure for exports dropping. It is not entirely the fault of the present Government, of course—there have been world factors and so on. I say only that you must take the rough with the smooth, and not feel—as winning a by-election or two is apt to make you feel, and as the noble Lord, Lord Hawke, certainly feels—that the Government have done particularly well. What I have said should surely tend to show that the story in regard to exports and production is disappointing: they have both gone down, when we should all hope that they would go up. So far as this year is concerned, my arithmetic may not prove equal to the strain, but, so far as I can see from the figures for the first five months given in the Digest, the export volume is down as compared with last year. If the noble Earl has some later figures, or can put some gloss on those, we shall be pleased if it is favourable. There is the story in regard to production and exports.
We are at one with noble Lords opposite in wondering how we can bring about a great improvement. I am going to quote the London and Cambridge Economic Service for the last time, and I repeat that it has no connection with politicians, so far as I am aware. According, to that publication, the Chancellor's speech at the time of the Budget showed no real connection between the Budget proposals and the need for increased exports. That was the view of the London and Cambridge Economic Service at the time of the Chancellor's speech. While I am not going to argue that these people are absolutely right, and follow out all their conclusions to the end, because I might not agree with them all, I think we are bound to take note of that as a strong and impartial opinion. What is the Chancellor of the Exchequer doing to encourage exports? I have given the noble Earl notice of this question. I was perhaps a little facetious in speaking to him just now, but I do seriously ask him, when he comes to reply, to give a full answer to the question: What is the Chancellor doing to improve exports, on which we all set such store?
I do not know whether Members of our Lordships' House have had time to read the debate which took place in another place yesterday. I have not read it carefully, but I noticed that yesterday

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it was stated by a Minister, on behalf of the Government, that the United States were investing about three times as much per worker as we are. It was also stated that in 1900 output per man-hour in the United States and Western Europe was about the same, but that now American output was two-and-a-half times as great per man as the output per man in Western Europe. Without having had time to study that debate carefully—I rely mainly on what I read in The Times—I observe that the same Minister stated that, through one agency or another, the American Government are paying more than half of the total expenditure on research on steel as compared with 15 per cent. in this country. The noble Earl can check that in Hansard, but that is how I found it reported in The Times. That does show, in some respects, a more positive attitude to research and improving equipment in the United States than in this country. Arid that appears to be Government initiative. Perhaps the noble Lord, Lord Brand, who is not particularly keen on Government action, though he is a distinguished servant himself, will agree that that is a good way in which the Government might use their energies.
LORD BRAND: I may say that I believe Government research to be most useful.
LORD PAKENHAM: I was only making this comparison between the United States and this country, and suggesting that until we increase investment in this country—and I am sure all noble Lords will agree with this—we shall lag a long way behind the Americans in productive efficiency. What is really happening there? In another place Mr. Gaitskell gave some figures which were not dealt with. They were produced at the end of a strenuous debate, and the Chancellor of the Exchequer probably did not have time to reply adequately to the point Mr. Gaitskell raised. If we are taking the test of investment, here again, I submit, the output of the heavy industries is a crucial index. Mr. Gaitskell pointed out that in the eighteen months from the middle of 1950 to the end of 1951—that is, broadly, the last eighteen months of the Labour Government—there was an increase in manpower in engineering, chemicals, vehicles and metals, amounting to 250,000 people. Since the present Government came in,
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there has been a sad drop of 50,000 in these crucial industries. That drop is most serious, whomsoever one blames, or whatever use one males of it on platforms. It is a disquieting fact. I suggest to noble Lords that, while all of us, wherever we may sit, and however unimportant we may be, have a responsibility for making suggestions as to how to improve this position, the main responsibility falls on the Government of the day. I ask the noble Earl specifically again: What are the Government doing to deal with this serious manpower position, this drift away from the crucial industries into other industries less important to the long-term future of this country?
I shall finish in a moment. I do not want to treat the argument about the City as if it were some old-fashioned dispute about the bankers' ramp, let alone a personal reflection on individuals concerned. But there is here an important difference of social philosophy, and in a debate of this kind it seems to me that we should follow it up. Noble Lords opposite, of great distinction, who have spoken in this debate—I have not been able to refer to them all: for instance the noble Viscount, Lard Waverley, who has now left us—have argued, as I see it, that we want economic laissez faire—well, a wise monetary policy: that the positive thing the Government can do is to take responsibility for seeing that the money flows along sound lines; but that in other ways there should be the greatest possible economic freedom, and as much enthusiasm as we can generate, among both managements and men, for greater production. That seems to me to be their social philosophy. We on this side of the House do not feel that a philosophy of that kind is enough. Of course, we want to see a sound monetary policy; and we join with noble Lords opposite—.I say this so that there shall be no mis-undertanding about it—in calling for harder work, more sensible and enterprising work, and work in places which may he more inconvenient, but work which, at the same time, is of more patriotic value. But we believe that more positive steps must be taken by the Government if the right amount of investment is to be secured and directed into the right channels.
I will not say more than a sentence or two beyond that this afternoon. The

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noble Lord, Lord Pethick-Lawrence, in a speech which I think was applauded everywhere, and the noble Lord, Lord Shepherd, in a speech which I, at any rate, would echo, and which I am sure interested the House, have stated the point of view of noble Lords on these Benches more thoroughly than I have done, or, perhaps, could hope to do. But I would just say that we agree with what was said yesterday by speakers from more than one side in another place: that, in the last resort, the final emphasis should be laid on co-operation and partnership in industry. We agree with that. But the noble Earl will not think me ungenerous—because we recognise that much good has been done my the present Government—if we say that, while this present Budget does not go very far in the direction of injustice, in our opinion it attempts to provide more incentives by some increase of inequality; and there we believe the Government are on a false track. I must ask the noble Earl, if not to-night, then on some other occasion, to see whether the Government cannot find some way, consistent with their own philosophy, of making sure that the social justice which is so very highly valued by everyone in the country is preserved and, indeed, is enhanced, because in the last resort all of us in this House agree that this country has to work better, harder and still more unitedly if we are to come through this difficult time.
6.32 p.m.
THE EARL OF SELKIRK: My Lords, I do not think that even the sternest critic of this House could possibly say that in dealing with a Finance Bill we narrow and bigoted in the views which we collectively express. This debate has wandered over a very wide field, and I hope your Lordships will excuse me if I do not attempt to chase it on all the paths that it has followed. As the noble Lord, Lord Pethick-Lawrence, emphasised in his remarkable speech, if the criticisms of the Finance Bill were no more than embers flickering in another place, they hardly flickered here. It would be untrue to say that noble Lords were an extinct volcano, but there were certainly no more than rumblings on the subject of the Finance
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Bill in the course of our discussions to-day.
I should like to make one point to the noble Lord, Lord Shepherd, who has left the House. He reverted to the question of the bank rate. It seems to me that in all discussions he under-estimates the importance of taking inflationary pressure out of the country. That was the basis of the discussion between the noble Lord, Lord Pakenham, and the noble Lord, Lord Brand. As I see it, the whole basis of the philosophy, which the noble Lord, Lord Shepherd, has expounded, under-estimates the evil influence of inflation. The noble Lord was talking about social justice. I know he feels keenly about it, and so do we. But if we want to twist the noble Lord's tail, what do we say? We tell him that he cut widows' pensions by 25 per cent.—that is what he did by lowering the cost and the value of money. That is the hardship which is brought, and will always be brought, by inflationary pressure. It is the major achievement of this Government, in spite of what my noble friend, Lord Rennell, has said, to have lamely shaken out the inflationary measures which were there when we took office.
As the noble Lord, Lord Pakenham, has invited me, I will turn to speak of the next step. To get rid of inflation was the first task and the essential task which the Government had to undertake. The noble Lord asked me about production. Production has increased. The figures I have are these. Production in the second quarter this year was 121, as compared with 119 in 1951. I am making that comparison for this reason: 1952 was admittedly a bad year of production, and we admit that production fell, whereas in May of this year production was 120, in spite of holidays, compared with 116 in 1951. That means, in effect, that at present production is running at a higher rate than it has ever run before. The question with which I will deal in a moment is whether in fact the rate of increased production is adequate. Does the noble Lord wish to question that?
LORD PAKENHAM: I would not dream of questioning a statement of fact by the noble Earl. That goes without saying. Just for the record, I wonder whether I could ask him what his state-

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ment was a moment or two ago. Did he say that for the first half of the year—
THE EARL OF SELKIRK: No, for the second quarter.
LORD PAKENHAM: I wondered whether the noble Earl has the figures for June.
THE EARL OF SELKIRK: I have not the figures for June.
LORD PAKENHAM: I assumed that that referred to the whole of the second quarter. I do not wish to be tiresome; I am simply trying to be helpful.
THE EARL OF SELKIRK: If the noble Lord will be good enough to leave that for a moment, I will see whether the figures can be supplied to me. May I take up one point which the noble Lord made? He is entitled to suggest—though, I say, without the slightest ground for believing it—that there is an appearance of complacency in the Government. I am sorry if anybody on this side of the House looks complacent. I say emphatically that there is no complacency in any uttered statement by Mr. Butler, the Chancellor of the Exchequer. For the sake of the record, may I read the last statement which he has made on this point, which is far from showing the slightest measure of complacency? In respect of exports he says (OFFICIAL REPORT, Commons, Vol. 517, col. 1793):
"…while hose are most comforting improvements, the general trade position is as yet not satisfactory if we are to maintain the impetus which we so much need."
He goes on, on the following page, to say (col. 1795):
"…it all depends on increasing the national income and on greater production."
Those are not words which could even remotely be called complacent.
The noble Lord, Lord Rennell, has raised the question of why prices have not fallen, or rather, why it is that with wholesale prices falling, retail prices have not shown a corresponding fall. In spite of the fact that they have levelled off, the noble Lord suggests that there still remains a measure of inflation in the economy. I should like to deal with two of the illustrations he gave. One is bank deposits and the other the currency in circulation. In both these there has been an increase over the last year. But, taking into consideration the increased production since last year and also the
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slight rise in prices, it is the view which I am representing that that is not an excessive rise in the circumstances, and should not be taken as constituting an inflationary pressure. In fact, at the present time, we do not have any clear picture that our competitive position is deteriorating owing to internal inflationary pressure. I do not want to say more than that. The future export position is, of course, very difficult indeed.
The noble Lord, Lord Pakenham, has raised two questions. He has asked me—and very rightly asked me, if I may say so—how the policies contained in the Budget affect the questions of investment and of the export trade. I think I can answer the question on investment fairly simply. There is a direct and definite connection between the Budget proposals and the investment which we hope will arise from them. In the first place, a reduction of the standard rate of income tax gives immediate financial resources to industry. That means lower taxes over the whole level. If the noble Lord likes, I can go into the figures. There is practically no tax which will give immediate relief in the same way as a reduction in the standard rate of income tax. Initial allowances really only arise next year, but the relief of the standard rate is immediate. That is why we say that it should have an immediate effect and enable industry to increase its investments. Next year industry will receive the initial allowances. That is the encouragement now, but there will be a positive result next year.
We therefore suggest that we are providing not only an incentive but also resources which will enable investment to be made. I suggest, too, that the greater freedom for building enables people to start their works when they want to. Anybody who is familiar with the delays which have arisen in this connection will know that it is discouraging to people to have to wait, and that this freedom for building is something of considerable value. There is now greater availability of material and steel, which is a very important point, and recovery of demand. Most encouraging of all is that there is confidence, for without confidence you cannot expect to get investment of any great importance.
The second point of Lord Pakenham's I with which I wish to deal was in regard

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to export. Quite frankly, I think it is more difficult to show a direct, immediate, logical connection between the proposals of the Budget and increased exports. The reason is that no Government or private individual can ever compel anyone outside this country to buy anything. Only by mutual agreement is the purchase taken up. Does the noble Lord think that there should be an export bonus—a special bonus provided for exporters? It has never been put forward as a concrete proposal during the last seven years and it offers many practical difficulties. But we have extended the system of export guarantees and quite recently we have extended the exchange control facilities for long-term credit to export capital.
One important issue of the Budget is the moral one. Both at home and abroad there is a considerable moral effect in the reduction in taxation. We have behind it, moreover, the stable price level at home. These two together are an important basis on which to proceed, because no export market will flourish long unless it is based on a sound market at home—and we hope that it is from this sound market that the export market will proceed. Let me take the example of the motor industry, which has done extraordinarily well for a time but which had a recession in the export market last year. As a result of the Budget proposals, particularly as regards purchase tax, there has been a considerable increase of purchases in this country, enabling the production lines of the industry to proceed, and the motor-car export industry is now going ahead again. That is only a simple example of the way in which the home market has been able to support the export market when the export market has become weaker.
Finally, there is the encouragement to investment, which creates efficient industries by making better equipment possible. I was going to deal with some of the points of the Finance Act but I feel it would be somewhat irrelevant to do so.
LORD PETHICK-LAWRENCE: It is a Bill at present.
THE EARL OF SELKIRK: I beg pardon.
LORD PAKENHAM: Will the noble Earl be able to say anything about the rather serious move of labour away from the heavy industries?
THE EARL OF SELKIRK: I can only say that on the figures given, the difference in the comparative numbers employed is not very great. At the present time the Government have no evidence that labour is moving away or causing difficulty to the export industry. I regret that I cannot at the moment give any answer beyond that.
LORD PAKENHAM: I thank the noble Earl very much.
THE EARL OF SELKIRK: I would say one thing with regard to a point which the noble Lord, Lord Pethick-Lawrence, mentioned. Perhaps I may be allowed to say that I enjoyed his remarks very much. I found myself in complete agreement with him on many subjects. He emphasised that there are restrictive practices and urged that they should be removed, whether they exist among employers or among employees. But surely they should also be removed from the Government. The Government frequently exercises restrictive practices, and I hope the noble Lord agrees with me that they also should be removed.
The noble Lord emphasised further that the least efficient should not make the pace for the whole. I quite agree. But surely you get just such a situation in conditions of competition and good reward. If these things are not present you inevitably fall back on to the weakest link. I should like to mention a point which was raised by Lord Pakenham in answer to the noble Lord, Lord Brand. He distinguished between private interest and public interest. I agree that there are occasions when private interest differs from the public interest; but what I think the noble Lord forgets is that the Government interest also differs sometimes from the public interest. That is particularly the case in dictatorship countries, of course; but even in countries such as our own I can easily imagine a situation where the Government interest is not strictly the public interest. That, very often, is where a Socialist philosophy finds itself, in a measure, at a disadvantage.
One point which every speaker has returned to is the question of production

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and exports. Over the last fifteen years the United States—and I think it is good to look at these things over a fair period—have increased their production to 245 per cent. since before the war—that is to say, 2½ times. Canada has increased hers by about 2¼times. In the United Kingdom we have increased ours by about one-third. As compared with her pre-war production, Germany is increasing her production very rapidly. She is about one-quarter up. It is true that in the intermediate years we have had particular difficulties to deal with. We have made a large number of experiments of one sort or another—
LORD PETRICK-LAWRENCE: We are a little confused when the noble Earl says that United Kingdom production has gone up by about one-third. Does he mean one-third of 1 per cent. per year? If not, what does he mean?
THE EARL OF SELKIRK: I was referring to the last fifteen years, and I look the figures for the United States and Canada. I will repeat them. The United States has increased her production two-and-a-half times. Canada has increased hers two-and-a-quarter times—223 per cent. In this country production has risen to 130 per cent. We have, as I say, had difficult periods to cope with but in the given period there is rather a sharp distinction.
LORD PAKENHAM: If I may interrupt the noble Lord, I would point out that that figure is a much lower one than the figure frequently given by Government spokesmen. Are we to take this figure of one-third as an authentic one?
THE EARL OF SELKIRK: So far as I know, the figure I have given is correct. If not, I will certainly inform the noble Lord. The figure I have given is the figure for the last fifteen years. Whilst we are more dependent than the United States on exports, they exported in 1952 twice as much merchandise as the United Kingdom. We have to remember that their rates of wages are of the order of three-and-a-half times the size of ours. We have to ask ourselves why this situation exists. When we send our productivity committees abroad they do not find anything new. The Heavy Chemicals Committee, among other productivity committees, did not find anything new in the United States. They said in one comment:
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"In general we saw nothing that is new—just more of it."
There is no doubt that more machinery plays a considerable part in obtaining higher output.
The noble Lord, Lord Cherwell, has mentioned training. No doubt that plays a great part, but I am going to ask this question. Is there not also something in the point made by the Economist in its article" The Riddle of Prosperity"? That article said:
"Have we lost our faith in the merits and even morality of economic achievement?"
Has the approach of our economists to this problem been too mechanistic and not sufficiently human? Are we attaching enough importance to what has frequently been described by productivity committees as the "atmosphere in industry" which exists in the United States?
I do not know whether the same applied to an article in The Times. The Times said:
"The main reason why Britain has not yet prospered sufficiently to lift herself above the safety line is that the British people as a whole have not yet had the will to prosper."
I would seriously suggest this. I wonder sometimes whether we reflect enough on the essential rightness of a good industrial enterprise, well managed, with a happy staff and a large export trade. Few things are more difficult or more exacting than to take part in an organisation of this kind, and few things are of greater benefit to the public at the present time. We are fortunate in having many such in this country, and we are indebted to all those who, whether in management, as members of the staff, or as officers of trades unions, have permitted the situation to arise. But, we very much want more and better ones.
I would add just this: we have here put forward, we hope, art incentive Budget, a Budget which will provide at once an incentive and an encouragement, which will give an opportunity to those who are able to make use of it, particularly to-day, when economic aid is tailing off, when overseas competition is keener and when the burdens of taxation are heavy. We have to-day confidence in sterling, stable prices, available materials, and, we suggest, now from the Budget, increased incentives. I suggest that this Finance Bill and the effects which it will have are a gesture of confidence and a challenge to the people of

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this country which we very much hope will be taken up.
On Question, Bill read 2ª; Committee negatived.

VALUATION FOR RATING BILL
6.53 p.m.
Order of the Day for the House to be put into Committee read.
Moved, That the House do now resolve itself into Committee.—(Lord Mancroft.)
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF DROGHEDA in the Chair]
Clauses 1 and 2 agreed to.
Clause 3:
Definitions of "dwelling-house," "private garage" and" private storage premises"
3.—(l) Subject to the provisions of this section, in this Act—
the expression "dwelling-house" means a hereditament used wholly for the purposes of a private dwelling or private dwellings;
the expression "private garage" means a hereditament having a floor space not exceeding two hundred and forty square feet and used as a lock-up garage, other than a hereditament which—
(a) forms part of the premises in which a business of providing services for motor vehicles is carried on, or
VISCOUNT LONG VISCOUNT LONG moved in the definition of "private garage," after the words "lock-up garage" to insert:
"other than a garage attached to a dwelling house or within the curtilage of a dwelling house and used wholly by the occupier thereof or by persons residing with him for the accommodation of motor cars belonging to them and"
The noble Viscount said: I do not intend to keep your Lordships for more than just a few moments. There are two questions, and two only, that I should like to ask my noble friend Lord Mancroft. The first one refers to the owner of a garage that is more than 240 square feet. Is he to be charged or rated at the old rate or at the new rate? It is not quite clear. The second question I should like to ask the noble Lord, in moving this Amendment, is: Is a man who builds a new garage within his own purview, within his own
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curtilage, to be rated at the old rate or at a higher rate? In conclusion, I would ask the noble Lord whether, between now and Report stage, he will make quite certain that in the Bill those two questions, which at the present moment are causing some anxiety, are answered satisfactorily. I beg to move.
Amendment moved—
Page 3, line 24, after ("garage") insert the said words.—(Viscount Long.)
LORD WOLVERTON: I should like to support this Amendment. The position does not seem to be quite clear in the Bill. The noble Lord, Lord Mancroft, I think made the position quite clear in the House on Second Reading. His words are set out in the OFFICIAL REPORT, Volume 183 (No. 90), Column 606. Reading Clause 3, I think you can take it either way. What we are worried about is a garage which is part of a hereditament, a house, added on as an annex to the house. Then, I think, it would be within the curtilage to be rated as one. But if the garage were built, say, fifty yards away, though still within the curtilage, it might he rated quite separately if it was over 240 square feet. Some noble Lords and myself in reading the Bill think it can be construed either way. I thought it was the intention of Her Majesty's Government, as they said on Second Reading, that, if the garage was within the cartilage, it should be part of the hereditament. I should like that point cleared up. I cannot clear it up for myself by reading the Bill. Perhaps it can be cleared up at the next stage of the Bill by the insertion of suitable words.
LORD MANCROFT: I am grateful to my two noble friends, Lord Long and Lord Wolverton, for raising this matter, because, if it is causing them any uneasiness, and if they feel there is ambiguity, it is right that the matter should be cleared up. As I understand it, the point of the noble Viscount's Amendment is to exempt from the restrictions involved in the definition of "private garage" garages which are occupied together with a house. This, I think, is already achieved by the Bill as it stands, for the definition of "private garage" applies only to a hereditament—that is, a separately rateable property. Garages form separately rateable properties only if they are not within the curtilage of a house, or if

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they are let out so as not to be in the same occupation as the house. Garages occupied together with a house are not separately rateable and are assessed together with it, so that they are only part of the hereditament. Hence, such garages, whatever their size, would be assessed, together with the house, on 1939 values, assuming that the 1939 values are lower than the current values. That is the position, as I understand it, and as I hoped I had made it clear on Second Reading. Perhaps the noble Viscount, Lord Long, would like to consider that explanation once again, and if he is still not satisfied that I have resolved his ambiguity, I shall be only too pleased to try to help him furrier at a later stage in the Bill.
VISCOUNT LONG: In view of the noble Lord's statement, I, of course, withdraw my Amendment. But I hope that, if it is possible, he will ensure, between now and Report stage, that what lie has said to-day is in the Bill in the language in which he has expressed it this afternoon. I thank him for his explanation. I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Clause 3 agreed to.
Remaining clauses agreed to: Bill reported, without amendment.

NEW TOWNS BILL
7.0 p.m.
Read 3ª (according to Order), and passed.

MARSHALL AID COMMEMORATION BILL
House in Committee (according to Order): Bill reported without amendment.
NATIONAL INSURANCE (INDUS TRIAL INJURIES) (No. 2) BILL
House in Committee (according to Order): Bill reported without amendment.
AUXILIARY FORCES BILL [H.L.]
Read 3ª (according to Order), and passed, and sent to the Commons.
LICENSING BILL [H.L.]
Read 3ª (according to Order), and passed, and sent to the Commons.