FINANCE BILL (Hansard, 21 July 1953)

HL Deb 21 July 1953 vol 183 cc700-39 700

§ 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. 701 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.
702 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 703 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 704 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, 705 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 706 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 707 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 708 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 709 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.
710 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 711 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 712 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 713 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 714 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.
715 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- 716 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 717 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.

718

§ 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 719 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 720 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 721 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 722 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 723 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 724 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.

725

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 726 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.

727

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, 728 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 729 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, 730 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 731 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 732 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- 733 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 734 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 735 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.

736

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 737 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: 738 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 739 this country which we very much hope will be taken up.

§ On Question, Bill read 2ª; Committee negatived.