HL Deb 21 July 1953 vol 183 cc682-99

3.45 p.m.

Debate on Second Reading resumed.


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 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, 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 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 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.


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 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.


It is not out of order to refer to it.


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 "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 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.


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 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. 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 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 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—


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?


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.




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 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!


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. 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.


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 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 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. 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 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.