§ 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 667 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 668 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, 669 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.
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.
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 670 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 671 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 672 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 673 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 674 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 675 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.
676 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, 677 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 678 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.